Category Archives: Time

Time Cards

Time cards have been a symbol of manufacturing productive efficiency for years. I think we have all seen images of production and manufacturing associates dutifully standing in line to “punch in” at their appointed shift on the time clock. It seemed to be a marvelous mechanism to maintain, measure and direct those resources associated with production, in the most efficient manner. It is where the phrase “on the clock” originated. You came in and they started paying you when you “clocked in” and they stopped paying you when you “clocked out”. It was efficient.

By the way, the “Time Clock” that has become so universal when talking about clocking in and clocking out, first made its appearance on the business scene in the late nineteenth century.

” An early and influential time clock, sometimes described as the first, was invented on November 20, 1888, by Willard Le Grand Bundy, a jeweler in Auburn, New York. His patent of 1890 speaks of mechanical time recorders for workers in terms that suggest that earlier recorders already existed, but Bundy’s had various improvements; for example, each worker had his own key. A year later his brother, Harlow Bundy, organized the Bundy Manufacturing Company, and began mass-producing time clocks.”

There then arose the dichotomy in business where there were those that were “paid by the hour” (those on the clock), or waged employees, and those that were paid a set amount per period of time, or salaried employees. Waged employees were referred to as Non-Exempt and Salaried employees were referred to as Exempt. These definitions were laid down in 1938 by the Fair Labor Standards Act.

Below is a brief comparison of the differences between the two:

So, why am I talking about one hundred and thirty year old inventions (Time Clocks) and eighty year old employee definitions (Fair Labor Standards Act)?

The reason is pretty simple. As the production and standardization processes that have been used in manufacturing have found their ways into the other disciplines and aspects of business, so has the cost tracking and charging of those resources responsible for doing the manufacturing.

We are now asking our exempt employees to fill out time cards associated with the work they are doing. This in and of itself is probably not a bad thing, however it engenders a new and different behavior in the exempt employee. It is this new “Time Card” behavior in exempt employees that can a detrimental effect on the business.

For lack of a better definition, exempt employees are paid by the “job” as opposed to by the “hour”. If an exempt employee must work late hours and weekends to complete their assignment, they do not get paid any more. They do however get the satisfaction of knowing the completed their task, regardless of how long it took them.

The idea of having exempt / salaried employees track their time, was to better associate costs directly with specific projects or activities. This association gave rise to the exempt employees who could directly associate their activities with specific items or revenue producing functions, and those that could not associate their work with specific items. Those that could be directly associated with specific products, projects and functions were called “Direct” labor, and those that could not be directly associated were called “Indirect” labor.

“The essential difference between direct costs and indirect costs is that only direct costs can be traced to specific cost objects. A cost object is something for which a cost is compiled, such as a product, service, customer, project, or activity. These costs are usually only classified as direct or indirect costs if they are for production activities, not for administrative activities (which are considered period costs).

The concept is critical when determining the cost of a specific product or activity, since direct costs are always used to compile the cost of something, while indirect costs may not be assigned to such a cost analysis. It can be too difficult to derive a cost-effective methodology for the assignment of indirect costs; the result is that many of these costs are considered part of corporate overhead or production overhead, which will exist even if a specific product is not created or an activity does not occur.”

The following as a good way to think about this. I promise I will get to my point about Time Cards and why this is important soon.

So, all of this work associated with slicing and dicing the time that salaried employees spend on their various activities is being done to understand what portion of their work can be directly associated with a cost object (Direct) and what portion cannot (Indirect). Why is this important anyway? It’s pretty simple.

All businesses want to reduce, minimize and otherwise exit overhead or indirect costs from the business equation.

Every business has the objective of reducing indirect costs, otherwise known as “Overhead”. As noted, these are the costs that cannot be directly associated with revenue production.

So, when Exempt, salaried employees are asked to fill out time cards, and they have multiple options, both “Direct” and “Indirect” to associate their time with, which are they going to choose? Knowing the corporate desire to minimize, reduce and exit Indirect and overhead costs from the business, they will naturally migrate their time charging to “Direct” functions and charges.

On the surface this might seem like a wonderful way for companies to reduce overhead, and in some instances, it will work. However, if you have the financial responsibility for one of these cost objects, you will want to be able to closely monitor the number of people and the amount they can charge to your cost object. This monitoring, or policing activity and capability again creates an incremental overhead.

