Operational Excellence

The Warehouse Effect

Jul 23, 2019 | 301 views

Written by Bartosz Kiera

Change agent for companies who want to work in sustainable and adaptable models. #lean #agile #shingo https://www.mindtwist.co


In the 1950s, shortly after the II World War, Toyota, like many Japanese companies at that time, was set on a mission to rebuild the Japanese economy. Who else better to learn from than from, at that moment, the most prominent car economy in the World — USA. Toyota sent one of their best engineers — Taiichi Ohno to scout ideas and learn from the likes of Ford himself on how can they best develop into a great car manufacturer. When Ohno reached the US, he has been taken around and shown with great pride the big car factories. However, what he saw was huge buildings, filled with half-products, parts, and teams of people managing it all and people managing those people — he saw warehouses — operations which had nothing to do with the actual assembly of the car. The reason behind it was simple — Ford would make a car for you in any color as long as it was black, which meant they dictated the market and a huge one to that. Ohno understood immediately, that in a small Japan, trying to get up from the ashes of war, the competition will be fierce, the demand will quickly run out and that the only way to do it is to keep the actions to the minimum necessary. To deliver what customer wants just in time they want it — in a western world. His philosophy is known in the Western world as Lean. The 1970s energy crisis was a great test of that idea. While everyone noted great loses, including Toyota, they bounced back very quickly, showing to others that having your assets locked in operations that have nothing to do with direct customer demand and cannot be liquidated easily is not a good idea.

The Warehouse Effect

Forward to early 2010s, I’m sitting in a room in the with ten other people — all highly skilled, highly paid, discussing the roadmap for the next quarter. This meeting would take place every week on Monday, and every week, we would discuss ideas that are not going to get done. Given our data insights and already optimized delivery capabilities, things would lose priority and be reshuffled or dropped at all. However, the size and speed of the company and collaboration would mean that we already know it, and we are talking about things that have already taken place. I woke up to the idea that I’m sitting in an idea warehouse where we continuously move unused inventory around the board, while the real operations and value are delivered outside of this room.

This is what I call a Warehouse Effect — An uncontrolled growth of waste and (hidden) costs, which is often assumed to be part of a plan. One we take for granted, we agreed to do, and we continue without awareness of its futility — hence the paradox of ‘planned’ uncontrolled growth.

So what is the primary factor behind this phenomenon of creating waste in front of our eyes? People. People and their decisions colored by social psychology. So let’s explore.

It all starts with People

We are unique. I’m not speaking cliches; we really are from the perspective of psychology. There are so far 107 individual cognitive biases identified and described, on top of that several group biases and paradoxes, which each of us is influenced by in different combinations. Add to this display rules — societal, cultural and personal standards that control the way we communicate and perceive others and you have a picture of a typical person in your team — not a unit, not a robot, not a resource — a complicated being which at any given moment perceives, distorts, communicates and understands information in different ways that everyone else does.

Now imagine you have a startup of 2 people — fast feedback, fast communication, it all works, you add one more — still manageable, another — it’s ok, few more — now you actually have to add a ‘manager’ to that mix, a person who doesn’t, in terms of Lean, add value to the customer, but is a necessary addition to get things running, while the complex network under creation escapes its velocity and start living its own, uncontrolled life. A perfect breeding ground for the Warehouse Effect if you’re looking for one.

Let me now tell you two stories, which will illustrate two widespread, however unnoticed psychological behaviors that play a massive role in boosting the Warehouse Effect. After that, we’ll look into a couple of strategies that can help you regain control over the effect.

The Busy Consultant

In one of the startups I was working with, the founders decided they need to have a natural growth. Given lack of expertise in-house, they decided to hire an external expert. So they did an interview and hired such a person for a usual one year contract. Sounds right so far — made their due diligence on the topic, acquired expertise, and countered their weakness — let the magic happen, right? One week in, the consultant says — well, I do not see the direction or clear goals, and also I now know the platform doesn’t have tools that would support my work. The founders’ response — ah yes, on the direction, we’ll get back to you — we are working on the OKRs. As for the tool — well we’re in the middle of projects now, so can’t help you. So he sits there for a while, doing god knows what, until one day a Slack channel is open, with multiple people invited, where he starts to discuss an idea of the tools that would support him. It kind of indirectly looks like a project that has been kicked off. Some people are not phased by it and ignore, busy with their tasks, but some are finding themselves in between projects or in a similar situation — without direction or work — and pick up the discussion like it’s already a fact. Thankfully, this is a startup of 25 people, so this situation gets caught quite fast and challenged and in the end, stopped, but one wonders — does it happen in big companies where it’s harder to spot? What has happened here?

