Bill Daigneau is assistant vice president and chief facilities officer at the University of TexasM.D. Anderson Cancer Center, Houston, Texas. He is a cochair of APPA's Leadership Institute. Daigneau received the 1998 Rex Dillow Award for Outstanding Article for this article.

The question had seemed simple enough. All I had to do was list the products for which I wasindividually responsible. Yet as I sat in that seminar room on a snowy day in Rochester, NewYork, staring at my blank piece of paper, I felt nothing but frustration and a growing sense offutility. What was the point of all of this? How would it help me manage the facilities andfacilities organization for which I was accountable? Anyway, I was in management. I don'treally produce anything. I just manage those that do. Most importantly, we don't produceproducts, we provide services!

As I eventually would come to understand, my reaction and inability to answer thatsimple question was neither uncommon or unusual. The concept that the natural outcome of allhuman activity is the production of products, even for managers and professionals, is somethingthat we are not conditioned to think about in those terms. Yet that single, fundamental ideareshape my entire approach to management and how I viewed organization, resource allocation,and performance measurement.

Services or Products?

Like most of us in the facilities management business, I had been brought up through theranks believing that we were a service organization, providing essential support services to ouruniversities and colleges. The service industry, unlike manufacturing or construction, is differentin that we don't deliver tangible products like autos or buildings. This difference affects how wemanage people, processes, and finances, and how we treat our customers. In his book on totalquality management, Building Quality, Gary Reynolds addresses this problem in hisintroduction.

It is difficult to relate the service aspects of facilities managementwith production aspects of manufacturing. Managing a service organization requires a different approach, because the attributes of services are different from those of products. For example, you can count and inventory a product, but there is usually no equivalent process for service delivery. After buying a product you own the product, but after receiving a service you own only a memory.......A defective product can be recalled. Poor service delivery cannot, because only the memory of the experience remains. (page 1)

Services by their nature, we are taught, are intangible, variable, perishable, and produceonly "memories." Products, however, are tangible, measurable, time specific, and are in thephysical world. So, in the practice of managing services, how do we bridge this gulf betweenservices and products? How do we apply management practices that seem to work so reasonably well in the manufacturing business to the service industry?

Well, most of us go out and buy books such as Gary's. We are led to believe thatmanagement fads such as TQM, continuous improvement, business process reengineering,customer-focused organizations, team empowerment, or organizational development and trainingwill somehow help us improve our services and our customer's satisfaction.

I used to believe that. Now I say...Bunk!

You see once we fall into the trap of believing we produce services and not products, weare condemned to focus on activities and processes. And once we enter that world, we impose onourselves a whole host of constraints in how we organize ourselves, measure our performance,and interact with our customers. Most importantly, because we think we must manage theactivities and the processes which lead to service delivery, we actually un-empower people,destroy teamwork, and in the end, dissatisfy our customers. But if focusing our attention on themanagement and measurement of activities is so bad, how do we manage services, especiallywhen their end result is unmeasurable and consists of only a "memory."

The solution I think is something I call Product Based Management, or simply, PBM. PBM is not another management fad. It uses no new tools or techniques and does not requireyou to learn any new concepts, processes, or forms to fill out. It employs only the most timeproven ideas and practices, those endorsed or proposed by Drucker, Covey, Senge, and Peters.

All it requires is that you readjust your focus, from the world of intangible services to the worldof real, measurable products. Once that readjustment is accomplished, you will be able to use allof the tools and techniques employed by successful businesses, covering all aspects of productionmanagement, finance, marketing, and productivity improvement.

What is Product Based Management?

PBM starts from a few simple precepts:

Graphically this principle is portrayed in Figure 1.

Figure 1

To achieve maximum success a business needs only to understand this simplerelationship and to accomplish two objectives:

  1. Identify their customers and find out what they need.
  2. Effectively and efficiently produce a product that satisfies those needs.

There, that's it!

Now what does this have to do with PBM, you ask? Once this simple concept isunderstood, you need to apply it to every productive activity--everything from manufacturing toprofessional services to healthcare to education, even to management. Every activity producessome sort of measurable, tangible product. The trick is to identify and understand what

those products are and how they might meet the need of some customer. Once this is understoodyou are able to clearly derive the goals, the organization, the processes, and the performancemeasurements necessary to accomplish the two primary objects noted above.

But there is a slight catch. Just as HAL, the computer in the movie 2001: A SpaceOdyssey, was unable to deviate from its programming, so too are we human beings sometimesunable to deviate from ours. In the facilities management business, we have been so accustomedto thinking about providing services, we are unable to see clearly the actual products we areproducing and the customer needs that we are trying to satisfy. The power of PBM is that itforces us to look at the tangible outcomes of what we do, and to rethink how we deliver andmarket those products to our customers.