It is essentially a transference of the overhead responsibility from the labor pool owner (of salaried, exempt employees), to the Cost Object owner.

Labor pool owners are always going to try and minimize the amount of their labor that is not directly associated with a revenue producing cost object. They will want to show the preponderance of their time, as reported by time cards, as being directly associated with a revenue producing function. Engineering groups, development groups, support groups and just about every other group will begin to display this behavior once time cards are utilized in this fashion.

The fear for them is that if they show too much time spent on overhead functions, they will be subject to a cost reduction activity in an effort to reduce overhead.

The results of this “Time Card” behavior are manifold:

  • With the pressure to be associated with, and charge to only Direct costs, the direct costs associated with specific cost objects can become inflated by excessive charging. Since direct costs are “above the line” in accounting and margin terms, this could result in inflated and non-competitive prices.
  • There will now be a somewhat adversarial relationship in place between those groups wanting to charge directly to cost objects, and those groups that are responsible for maintaining those cost object budgets, and the corporate inefficiencies and friction that this creates. There is also the non-productive time that will be spent challenging, changing and rectifying those charges as they come in.
  • There is non-productive time, effort and cost for increasingly capable corporate tools to maintain, monitor and control this type of charging effort. How do you control who should and should not charge to a cost object?

Time cards, like process can be a good thing. But like process, they should not be viewed as a replacement for judgement. When you move costs associated with time cards from indirect labor to direct labor, it may solve a corporate desire to reduce perceived overhead and indirect labor expenses, but it also creates several new issues and expenses associated with monitoring and controlling those charges. Due to how costs are accounted for in direct versus overhead items, it can also change both the cost profiles, margins and ultimately pricing profiles in the market.

Time cards in the salaried or exempt employee environment can and will change behaviors. Labor resource groups will increase their focus on having cost objects to charge to as opposed to understanding that there is to be expected a certain amount of slack time that they will have. Instead of the labor resource pool manager managing this slack level, time cards in essence transfer this issue to the cost object owners to try and control and manage.

Time cards for salaried and exempt employees can provide a better level of visibility into how time is spent and what employees are working on. It does however carry with it what is known as “The Observer Effect”.

I always try to sneak a little physics into any discussion.

“Observer effect (physics) In physics, the observer effect is the theory that simply observing a situation or phenomenon necessarily changes that phenomenon. This is often the result of instruments that, by necessity, alter the state of what they measure in some manner.”

As long as business is aware of how behaviors are changed, and what may need to be done to compensate for these changes, there can be value in them. However, without those considerations they can create an entire new set of issues for a business to deal with, and may result in little to no efficiency gains.

The Short Horizon

As the pace of business continues to accelerate, there seems to be one aspect of the business process model that is struggling to keep up: The Business Case. There was a time where capital expenditures were looked upon as long term investments by the business. The life-cycle and pay-back processes, as well as the accounting amortization of these investments, were expected to last years, and in some instances, even decades. The average business case became attuned to these norms.

But those days are long gone. As the speed with which technology has changed has continued, by necessity the business case used to justify the new or incremental investment has needed to become shorter. If Moore’s law of eighteen-month capability doubling (it was actually Intel executive David House, who predicted that chip performance would double every 18 months. Gordon Moore, for whom the law is named, was the co-founder of Fairchild Semiconductor and Intel, and whose 1965 paper described a doubling every two years in the number of transistors per integrated circuit was the basis for the coining of the “law”) is to be believed, then the asymptote for the length of an acceptable business case should approach that eighteen month to two year limit as well.

That doesn’t mean that a product’s useful life is only limited to eighteen months. I think quite the contrary. There are aspects of the Public Switched Telephone Network (PSTN) that have been in place for more than fifty years, and are still providing beneficial service to the communications carriers and their subscribers alike.

On the other hand, people are known to line up and over-night camp out every eighteen to twenty-four months in order to be the first to get the next generation of the Apple iPhone.

It appears that customers who are being asked for either capital or operational expenditures associated with technology oriented products, are driving their partners and their vendors to ever more rigorous and aggressive value propositions and rates of return. This is the genesis of the short horizon business case.

The simplest definition of value is how much money is made or saved over what period of time. The more you make, or the more you save over a given period, the better the value. In the past it was acceptable for a business case to extend out over a long enough time period as to show an acceptable return. If the initial business case for the sale didn’t make sense for one period of time, it was easy just to lengthen out the time frame until it did.