I call it a cognitive dissonance of Usefulness. Cognitive dissonance is a psychological phenomenon, which says that our brain is unable to hold two opposing thoughts and pushes us to a conclusion by choosing one. Further, a choice-supportive bias makes sure that we stand by the choice we made no matter what to keep us at peace with it and remove the last traces of doubt.

In this case, the consultant is being paid for doing work. However, he has no work to do. He is paid for work — he is not doing the work. It does not compute. So he chooses to find himself something to do. In the lack of direction, there’s little chance that this work will bring value and boosted by the network effect — more people are suddenly busy, maybe solving similar dissonance. This situation is likely occurring in your company now. Let’s admit it — work is not linear, progress is not linear, there are ups and downs in our busyness, waiting for suppliers, waiting for data, holiday periods — all those are prime moments for the cognitive dissonance to show its head.

On top of that in companies with high hierarchy and power distance (the extent to which the lower ranking individuals of a company accept and expect that power is distributed unequally), projects can be started by top management that no-one can say no to, even if they believe it’s not good (see Abilene Paradox).

‘Devil runs workshops for idle hands, and he comes up with bad ideas.’

Where does this behavior come from?

We can trace it to the incentives/motivation ideas of Taylor and Ford in the early 1900s. You are a piece of an assembly line, and the more you do, the more you are rewarded for (and btw — all that you do beyond what is needed will be stored in a warehouse). The output is incentivized instead of the outcome as you are only expected to focus on the proximity of your work — the rest is for managers to know and decide. So you keep producing more feeling useful and accomplished, chasing numbers that prove your ‘value.’ In terms of Lean, this is known as a waste of Overproduction, and that’s the first of two basic behaviors creating The Warehouse Effect.

Let’s explore the second one.

The ‘People Manager’ Paradox

At one point in my career, I was managing a bigger group of developers. The company I worked for went from a PHP codebase to a Java codebase and all the fantastic PHP developers were faced with an option to leave or reskill into Java developers. Greg — let’s call him that — was one of these developers faced with a choice. A smart guy, great PHP developer, however, I was getting signals left and right that his work is not up to par with standards of coding and design set by the newly hired Java specialists. Given I lived in the Netherlands for a couple of years now and acquired the Dutch bluntness, I told Greg — I think you are not a good Java developer. He exploded. You can imagine that the conversation didn’t end well. However, to my big surprise, he came back the next day, all smiling, handing in his resignation and saying — thank you, I never wanted to be a Java developer, I just wanted to work here. Immediately, after that, he picked up his home pet project, acquired customers, and in a year, he pulled in his previous salary from that solution. Last year, as I heard from him, he hired a developer so that he can focus on his family. A story we all like to hear — follow your dreams, they say. However, let’s focus on his and my behavior for a second.

What we stumble upon here is a willingness and capability issue.

When we set out to carry any task, there are two significant efficiency influencing factors — willingness and capability. Willingness is simply out intrinsic motivation to carry out the job. The reason behind this motivation may be unknown, but the important thing is to mark that being motivated to carry out this specific task creates focus, dedication, and perseverance. Lack of such willingness may lead to sloppiness, implicit sabotaging, and lack of attention to details. Bottom line is — we don’t care about the tasks we don’t want to do, but we do about the ones we want to.

Let’s talk about Greg first — his issue was the willingness and rather misplacement of it. He wasn’t willing to take on the job, even if he was capable of doing it — and he was. Moreover, you can’t fight or influence that — if there’s a lack of or misplaced willingness, you are dealing with a severe case. The issue at hand is — during significant transformations, when fear of change kicks in (losing job, new technology to learn, will I manage?) people have a tendency to go with the program and lack self-awareness to realize what is that they’re really willing to do, and/or their acquired status does not allow them to admit it. The fact of carrying out a task doesn’t mean we are willing to do it. That willingness, however, is a difference in doing an aware, valuable job and one that slowly sabotages the collective effort again boosting the Warehouse Effect. I want to call attention to a new form of waste — Misplaced Willingness.

