In a previous article How to Manage Anything we discussed the triple constraints TIME, COST and QUALITY. If you haven’t read that one yet, it’s best to go do so now – this article assumes some context, and is best understood as something of a part 2.
When you manage to these constraints, it’s possible to get an unwarranted sense of success. You can leverage the Variable to improve the KPI, but what happens when you go too far?
In our previous example, a customer onboarding process was to be improved by accepting COST increases if there was an increase in QUALITY, and the TIME would not exceed one week. But would you pay to fly your customer to head office to have a lunch with the CEO if the customer’s expected lifetime value (LTV) was only a few thousand dollars? It would certainly meet the requirements of improving quality, and could be achieved within the time constraint in many situations, but it’s a bad idea. This is obvious when you add those details in – but what if the LTV for this customer was several million dollars? What if this account was one of only 3 major accounts in the business? In this case the cost is justified. But the things that changed were outside the process – it’s all about context.
This is where we introduce the concept of Boundaries. Think of them as hard limits for your management, a fenced off area within which you can be free to operate. Each of the Triple Constraints have their own characteristics, and you’ll want to understand when setting out what boundaries you’ll use within your business. Boundaries are needed to ensure that the variable isn’t abused. Following the law of diminishing returns, you’ll understand that initial improvements will have a large impact, but pushing past a certain point is likely to cost more than it’s worth in whichever of the constraints you’re trying to leverage. Here I’ve outlined some problems you can encounter when using each of the Triple Constraints as the variable.
Regardless of how you prioritize, time is always going to be important to the customer. In many service businesses, there is a provision within the contract identifying a hard limit on how long things can take, after which there are penalties applied where the service provider needs to compensate the client. For example, if you’re paying for internet access, you expect to have a working internet connection 24/7/365. The reality is that there will be outages, so your provider will have covered themselves by allowing that they’ll provide internet access MOST of the time (e.g. 99%). This would mean that you could be without your internet for 20 minutes a day every day for the whole year, and they’d be OK with that. This is a clear time boundary – exceeding this is simply not acceptable.
For our customer onboarding process, even if we decided that TIME was the variable and we’d accept a longer TIME if it reduced COST and improved QUALITY, there is a limit to what our customers will accept. They expect to start using our product or service, and if we run them through a 9 month training program to get started on something they expect to use for 10 minutes a month, I’d expect we won’t do so well. However, if we’re providing a highly specialised service that has cost them a significant sum, and for which they’re employing several full time employees to utilise, a 9 month training program could start to become reasonable.
For every product and service, there are expectations around what things should cost. To be clear, we’re not talking about pricing here – that’s another article altogether. COST here refers to the money required for the business to provide a product or service. It should cover staff wages, supplier costs, transport and any other ancillary costs. If you can tie any expenditure to the delivery of a product or service, you should consider it in your costs. Remember – this is all in the context of management, not accounting, bookkeeping or any kind of financial advice. When COST is the variable, all kinds of bad decisions can be justified (or at least argued for). It’s vital that boundaries are clear for any manager who is using COST as the lever for improving processes.
We’ve already given an example on how the COST constraint can be abused without an appropriate boundary using our Customer Onboarding scenario. As in all things, you need to weigh the cost against the value, but setting a COST boundary should be straightforward if you have a clear understanding of your margins and the overall cost of delivering your product or service. If you’re unsure, assume your boundary is too liberal and tighten it up. But honestly, the best thing you can do for your business is understand your costs – if you’re not 100% clear on this you are almost guaranteed to fail.
Quality can sometimes seem a bit abstract, but in most cases there is a clear standard that is measurable. Using QUALITY as a variable can look incredible in regards to how quickly and cheaply we can deliver, but at some point you’ll experience customer attrition, as they will find other ways to get what they want at a much higher standard – it’s possible to even breach your own terms of service if you aren’t able to maintain the boundary here.
Using our Customer Onboarding scenario, if we accept QUALITY as our variable, we will focus on getting our customers onboarded as quickly and cheaply as possible. The risk here is that our customers will not have enough understanding to utilize our products or services. When the QUALITY of onboarding is perfect, all our customers will use and refer all of our products and services that suit their business. When it’s completely inadequate, we will see customers leaving within days or weeks of purchasing, they’ll leave negative reviews, and ask for refunds because they can’t do what they expected to do with our product or service. You should be focused on customer retention and feedback when using QUALITY as your variable. Set a hard limit on how often you’re willing to respond to complaints, provide refunds, or offer free training. If those things are happening more than you’re willing to accept, you need to improve the quality again – even at the cost of your KPI.
It’s all about Context
What you can take out of this is that context is everything. The Triple Constraints should be reasonably balanced, and pushing one to an extreme will limit your success. Setting clear boundaries for these constraints is vital, as breaching any one could destroy your reputation or your business. If you’re unable to deliver the product or service within the boundaries you’ve identified, you need to remove that product or service from your offering before it ruins you.