What appears to be happening is that as the rate of technological based product change has continued at the speed of Moore’s Law, the period that a customer is willing to measure value has shrunk. Business cases still need to show the customer value, they now must do it in far less time. The tried and true form of extending the business case period to make the value and pay back equations work is now gone. Customers will no longer accept it, and are driving for shorter and shorter review periods.

I think there are several factors in addition to technical obsolescence that are helping to drive a short horizon on the business case:

As each new generation of technology arrives it almost exponentially drives down the (residual) value of previous generations. I think it is no secret that one generation old technology is viewed as old and disadvantaged, and that two-generation old technology is probably approaching the zero value state. We have all seen this in our consumer based technology purchases as well. Products get old so quickly that we have developed a disposable attitude toward them. With Personal computers now going for a few hundred dollars, what is the value of a two-generation old computer? What was once repaired and retained is now simply expected to be replaced.

How would consumers (and manufacturers) react if the same logic was applied to say, automobiles and two to three model year old car was considered almost valueless?

We also see (comparatively) decreasing operational returns as each new technology generation is introduced. This means that as each new product gets smaller and more efficient the value of generating operational savings associated with the previous generation of product also tends to get devalued.

The idea of saving something with what you have is not as attractive as the possibility of saving more with something new. I guess this is what they call “Marketing”.

I think one of the final evolution’s of the short horizon business case is the “Cloud”. I am sure everyone has heard of this thing. It’s in all the magazines.

One of the many ways that manufacturers and vendors have adapted to the evolving business case rules is to try and remove both the obsolescence associated with technology and to more closely align the delivered solution with the customer’s need. The idea being that if a customer only needs a four-unit solution but the technology only comes in six or eight unit increments, there is a delivered solution miss-match.

By delivering a function from the cloud as opposed to a product based solution, the vendor has effectively removed technology obsolescence from the customer’s decision process, as well as matched the required amount of solution with the required amount of need.

The net result is a much shorter period needed to achieve the required business case. Customer purchases can be made in smaller increments, which in turn only require smaller pay-backs. Future product purchases and existing product obsolescence are removed from the customer’s decision criteria as the customer is now only purchasing the product’s function, not the product itself. The obsolescence issue, and all the other costs associated with operation of the product are now retained by the vendor (and should be built into their business case).

The continued drive for more value has driven customers and business cases to the short horizon. Capital for technology can no longer be viewed as a long-term investment. It must be judged and justified by how quickly it can pay back on its cost and the relative business value it generates. It is this drive for better business returns that continues to reduce the time scale associated with the business case.

This trend would appear to potentially be a seed cause for future changes to the way business is conducted. On one hand it will continue to make the sale of capital based technology products more difficult. By demanding shorter pay-back and business case periods, customers are in essence expecting lower prices for products, and higher value delivered. That is a demanding and difficult environment for any supplier.

It should also continue to drive product virtualization and the Cloud as ways for suppliers to retain costs and risks, and hence remove them from the customer’s business case. This will continue to be an interesting market, but not all technologies and products may be potential candidates for the cloud.

It could also be argued that a potentially unexpected result of the drive to align business cases with product life cycles could be the reversal of Moore’s Law. It has long been expected that there is some sort of limit to the capacity doubling process. It has been going on for over fifty years. There are recent articles in no less than the MIT Technology Review, Ars Technica, and The Economist (to name just a few) that are now stating that Moore’s Law have in fact run its course.

And this may also be of benefit to business. If customers want to align their capital business case length with the product’s life cycle, and the current eighteen to twenty-four month life cycle of the product makes this increasingly difficult, then one of the solutions may be to lengthen the product life cycle to more than twenty-four months. If there truly is a link between business case length and product life cycle, then this could be a possible solution.

This will be an interesting cause and effect discussion. Is the potential slowing of Moore’s Law going to cause the reversing of the short horizon trend associated with customer’s business cases, or is the demand for short horizon business cases going to accelerate the slowing of Moore’s Law due to business necessities? Either way, customers are requiring businesses to change the way they put together the business case for capital technology sales, and that is having a significant effect on how business can successfully get done.

