Here’s an interview with Richard Klapholz, co-author along with Alex Klarman, of two TOC novels, The Cash Machine and more recently, Release the Hostages.
Q1, Hi Richard, I've not got your brand new book, "Release the Hostages, yet but I loved your first one, "The Cash Machine" ... I recommend it often as a nice, well rounded, and gentle introduction to TOC and good business thinking in general. Can you tell us a little (or a lot) about The Cash Machine? Why did you write it? Why should people read it?
A1, While working in sales and marketing, I simply found many analogies between what Goldratt described in his books on Operations and Project Management and what I saw in real life. I’ll give you 2 simple examples: nearly all R&D managers are people used to be R&D engineers. But I think we’ll all agree that writing software code and managing a project are totally different disciplines. Very similarly, selling and managing a sales force are totally different professions and still, nearly all sales managers are ex- sales persons. Another example is that all production floors consist of a sequence of dependent steps with some level uncertainty for the time of completion of every step. I discovered that a selling process is very similar. Before you get a purchase order, you at least need to assess the customer needs, present your product or service, submit a quotation and negotiate the terms of the deal. You have a sequence of dependent steps with various levels of uncertainties. If TOC greatly improved production, then why not sales? I, together with co-Author Alex Klarman, wrote The Cash Machine simply because I found no other book on sales force management. Every book called “sales management” focuses mostly on the management of a single sale or of a single sales person (time management, proposal submission, deal closing and so on). So, I found an uncovered niche and I thought it would be a nice opportunity to cover it. The Cash Machine could have been written in a much more detailed way, but we decided to keep in short and easy to read – mostly with an aim to trigger thought. It is not a ‘cook book’. It won’t give a solution to every problem, but it will create a different mindset among managers of sales forces.
Q2. Now tell us about your new book, Release the Hostages. How did you make the transition from sales management to customer support?
A2, In my environment, namely high tech, there are many start ups. Those start ups make a huge effort to sell their products or services and when they are successful they find themselves with many customers and a big installed base. Well, companies who did not find ways to deal with that installed base profitably can not sustain their initial success. After you succeed in sales, you must succeed in after sales service. So here again, I found an uncovered niche and I decided to fill the gap. There are many books on service and on customer support, but none that I saw covered the topic from a holistic, comprehensive business way as we did. We called the book “Release The Hostages”, because companies who do not succeed in taking care of their installed base profitably are, in a way, being held hostage by that installed base. Indeed, no matter how many new products or services they sell on an ongoing basis, a growing installed base which is not dealt with properly can bring a company down. I have seen this happening more than once. The book has 10 chapters. In every chapter, we raise a new concept and attempt to solve it. Most or many other business books revolve around a single main idea and then cover it from every possible angle. This is not what we did in our books. In fact, I’d claim that every single chapter could be turned into a separate book as each and every concept presented can hold for itself.
Q3. What do you do for a living, when you are not writing books?
A3, I am myself managing a distribution operation (“distribution” stands for marketing, sales and customer support) in Asia. I am headquartered in Hong Kong, and we operate in China, Taiwan, Korea and South East Asia. We sell. We provide services. All what I wrote in both books comes from first hand experience. I deal with that every day. I am not a consultant and also, I am not an academician. I come from the industry. At the same time, the co-author of both books, Dr. Klarman, is a professional consultant who manages projects in TOC and who has taught Jonah courses for many years. So I think that, together, we’re well covered…
Q4. Oh, and do you have any samples I could put on the blog?
And here is a sample:
Tim steps forward to present their findings. “Daniel and I have focused on two areas. The first one is related to the first case presented: the sequence of a service call. Responding and Closing service calls is substantial portion of what we do at Customer Support. The second one is related to the third case presented: the multitude of problems evolving around Warranty.
“For the service call matter, we have tried to go through the five steps of TOC as mentioned earlier. For the Warranty matter, we have tried to identify the root cause and offer a resolution to that problem. We believe that the result of our work may lead to significant cost savings, although we are still far, far away from the 50%.”
I am impressed. The guys have really worked hard and invested a lot of thinking in the process. I am curious myself to see what the outcome is.
“I thought that in order to cut costs, one has to look at the major cost components of Customer Support and cut there.” This is Charles. Although a physics professor, Charles sits on many corporate boards and he has obviously gained some experience in cost-cutting exercises. He continues relentlessly, “Labor is over 50% of your expenses in Customer Support, the rest being spread between spare parts and travel. A 30% reduction in labor would yield a little less than 20% reduction in your overall costs. Why not start there?”
It is always so frustrating to have an in depth discussion of TOC with someone who was educated in the cost-oriented world. It was naïve of me to believe that Daniel’s attempt to give a short TOC overview would re-educate someone as self-confident as Charles. I decide to keep quiet for the time being, allowing Tim to answer.
“Charles, you are absolutely right and it may come to that. However, the question would remain where to remove those 30% of employees. We are talking about well over seven hundred people here and these people do something productive. Unless we change our way of thinking, it won’t be easy. So rather than starting from the cost components and reducing costs all over, we prefer to do it in the TOC way. In other words, we want to find the places where dramatic improvements in efficiency can be made, or solve a series of problems with a minimal amount of investment. At the end we will obviously come back to these cost components, we are not magicians. But let’s look at the processes first and then at the cost items. Okay?”
