4.2 Opening Story: Broken Measurement and Dropped Balls

"Good morning, Emily," David greeted. "I hoped I would catch you in the office if I arrived early enough. Do you have a minute?"

"Sure, David. How can I help?" Emily replied.

"Do you remember when you called me two weeks ago to ask about our missed delivery at Gorilla's Chicago cross dock?" David asked.

"How could I forget? That was painful, wasn't it," Emily said, smiling. After a brief pause, she continued, "So, you're here to update me on your team's progress?"

"Exactly! When you first called me, I was really upset that Doug was blaming us for problems with the Gorilla account. Now, however, I have to admit that Doug was right—at least in one respect. No matter how well we think we're doing, if our customers aren't happy, we've got a problem. Customers don't want excuses or apologies. They want their product delivered on time and at the lowest possible cost. The team's first agenda item was to figure out why Gorilla's response caught us so totally by surprise. Our conclusion: Our measurement systems are broken! May I share the brutal facts 1 about our measurement failures?"

"Please do," Emily said, encouraging David to proceed candidly.

“Good afternoon, everyone,” David greeted. “Thank you for agreeing to join this task force on such short notice. I’ve been losing sleep since Doug’s first visit to Emily. I’m counting on you to cure my insomnia. Let me provide just a little context. When Emily called Paul to verify our delivery statistics, Paul told her we were hitting on all cylinders. In the past ten days, I’ve dug into the last two years’ data. The metricsA relative attribute—often a combination of two or more measures, a percentage, or a comparison over time. confirm Paul’s assessment. Based on industry standards, our delivery is best in class. You’d never know that, however, by the way Gorilla and Doug reacted to our missed delivery. We went from heroes to zeros in the blink of an eye.”

“After I got over the anger, I wondered how I could have been so naïve. Our culture is to measure everything. We take pride in our metrics-driven decision-making—and we were hitting all of our targets. Yet, we had no idea how Gorilla perceived our performance. If we are going to raise our sights, we need to conduct a blameless autopsy. There are only two rules: 1) no holding back, and 2) no finger pointing. So, let’s begin, how is it that our measurement system failed in such a painful way—and with our most important customer?”

"Do you mind if I get us started?" inquired Latisha Williams, a senior financial analyst at Olympus. "Over in finance, we put a ton of pressure on you guys to hit short-term, financial metrics."

"You sure do!" agreed David. "I'm not pointing fingers, but you're always asking: ‘What's the P&L impact?' It's tough to be managed as a cost center, always trying to cut costs to please top management. Building logistics capabilities costs money upfront. And, they don't deliver an instant P&L impactThe P&L is another name for the company’s profit and loss Statement, also known as an income statement or a statement of earnings. The P&L impact considers how an action affects the company’s profits and Losses. . The payback comes only after the infrastructure is in place."

"No problem, David," Latisha replied. "Let's be honest, we see the world differently. In finance, we answer to shareholders. They drive our focus on the bottom line. I'm sure that must feel constraining for you. However, as you pitch your new ideas, you don't translate them into the language of finance. As a result, we struggle to get on the same page when it comes to investing in new capabilities."

"Latisha, you point to distinct world views," interjected Trina Cody, team leader for the Gorilla account. "Marketing is the guardian of profitable customer relationships. That's why Doug reacted so strongly. As David and I have worked the service recovery plan the past ten days, it's become clear that order fulfillment is a cross-functional capability. Nobody owns all of the decision points. Worse, we each make decisions based on our own local metrics. We can easily think we're doing great, and still lose sight of the customer and drop the ball."

At this point, Paul joined the fray, saying, "Thanks for inviting me to this kick-off meeting. You've made some very astute observations. May I share a couple of stories?" Without waiting for an answer, Paul continued. "After taking a look at today's agenda, I did a little scanning. Bob Beamon's 1968 long jump record of 29 feet, 2 ½ inches endured for over 22 years? In 1991, Mike Powell moved the mark forward by two inches. No one has come close since. Other track-and-field records fall regularly, but improving jumping technique appears to be as hard as mastering logistics. Measurement, however, is changing the art and science of jumping. As part of its London Olympics sponsorship, BMW designed a camera system to give jumpers immediate feedback. Before a jumper leaves the pit, he knows his flight angle as well as his horizontal and vertical velocities. He can dissect his jump while he still remembers what he did." 2

"Let me shift gears. Do you know the story of the steam engine?" Blank stares gave Paul permission to proceed, "The steam engine is the product of precise measurement. Until the micrometer, dubbed the ‘Lord Chancellor' was invented, the feedback needed to build better engines was missing. Only after finding a way to measure tiny performance improvements in the energy output of engines—you know, more power, less coal consumption—could inventors show that their ideas delivered better performance. I think this ties in to Latisha's comments." 3

"Paul," David interrupted, "your points are well taken. If measurement is going to help us improve our logistics capabilities, it must provide the feedback needed understand and improve our processes. It should also help us communicate our capabilities. One question though: Where do you find time to read about steam engines and long jumping?"

"David, you've put together a solid team and it sounds like you had a very productive meeting yesterday," Emily concluded. "Now, I need you to fix our measurement system. Susan Ford wants us to propose some logistics solutions for the omni-channel project. I'll want to tell a convincing story. The metrics we use to analyze and compare the options will make all the difference."

1. Which aspects of a broken measurement system hinder outstanding order fulfillment and customer service the most? Why? What can be done to fix Olympus' measurement system?

2. How can you apply Paul's analogous discussion of long jumping and steam engines to improve the design of your measurement systems?

3. What measures does Emily need to demonstrate the viability of an omni-channel solution?