Friday, October 24, 2008

Returning to Prosperity Will Require Getting Back to Basics

Back in the 1980s, management experts W. Edwards Deming and Peter Drucker wrote about the importance of an organization understanding its purpose in order to be successful. Unfortunately, we didn’t get it. Although many companies did develop highly professional and well-written mission and vision statements, they tended to be aimed at those outside the organization – investors and customers – instead of the people inside the company, for whom this information is critical.

Now that the American economy is collapsing, it’s time to get back to the basics of running a business – something we have not done for many years – and the first step is to establish and communicate the purpose.

I have been speaking to groups and coaching executives for years about the need for communicating a clear and unchanging purpose to get people to work together and focus on what is important. I’ve also been teaching these same people that the fundamental purpose of an organization is NOT related to profits or share price. Just to be clear, though, let’s go through this one more time . . .

Why Purpose is Important

If we look at the Cambridge Dictionary of American English, we find that an organization is, “a group whose members work together for a shared purpose in a continuing way.” In line with this definition, without a purpose, there is no organization. There is only a group of people who come to work each day, put in eight or nine hours, and go home.

Without a clear purpose, those inside the organization will attempt to define it in their own terms and conflict between people and departments will result. The most basic premise of teamwork is that those on the team understand why they are there and what they are trying to accomplish. We see examples in sports virtually everyday where a superstar is more concerned about his or her own statistics instead of the team winning. This is why dream teams are rarely successful in winning championships.

The purpose statement does not need to be framed and posted throughout the organization to be effective. It just needs to be understood through indoctrination when a person is hired and continually exhibited through the decisions and actions of management.

It’s Not About Profits

An organization is established in order to serve a need in society. Either the need is not being served well or not at all by existing organizations. Although it is absolutely necessary for a business to be profitable to survive, profits are not the reason for the company’s existence. As human beings, we need air, food and water to survive, but (assuming that we have enough of each) they are not the purpose of our existence and the focus of our lives.

The need that the organization was originally created to satisfy is the purpose. Henry Ford wanted to build a car for the masses; Google wants to organize the world’s information and make it easily accessible; and the M.D. Anderson Cancer Center wants to eliminate cancer throughout the world. It is statements like these that give people clarity, focus, and inspiration.

Regarding profitability (or any other financial measure), the better an organization serves its purpose, the more profitable it will be. And contrary to popular belief, the mission statement does not need to make reference to shareholders. If the people and activities are aligned with the purpose and the company continually improves the products or services it offers, the shareholders will do just fine.

Why We’re in this Mess

The financial institutions involved in the global collapse did not understand their purpose. The bonus schemes and metrics implemented inspired greed and selfishness instead of teamwork and commitment to the fundamental need these institutions were created to provide. One has to wonder what Charles Merrill, Edmund Lynch, Emanuel and Mayer Lehman, Joseph Bear, and Robert Stearns would think about what the people in charge of the organizations they founded did to destroy these institutions.

The fact is, what happened in the financial markets can (and has) happened to other companies over the years. As long as greed continues to drive the business world, the purpose of organizations will be defined in financial terms, and the judgment of executives and managers regarding what is best for the company will be clouded.

The Basics

The financial institutions that remain must soul search to truly understand why they were created in the first place. The result will be purpose statements that Boards and executive committees can clearly communicate to team members. This is vital in order to get everyone on the same page and focus on what is important for the organization to continue to survive and prosper in the future.

This will be new to many people in these organizations and continual reminders and checks will be necessary to make sure that they stay on track and don’t stray from the purpose. It will be a difficult but highly rewarding process, and is absolutely necessary for America to regain its competitive position in the world.

Friday, October 17, 2008

Another Toyota Advantage

Toyota has announced a $250 million ad campaign to introduce 0% financing on 11 of its models. At first glance, it looks like another attempt by an automaker to generate business during the latest slowdown in U.S. auto sales. After all, Toyota sales have been hit hard during the last several months – last month showing a 32% drop over September 2007. Digging a little deeper into this campaign, however, gives a little more insight into the Toyota way of doing business and how they are able to offer a type of incentive that would be very difficult, if not impossible, for its U.S. rivals to match.

Toyota has approximately $19 billion in cash, while Ford and GM are hemorrhaging. While the growth in Toyota sales over the last several years, as well as sales of high margin cars like the Prius, is part of the reason that the company is sitting on such a large amount of cash, it doesn’t give the whole picture. It wasn’t very long ago that GM and Ford were selling SUVs and pickup trucks at record levels and hauling in huge amounts of profits. The difference is that Toyota holds on to its cash so it can weather a downturn in business while Ford and GM (as well as many other U.S. businesses) give theirs away as bonuses to executives. Toyota executives are paid well, but their compensation does not come close to the amounts received by their counterparts at U.S. companies.