Let’s then talk about my willingness to do the job of a people manager. As I recall, I was willing to try something new in all honesty. I went for it, and I was curious and interested. However, after that, something slowly dawned on me — I was not capable of doing it, at the same time, my title of ‘Tech Lead’ would assume I should be. I spent five years of studies and more than a decade designing and creating software systems for various domains. I can call myself an expert in many of those areas. However, if I look back at the amount of time, I was given to learn to be a people manager, it was ten full days until then. At the same time this roles many times required up to 70% of my time spent with people, their problems at work, personal issues they carry over, the collaboration within a team and appraisal.

Now think about this — would you hire a person who finished online course in programming to design an aircraft cargo loading systems? Why then do we make people management an incentive in career growth when it requires an entirely different skillset, knowledge, and experience? Check any job posting for Tech Lead, Engineering Manager, or similar — you’ll see an extensive list of requirements for technical part and usually one line saying something like — ‘Experience with people management.’

We can generalize this into a waste I would call Assumed Capabilities — where we incentivize by status and bigger responsibility assuming a transfer of seniority from one area of expertise to another. People management is one that is abused the most.

Strategies for Taking Control

If you are familiar with Lean, you know the first two principles — Value and Value Stream. In short — Value is what the customer is willing to pay for (e.g., I’m willing to pay for being transported from home to work and back in the shortest time possible), while Value Stream is a stream of steps that in principle should each add to the Value.

If you recall the Busyness and Overproduction waste — that stems from people being busy at their workstation, not seeing past it and being incentivized to just do. In my work, I observe a great alignment of efforts and pressure going down on being busy once people understand that their work is just part of a bigger picture and that the real Value is only delivered by combining work of many. Using Value and Value Streams to make a commitment to the customer rather than the job is one strategy, and it’s domain independent.

A cellular organizational structure, which promotes the independence of cells as opposed to a hierarchical structure based on the power of holding information, which most companies are based on nowadays, is not a new concept. It has been picked up by philosophers and leaders of modern times as a way for adaptability of an organization. Well-known companies like Valve and Zappos have implemented it with success. So how does it help with the Warehouse Effect? First of all, the idea behind cells is that they’re kept relatively small. Even in 2001, the founders of Agile claimed that it is not efficient to employ beyond 50 people group. This claim makes sense as again the Network Effect is in play, making things exponentially more complex and thus slower in delivery and feedback. In a small cell, you can detect and stop busyness quicker, you can align people faster around the Value they deliver, and each cell can move at their own pace, splitting your oil tanker into a swarm of speedboats. What is more, in big organizations, the management layer tends to be built around the coordination of ‘resources’ between the implicit streams. Those ‘resources’ are moved around and cannot commit to one value stream, thus becoming the Busy Consultant.

Make Value Streams visible, make them independent by filling in the missing expertise, and build cells that manage their interdependencies with others. One of the great examples is carving off corporate startups, which are becoming more popular these days.

Left for last, but the most important — admit that people are the most influential and yet variable factor in your system and hire or grow expertise on how to handle that — I mean social behavior specialists, coaches, and psychologists who can bring a new perspective on sustainability and change of your organization. In one of the companies, we are piloting an experiment in which we found willing people to become fully-fledged People Managers that dedicate their full time and expertise to that topic. What is more, this team is expected to closely work with Agile/Lean Coaches, HR, and Leadership to create a more coordinated effort on changing and improving the way we work. Preliminary results show that having a manager that is dedicated to you but has no stake in your daily work creates safety and transparency that lacks otherwise. From the perspective of coordinated effort — we now have a full loop, trusted feedback on any changes that we make in terms of strategy and operations from the people it involves. All that by merely admitting that Social Psychology is a first-class citizen of your workplace.

While you’re reading this, hundreds of ideas emerging in your workplace and decisions are made. If you make people aware of their consequences, the system will start balancing itself out. Make the Warehouse Effect visible.