Sunday, November 29, 2009

Small Thoughts on Slack

Things vary. Streams flood, temperature drops or rises. Traffic thickens and thins. In human endeavors sometimes there is to much too do, sometimes too little. How an organization responds to these fluctuations tells us a lot about the nature of the events and the organization. There are a range of reactions.

Every city in the United States has firefighters. Firefighters are constantly available even though fires are not that common. The speed and destructiveness of fires makes it worthwhile to keep crews on duty even though most of the time they are not fighting fires.

In an ordinary restaurant there is a predictable fluctuation of customers throughout the day with pulses around meal times. There are also unpredictable surges for particular meals. Restaurant owners typically respond by having a flexible work force and scheduling somewhat more than the expected need. If a rush does not materialize, someone can be sent home. If a rush is large, extra help may be brought in at the last minute. Starting with some excess capacity is less expensive than perhaps losing a customer.

The opposite approach can be seen at an airline counter or telephone call center. A line of waiting people is used to even the load. When there is a rush, the line gets longer. When things calm down, the line shortens. The business goal is to always have some line so workers are constantly occupied. On the surface this is the least expensive from the business point of view. Workers are always busy and staffing is consistent. However, it only works if customers do not have a better alternative or do not value their own time highly.

The "always have a line" business model is a form of cost shifting. The cost of normal fluctuations in business are borne by the consumer who is forced to wait rather than the company paying someone who may not be completely busy.

Hospital emergency rooms have largely gone to the line model. That is, they seem to have little or no excess capacity. They do take the trouble to constantly re-order the waiting line, a process called triage. Occasionally someone dies, but normally the impact is only an excessively long wait for those who are not in dire straits.

Very popular restaurants encourage a line. It makes them seem all the more desirable. It is a way of saying "there is no alternative that can provide what we do". This demand allows the owners to raise prices. For something exclusive, you may pay more. Almost paradoxically, this exclusivity can increase demand. One step further is the doorman with a list. Those on the list are allowed immediate entry. The hoi poloi must wait in line for a chance to rub elbows with the elect.

Humans can be trained to be remarkably tolerant of others wasting their time. An object lesson can be found in the shopping queues of the former Soviet Union. People will wait without complaint for a very long time even when the wait is pointless. One example is the line at the airport for security screening (which does not increase security). Because the alternative to quietly waiting your turn is to miss your flight and perhaps face police questioning, people will wait for as long as it takes with nary a word of complaint.

Slack in financial matters is often the difference between profit and bankruptcy. Businesses must be able to accommodate shifting amounts of money coming in and leaving. This can be a problem of timing. A business may sell enough product to make a profit, but if payments do not arrive soon enough, it may not be able to pay the bills. Of course if the problem is simply one of timing, then there are usually lenders willing to bridge the gap - at a price. One of the major differences between large and small business is the ability to last out temporary changes in circumstance. A large business has two advantages. One is that downturns in one segment can be covered by profits in another. The second is that large businesses find it easier to borrow money to make it through lean times.

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