The Past

A lot of people may think that I live in the past because of all the references that I make to it. I read business books that are hundreds of years old because I have decided that almost all new business books and articles are a recycled version of the classics with some modern jargon thrown in to make it seem fresh and contemporary. I compare present generational norms and business performance to the past because they are good benchmarks and yardsticks for what has been done as compared to what is now being done. Those comparisons do not always favor the past generations or business performance. I am eminently aware of the past because without knowledge of the past how would we know what direction we are going? I am definitely aware of the past but I definitely don’t live in the past.

It’s time to get a little esoteric, but why not? George Santayana, the twentieth century philosopher, poet and essayist wrote is his book “The Life of Reason”, (1905):

“Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”

Many think that Winston Churchill was the author of the famous quote “Those that fail to learn from history are doomed to repeat it”, but he was in fact paraphrasing Santayana. This is just a small literary nugget for your historical learning pleasure.

The key point here is that the retention of what we have learned is the key to progress. This would logically mean that the future is built upon the past. Go figure. It takes a visionary to be able to interpret what was and extrapolate to what’s next. Just as Sony took the leap from portable transistor radios to portable cassette players (the then ubiquitous, and now all but forgotten Sony Walkman – ranked as one of the top TWO technical inventions of the last fifty years), Steve Jobs and Apple took the next leap along the same path with the now ubiquitous iPod (which ranks number THREE behind the Walkman). Contrary to popular belief these products did not materialize out of thin air. They had their roots in the past.

Conversely, there is the ubiquitous financial caveat contained in every investment prospectus that I have ever read, that states very clearly:

“Past results are not a guarantee of future performance”

In business as in sports we always keep score. That is how you tell who is successful and who is not. A very good example of this is the batting averages of baseball players. While the player’s batting average is not a guarantee of the performance of any individual at bat, it does give an indication about what you might expect from that player over time. There are always hitting streaks and slumps that must be factored in, but in general past results are a reasonable predictor, not guarantee, of each player’s future batting performance.

This fact may also be demonstrated in the Walkman – iPod comparison as well. The Walkman was indeed a game changer in the market, but not anymore. The iPod has supplanted it – but it was not until after twenty years had passed where the Walkman was dominant that the iPod was introduced, and even then it took a few years.

The same concept would logically be analogous to business. Understanding past business performance allows you to understand what worked well and what didn’t. Just like knowing individual batting averages or team won-loss records may give you an insight into how they may do for the rest of the season (although no guarantee), in business we like to know who has been profitable, how profitable they have been and how long they have been profitable. It doesn’t mean that they will continue to perform the same way that they have done successfully in the past, and it doesn’t mean that they will have to change everything if they were not successfully done in the past, but it is a good indicator (not a guarantee). There are hopefully always ways to do good things better and ways to improve on failures without starting changing everything and in effect starting anew, or returning to the “infancy” that Santayana mentions. There is that retention of the past thing again.

Staying with my esoteric bent I am going to go a little further into the past. Heraclitus, the fifth century B.C. Greek philosopher said:

“Nothing endures but change.”

This statement has been quoted and paraphrased by everyone from Plato to Diogenes to the latest business management books de jour . We like to all say that the only constant is change. The concept comes from three thousand years in the past, but still seems reasonably applicable today.

However, staying focused on your past is like trying to drive a car forward by looking in the rearview mirror. I don’t know who said this one, and it didn’t seem to be so valuable a quote to spend the time looking it up. Even so, it is reasonably accurate. But you do need to have some idea of where you have been if you are to successfully get to where you want to go. The past is where you were, the present is where you are and the future is always a goal.

So enough already with the philosophy and esoteric. What has this got to do with business?

The past is no guarantor of the future, and we know things are going to change. Knowing the past allows us to understand what the business has done right and what it needs to improve. Even the most disruptive of market forces take time to take effect. Walkmans replacing radios, iPods in turn replacing Walkmans, CDs replacing LPs, digital replacing analog technologies or even automobiles replacing horses for transportation did not happen overnight.

It takes people who understand the past and the trends and directions that it has imparted on the present to make sense of and deal with the present. It is the visionary who understands the past and the trajectory that it has put us on, that can take the next leap and either extend or modify this trajectory as is called for in business to realize the future. The past is useful in that it tells us where we have been in comparison to where we are. It is also a necessity if we are to recognize what we must change and what we should retain to get to the future. You can’t live in the past but you need to be aware of and understand the past if you are to make it to the future.

