World Class Suppliers Need World Class Customers

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As part of their effort to slash the cost of auto parts by 30% over the next three years, Toyota met with its suppliers last week to enlist their help in the process. Based on their reputation for dealing with suppliers, I'm guessing that Toyota will approach the process in a much different manner than most companies, and the process will be very successful.

Instead of squeezing suppliers by beating down prices and lengthening payment terms, companies like Toyota work with suppliers to find improvements in designs and processes that lead to real and sustainable cost reductions. When approached in this manner, the supplier and customer benefit from the process and the savings result in strengthening, rather than weakening, the supplier.

Two Glaring (and Common) Examples

I once worked with a Fortune 500 company that issued a policy for its divisions to lengthen payment terms to all suppliers. Based on the formula, the new policy could result in payment to a supplier being delayed by up to 90 days after receipt of the product or service.

Procurement professionals at a particular division for the company (Division A) implemented the policy and were praised (and rewarded) by the corporate office. One of Division A's suppliers was another division of the company (Division B). As a result of the change in policy, Division B cut off shipments of a critical component to Division A because it paid its invoices too slowly. Because of this, Division A's shipments fell because it couldn't get the component elsewhere; costs increased (due to production stoppages); and profits dropped because of its inability to ship and invoice its customers. Division B's profits also fell because it stopped shipping to Division A.

And another . . .

In another example, a friend of mine owns a company that supplies parts to the Detroit automakers. During a visit to one of the automaker's factories, he noticed a problem in the production line with the assembly of a particular model. As part of the process, the car was flipped to enable installation of a particular subassembly. Problems occurred because the subassembly could not be completed until the car was turned back upright, and it frequently fell apart before it could be secured.

On his own accord, my friend developed an inexpensive grommet that could be placed on the subassembly to properly secure the parts as the car was flipped upright. After the final assembly was bolted together, the grommet could be easily cut away, thereby completely eliminating the problem.

the customer adopted the idea and changed the process to utilize the grommet. Even though the grommet was a very low cost part, the automaker's procurement department - in an effort to further reduce the cost - decided to purchase the grommet from a competitor instead of from the company owned by the person who developed the part. In a situation where a supplier - without direction from the customer - took the initiative to solve a problem that caused delays, extra costs, and headaches for the customer, the customer displayed a lack of respect for the supplier by awarding the business to another company. Needless to say, my friend was not motivated to solve future problems for the customer.

Stop the Madness

The above examples are unfortunately fairly typical of western business. If we are to come out of the recession strong and ready to compete, we have got to learn that the relationship with a supplier is based on more than price and payment terms. A company cannot win if its suppliers lose. Besides the obvious, who wants to do business with a loser anyway?

Leaders Are Developed; Not Hired

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I see that Bank of America (BoA) finally decided on a replacement for CEO Ken Lewis. The board blamed the lengthy process on the compensation restrictions that pay czar Kenneth Feinberg has placed on financial institutions.

I disagree. I place the blame on the board and, more generally, on American business in general.

Companies should rarely, if ever, have to conduct an executive search. The most basic responsibility of a company's board of directors is to protect the interests of shareholders. This cannot be accomplished without continuity in leadership which requires succession planning and leadership to development at the highest levels of the company.

In my practice, I encourage organizations to always have the successors identified for each senior position within the company. Although most agree with the need for succession planning, it is too often given too low of a priority to make it happen.

There are a number of advantages to the organization of developing leaders from the inside, however, that should give it enough importance to make it a priority, including the following:

• Reduced Recruiting Costs: Besides the price of retaining a recruiter to fill an executive-level position, there are internal costs associated with interviewing and screening potential candidates, as well as the costs incurred while the new leader learns about the company's processes, customers, systems, and culture;
  
  
• Keeping Talent: When people see that leaders are promoted from within the organization rather than hired from the outside, they feel more valued and better about their own future with the company. This tends to increase loyalty and decrease turnover. Also, those with leadership ability can be identified early and groomed into management positions in a way that fits the company's culture and leadership style;
  
