The Goal: a process of Ongoing Improvement

DW: And when the constraint 
is
 in the market?
CM: For that we came up with another internal measure. We call it CRH, for
contribution margin per resource hour. We try only to capture hours that
represent value that customers pay for. We take the contribution—which is
sales less materials—and we divide by the hours consumed and come up with
a relative measure that has validity across the whole organization. It has
taught us an immense amount about what we do here.
DW: By confirming what you already suspected or by revealing what
you hadn’t known before?
CM: Both. It confirms that certain types of customers, certain types of work,
are difficult and cost us more to manufacture—it clearly pointed that out.
And then it also began to show us how technology affects our margins. I
mean, we get most of our books on PDF files now, and the cost difference
between working with a PDF file and working with what I’ll call the old
conventional way is incredible. What was happening was that we were being
forced by the market to reduce our prices across the board, but then any job

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done the old way was not very profitable. Hah! Not profitable at all! People
were expecting PDF pricing for conventional work, and that just doesn’t
work. Bottom line: In a harsh business climate, in which the market is the
new constraint, and sales are declining, we’ve actually built profitability.
Significantly.
DW: Does it help that you’re an ESOP company? Does that make it
easier for employees to align their interests with the goal?
CM: It depends on the individual. Someone who is ten years from retirement
is more interested in the value of the stock. Someone who’s been here three
or four years, they’re looking at the individual-based bonus. So we actually
began to implement team bonuses instead of individual-based bonuses.
Today we’re working on disconnecting the link between compensation and
performance feedback. Feedback is going to be all team-based.