It's About Time

Dennis N. Aust

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"Time is money."  The phrase has become a cliché, but is still as true as ever.  In a society of increasing material wealth, time continues to displace money as the limiting constraint for decision making.  Time can buy money, but money can't always buy time.  Just ask any frazzled parent or overworked middle manager.

Yet just as we try to make more effective use of what time we do have, we – consumers, employees, managers – face ever greater obstacles just to keep up.   Simple phone tasks that used to take a minute or two now consume several times that.  We use our limited time to navigate lengthy telephone menu systems and wait on extended hold (all the while being told “your call is important to us.”)  The wait in line, at what used to be called a “fast” food restaurant, just seems to be getting longer and longer.  And we find our commutes becoming longer too, as we spend more and more time sitting in traffic.

There’s no question that highway capacity is a scarce resource, particularly in many urban areas.  A 2001 study by the Texas Transportation Institute estimated the annual cost of traffic congestion in the U.S. at nearly $80 billion dollars.  Yet we as a society seem helpless when it comes to efficiently allocating our highway capacity. 

For a number of reasons, highway space is rarely assigned based on what motorists would be willing to pay.   Instead, access is barely managed at all.  Access to most roads is effectively free until the road reaches capacity; thereafter, usage is effectively rationed to those who are willing to sit in traffic.  Unlike a sensibly priced toll, the revenues from which can be used to fund additional construction, maintain existing roads, or even reduce taxes elsewhere, the time that motorists spend sitting in traffic provides no economic benefit to the system. 

Adam Smith recognized that it's economically inefficient to allocate a useful commodity resource (like gold) for use as coinage.  Using a less scarce substitute metal makes the society more efficient because the gold can then be used where it is most economically productive. Likewise, forcing people to pay by consuming time is a non-productive use of a limited resource, and a net drain on the economy.  And unlike gold coins, which can at least be used over and over again, the time spent “paying” to drive on an overcrowded freeway can never be reused or reclaimed.  That scarce resource is gone forever.

The strategic use of time is a concept that is only partially appreciated.    Competitive pricing strategies are widely embraced, but few of those strategies explicitly recognize the role of consumer time requirements as a component of total price. Business process optimization projects are common, but most optimization is from the firm's point of view, not the customer's.   Strategic use of time means more than shortening product development times or enhancing internal processes.  It involves a wholesale recognition that time is an important (and scarce) economic resource that pervades every interaction a firm has with its customers, employees, and suppliers.

A Framework for Time-Based Decision-Making

One way to make more effective use of time is to always keep two deceptively simple questions in mind.   First, does a specific action or initiative save time, or does it consume additional time?  This question applies not just to a specific firm or individual, but to everyone involved in buying, selling, using, or delivering any product or service.   It also leads directly into the second question:  How are the time savings (or costs) to be shared and compensated amongst the participants?  Together, these questions provide a basic framework for exploring time-based initiatives.

The first question provides an obvious place to start.  Where are the time-wasters in your organization?  These time-wasters include many of life’s little unnecessary annoyances – the clumsy and confusing web site that makes it hard to accomplish a simple task like selecting and buying a product, those inscrutable product instructions that make it impossible to correctly assemble your patio bench the first time around, or that stupid billing error that takes hours to track down and correct.  Time-wasters consume time but yield little or no benefit in return. 

A well-designed web site doesn’t necessarily cost more than a clumsy, time-wasting site, but offers significantly better value by making customers more efficient. Likewise, well-written product assembly instructions need not cost more than the confusing variety.  Many companies have worked diligently to eliminate problems with order, billing, or product quality.  Such efforts often start out as a way to reduce a firm's direct customer service costs, but often generate broader operating efficiencies and improved customer satisfaction.    By eliminating the time-wasters, firms help themselves and their customers.

The second question, how to share benefits or compensate participants, introduces economics into the process.  A company may find that it can generate considerable cost or time efficiencies, but only by imposing moderately higher time costs on customers.  One example is product assembly, where shipping unassembled products can save considerable transportation costs.  If the incremental time cost of customer assembly is less than the total assembly and shipping costs saved, this represents a net economic benefit.  One task is to devise an appropriate pricing strategy that shares the net economic benefit, compensating the consumer for incremental time costs in a way that provides superior returns and improved market position for the seller.  A broader challenge is to adopt a mindset that incorporates time requirements as an added dimension to pricing and strategic positioning.

Some firms, whether intentionally or accidentally, find themselves “stealing time,” which is when a company shifts a significant time burden onto customers (or others) in order to create only modest incremental benefits for itself.   Examples of  such "time crime" (thanks to Contributing Editor Elaine Baran for coining the term) range from email “spam,” which is easy to send and time-consuming to clean out, to inappropriately long customer queues (whether at airline ticket counters, customer service call centers, or retail check-outs).  One critical aspect of "stealing time" is shifting the burden onto unwilling participants, often those who are unable to take their business elsewhere.  The perpetrator may be a customer service organization which intentionally understaffs as way of discouraging inquiries or service requests, or an airline that routinely tolerates check-in queues stretching out the door.  Although the consumers may already be locked in to this particular purchase, the firm runs the risk of converting these customers into "victims" and generating a strategic opening for competitors willing to offer a better deal for the customers' time.

Basic mathematical models derived from queuing theory provide insights into the tradeoffs between customer service levels and the cost of providing such services.   For example, the length of a queue is often highly sensitive to small changes in the number of customer service personnel.  Using plausible estimates observed during a recent business trip, a typical airline ticket counter with six customer service reps would be roughly 98% efficient at keeping the staff busy, but could easily have fifty people in line and an average wait approaching a half hour.  Increasing the number of service reps from six to seven cuts the line down to almost nothing, with an average expected waiting time of less than two minutes.  Whether through policy decisions or poor management, our sample airline implicitly values the time of one additional service rep as being equivalent to roughly forty-five passengers.   If a service representative's time is worth, say, $15 per hour, the implication is that the airline values the traveler's time at less than thirty-five cents per hour.    Creating equivalent estimates for a call center is more difficult; waiting on hold doesn't provide visibility into the number of service reps, arrival rates, or the number of people in the queue.  Nevertheless, one basic principle still holds -- when a company forces customers to spend significantly more time waiting than being served, it is likely that a modest increase in capacity would result in dramatically better service.  The implication is that customer time has little value for such companies. 

Of course, it may not be as simple as adding a few customer service reps.  The system must have sufficient capacity to accommodate the incremental volume, the benefits must be apparent to current and potential customers, and enough customers must be willing to pay for improved services so that the firm can justify the investment in terms of better margins or additional volume.   Still, any firm with the opportunity to make a significant reduction in total product cost would be seriously evaluating its options.  Why should the approach be any different when that cost is measured in minutes, rather than dollars?

By recognizing the economic value of time and expanding their perspective beyond internal boundaries, firms increase their capacity for generating value, and add another dimension for differentiating themselves against their competitors.