  
• Reduced Compensation Costs: Promoting from within tends to keep compensation costs down because you are not competing with other companies for the same candidate. Besides the increased compensation that comes from competition, hiring a leader away from another organization can include contract buyout costs, as well as payments for bonuses, stock options, etc. that the new hire is losing by leaving his or her current position;
  
  
• Continuity in Direction & Approach: One of the most damaging aspects of hiring a leader from the outside occurs when the new hire has a different leadership style than his or her predecessor or takes the company in a different direction. People become confused and fear increases, further increasing costs to the organization;
  
  
• Reduced Risk of Success: No matter how careful the search process is conducted, there is a certain level of risk associated with a new hire. Promoting from inside the company reduces that risk because the person's ability, personality, character, and leadership style is already known.

The obvious downside of developing leaders from inside the company is losing someone after investing to develop his or her leadership skills. Although the lack of focus on leadership development in western business makes this a valid concern, it is not enough of a reason to ignore such an important aspect of an organization's future.

Repairing a Faulty Lean Process

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When I am asked to help a company with a lean implementation, it is often because the initiative has failed in some way to meet expectations. In many cases, I find that the problem is related to the company attempting to implement lean at an expert level rather than starting slowly and letting the process evolve and develop over time.

As a follow up to an earlier post on why lean fails, I will present here some of the most basic and easily correctable problems that I have seen with companies that have asked for help with their lean processes. It is important to note that correcting a "lean gone bad" situation is possible and not necessarily difficult. It usually requires stopping the process for reflection and making adjustments to put the initiative back on track to be successful.

Don't Try To Be Toyota

There has been a lot written about Toyota and how lean has contributed to their success over the last several decades. There are books, seminars, and conferences detailing exactly how Toyota uses lean, including the tools and steps they deploy (and even the words they use) to identify and eliminate waste.

Toyota is the master of lean. They invented it and have been using (and perfecting) it for the last 60 years. An attempt to copy how they use it without going through the process to learn and develop the system is akin to reading a book on skiing and heading for the black runs on your first trip to the slopes. It is dangerous and most likely will end in disappointment (or worse).

The Basics

When an organization asks for help to get lean back on track quickly, I often recommend the following basic actions:

1. Focus on Small Improvements Stop doing kaizen events and focus instead on small improvements. Kaizen events (covering multiple consecutive days) require a lot of focus, pre-work, and a very experienced facilitator to carry out; while small improvements can be implemented with very little training and experience.
   
   Also, a kaizen event often requires interrupting the operation for a period of time while the improvements are being implemented. There is a much higher chance of losing the support of the person responsible for the operation if a shutdown is needed.
   
   Small improvements also allow people to learn how to apply the tools as improvements are made with a much smaller risk of failure.
   
   Giving team members time on a regular basis (e.g., 30-60 minutes per week) to work on improvement activities can lead to some great results, and enable the lean process to evolve and develop effectively.
   
   
2. Use the People Closest to the Process Western business has somehow been led to believe that lean is not possible without hiring six-sigma black belts to facilitate the improvements. Although the six-sigma methodology includes some very sophisticated statistical tools, they are not necessary to make improvements early in the process. Especially at first, it is very likely that there are significant improvements are possible with the use of only a few basic tools.
   
   The best lean implementations I have witnessed have had those closest to the process heavily involved in the process. Projects are led by the team leader or a team member who has naturally grown into the facilitator position. I do not believe that the process works nearly as well when projects involve people who are not part of the team.
   
   
3. Continually Train & Develop Once the commitment is made to implement lean, people throughout the company need to be trained and developed on a continual basis, as opposed to a single, multiple-day class at the outset of the process. Workers need training in the process improvement tools; supervisors and managers need training in leadership (specifically what it means to lead in a lean environment); and executives need to be trained in the barriers to lean and what they can do to make the process successful. It is more effective when this is done over time so people can relate what they learn to the changing environment.

The above steps do not always cure all of the problems with an unsuccessful lean implementation, but I have found that they often have a positive enough impact to get the process back on track fairly quickly.

Thoughts on Job Creation

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The White House held a jobs summit earlier this week to discuss ideas to lower unemployment in the U.S. Several ideas were presented and discussed during the meeting - some that made sense and others that, in my opinion, will do little more than add to the deficit.