Although reading reports from analysts would make one think otherwise, it is ridiculous for any company to assume that it can achieve growth and profitability every year. Toyota understands this and puts away a portion of its profits every year to provide a cushion for years when business drops off. Fortunately for Toyota, it has been a number of years since they experienced a downturn, so their level of cash reserves has grown to enormous levels.

Keeping cash from the good years enables Toyota to offer 0% financing to its customers now while GMAC and Ford Motor Credit struggle to find the cash to stimulate sales. And this situation has even more far reaching consequences than are visible at first glance. If, for example, GMAC does not have the cash to offer customers financing, its sales will continue to slide, causing a further decline in profits which forces it to use more cash to finance its operations. This results in further declines in the amount of cash available to offer customers and further reduces sales and profits. This type of downward spiral is difficult to escape. This type of situation appears to be driving the move by GM to purchase Chrysler which, at the moment, has several billion in cash reserves.

Another benefit to Toyota’s cash position is its ability to keep paying workers while it temporarily shuts down production in its factories. Workers at the Toyota plants affected by the shutdown are still paid to come into work. Instead of building new cars and increasing inventories, however, they attend training classes in safety, quality, and productivity, and work to improve the processes so when production starts up again, they are even more efficient. This practice also keeps employee morale high and increases the level of commitment people have to the company.

Time will tell if Toyota’s 0% financing offer will work to stimulate sales. It may be that people are not willing to buy a new car when they don’t know if their jobs are secure or their investments will recover. About the only certainty in the foreseeable future, though, is that “The Big Three” will be GM, Toyota, and Honda. By purchasing Chrysler, GM will hold onto the top spot for a little while longer.

Thursday, October 16, 2008

Communicating With Workers - A New Concept?

In an article in the Wall Street Journal earlier this week, Brittany Hite wrote about the differences in giving feedback to younger workers as compared to older workers (Employers Rethink How They Give Feedback). In the article, Ms. Hite presents six points to remember when giving feedback to Gen Y employees:
  • Avoid surprises by giving feedback on a continual basis instead of waiting for the annual performance review;
  • Be clear on expectations, especially when discussing a new task;
  • Listen and make sure the feedback is given through open dialogue;
  • Keep it loose and informal;
  • Discuss what you’ve learned from them;
  • Keep notes to make the feedback sessions more constructive.
While it’s commendable to see the WSJ provide this type of information to managers in the business world, it is a shame that these steps are presented only in the context of dealing with younger workers. We have gotten so far away from understanding the basic responsibilities of management that we think wanting open and constructive communication within the workplace is something new. Do people actually believe that it is acceptable for a manager to not communicate to older workers in this way? If there is a difference between the two generations of workers, it is in the expectations. After years of working for American companies and receiving little or no consistent or constructive feedback, older workers have most likely lowered their expectations in order to survive.

The writer goes on to say, “Increased demand for feedback from younger workers is forcing some employers to rethink how they discuss employee performance review. Often, the annual review just won’t cut it anymore.” Guess what? The annual performance review has never “cut it.” It doesn’t matter which generation the worker is from – people need continual communication and feedback in order to develop and improve. Waiting for the once-per-year meeting to talk with a team member, although a common practice in the U.S., is just bad management.

Too often, people are promoted to management positions because of financial knowledge and/or technical skills instead of leadership abilities. If someone performs well in the position they are in, it is assumed that they are promotable into management. And once a person is put into a management position, developing his or her skills as a leader becomes a low priority. As a result, poor communication becomes the norm and the organization and people who work there, stagnate.

Continual feedback and coaching has always been an essential responsibility of a manager. Success in management comes when the manager makes the people on his or her team successful. It is impossible to do this without continual communication and clarity on expectations. Waiting for the annual performance review to do this is illogical and ineffective.

I had a conversation fairly recently with the CEO of a mid-sized U.S. company. Since he is nearing retirement, he and the Board are looking for someone to replace him. He proceeded to tell me the main characteristics for the type of person he is looking for and not one had anything to do with leadership capability. If leadership competency is not important at the top of the organization, there is little chance that it will exist at any other level.

If the information in the article is the result of younger workers demanding that managers fulfill their responsibilities as leaders by coaching and developing team members, then I encourage these younger workers to keep up the pressure. We desperately need a revolution in management practices in this country and it may take the unrelenting energy of younger workers to make it happen.

And a note to any young professionals who may be reading this . . . please remember all of this when it is your turn to enter the management ranks. Remember how important feedback and coaching was to you and how you didn’t get enough of it when you were new to the workforce. I’m counting on you to save American companies from the death spiral that the traditional western approach to managing organizations has caused.