How the macroeconomics of a cargo ship should have you rethinking your software flow
A short while ago, I wrote a blog entitled Innovation Is Compounding Interest: How Legacy Companies Can Compete and Deliver Innovation Like the Cloud-Native Giants. I made the case that cost of production inefficiencies are not isolated to the cost of the machine or person’s time producing the output unit, but rather the value of the item being produced. The production issues that caused downtime on Tesla’s assembly line did not cost a million dollars, it literally cost them $100’s of millions in lost value, missed delivery dates, reputation, and stock price.
In an economy continuing to be disrupted and digitized, not delivering features to your internal or external customers means your organization will be outmaneuvered competitively. If you don’t start now, you will lose the element of continuous improvement on your software investments and before you know it, a competitive chasm will evolve between you and your competition that will be difficult to overcome. You will have to compete with non-feature based competitive differentiators or simply throw massive amounts of energy and costs to make up ground. One needs only look at disruptors in wealth management who now have trillions of dollars passing through their mobile applications and an opportunity lost by traditional banks.
I thought it to be a compelling argument, but maybe you disagree. Well, bring on the Suez Canal catastrophe to help me reiterate this important point and why companies need to continue to understand that value should be measured by what is being delivered, not in lost productivity.
From March 23 — March 29th, the Ever Given blocked traffic in the Suez Canal. Let’s look at the numbers according to the BBC News.
The Cost of Delay
- On Sunday of the week, there were 369 ships stuck waiting to pass through the canal (sound a little like WIP on your outstanding features?)
- A total of 450 ships were backlogged and it would take excessive time to clear the backlog (Flow Time, Flow Velocity and Backlog are all relevant)
- Just the canal’s revenues were taking a $14 — $15M hit for each day of the blockage but that is not the big loss…
- According to Lloyd’s estimates, the blockage was costing over $400M per hour!
- “German insurer Allianz said on Friday its analysis showed the blockage could cost global trade between $6bn to $10bn a week and reduce annual trade growth by 0.2 to 0.4 percentage points.”
What Was Not Listed in the Cost
- The daily cost to run the ship and their budget
- The cost of the tugboats and crews to try and remove it
- The employee’s salaries on the ship
Why? Because those costs, although important to that “silo”, are not as important in the macro view. Imagine if the tugboat operators stated that they did not have the budget to run extra hours — it is unimaginable, but companies don’t budget for big picture value because they are running in silos. The true cost to the companies and the global economy is the loss of all the commerce and goods that created other goods.
It is just another timely example that software cannot be viewed as a cost center where continuous innovation is measured in the cost reduction of resources. It should be measured on the output and value that will make your organization more competitive in the new world digitized economy. Budgeting should be fluid and reallocated throughout the year, not based on a yearly fixed project-based approach.
Whether it is the Suez Canal, Tesla or your company’s web and mobile applications, customers are demanding more features in less time. If features are blocked and not being delivered, the costs may be more than you think and the competitive gulf between those who get it and those who don’t, exponentially grows.
What’s Blocking Your Flow?
Speak to one of our passionate experts to unlock the flow of business value across your software delivery value streams. Wherever you are on your continuous improvement journey, we can help you remove the system bottlenecks undermining your customer response.
This blog was originally posted on Medium on 05/27/2021.