The big problem with the bulk of the proposals is how to pay for them. The deficit is out of control and literally growing every minute. And most agree that we can't afford to continue to pump money into programs that don't provide immediate results (as we have enough of those already).

Another issue with the current situation is that, until the jobless rate drops, the government needs to continue to fund unemployment and health care benefits for those who have been out of work for an extended period of time.

It's unfortunate that this problem was not addressed two years ago when the recession began. As the financial system crumbled, it was obvious that a recession was coming that it had the potential of being very long and severe. On the macro level, the increased unemployment rate reduced the amount of taxes collected on the state and national level, as well as resulting in a decrease in consumer spending - leading to further layoffs (and even lower tax collections). The death spiral that resulted has continued and worsened to the point where we now cannot afford to do much of anything to get things moving again. Although I agree that it is necessary, unemployment benefits do nothing to increase spending or economic activity.

Over a year ago, I wrote that we needed to focus on job creation and that any stimulus money should go to those companies that do not layoff workers. Unfortunately, we not only gave money to companies that implemented layoffs, it appeared that is was a prerequisite to receiving assistance. Rewarding companies that keep people working could have encouraged businesses to look for alternate ways to cut costs. This could have kept more people working - and spending - thereby reducing the effects of the slowdown.

There are a number of well-known companies that did not layoff workers during the recession. These organizations implemented a variety of actions to keep people working; including unpaid holidays, reduced workdays, focused improvement activity, and dividend cuts. Our economy would have been much better served by providing stimulus money to these companies rather than throwing it into programs that, at best, created temporary employment for a small sector of the workforce.

I would love to see congress and the administration implement an economic, rather than a political, approach to job creation. We will get through this crisis much more quickly if we work for what's best for the country than continuing to focus on what's best for the political parties or individual congressional districts.

Big Changes at GM?

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With the departure of Fritz Henderson, GM's board is talking as if they are taking the opportunity to kick the changes at the company into high gear. Making changes at an organization as large and complex as GM is not going to be easy. It can be done, though, with a well-focused and aggressive plan.

In my opinion, the plan to get GM on track needs to include the following:

• Forget about being the number one producer of automobiles. This kind of focus can take the company away from its purpose of making cars that people want to buy. I believe that Toyota temporarily lost its focus in its drive to be number one and it got them into trouble. Make great cars and the numbers will take care of themselves.

• Improve the - real and perceived - quality of products offered. This is done by working on processes and products; not advertising.

• Improve relations with dealers and the UAW. The company cannot get better without everyone working together. The level of trust between management, workers, and dealers has been poor for many years, and it's up to GM management to take the responsibility to get it fixed.

• Increase innovation. The company needs to begin taking chances and develop more innovative designs and features into its cars. It's time for GM to stand out because of its products instead of its problems.

The biggest barrier the company has to address is its own culture. In general, the longer a company exists and the bigger it becomes, the more risk averse the culture becomes. It is a great time, though, for GM to refocus and reinvent itself, and I'll be watching with interest as the saga continues to unfold.

Managing What You Can't Measure

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"Not everything that counts can be counted, and not everything that can be counted, counts." - Albert Einstein

One of the most common beliefs in western business is the idea that, if it can't be measured, it can't be managed. This saying has been around for years and the philosophy behind it has guided decisions in actions in many organizations ever since.

I don't know who coined the phrase, but I'm guessing it has its roots in the mid-1940s when the Whiz Kids introduced the practice of management by numbers at Ford Motor Company. Although the Whiz Kids may have saved Ford from bankruptcy by increasing focus on numbers at the company, I believe the widespread number-obsession that resulted from their success is one of the practices leading American business into decline. We have far too many managers today who spend more time with spreadsheets than the people who are on their teams.

What Cannot Be Measured

It would be great if everything that is critical to a business could be accurately measured - it would make the job of managing so much easier. Unfortunately, organizations are too complex to assume they can be effectively led by implementing a handful of metrics.