Application to Facilities Management

In facilities management we have traditionally organized ourselves around the serviceswe provide. We have built entire physical plant organizations around building maintenance,custodial services, motor pools, landscape maintenance, and mail services. But we have found itdifficult to sell these services because it is hard to quantify and package them into something ourcustomers can clearly understand and relate to their day-to-day needs. How does one buy abushel of building maintenance or a box of custodial service? Do you want one or two landscapeservices? Because of this difficulty we have focused on "levels of service," defining for thecustomer the frequency and quality dimension of the services we provide. When we are askedthe price, we usually quote the number of workhours and an average shop rate, or we explain thatit will require so many FTEs with an annual budget of this or that. We've even devised acustodial service for our customers that gives them a choice of buying various levels ofcleanliness from "unkempt" to ?clean and neat.? Imagine Ford Motor Company offering modelsof their automobiles called "Old Unreliabl"? and "Looks and Works Great."

So lets take a look at facilities management using PBM. Let's start with one of ourcustomers, an esteemed member of our faculty (we'll call her Prof) and see what she needs. When Prof comes to work in the morning, she goes to her office. She puts her key in the lockand leans against the sticking door to get it open. When she flicks on the light switch, she ishappy to see the lights come on. As she walks to her desk, she hopes she won't snag a dustballon her shoe and wants to avoid stepping on a roach. She probably also wants to see her carpetfree of stains and lint. As she sits down, she likes her comfortable chair, free of tears and withcasters that roll freely, at least sometimes. As she looks at the manuscript she has been workingon for the past 11 years, she is dismayed to see a drop of water caused by a leak from somewhereabove.

Now, as an enterprising business person, what products could I sell her? She probablywould go for a vacummed and cleaned carpet, and an occasional pest control inspection ortreatment. I think I might sell her door repairs, to unstick that door. I definitely would offer toperiodically check and lubricate those chair casters, replacing worn ones when needed. I thinkshe also might want to buy electric power from me, so those lights and computer keep working. And definitely, I would try to sell her leak repairs, promising to respond within 30 minutes of acall (faster if it is a gusher!).

In this example I have applied the first concept of PBM, identifying my customer and herneeds and then designing products to meet those needs. My next step is to establish how I willproduce and deliver those products. In the case of the leak, for example, I might decide to have aworker respond to the call, track down the source of the leak, take immediate measures to controlit (e.g., install a visqueen barrier), and determine what else, if anything, needs to be done toprevent its reoccurrence (e.g., a roof repair, or unplugging a condensate drain). I definitelywould ask the worker to leave Prof a repair service report, noting the time of the repair, what wasdone, and what additional measures would take place. On that report would be a number for herto call if she had further problems or wished to know the status of the permanent repairs.

My next step is to determine how to market that product and price it. Again in the aboveexample, I might send out a flyer, or put a number in the phone book that said "Leaks repaired,any kind, immediate response 24 hours a day." After I worked up how many of these products Imight sell the first year and the labor and materials needed to produce this volume, I mightcharge a flat rate for the first hour, with subsequent charges pending preparation of an estimateand the customer's approval. At the end of the first year I would analyze my financialperformance and make adjustments to my methods for producing the product, or in my sellingprice.

Finally, to make sure I was competitive, I'd get prices for the same product from othercontractors or vendors. If they were providing these services at a lower cost, I'd find out why soI could better adjust my production to provide a competitive price. In this way I would measuremy performance and hopefully be able to demonstrate that my product was a good value, worthyof my customer's patronage.

That's how PBM works in principle. In the example about Prof, I would similarly deviseproducts such as Electric Power, Carpet Cleaning, Door and Lock Repairs, all of them organized,produced, and marketed based on satisfying the customer's needs. I'd also periodically meetwith my customers. Anytime they indicated a need for something, I'd design a product and see ifI could sell it to them--good, solid, measurable products, things people want and are willing tospend money on! Left behind would be any reference to intangible services, such as buildingmaintenance, utility services, custodial (or worse, "housekeeping"), and something lovinglycalled Physical Plant, or simply "Plant."

Experience with PBM

At the University of Texas M.D. Anderson Cancer Center, our application of theprinciples of PBM have been both interesting and startling. Interesting because we have learned agreat deal about ourselves and our customers. Startling because not only have we achievedoutstanding results, but the incorporation of this concept permeates everything we do and say inour management.

Our experiment with PBM began about three years ago when we decided to reexamineour entire organization while considering some pretty aggressive cost reduction goals facing ourhealthcare operations. We initially formed a group called the Facilities Management DesignGroup which consisted of all the primary managers of the then existing organizational units. Thegroup met weekly for over six months. Every meeting consisted of a review of what had beenaccomplished during the previous week, an agenda of what needed to be accomplished during thecurrent meeting, and a homework assignment for the coming week. The process we followedconsisted of four key steps: 1) Identify our products; 2) Identify the customers for thoseproducts; 3) Develop an organizational structure which would facilitate the production anddelivery of those products, and; 4) Restaff the new organization, restructure our accounting andbudgeting systems, and develop product performance measures.

