Creativity versus efficiency, part 2

A recent United non-flight, that left me stranded and scrambling in O'Hare, made it clear to me how dangerous is the distracting debate between managing for creativity and for efficiency. I have seen the enemy of efficiency, and it is efficiency.

I wrote earlier about the illusory, often unnecessary, tension between managing for creativity and managing for efficiency. As I said there, "our obsession with the tension between the wild and crazy side of innovation and the button-downed nature of ongoing operations is distracting us from one of the more real problems in managing innovation."

The experience: I arrived in Chicago with plenty of time to catch my final leg home to Sacramento. But in the time between deplaning and getting to the gate, UAL had canceled the flight. Not for bad weather or for lack of planes, but because the flight crew was stranded in Louisville from bad weather 6 hours earlier and in another part of the country. The only remaining direct flight home had over 140 standby's. I re-routed and got the very last seat to LAX, connecting to Sac, and home by 1:30am.  Only 4 hours late.  I was lucky--the next available seat out of O'Hare on United was 24 hours later.

It's easy to share UAL horror stories, but in this case, the point is actually that creativity is not the enemy of efficiency.  Efficiency is the enemy of efficiency. 

By that, I mean the pursuit of efficiency.  The tiny but relentless accumulation of little improvements in efficiency (each one a creative act on someone's part) creates an organization that, while efficient, is no longer safe from even small disruptions in its operating environment (whether externally or internally generated). The pursuit of efficiency can move unnoticed right past effective and into something you might call hyperefficient--which sounds good but in medical parlance is a pathology. 

United is not alone, though I would argue they are leading in this category. From a 7/5/07 NYT article:

As anyone who has flown recently can probably tell you, delays are getting worse this year. The on-time performance of airlines has reached an all-time low, but even the official numbers do not begin to capture the severity of the problem.

That is because these statistics track how late airplanes are, not how late passengers are. The longest delays -- those resulting from missed connections and canceled flights -- involve sitting around for hours or even days in airports and hotels and do not officially get counted.

Efficiency leads, ultimately, to a system in which the output of every step is tightly coupled to the inputs of the next steps.  There is no wasted time or material--no slack.  Tightly coupled systems   tend to fail catastrophically, and there is a long and very good literature on this topic (see for example, Herbert Simon's Sciences of the Artificial and Charles Perrow's Normal Accidents). 

Henry Ford learned this first hand.  He spent roughly 7 years developing mass production and then another 10 perfecting it.  In the process, Ford built such a tightly-coupled factory that, when GM and others demonstrated the market for variability in car makes and models, Ford could not respond.  Changing the design of even a single bumper created ripples all up and down the line. 5 years later, to finally change, all Ford manufacturing operations were shut down for six months—laying off 75,000 men—while Ford engineers worked on a new production line. The Ford Motor Company never regained its dominance in the market.

United, like so many other carriers, have built the aerial equivalent to Ford's River Rouge plant--systems so tightly coupled that even the smallest flight delays in one corner of the country are felt by travelers everywhere else. 

But sitting in O'Hare, I was also reminded of a manufacturing systems lecture that explains why I really hate United. It's not simply because they have become too tightly coupled to respond effectively to small disruptions. It's because they have, in the pursuit of efficiency, consciously and completely forsaken the customer. 

The theory is known as Little's Law, and states:

inventory = throughput x flow time

The average throughput time in a production system is proportional to the average inventory (work-in-process) in the system. 

Little's law is also one of the handful of relationship laws that every manager should know. It's also very useful in understanding the pitfalls of hyperefficiency.

One of the key insights from Little's law is that, for an organization to achieve maximum utilization of its equipment it must make sure there never a shortage of work-in-process queued up and ready to go. Now I took manufacturing systems from Mike Harrison at Stanford's GSB, and so I am short-changing everyone what was a very enlightening and dramatic lecture that climaxed with the epiphany (for me, at least) that this meant as you approach 100% utilization of your equipment, your inventory levels would need to approach infinite (conversely, if you reduced your inventory to zero your capacity utilization would also drop to zero).

To put this in terms a United passenger would care about:  the more United tries to cut costs by increasing the utilization of their processing equipment (planes and flight crews), the more they must allow their work-in-process inventory (passengers waiting for planes) to approach infinite. As UAL maximizes the efficiency of their capital, it willingly sacrifices the passenger experience.

For United, like Ford and so many others, investments in increased efficiency become, in the end, more threatening to current efficiencies than any tolerance for creativity.

Comments

[Praveen Gupta]

I had a similar experience about 5 years ago at a very successful airlines. In a snowy season, I went to the airport four hours before the departure time to take no chance. Due to hyper-efficient system for the low cost airlines, there was no process to deal with extra traffic due to poor weather conditions. I saw my flight leaving in front of me while still waiting in the line.

Thus, an organization must plan for efficiency and creativity. While learning about level loading an operation in JIT, it was learnt that line must be leveled for about +/- 15% variation, or for 85% capacity utilization, leaving room for unexpected demand. No matter what the recipe is, the customer must get value for his money.

Thus, every operation must consider balancing consistency (efficiency) and creativity (innovation).

Praveen

[Paul Sloane]

It is said that innovation comes primarily from two sources - pain and slack. A system that has no slack in it has no scope for people to try new things. The companies that made typewriters were very efficient but were killed by the advent of a new idea - word processors. Ultra efficiency is no protector. Businesses need to balance efficiency and creativity so that when the pain comes they have the slack to innovate.

Paul Sloane

[Mr. Carman]

This reminds me of a great new book I read by Clifton Lambreth, Ford and the American Dream. Clifton Lambreth has demonstrated extreme courage in telling the inside story of what went wrong at on of America’s biggest corporations – Ford Motor Company. This should be required reading for every college business major and every MBA student before they are allowed to graduate, Congress and the Senate should be forced to read as well!!! Thank-you Clifton Lambreth for standing up for America and American Jobs!