Tuesday, October 28, 2003

De Luca on the Dysfunction of Annual Budgets

I’m on record elsewhere as stating that I think the main inhibitor to improved performance of big corporate America is the annual strategic planning process. Jeff De Luca does a fantastic job of articulating why this is so in his latest FDD newsletter, “Requirements - the Budgeting Syndrome”. Quite simply annual planning and the budgets associated with them are the main inhibitor to lean business and a constraint on improved performance.

<!—StartFragment—>Any line manager in a corporate will know what it’s like to budget. What is the process usually like? Well, several months before the manager has to submit his budget for the next year he starts working on it. The manager looks at last year’s numbers, he considers the projects and items for the coming year, and so on. As the budget is for a long period of time, usually a year, and the manager has to do it well in advance, he puts in as much buffer as he can reasonably hope to explain. In fact, many will ask for the maximum they think they can get, not what they think they will actually need. Oh, by the way, the smart manager also makes sure that all of this years budget is completely spent (otherwise he may not get as much to spend next year) and plans to spend earlier rather than later (since we’ve all suffered budget cuts before).

Monday, October 27, 2003

Thoughts on the Retiring of Concorde

It was with some sadness that I followed the news of Concorde’s last commercial flight. I remember as a small boy in the early 1970’s being taken to Prestwick International Airport to see the first one. It is one of my earlier memories. Concorde isn’t an aircraft - it is an icon. Concorde is the quintessential essence of London and the crown jewels of the national flag carrier, British Airways. You cannot arrive at London’s Heathrow Airport without seeing the 1:5 scale model. You cannot avoid the souvenirs of London and Britain which carry its image. Apparently the French had something to do with it. But its wings and engines were British - what else is left? The drooping nose, perhaps. The main contribution from the French was to leak the blue prints to the Russians resulting in the TU-144.

In the days when America was putting men on the moon, the world’s only supersonic passenger aircraft was British - and that was something small boys could be proud of - something inspiring. That’s what makes Concorde an icon of Britishness in the latter 20th Century.

So why is it gone and not replaced? Why are slow, fat, large, ugly aircraft all the rage?

Simply put - for most passengers, the vast majority in fact - time is not the constraint. It makes more sense to go slower and save money. For businesses this reduces costs. Reduced costs go straight to the bottom line. Faster speed would only be worth it if it increased throughput. This would only be true when the passenger is a constraint (or works within one) of a business. Most businesses just blindly save costs with corporate travel. Most businesses also have no idea where their constraints on increased throughput lie. The result is that saving costs blindly does make sense. The chance that the constraint will be impacted is slim. However, when a constraint’s capacity is reduced through slow travel, there will be a loss in throughput for the business.

Why is this not much of an issue in the early 21st century? As the IBM advertisement used to say “Show me the flying cars! They promised us flying cars!” and then explained that we don’t need them because we have the Internet. So there is no need for a supersonic jet airliner in the 21st Century, then? I think that is a hasty conclusion.

Some market research, TOC-style! Who would want to justify the costs of flying supersonic? Someone who is a constraint on throughput? Who are such people? Celebrities for the most part. There is only one Ewan MacGregor. If you booked Ewan MacGregor then only the physical presence of the man will suffice. There is no substitute available. If a celebrity such as Ewan MacGregor wants to maximize his revenue generating potential then he needs to get places fast. So it is no surprise then that before the tragic accident, Concorde was very popular with the showbiz glitterati.

So would there be a market for a replacement? If a plane could be built cheaply enough and a limited number made for routes such as New York - London, Los Angeles - London, Los Angeles - Tokyo, then it is just possible that there might be. The Economist thinks that there are alternatives such as private jets - more flexible substitute products. They are not so fast in the air but the total door-to-door time is comparable with Concorde.

And therein lies the lesson - the time spent in the air is not the system constraint! The goal for a celebrity is door-to-door transport in the shortest possible time. Spending billions to shorten the time in the air may not be the best use of funds. There may be better ROI from reducing the time spent getting to, from and through airports and providing flexible flights in small private jets from quiet private airfields.

Britain continues to lead the world in fast cars - almost all racing cars are made in Britain, even the ones which go around in circles in the United States - and it iconified the fast passenger aircraft. Why couldn’t it brand itself as “fast” Britannia, and niche market its products as fast, good and expensive? Britain needs something to be proud of! The Millennium Dome just didn’t hack it. A new Concorde project might be the thing - something around which people could rally - something to be proud of - something to print on all the tourist souvenirs for a new century. However, the economics just don’t seem to be there. Building a new Concorde appears to be a poor use of funds - even when the derivative effects of inspired little boys who grow up to be productive in other ways, are fully taken into account.

Bottom line - when you’re not the constraint, you don’t get the investment! Sorry Concorde! I will miss you.

[Thanks to Daniel Vacanti for suggesting this topic]

Supply Chains by David Taylor

I got home this evening and found a box waiting for me. It contained a book that I heard was in development, Supply Chains by Dr. David A. Taylor - one of my favorite authors.

I first heard about Taylor when I was working at a startup in Scotland called MDi Systems in the early 1990’s. My boss bought the first edition of Object Technology: a Manager’s Guide. Everyone in the office thought it was a great book. I’m amazed to think that now I am only 2 degrees of separation from Taylor - he is a friend of Peter Coad and peer reviewed the drafts of Peter’s Java Modeling in Color with UML book.

My first flick through this new book suggests that it is really good. Written in Taylor’s plain and simple style with all his beautiful hand drawn illustrations. Not a software engineering book but for those interested in management science, I suspect it is a “must have”. I’ll comment on this again when I’ve had time to read it.

Saturday, October 25, 2003

TOC World 2004

The TOC World 2004 conference will be held from April 13th to April 16th in Uncassville, Connecticut, USA. If you would like to attend and would like to see me present my software engineering material at this event then please fill in the “What you would most like to see at TOC World 2004” section of this form and show the organizers that their is an interest in a TOC solution for software engineering and agile software development. Hopefully if there is demand AGI Goldratt Institute might invite me to speak.

TOC at Boeing

An interesting white paper titled “TOC Project Management in Aircraft Assembly” [Registration Required] about how Boeing is using TOC, has been made avilable by the AGI Goldratt Institute. The article looks primarily at the deployment of Critical Chain scheduling and Earned Value metrics between Spring 1999 and Fall 2000.<!—StartFragment—>

In this paper, Dave shares the dilemma of needing to quickly improve schedule and cost performance, yet not wanting to lose ground introducing a new, but unproven application of TOC Project Management (TOC PM). He tells of managers, schedulers and workers who make the tough calls against established practices as they pilot TOC PM in the factory on an EMD program - and gradually implement TOC PM factory-wide. Dave describes the meaning of the logistical and cultural changes required to make the program successful. Ultimately, the factory makes TOC PM, Lean Manufacturing and Earned Value Management System work together.