The Doctor Is In --DickesonNovember 2004
With this usage we're prepared to do internal benchmarking. Our benchmarks are the results of all the other jobs we've done in the past. It's our own set of actuarial experience tables. But it only works in groups of similar jobs.
Group the actuarial experience of jobs. Compare account group X with account group Y. Constantly ask "Why did we make money on this group and lose on that one?" Where and what are the job differentiators? Think. Discuss. Then think and discuss some more. We're mining the database of experience for the gold that's in it.
The attitude shouldn't be to worry about the accuracy of the transaction costs. Freeze 'em, lock 'em into place. Call 'em standard costs and leave 'em alone. Forget budgeted hourly rates. We want all jobs and customers to be relative to each other, and to the past, so we hold those costs as constants while actual performance supplies the variables. Always multiply actual performance by the same transaction values to make groups of jobs and accounts directly comparable.
Now we can do some real internal benchmarking! We don't give a hoot about how close these "standard" costs come to the profit opinion of our general ledger system.
Is this group job pathology an academic exercise? No way. We're into pragmatic marketing analysis. We're looking at our own experience with work and customers. We have a steering wheel to drive our marketing machine. We have to find and fulfill needs at a real profit contribution, not some opinion of a gain. If we don't make a real contribution we don't survive.
In order to do that we must identify and optimize our core competence with the objectivity of solid data. What is it we do best and worst? Why is this? Equipment? Experience? Location?
Some jobs are dogs—trash jobs. With such jobs we don't need Jack Kevorkian to assist us to self-destruction. Some jobs are pussycats. If all our dogs were pussycats we'd build a house in Bill Gates' neighborhood.
Do we try to turn dogs into pussycats? We don't. We identify, cherish and foster our core competence knowing which is pussycat work—the market we serve best and that values us most. We gradually eliminate the trash, the dogs, the Kamikaze jobs. We steer our marketing machine like a Ferrari at a road rally until we finally emerge at the checkered flag.
Which Way to Go?
Without transaction costs applied to actual performance, we don't have a compass to point the path to our core competence. We've nothing but a packet of anecdotes—war stories that we tell from our selective memories around a hot stove in winter.
If we want to enter a new market, fulfill new or different needs, we first carefully define those needs and all of the nuances and peculiarities. Then we must ask what it takes to develop market competence. Next follows necessary research, development and testing.
Isn't this the secret of highly profitable printing companies listed in the ratio studies? "Profit" leaders find, develop and optimize core competencies using the statistical methods of actual job cost analysis.
Next time someone asks about your job cost system don't just respond with comment on your job cost estimating/pricing practices. Discuss the usages of your job cost analysis, benchmarks and resulting direction of your pragmatic marketing efforts.
—Roger V. Dickeson
About the Author
Roger Dickeson is a printing productivity consultant based in Sylmar, CA. He can be reached via e-mail: email@example.com.