“As a member of the Board,” continues Charles, “it is important for me to emphasize that there is urgency in this matter. Customer Support is decreasing the company value of CGS. We represent the company shareholders. We cannot, in good faith, watch this happen and sit quiet. I was hoping to see a cost-cutting plan and discuss this in the meeting today. I hoped to hear where, how much and how fast we will cut. You know, an implementation plan. After all, there is no time to lose.”
Tim and Daniel look at me. They are stunned. These guys have not gotten used to confronting a Board of Directors – with all the different opinions and points of view. They’re lucky they have not seen or heard Ray in action yet. I have no choice; I need to intervene.
“Charles, thank you for expressing the sense of urgency to my guys. At the same time, CGS remains a company that continuously improves its financial performance – at every level. We are here to take preventive measures to ensure the continuity of our success. As such, we do have a little time. I agree, not a lot of time, but still enough to go through a methodical approach. This methodical approach has already proven itself at CGS and we want to take that route again.”
While Charles is a university professor, he also has pretensions of being a good businessman. In addition to CGS, he has participated in the start-up of several other ventures. While none have been as successful as CGS, they have all made him quite rich. And though he continues to serve on the Board of many of those ventures, and he is exposed to many business situations, he has never managed a company himself. Of course, this doesn’t stop him from expressing his opinion at any time.
“Roger,” Charles says, not seemingly convinced, “CGS has been in a high growth stage for a long time. Yes, there were good days and less good days, but overall, management has never had to take drastic cost-cutting measures. I applaud your internal goal of a 50% cost reduction. From my point of view, I believe I have more experience than you do in cost cutting, as several of the companies on whose Boards I sit have gone through the process, as painful as it is. This is a business. When you need to cut costs, you look at the heavy cost components and you attack them head on – there is no other way. And I fear that this team here is not utilizing this forum in the best possible way.”
I start to realize that as far as the Board is concerned, this is not an exploration of alternatives, but a tangible operational plan that they are looking for. I need to gain some time here. “Charles, what you say is very clear, and perhaps next time we will have a better chance to communicate before the hearing so that we can all set the expectations correctly. As for now, I suggest we proceed with what Tim and Daniel have worked on.”
“Yes, let’s proceed.” Josef is as irritated as I am and he comes to my rescue. This is a good sign. Perhaps, after all, this is a Ray and Charles issue, and not so much a ‘Board conspiracy’.
Okay, so let’s start from the call handling process,” Tim is luckily back on track, “with oversimplification, one can say that 85% of service calls cover some or all of the following steps. In many cases, calls are closed in the early steps, and the other steps that follow are obviously unnecessary. Yet, we are presenting all of them here.” Tim writes another list on the board.
1. Call is placed by customer to a Response Center Administrator
2. Call-back is done by Response Center Expert
3. Response Center Experts diagnoses the problem and attempts remote closure
4. Call is dispatched to Field Operations
5. Parts are sent
6. Field Engineer arrives on-site
7. Field Engineer orders/brings more/other parts
8. Call is escalated
9. Field Expert is dispatched
10. Field Expert orders/brings more/other parts
11. Field Expert closes call
“Here we want to point out three very important terms: Response Center Call Avoidance Rate (CAR), Response Center Absorption Rate (AR) and Response Center Close Call Rate (CCR). The CAR relies on tools that enable our customers to solve their own service problems themselves, without the need to talk or communicate with CGS directly. Lately, many web accessible knowledge bases are enabling users to submit questions or keywords to a computerized knowledge base that helps them to solve their problem by themselves. We at CGS are not making full use of such tools. Based on customer submissions of problems to what we currently have, we can say with a fair level of confidence that around 10% of the calls are avoided. This is not a high percentage, the capabilities are somehow limited for now.
“The AR reflects the amount of calls that are placed with the Response Center to begin with. We found out that there is a multitude of reasons why customers sometimes bypass the Response Center. Some of them are: (a) there is a repeat call and the specific customer has the cell phone of the engineer that came there the first time; (b) CGS engineers operate from the customer premises, as it often happens in remote locations. If the engineers are there, then why submit a call to a distant Response Center and not to the local engineer, or (c) the customer developed a close, or friendly, relationship with one of CGS experts and they like to call him or her directly. This may often happen outside of the contractual hours of coverage. There are many ways to overcome that, but as for now, we’ll simply state that the AR of CGS is 80%.
“The CCR is simply the rate of calls that are closed remotely without any need for dispatching an engineer. This is also sometimes referred to as the Dispatch Avoidance Rate. At CGS, we have made dramatic improvements there and our CCR is now at 60%.
“So, to summarize, our field organization is dispatched today to cover the remainder of customer calls, i.e. (1-CAR) x (1 – AR x CCR) or [90% x [1 – (80% x 60%)] = 46.8% of all customer calls. Theoretically, and again, this is pure theory right now, with a CAR of 20%, an AR of 90% and a CCR of 80%, only 22.4% of calls would need to be covered by field operations. That’s lowering the burden by more than half!”
