Europe, productivity and Alchemy

Management is a form of alchemy, to take something and transform it into more is at the heart of investment. The investor hands over the money to the alchemist who buys raw materials and applies some kind of secretive process to produce gold. Exactly what Europe needs to get out of the economic crisis.
Photo by mattfred Flickr CC

A simplified model of everything

There is a simple Open Manager model for productivity - it treats management as a black box with certain rules. The rules are simple and evidence based.

By definition, a black box is any process whose workings are not fully understood. In our case we are not totally sure of every implication and mathematical consequence of the inner workings but we know what it can do.

The Black Box

The investor trust the Alchemist with a dollar, the Alchemist put it into the box and at the end of the year one dollar and 15 cents falls out. The investor gets his dollar back and the partners negotiate how to split the 15 cents between them.

Immediately two questions arise in the investors mind, how can I get more money to entrust to the Alchemist and is there any way we can get more than 15 cents to share between us?

The way to get a bigger return

Luckily there are no more than exactly three ways of improving the return, or to increase the throughput:

1. Inside the black box the money flows through a tube and the first way is to improve on the bottleneck, at any one time there is only one point where the tube is at it narrowest and that is the point limiting flow.


2. Remove turns and open up bends, they increase friction and brings down speed.


3. Make the tubing shorter, this will reduce the time money spend in the system, maybe it will be possible to run the dollar twice through the box in the same year.

The fewer bends and shorter homogenous tubing, the easier the black box will be to construct and operate. Maintenance cost goes down, errors are eliminated, the need for training and complicated supervision is minimized.

Change brings resistance - we're only human

When we start to speak about increasing return we need to invest time and/or money. It means that we must take a risk and do something differently, this will make people hesitate and procrastinate, change brings resistance.

Only if we create a continuous dialog between equals will the Alchemist and his assistant contribute with ideas and work for changing and improving on the black box. It is a work of coaching, training and facilitation.

Each and every investment must be judged against three criteria:

• Economy - is it the cheapest and least resource consuming way?


• Efficiency - is the new process efficient, will there be minimal loss and waste?


• Impact - does the change impact the bottleneck? If it impacts somewhere else it is useless.

Value improving projects

The black box is not everything and in this tale of things coming in threes, there are only three areas which creates value in a production process:

1. Price - a customer will pay a higher price if the service or product greatly enhances his life. Any investment that will allow the customer to motivate buying at a higher price is adding value.


2. Cost - to improve on the black box will make price go down, if the customer pays the same and costs go down, value is added. One excellent way of doing this is to lower waste and rework, to improve "first time right". It will decrease raw material cost and free up capacity of the black box at the same time.


3. Capital - if in some way the cost of the equipment (the black box) goes down then more money will be freed up and since we measure "return on investment", ROI goes up when investment goes down.

I hope that you find this model clear and transparent, if not please tell me and I will make it better.