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From the Ask Tom mailbag –

Question:
We are small organization, but growing. We have a great CEO, with a smart executive team. Our engineering managers are really good at developing inventive systems. And we have a dedicated and loyal work force. We have a good reputation in the market with loyal customers (every one thinks they are special). Then why does our company struggle to make a profit? The CEO is open and honest about our situation. When we want to spend on new equipment or hire additional personnel, we can’t afford it. The profit we do make barely covers the debt service the CEO borrowed to start the company.

Response:
As I translate each element of your description into levels of work, I notice something very interesting.

• We have a great CEO – S-V
• Smart executive team – S-IV
• Engineering managers, inventive systems – S-III
• — – S-II
• Dedicated work force – S-I

What’s missing?

When I describe levels of work based on the research of Elliott Jaques, often organizations make the mistake of thinking they have to beef up their hiring in the scarce talent pool at S-III and S-IV. They overlook the necessity at S-II. So what do they miss at S-II?

The work at S-II is typically an implementation role. This is where execution happens. While you may have a dedicated workforce at S-I, with highly skilled and effective technicians, the organization misses coordination of those efforts to these three outcomes –

• Accurate (meets spec)
• Complete
• On-time

It is the role at S-II to make sure the entire project is complete, not just 90 percent. Major profit fade occurs in the last ten percent of the project. It is their accountability to make sure there are no gaps along the way. Hidden profit erosion occurs in these gaps. And, that, at the end of the day, our product or service meets the spec we promised to the customer. There is never enough time to do it right, but always enough time to do it twice.

I was told a story of a company running heavy equipment in a rural area on a distant continent. When I say, heavy equipment, I mean the driver had to climb a ladder to get in the cab of the truck. This was a large company, profitable everywhere else, but this remote location had not seen profit in the past ten years. They had a smart general manager with a brilliant team of engineers. They knew how to do what they were doing, they just could not execute. Their dedicated workforce was frustrated. Try as they might, they always missed their productivity targets, through no fault of their own.

What was missing was Stratum II. S-II is the land of checklists. What was NOT getting done? Think heavy equipment, checklists and preventive maintenance. What happens when you don’t change the oil on a preventive maintenance schedule (checklist)? How productive is a machine with a thrown rod? How long does it take to fly in a technician to troubleshoot the thrown rod? How long does it take to fly in the part to fix the machine?

Sometimes it is not a brilliant system (S-III). Sometimes, it is the implementation of that system (S-II), using a simple checklist. It’s all about the work. -Tom