Thu, April 25, 2024

Reducing variability and uncertainty: Unlocking more business success

Hopefully, you enjoyed Sunday’s Super Bowl game between the Kansas City Chiefs and the San Francisco 49ers as much as I did. Although I didn’t have a significant rooting interest in the game (for transparency, I was pulling for the 49ers), I was able to enjoy the exciting back-and-forth action that ultimately ended with the Chiefs winning in overtime. As most long-time readers of my columns know, I often watch sports with an eye toward what lessons I can learn that can be applied to the world of business.

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In the Super Bowl game, one such lesson arose near its end.  After the 49ers kicked a field goal in overtime to take a three-point lead, the Chiefs received the ball knowing that they had to at least kick a field goal to extend the game or score a touchdown to win it. As CBS analyst and former Dallas Cowboy quarterback, Tony Romo, astutely pointed out, getting the ball second (after the 49ers) reduced the variability and uncertainty for Chiefs coach Andy Reid’s decision-making. Since he knew his team would lose if they did not score before giving the ball up, it gave him the freedom to make decisions with one less option whose result was more uncertain. He knew that he would have to try to make a first down on every fourth down because punting was no longer an option. This made his planning easier, knowing he always had four plays to make a first down. Having the ball first (which, curiously, the 49ers elected to do when they won the coin toss) actually limited their options. The lesson learned here is that if I can find ways to limit the variability and uncertainty faced by my business, my chances of success tend to be better.

I have two other examples from the world of sports which amplify the value of reducing variability and uncertainty. As many of you know from my past columns, I am an alumnus of the University of Notre Dame and an ardent fan of its football team. One of my examples comes from Notre Dame’s national championship football team in 1988.

Notre Dame’s placekicker that year was Reggie Ho (who is now a cardiologist). While Reggie was not blessed with the strongest leg, he was extremely accurate in kicking field goals of 40 yards or less. While Notre Dame had another kicker on their roster with a much stronger, but less accurate leg, Coach Lou Holtz chose Ho to be his primary kicker. The reason Holtz chose Ho was to reduce variability and uncertainty and make his decision-making easier. He knew if his team moved the ball within a 40-yard field goal range or less, he could kick a field goal and know his team would get three points. However, if they were outside of Ho’s range, he knew he needed to either punt or go for a first down.  This enabled him to make decisions with more certainty and less variability.

My final sports example is tied as much to the business of sports as it is to the playing of sports and will lead directly into one of my recommendations on how to reduce variability and uncertainty in your business. The Atlanta Braves baseball team has adopted an interesting way to reduce the variability and uncertainty related to its cost of player salaries. They have signed six of their best young position players and one of their best young pitchers to long-term contracts. While there is some risk due to possible injury to any of these players, the Braves have locked in “team-friendly,” known salaries of seven of their stars for at least the next five years. Therefore, the Braves are better positioned for success, both as a business and as a competitive team. As a team, they have ensured that they have excellent players at most positions for a number of years, and as a business, they have ensured a significant amount of consistency and certainty in their costs, so that they can better estimate their needs in terms of revenues to achieve various levels of profitability.

Such cost certainty is a huge benefit to any business, so we will start there as we identify ways how you can reduce variability and uncertainty to improve your chances of success.

  • Reducing Cost Uncertainty and Variability: One important way of reducing your cost uncertainty and variability is locking into long-term contracts with fixed prices with your suppliers (i.e., those who provide parts and services to you). The benefit for you is that you have known costs on inputs into your business and the supplier benefits by being able to plan capacity and revenue. This will also make your relationship with your supplier more of a partnership rather than a transactional one. A second way to reduce your cost uncertainty and variability is by investing in the development and well-being of your employees. By using known costs of such investment, you will decrease the unknown and highly variable turnover that is inevitable if your employees do not feel valued.
  • Process Consistency: In my many years of studying operations, I have found that some of the biggest problems faced by companies arise from inconsistent processes. If processes are inconsistent, they lead to inconsistency in the quality of output, the cost of output, the capacity available, and the speed at which products and services can be delivered. Therefore, the best investment you can make to improve your business is to make your processes consistent. This can be done primarily in two ways. First, if your processes are capital intensive, be sure to invest in the best equipment and then, be sure to maintain that equipment so that it operates as intended. Too many companies overuse their machines and do not invest in proper maintenance to ensure consistent performance. Second, if your process is more labor intensive, be sure that your labor is well trained in the process that it performs and is provided adequate job variety and rest such that performance does not erode. Having predictable processes that will allow you to promise appropriate cost, quality, and shipping dates to your customers is critical and that predictability is driven by well-functioning machines and labor.

The world of sports can teach us many lessons that we can apply to business. One such lesson is that reducing uncertainty and variability leads to more consistent success. Hopefully, you can take this lesson and move it from the playing field to your company!

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