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Home > Topics > Test & Evaluation > Detail: Finding Nuggets in the IT Gold Mine
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Finding Nuggets in the IT Gold Mine
By Clarke Ching
  
Summary: Development teams often are unaware of the commercial impacts of the software improvements they deliver. Often, the prioritization of work is done based on technical, rather than commercial, considerations. Based on a real-world example, this story explores the commercial benefits enabled by delivering in short release cycles and prioritizing according to bottom-line benefits. | | |
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"I'd never heard of CalaFragalogistics Industries until we spoke after my course. You're like most other factories, right? Except that rather than making stuff, you repair stuff."
I'd attended Brandon's "economics of software development” course earlier in the week, and I'd invited him to spend a day working with us. Unfortunately, he was booked solid for the next four months, but he had managed to find a spare hour before his flight back home that morning. He had said he'd spend the hour with me at no charge, provided I showed him around our factory. I had grabbed the opportunity. My company needed all the help it could get; we were going broke.
"That's right," I said. "Our customers include about 20 percent of the electronics retailers in this part of the world. We fix products that their customers have returned within their warranty periods. Our 400 factory technicians process more than 4,000 units each day."
I led Brandon to the factory entrance where I handed him a pair of antistatic overshoes. I gave him the standard safety speech then I took him on a tour of the factory. We passed by the three main production lines, through the warehouse, and ended the tour at the staff canteen. I bought two coffees, and we walked toward my office.
"We release code at least once a month. Eighteen months ago, we released twice a year. It was a surprisingly easy improvement to make technically, and we like it because each release is smaller, easier to test, and easier to roll out to users. It's a lot less stressful, and our business managers like it because we're a lot more flexible than we used to be so they get their requests completed sooner. But, lately, I've been feeling like we could do more. Trouble is, I don't know what it is that we should be doing differently. Frankly, I've run out of ideas."
We arrived at my office, and Brandon asked me to elaborate on what was bugging
me.
"Well, we're very busy. I mean, look at our request wall." I pointed to the large cork board on the back wall. It had four clearly marked columns: Pending, Happening, Waiting to Release, and Finished, with small index cards pinned across the board. The Pending and Finished columns were full with overlapping cards. The Happening and Waiting to Release columns had just a few cards each.
I pointed at the pending column. "We have plenty of work to keep us busy for at least the next year, but--to be frank--the interesting work has dried up. You see, when we started releasing monthly, our sales people were delighted because, more than once, they closed big sales by promising that we would include specific requests in our next release. But sales have dropped off recently, and now we're back to working on the less interesting--and less profitable--stuff."
Brandon held up his hand, signaling me to stop.
"New sales have dropped?"
"Yup."
He paused, thought for a moment, then asked, "How is business?"
"Not so good." I told him that CalaFragalogistics Industries had a lot of competitors--efficient competitors--and we had to discount our prices in order to keep the customers we had.
"So, you're no longer bringing in new customers, and you're making less money from your existing customers. Are you profitable?"
I screwed up my face, not sure how much I could tell him. I figured that so long as I didn't mention specific numbers I wouldn't get myself in trouble. "Some months we make a modest profit; some months we don't."
"Hmmm," Brandon said. "So, you're barely profitable. Why have new sales dried up?"
"I, ah, don't really know."
"Is it because your factory is running at capacity and you simply can't do any more work, so there is no point in selling it; or do you have capacity to do more work, but no one wants to buy it?"
I played back his question, twice, in order to figure out what he meant, and I thought I saw a glimmer of where he was taking me.
"Oh, wow. I get it. Our factory is at full capacity," I said. "I'd not realized until now, but that's the key reason why our sales guys have lost interest in us. They've been told not to sell any more because we don't have the capacity to process new work without breaking our existing service level agreements."
Brandon smiled. "So, if you could process more units each day, then you could sell more and make more money?"
"Of course."
"Let's quantify that. I'll invent numbers for the sake of illustration. Let's say that your customers pay you about $10 per unit you fix plus the variable costs of parts. You said that you process 4,000 units a day, so your daily revenue is $40,000. Assuming there are 250 working days in a year, then your company earns $10 million in revenue each year. If you're barely profitable, then I assume your total costs are justunder $10 million a year, too. How's that sound?"
"Close enough."
"Good. Now, here's what I'd do if I were you. Work your way through each request in your 'pending' column and ask if it will free up any extra capacity in your factory that your sales folk can sell. If you find any--and I'm sure you will--then validate your reasoning and move it to the top of your list."
Brandon checked his watch and said that his taxi would be arriving soon.
"Hunt out any requests that will decrease the amount of administration your workers do or the amount of rework they do. Those requests are already on your board, I'm sure, but it's just that your board is so busy you can't find them. Now, I've gotta go, otherwise I'll miss my flight."
We chatted idly in the lobby until his taxi arrived, then I went back upstairs, pulled up a chair next to the request wall, and pulled the first card from the pending column. It said, "Automate DX reports." Would that increase the capacity of our factory? Not that I could see. The next request was a small piece of work cleaning up the design of our Web site. Was it going to increase our capacity? Not likely. Nor would the next card, nor the next, nor the next.
Just under an hour later, I found a card that looked like a promising candidate for the top of our list. It was a request for a modification to our stock control system that would reduce stock outs. In other words, when one of our technicians repaired a mobile phone, about 10 percent of the time we didn't have a replacement part in our warehouse and we had to order a new part. The technician would reassemble the phone then put it aside until the replacement part arrived. Then she'd have to disassemble the phone again, replace the part, and reassemble the phone. We processed a lot of mobile phones each year. That was a lot of wasteful rework.
I fired up my spreadsheet and ran some numbers. The factory was currently making around half a million dollars profit each year. If we could reduce stock outs on mobile phone repairs by one-third—something that wasn't unreasonable--then, according to my spreadsheet, we would free up extra capacity we could sell for an extra quarter of a million dollars. I knew I'd need to verify my numbers, but it seemed likely that we could increase profits by 50 percent simply by moving that one card to the top of the list. Even better, I was only a quarter of the way through the requests. I wondered what other nuggets lay hidden in the pile. {end}
How much are you currently involved in the commercial aspects of the projects you work on?
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About the Author
An independent consultant and regular columnist on StickyMinds.com, Clarke Ching is a passionate advocate of agile software development and a chairman of the AgileScotland special interest group. He is the author of the book Rolling Rocks Downhill, in which he demonstrates how to use lean, quality, and agile techniques to make your projects more productive and predictable. Read more about Clarke's work at www.clarkeching.com.
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