Perspective | Process Improvement

Is your service business like a factory from 1900?

service productivity

By on 31/10/2013

Why don’t companies invest in service productivity tools? This is common sense in manufacturing. Peter Drucker estimated ten years ago that the service sector of today is where the industry was in 1900 – before Taylor, Deming, Lean and all the rest. Where is your company?

Imagine for a moment that you’re running a manufacturing company. It produces machine parts. You’re getting squeezed by cheap Asian workers and have had to invest heavily in robots and other technology.

A few years ago your 1,000 factory workers could produce 10,000 machine parts per day – in five product variations. Today, by using new technology and Lean thinking and tools, the 100 people that are left can produce 10,000 parts in up to 500 variations. From an economist’s view, you have replaced labour with capital, or OpEx with CapEx. This more productive allocation of capital is the reality for thousands of medium-sized Western production companies today.

Now imagine that you’re running a service company. It produces custom software for enterprises. You’re getting squeezed by cheap Eastern European and Indian outsourcing vendors. Your 100 engineers can produce 50 unique user stories per month. Your engineers cost an average of $12,000 per month. That is $24,000 per story. You could also be running a digital agency where you’re producing campaign websites for $75,000 a piece.

The full impact of globalisation probably has not hit you yet. Your customers are still sourcing locally. Think for a moment what happens when your customer no longer will pay by the hour but instead wants to compare prices of similar user stories, or services? Then you’re in the same situation as the manufacturing company.

It’s time to invest in long-term productivity

It takes time for investments in productivity-enhancing technology to work. Many of the manufacturing companies started too late and went under. What will happen with service companies? Some would say that the same productivity-enhancing investments are not available to service companies. That’s wrong. They may be less visible and obvious but they are there…

  • Lean service – when did you last think about your “service production line”?
  • Kanban board for services – try producing software like a manufacturing company using tools such as PivotalTracker.
  • Accounting – take a picture of your invoice and send it directly to the accounting system. Cut out the accountant.
  • Social BPM – make all your key processes visible and turn them into live-work instructions and places for new employees to get up to speed.
  • Meetings and email – McKinsey’s Global Institute says that you can boost productivity by 25% in these areas alone.

Starting now is certainly more difficult than waiting. However, if you wait then everyone else will benefit and you’ll not get any competitive advantage – just play catch up. Our Process Success Guide contains a full step-by-step guide to creating your own process improvement plan.

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