Confidence and Time

When was the last time you were 100% sure about a business or sales decision? We all like to say we are when we make a decision. Occasionally we might even be that sure. Most of the time I don’t think we are that sure. We usually have an acceptable amount of information or input that enables us to feel confident enough to make our decision and move forward. If we didn’t feel confident, we would ask for more information and decisions wouldn’t get made and things wouldn’t get done.

Have you heard the phrase “paralysis by analysis”?

Confidence and how it affects decisions can be looked at on many levels and seems to vary significantly with both the economic climate and the business culture. In harder economic times, such as those we have been experiencing for the last while, it seems we need more information to make us feel confident enough to make decisions. The return for making the right decision seems to be outweighed by the risk of making the wrong decision. We also seem to be in many instances encouraging a “matrix” business culture where “consensus” is almost a requirement for any decision to be made.

Pareto would tell us that we will get 80% of the information in 20% of the time or inputs. It would follow that on average with this input you would make the right decision at least 80% of the time based on this 20% input. You would be right at least 4 out of 5 times. Just think how well you would do if you had this kind of accuracy with respect to your decisions in the stock market.

It seems we are now in economic times where the risk of being wrong once outweighs the benefits of being right 4 times. So now where do we go? Is it acceptable to only be wrong once out of every 10 times? Once out of every 20 times?

We need to remember that as we require this greater and greater accuracy on our decisions, we also require greater and greater amounts of information on which to base the decision and more importantly greater and greater amounts of time with which to make the decision. The result is we end up moving slower and slower. It ends up taking us longer to react. It takes us longer to get moving. It takes us longer to recover. When then layer in a matrix / consensus business structure and environment where the process has to be repeated for each individual associated with the consensus, it is almost a wonder that progress can be made at all.

Of the major resources available to a business, Money, People and Time, the only one that can not be replaced or replenished it Time. Physics tells us that Time only moves in one direction, and unless you are travelling at relativistic speeds (close to the speed of light) and doesn’t slow down. It would seem that if we focused more intently on Time as it affects our businesses that we would probably get a better return on our decisions, and start moving faster.

Moving our businesses forward will require the confidence to make right decisions as well as the acceptance of wrong decisions. We need to understand that no decision will engage reality and remain intact. They will all need to be modified. The “correct” decisions will only need to be modified slightly (if at all). The “incorrect” decisions will need to be modified to a greater extent.

The point here is that it will probably take less Time to modify the one potentially wrong decision out of five (the 80 / 20 rule) than it would take to gather all the information and gain the consensus required to get a higher level of surety across all five decisions.

I think that in these economic times with businesses focusing on the risk, and hence moving slower and slower, the business that has the confidence to focus on Time will gain the advantage by starting to move faster than the competition, and get the return.

Reason and Force

I recently read an article where the author contended that there were only two ways to get people to do something. You could reason with them and get them to do what you want of their own volition, or you could use force to compel them to do as you would desire.The authors thesis was that the gun was a sign of civilization in that by being armed you removed everyone else’s capability to compel you to do anything (due to your capability to meet force with force) so that the only way to get things one would be through reason. It was an interesting argument, but not one I will go into here.

What I would like to address is the concept of force and reason to get thing done in the business arena. As business leaders, you can in fact use “force” to get things done. By being in the position of authority you can compel people to do as you want under penalty of potentially losing their job. We have all known those managers that have employed this method of management, and may have also employed it our selves from time to time.

Force and reason in the business environment equate to compliance and commitment by the business team.

If the team is “forced” to do something, they most normally will “comply”. They will do as they are told.They will not have bought into the plan or project, or internalized their motivation. All motivation will have to come from you, and it will normally be a “negative reinforcement”, meaning they will work to avoid the negative consequences that would arise from not doing as they are told.

If the team is “reasoned”with, in order to achieve a goal, they will become “committed”. They can buy into the plan, and internalize their motivation. They can align their personal goals with that of the organization and their motivation will be positively reinforced and based on achievement instead of based on the fear of lack of“compliance”.

The down side of reason / commitment vs. force / compliance is time. It takes time to reason issues through and gain commitment. It takes far less time to just tell someone to do something. The key to leadership is to know how much reason is required and how much force to use in order to get both the commitment desired and compliance needed to attain the desired objective within the allotted amount of time.