Wednesday, October 15, 2014

Focus and Leverage Part 382

In today's posting I want to share the introduction from Debra and Chad Smith's new book, Demand Driven Performance Using Smart Metrics,  I encourage everyone to get a copy of this book because I believe it's a game changer.  Here is a link to Debra and Chad's website and I encourage everyone to go have a look at it.  Here is the introduction I mentioned in my opening line.

"This is your last chance.  After this, there is no turning back.  You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe.  You take the red pill - you stay in Wonderland and I show you how deep the rabbit hole goes."
 = The character Morpheus in the motion picture The Matrix (1999, Warner Bros. Pictures)

A Deep Truth lies at the heart of how we perceive reality and how we behave in light of that perception.  It is simply what we know.  Challenging a Deep Truth is extremely difficult, even perceived as crazy.  The Nobel Prize-winning physicist Niele Bohr once said the evidence to replace a Deep Truth must be so compelling, so obvious that people must let go of their attachment to the status quo.  In other words, once you see a deeper truth, you simply can't go back.  "It is the hallmark of any Deep Truth that its negation is also a Deep Truth."

Today in industry we have a Deep Truth.  It permeates all of our operational decision making and behavior.  The Deep Truth is the assumption that Return On Investment (ROI) is maximized through and directly corresponds to the minimization of unit cost.  Challenging the deep truth can be career limiting.  Today, who would stand in front of a CEO and the Board of Directos and say, "We absolutely should not direct our people to minimize unit cost?"
Everything from curricula approved by academia to the approaches and solutions offered by consulting firms to the major ERP software providers is part of the Deep Truth.  Indeed, entire corporate careers have been built around it and devoted to promulgating it.  Exposing today's Deep Truth would be threatening to many who are invested heavily in the old and they will act accordingly.
What if today's Deep Truth is totally, completely, unequivocally false!

What if the whole idea of a least unit product cost is simply "bad math" - an inappropriate use of an equation that both economics and even physics would reject?

What if legislation created a reporting requirement that has become the focus of accounting information and replaced, almost by accident, the real definition and rules for relevant information for decision making and product costing?

What if all of our information systems are hard-coded to compile cost reporting and resource area measures from the wrong or misapplied rules and assumptions about how costs and revenue behave?

What if unit cost has become such a Deep Truth that an entire discipline about what defines relevant information has been all but lost?

What if even those who know what relevant costs should be operated inside a system that is not capable of providing relevant information in a relevant time frame to act on?

What if people no longer question taking actions they know will lead to predictable and dire negative consequences that they must deal with later?

The answers to all of these questions will tell us just how deep the rabbit hole is.  So which is it, blue pill or red pill?

These are great questions posed by the authors and the answers to all of these "what if?" questions are provided in Debra and Chad Smith's wonderful new book.  I truly believe that their book and teachings are a clear game changer!  If you are responsible for operations or if you are a logistics expert.....or if you are an accountant, I strongly suggest that you purchase and read this book!!

Bob Sproull

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