Structured vs. Operational Management – Part 1

This is Part 1 in a three-part article. Be sure to check back next week for Part 2.

  1. Introduction

Within our service operations, we are always looking for ways to improve managing our operations and how to better structure them for success. How do we position ourselves for success, without falling prey to increased daily tasks? The answer is utilizing techniques that create structure and processes that allow us to better manage our departments. Appropriate organizational structures and processes need to meet and exceed the demands of the guest, as well as being tailored to the skills within the shop. Production objective management and pay plan development are also key components for success.

Each of these techniques was developed to enhance the relative position of a service department that has raised sales, production, quality control and customer relations procedures to a much higher level than a typical service department. The service managers of highly developed, as well as typical service departments have found themselves asking the question, “How can I further gain relative improvement from my current position?”

Five basic questions are central to examining the means of gaining relative improvement:

  • Question 1: Should I raise my labor rate?
  • Question 2: Should I add a technician?
  • Question 3: Can I raise shop production?
  • Question 4: Should I raise my parts prices?
  • Question 5: How should I impact expenses?

These questions are asked by the managers of both advanced production and traditional service departments. The question is, “How are the results of these five questions going to alter the financial results?”

  1. Types of Change

Changes in any service department will be centered on the answers to the five basic questions presented above. Those changes will manifest themselves in two types of change: Structured economic change and operational economic change.

The purpose of designing the economies of your service department is to generate more net dollars for each common decision made.

Caution should be exercised when using operational techniques. We often overload managers with high levels of operating techniques that they cannot sustain. Many managers lack the discipline required to operate those techniques on a day-to-day basis. The structured design yields the most predictable outcome in more than 90% of cases.

  1. Structured Economic Change

Structured economic change is where the actual structure is altered such that the economic impact of any one of the decisions related to Questions 1 -– 5 is altered. Service departments designed in the traditional evolution-—Lateral Support Groups or Simple Support Groups— – are examples of structural economies. They were designed to have a degree of structural integrity, even if management chooses not to manage them.

A structured economy can be illustrated by “perpetual motion” mechanisms available in novelty stores. One mechanism is a series of five steel balls set up in a pendulum. The motion is started when one ball is swung back and strikes the other four; the ball on the opposite end kicks out and so on. The balls continue this action until friction from the pendulum, or from the air, exert more force than the force of the balls striking one another- and then the motion stops.

In a structured economy, the pendulum has been built. The force, weight, motion, etc., have been calculated, and the results are determined before the mechanism is put into motion. For the most part, the results are predictable for a given period of time and require no management intervention.

The following is an example of monitoring shop supplies using a structured economic change:

Management gives each technician a flat fee per month for the purchase of their own shop supplies (for example, $100 per month). The technicians are now free to make their own buying decisions. (Note, however, that the purchase of those supplies should be limited to supplies for which the dealership has current Safety Data Sheets [SDS] on file, as this falls under The Right to Know Act).

The technicians can keep whatever portion they do not spend. Studies show that consumption drops $30 per technician, per month. Management has made a decision that has altered the outcome from the previous method of tracking shop supplies. The structured economic change requires little or no management intervention and provides some of the following benefits:

  • The expense is no longer inflation related
  • The structured economic change technique controls the expense
  • There is little or no management intervention
  • There is a more economical use of management’s time
  1. Operational Economic Change

Operational economic change is where there has been no change to the structure-—results are gained through management’s constant involvement, often utilizing repetitive tasks. Management must have strong discipline and follow-up characteristics.

For example, if management lubricates the axis upon which the balls swing, the friction points are lessened and the pendulum’s motion lasts longer. Management has to be in a position to apply lubricant to keep the motion going at its current performance level. If management ceases the repetitive task of lubricating the axis or performs this task inconsistently, the performance suffers.

Management deciding to control the expense and adopting a “can for a can” policy is an example of monitoring shop supplies using an operational economic change. Consistent management intervention and discipline are required for this policy to work. Management has to ensure that the following are accomplished:

  • The supplies must be inventoried and accounts must be created.
  • Management must purchase the supplies that require vendor shopping.
  • Management must monitor technician usage. Forms must be developed and reviewed.
  • The supplies must be charged out. Policies and procedures must be designed.
  • Invoices must be accounted for.
  • The shop supply expense will be inflation related.

As we can see, this is a management intensive operation, although studies indicate that the average technician’s consumption drops $20 per month, per technician. The operational economic change altered the outcome by lowering the shop supply expense. Management will be capable of sustaining this change if they devote the necessary time and energy to the process.

Written by David Dietrich

Continued next week in Part 2!

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