Automation has been a catch word in business for a long time. It has been and continues to be viewed as one of the best ways for businesses to go faster and to save money. I can remember when “office automation” was the automation or application that was the driving force for business. Now it seems to be words like “robots” or “self-driving / healing / whatever” or “artificial intelligence” and the like are the automation applications de rigueur. With this in mind I’m going to talk about models. Not the kind that walk down the fashion runways and seem to dominate all forms of social media (for reasons that I still can’t quite fathom), but the kind of models that can continue to help simplify and speed up business, in the face of an ever more complex environment.
I first learned about the value of models in the Economics courses that I took in college. It was put forth that the best way to learn about the various specific market forces was to create simplified models of the complex real environment. Once the various specific forces were understood, more and more complex models could be created where the primary and secondary interactions between these forces could be estimated or observed. Regardless of how complex you tried to make the model, it was always simpler than the real environment. It was also shown that a relatively simple model could provide a very accurate representation of the system and environment as a whole.
This drove the idea that you could create a model that could very closely approximate the real world. In this way you could get a very good answer to your economic question, without the significant over-head complexity, time, effort, etc., of trying to account for every possible detail. The most recent utilization of models for the representation of a complex system that I have seen are the various models that meteorologists use for weather prediction.
What I haven’t seen in quite some time is the use of models in business.
We are all aware to the “Fast, Good, Cheap – pick two” scenario of business. With continued focus on quality and costs, I get the feeling that “Fast” is paying the price (if you pardon the pun) in the equation. If you don’t believe me, just ask, or watch how long it takes to get a quote or price for any sort of technology product that you are either selling or buying.
I like to joke about “Gobeli’s Laws of Business” in positing how things should be. Sometimes it gets me in trouble. Sometimes it gets me ignored. Occasionally however, sometimes someone listens. This is similar to my wife’s reactions to my “Gobeli’s Laws of Domestic and Marital Tranquility”, except for the occasionally having someone listen part.
My position for business is this, if it takes more than a business day – that’s eight hours, not twenty-four hours, to either create or receive a quote, it’s taking too long. You will find yourself at a competitive disadvantage. You had better find a way to speed up your quotation and pricing process. Because, while coming in second in a multi-contestant race is admirable, it is usually only the winner that gets the customer’s order.
As technology continues to be one of the primary drivers of product, business and market evolution, the ability to configure this new technology into usable customer platforms and applications continues to grow in demand as well. Again, if you don’t believe me, just look at the number of engineers that are involved in both the quotation and evaluation processes for any technology-oriented businesses. Engineers seem to be taking on a bigger and broader roles in the commercial process.
Needless to say, this concerns me.
In addition to the “Good, Fast, Cheap” product output trade-offs, there are also a couple of other business trade-offs to be aware of. They are the “People, Time, Money” input or resource trade-offs, and the “Sales, Finance, Engineering” internal business forces trade-offs. Strangely enough they all seem to be interrelated and roughly align as well.
“Cheap”, “Money” and the driving force “Finance” are obviously all related. This is a pretty simple one. “Fast”, “Time” and the driving force “Sales” are also related. Since sales is indeed a competition (for the customer’s order) getting there ahead of the competition can be seen as an advantage. That leaves “Good”, “People” and driving force “Engineering” as the third relationship. That also seems to make sense as it is the engineers that are concerned with the accuracy and “correctness” of how the technology fits together.
Now a days it seems that you cannot get a project started, a bid created, or a proposal reviewed without direct engineering involvement. This direction has the effect of creating a business bottleneck based on the number of engineers you have available for any activity at any point in time. It also limits the options available to business leaders.
In the “pick two out of three” business trade-offs listed above, if you have always chosen the “Good”, “People” and “Engineering” business force (for “correctness”) then you can only choose between “Speed” and “Money” (read profitability) as your second choice. While going fast is nice, making money is not negotiable. Without it you won’t be in business long. Hence “Money” is usually chosen over “Speed” in these trade-offs.
This is my long-winded, round about way of getting to the topic of models. Current mathematic and modeling techniques can be used to predict the location of a single electron (the sub-atomic, negatively charged particle – you didn’t think I would ignore physics entirely for this article, did you?), with respect to a single proton (the sub-atomic positively charge particle) at any point in time. With this kind of modeling capability and technology available, getting a price, or creating a quotation should be as simple as creating a few salient entries into the appropriate model.
Remember the Economics analogy. Models can be created as complexly, or as simply as desired. Also remember the goal of a quotation or pricing model: to create a price for a good or service, not to specifically engineer and configure that good or service. Up to now most businesses believe that the good or service must be engineered (and costed) in order to create a price (with acceptable / appropriate margin) for the customer.
Also remember that by and large customers do not care what it costs the business to deliver the desired good or service. As an example, I don’t think many people care what it costs an automobile manufacturer to create the car they purchase. They just want to know what the price is in relationship to the features and capabilities of the car.
Price modeling versus cost engineering can and would significantly speed up the quotation and pricing process for businesses and their customers. It would enable the customer to ask for several “what if…” prices and configurations. It would make things easier and faster for the organizations responsible for providing the price. It would simplify the process.
So, why isn’t this the usual case? Why does it seem that everything must manually pass through engineering, in some way, before it can be approved or released?
I think the answers are relatively simple, but the solutions are not. Change of this type, moving from an ingrained engineering process to the utilization of models for customer prices and quotations involves not only change, but the relinquishing of control at such a level as to cause some discomfort to the overall organization. No group knowingly gives up control of a process, even if it is for the betterment of the overall organization.
On a related issue, models are always an approximation of reality. There will always be small variances present between what the model generates, and what the engineer will manually create. This will always generate a certain amount of uncertainty, and no one wants or likes that.
Engineers will always argue that their manual engineering is always more accurate than a model’s price prediction. In some instance this may in fact be true. But one of the issues with manual engineering is that no two engineers do it the same way. If they did it would be much more easily modeled. So, despite arguments to the contrary, even manual engineering injects inconsistency into the pricing equation as well.
This is why most changes must be driven from the top down, as opposed to the much talked about, and often desired bottom up approach. Creating a modeled approach to engineering and pricing goods and services to customers will need to be driven from outside of the group that is currently responsible for performing these functions. Remember, that given their choice, an engineer will always search for a way to engineer a solution, regardless of the commercial ramifications of that approach.
Utilizing a price modeling approach to generating customer prices and quotations will re-inject “Speed” back into the business output and business resource trade-off equations with a minimal effect on the accuracy and quality of the price generated. With speed, comes a competitive advantage that should be translated into more orders, without incurring incremental costs or reduction in quality.
And isn’t that what automation is supposed to be all about?