Quantum Jumps

“Quantum Jump: an abrupt transition (as of an electron, an atom, or a molecule) from one discrete energy state to another”

--Merriam Webster Dictionary

“An entrepreneur is someone who will jump off a cliff and assemble an airplane on the way down.”

--Reid Hoffman

Back around the turn of the century I had a start up in the business process outsourcing sector.  We did marketing projects for big technology companies and like many outsourcers and professional services firms, we billed for our time.  

We issued invoices monthly and our systems were capable of sending out our invoices about a week after the close of the month.  About a week after that we were able to produce our profit and loss statement for the prior month. As with any start up company, our learning curve was steep and we learned a great deal each month.  We would then apply that learning to policy changes that would be implemented the following month. Therefore, our process improvement cycle went like this:

Month 1:  Baseline Operations 
Month 2: Operate without changes while learning from month 1
Month 3:  Implement policy changes from month 1 learning, 
Month 4: No changes because months 1 and 2 were the same, learn from month 3
Month 5: Implement policy changes from month 3 learning

Therefore, with a monthly analysis period and a 2 week delay to produce the reports, there were only six opportunities for course corrections each year.

Like most start ups, we were losing money.  We had to figure out how to make money and we had to do so quickly because we had already jumped.  It was pretty clear that 6 opportunities for course corrections per year would not get the job done.

Our operating systems were pretty good.  We had a system that captured the billings to our client projects, we had a system that captured hours worked by employees and how those hours were attributed to client projects.  We had systems that captured the work produced by our people and the outcomes from the work. About 24 hours after the month ended, we would produce draft reports and invoices and our project managers would review them for accuracy.  Any changes would be made in the source systems and the cycle would repeat. Once corrected the invoices were imported into the accounting system, produced as finals, and sent to the customers.  

It was a pretty good system, even by today’s standards, but we needed faster cycle times.  We evaluated the benefits of twice monthly invoicing, or even weekly invoicing, and decided the best solution was to stay with monthly invoicing and add daily reports and P&L estimates.  Clearly our 3 to 5 business day cycle time for producing invoices and financials was not going to work for a daily process. We knew we needed to automate our reporting so we could generate it every day with the push of a button.

A few months later we had a data warehouse updating automatically from our production systems every midnight and a VB/menu driven front end that managed the databases and reported our profit or loss statement from the prior day and several other key ratios and reports.  All were available to our team members each day at 12:01 AM. With this system our project managers could make changes to their projects at the start of the next business day and see the outcome before the start of the following day. This system enabled us to move from 6 iterations per year to 220.  In two months we had made enough process improvements to start making money. The airplane flew!

I think about that experience often.  The process automation that gave us daily reporting at the push of a button was a quantum jump beyond our prior state.  The 36x improvement in cycles was a big deal for sure, but it did more than compress our time to decisions. It enabled us to try things we would not have tried otherwise.  Any experiment that must run for 2 months must be pretty safe. As the cost/risk of experimentation goes up, unconventional ideas get pushed out the back. With a cost/risk of one day of operation -- we could try anything!  

In addition, the continuous improvement mindset infected all other parts of the business and before long we were running mini experiments for our clients, in our recruiting, and in our own sales and marketing.  

A true quantum jump.