A very wise engineering manager once imparted some universal wisdom to me.
He said, “Gerry, for any project there are three fundamental variables: task, time and tools. What do you want done, when do you want it done by, and what resources do I have to get it done? As a senior executive, you get to pick two, but as the manager in charge of delivery, I get to pick the third.”
“You tell me what you want done, and what the deadline is, and I’ll tell you what resources I need to do it, if it can be done by then. But if no amount of resource can make it happen that fast, I’ll tell you that, too. If you specify the resources I have and the task at hand, I’ll tell you when we can complete it. And if you fix my resources and the schedule, I’ll tell you how much we can get done.”
“But, you don’t get to pick all three, even if you are the boss.”
I learned this lesson (and got this lecture) the hard way, as we embarked on an enormous software project using bleeding edge technology at the time. My engineering friend told me that I was trying to pick all three variables, and what I was asking for was unrealistic. He said we should take one or two quarters to build some in-house development tools, since none were commercially available yet. If we did, then he felt we could hit the task and time I had laid out, albeit with the one to two quarter slip to build the tools. I said, “No.” And so he and the engineering team soldiered on, ultimately coming in two YEARS late versus my unrealistic deadline. Of the many business decisions I wish I could take back, this is right at the top of the list.
Now, this isn’t just an engineering issue. Recently, one of our portfolio companies missed its quarterly revenue target by more than 50%. Upon doing some post mortem analysis, they found the following data: the lead generation system put in place the prior six months had been a failure; the sales force had lost its top four or five performers to competition before the quarter started; and even without those departing stars, a large percentage of the sales force had been in place for less than six months.
Now think about the “tools” a sales force has at its disposal. It needs qualified customers to call on, it needs sales people operating (on average) at some understood productivity number, and to do that it needs both star performers to balance those below average and with new employees, enough time for them to get trained and up to speed. But this company had none of those “tools.” The time was fixed (a fiscal quarter) and the order target was set well prior to the issues above being identified. So, with the tools missing, the goal was missed, badly.
So, they should have seen this coming long before the end of quarter hand wringing.
The same holds true in operations. One of our most successful portfolio companies is growing like a rocket. And they’ve managed to do this at cash flow break even, in spite of the demands rapid growth put on working capital. But in this case, the executive team is both seasoned and alert. The CFO came to the Board with the following analysis:
She said, “We’ve been able to grow at cash flow break even because our Operations VP has done a remarkable job of driving inventory turns from about three to over seven. As wonderful as that is and as proud of him as we are, it’s not sustainable. In our industry, four turns is about the norm. We may be able to do better, but five is probably the max. Beyond that, we’d have to move from surface shipment of our products inbound from overseas to air. That would help inventory turns, but dent our gross margins. And if we don’t keep a bit more inventory on hand, at our growth rate we’re likely to guess wrong on the mix and miss our revenue targets. If you want high margins and rapid, predictable revenues, we’ll need to burn some cash for a while.
She modified the task-time-tools paradigm a bit, but the basic structure of “you pick two” was the same.
Now, you might be thinking, “What about the benefit of stretch goals? Doesn’t this let the manager in charge of delivery sand bag to make sure they achieve the two objectives you “fixed?”
Yes, it does.
But in my experience, most accomplished managers will always stretch their organizations to perform. They like to deliver miracles as much as you want them to. They just can’t make miracles happen on demand. If they, and their organizations buy in to the objectives, and they are properly incented, you’ll likely see whichever metric you let them choose met or exceeded.
But if you try to pick all three, and you are unrealistic and they know it (and they will), you have lost before you even begin.