Product Identification. The first step was the most difficult. We began by first definingthe concept of product and then attempted to list every product we were producing at that time. Repeatedly we discussed and refined the lists to eradicate any semblance of activities or services. I remember one such discussion well. Our environmental health and safety manager had listed"Fire Safety" as one of his unit's products. When challenged to describe the tangible,measurable characteristics of this product, he proceeded to describe all of the activities hisinspectors perform in delivering fire safety. When further challenged to describe the actualproduct of all this, he meekly suggested "an unburned building." While his answer representedthe final desirable outcome of his efforts, it nonetheless would be difficult to package and sellthis to our customers as a product. Further discussion finally yielded a more practical andtangible description of a fire safety product, a fire inspection report. This was something thatcould be defined in the physical world, was measurable, and could be costed for its production. Such discussions were repeated over and over again as we attempted to develop a comprehensivelist of our products. The difficulty we encountered in completing this seemingly simple andstraightforward task reveals the power of our conventional thinking regarding delivering servicesversus producing products. After several months, we finally completed this first step and turnedour attention to our customers.

Customer Identification. For each product, our next challenge was to identify whowithin our institution would be interested in buying such a product. Again what seemed simpletook some time to accomplish. We found that we wanted to use general descriptions of ourcustomers such as "staff" or "nurses." To help focus our thinking, we began to use the names ofactual people. This led us finally to create three groups of customers based on where their namesfell within the organizational hierarchy of M. D. Anderson. These groups were identified asCorporate customers, Mission customers, and Unit level customers. Corporate level customerswere the president and his executive staff. They were concerned primarily with the overalldirection and survival of the institution. Mission level customers were those in charge of one of four main missions of the institution: patient care, research, education and prevention. Unit levelcustomers were those that belonged to any one of a host of departments that relied on and usedfacilities at Anderson. Such departments included pediatrics, surgery, business office, and, yes,even other facilities departments. Every product was grouped under one of these three customercategories. We were now poised to develop a organizational scheme that would fosterproduction and delivery of these products to our customers.

Organization. The grouping of our products led to an interesting discovery--ourproducts could also be grouped into one of three categories: asset management; propertymanagement; and various logistical operations required to support the campus such as maildelivery, energy production, or transportation. Fire safety inspections, for example, weregrouped under asset management, whose primary customer was the corporate level. Ourreasoning was that a unit level administrator did not particularly welcome a fire inspection reportthat listed a bunch of things the department had to correct. The real customer of such inspectionswas the president who is concerned with protecting the institution's assets, both human andcapital. These considerations led us to the development of the overall organizational conceptshown in Figure 2.

As we developed the organization we further refined the Property Management coreproducts to align them even more closely with their customer groups. This led to creation ofthree property management groups: one organized around patient care, another around researchand education, and a third for general administrative and support functions. Our finalorganizational scheme created five departments responsible for production of products for ourthree main customer groups. We also created a sixth department providing a backbone offinancial, personnel, information technology, and quality improvement products for the other fiveoperating units. The final design of the actual organization is shown in Figure 3.


With the final organizational design in place, we turned our attention to implementing thenew production structure. The original Facilities Management Design Group was dismantledand six implementation teams were formed, one for each new organizational unit. These teamswere staffed from members of the original design group plus people from other administrativedepartments such as institutional planning, the business office, and "customer" departments. Thelatter group provided us with valuable insight on actual production and marketing of ourproducts.

The teams met for two months developing details on staffing, budgets, and processes forthe new units. At the same time, I began recruiting the six new directors to lead the organization. Once the implementation teams completed the staffing requirements and developed appropriatejob descriptions, we conducted a "draft," allowing current employees to indicate their first,second, and third preference positions for placement. Of some 280 employees affected by therestructuring, we were able to place 50 percent in their first choice position, and over 80 percentin their first or second preference. On September 1, 1995, the beginning of our new fiscal year,we shifted all 550 employees and vendors from the old structure to the new. This wasaccomplished without any disruption to the Cancer Center's operation, truly a tribute to the hardwork and dedication of many people.

What Has Been Learned?

We are completing our second year of the new structure designed using PBM. We havecompletely overhauled our chart of accounts to establish financial data for performancemeasurement of each production unit. In this fiscal year we will launch a system of benchmarksto measure ongoing productivity and effectiveness, all geared to our specific products.

What do our customers think? We surveyed them to find out, and were quite pleased bywhat they had to say. On a scale of one to five with five being excellent, our customers rated usat least a four on almost every dimension of quality and responsiveness despite the fact that wehave reduced our operating budget by 25 percent in the past three years.

And what do our employees think? We surveyed them, too. Over 90 percent said theyknew what was expected of them and their role in the new organization. We also asked whatmotivated them the most. They told us that two of the most powerful motivators (and ones thatcost no money) are a word of encouragement or recognition for a job well done from either theirsupervisor or a customer.

Overall we are quite pleased with the results of our experiment in PBM. Of course PBM,in itself, is not a replacement for good and effective management, but it does help clarify for you,your employees, and your customers the very tangible things you produce. And, in doing that,you are then able to apply the most basic and sound management techniques to improveproduction, customer relations, and financial performance.

We continue to refine our products, our organization, our employees skills, and ourmeasurement tools. All are aimed at achieving our vision: Faster, Better, and Less Costly thananybody else.