A consulting team was looking at a client’s supply chain process. They found that they could cut delivery times in half – from four days to two days. The client wasn’t satisfied. The end-end-end supply chain process was thirty days. Two days out of thirty wasn’t enough. They focused in the wrong place. They had focused on having a large impact on a small piece of the process.
Leaders often make the same mistake when prioritizing business decisions. The mistake is thinking that big results come from big changes to your business and that small results come from small changes to your business.
The gap in Gap Analysis
The Gap Analysis has become a staple of consultants and business managers. Most business diagnostics include some summary of gaps.
A gap analysis does provide useful information. However, it only provides part of the story. A gap analysis tells you the size of a problem. It doesn’t tell you the impact of solving the problem. Making decisions based on the size of a gap alone could be misleading.
For example in analyzing satisfaction (employee or customer) the use of satisfiers and dissatisfiers is critical. The size of the gap is less important than how that gap impacts satisfaction. Dissatisfiers are aspects of your business that turn people off if not done well. Customer parking is often a dissatisfier. If you provide a poor parking infrastructure, customers will tend to be dissatisfied. However, “great” parking will not necessarily make people happy or highly satisfied. On the other hand, customer service is often a satisfier. That is, continued increases in service will drive continued increases in satisfaction. Of course, even with a satisfier you will eventually hit a diminishing return.
So, why does this matter? When reviewing satisfaction results, leaders often jump to the biggest gaps or lowest scores. Good leaders look at more than just the size of the problem. Moving your parking score one point (on a five point scale) might have less impact than moving your service score a quarter of a point. The key is to understand the underlying dynamics of your business and drive your decisions from there.
Cause and effect relationships aren’t the only ones to consider. Sometimes the right answer is based on simple math. A small change in a very large number can have a greater impact than a large change on a small number.
The James River Corporation makes paper towel and tissue products. They saved $360,000 in one plant by changing the design of a box. The change – cutting two inches off the flap. (http://www.ciwmb.ca.gov/Packaging/Events/SDPWorkshop/Facts.htm)
Federal Express reduced the costs associated with its shipping envelopes saving $20 million annually. One example of the changes is reducing the thickness of the paper stock with which the envelopes are made. Fedex has reduced the thickness by eight one-thousandths of an inch. It might not seem like focusing on thousandths of an inch can make a difference. However, if your company processes 2.5 million envelopes a day, a small change can have a huge impact. (http://www.indstate.edu/recycle/9504.html)
Finally, there was one company whose most profitable segment made up only .5% of its entire customer base. By doubling that particular segment (i.e., acquiring just .5% more customers) the company could increase its net income by over $30 million annually.
Think back to the Pareto principle (80/20 rule). In many cases large amounts of value are being driven by small parts of your business. That’s where you need to focus.
Finding gaps is easy. As a leader, your job is to figure out which gaps matter most. Don’t get distracted by the size of the gap. You might find that small changes can yield large results.