There are numerous elements of an organization that must be managed and continually improved for a company to be successful. Very few, if any, of these elements can be accurately measured. Included in this group are the costs and benefits associated with:

• Employee morale
• Poor planning
• Fear in the workplace
• Teamwork
• Employee turnover
• Customer satisfaction
  
• Poor supplier relations

As an example, most would agree that there is a relationship between employee morale and financial performance. Although a company can implement an employee satisfaction survey and develop a measure based on its results, there is no way to measure how much (or even if) a five-point increase in morale would benefit the company. Any attempt to perform a cost-benefit analysis of an idea to improve morale would include too many assumptions and estimates to be valid.

Another example relates to the level of teamwork within an organization. Improved teamwork should lead to improved results, but how much improvement is anyone's guess.

A leader who believes in the if-it-can't be measured-it-can't-be-improved philosophy would have a tendency to ignore the above elements, although doing so would pretty much guarantee that he or she would not have to worry about leading the company for very long.

Numbers Have Their Place

I am not advocating the elimination of all key metrics for a company, because they do have their place. Besides the need to comply with legal obligations, numbers provide feedback on how the business is operating in terms of financial performance, budgeting, and cash flow. They are also very important in studying and improving the costs, quality, and cycle times of processes. It is critical, though, to understand how to gain knowledge from numbers and to realize that the numbers rarely, if ever, tell the whole story.

Organizations are highly complex, and believing that the most important aspects can be accurately measured oversimplifies and underestimates the role of a leader. If leadership consisted only of making decisions based on accurate measures, it would not be a very difficult to run a company.

Sales Goals Revisited

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A few weeks ago, I posted a column about the problems with goal-setting for individuals. Although I received comments from several people who agreed that the Western system of goal-setting and rewarding employees were destructive, I also received many responses from people who vehemently disagreed and felt that the process not only worked, but was necessary for success.

I'd like to revisit the subject and limit the discussion to goal-setting and reward systems for salespeople. The Stanford Graduate School of Business recently reported on a study conducted about the effectiveness of using sales quotas to motivate and reward salespeople (http://gsb.stanford.edu/news/research/Nair_sales.html). Based on an experiment at one Fortune 500 company, the researchers concluded that removing the sales quotas resulted in a 9% increase in overall revenues.

I'll agree that conducting an experiment at one company does not necessarily prove my point that setting goals is often destructive, but since the study involved salespeople - the largest group affected by goal-setting - the results merit further discussion.

When I posted the blog, I received several confidential comments from sales professionals who wrote that they disliked the system of quotas for a variety of reasons. They stated that quotas forced them to play games with the timing of orders in order to meet a target in a given period. They knew this was not in the best interests of the organization as a whole, but felt it was necessary to keep their jobs and/or achieve their bonuses.

I've never understood why we feel it is necessary to use money to motivate salespeople but don't use the same approach with accountants, receptionists, network engineers, and other positions within the company. Are salespeople lazy? Are they untrustworthy? Do we really feel that if we don't offer them carrots that they won't produce?

Gallery Furniture

Jim McIngvale is the founder of Gallery Furniture store in Houston, Texas. Many years ago, he called on W. Edwards Deming to help him improve his business. McIngvale often tells the story about Deming telling him to change his salespeople from commission-based pay to salary. After failing to convince Deming that it wouldn't work in the retail industry, he gave in and changed his pay practices and put his salespeople on salary. In The New Economics, Deming wrote about the results of the change. " . . . steady increase in sales. Older salesmen now help beginners. Salesmen no longer try to steal business from other salesmen. they now help each other . . . sales go up month by month. Moreover, profit per square foot of floor space advances even faster." McIngvale agrees.

Like so many elements in business, it goes back to effective leadership and hiring practices.

Unfortunately, I'm betting that the Stanford study will not lead to a wholesale change in Western business practices because if people don't feel there is a problem, they won't be looking for a solution or feel there is a need for change. My hope, however, is that more studies will be conducted on the subject and more examples of companies changing their practices will be publicized and, little by little, transformation will begin to occur.

The True Cost of a Layoff

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The world of business has become increasingly dependent on layoffs as a response to a downturn in business. There are layoff announcements virtually every day by companies, along with statements about the expected benefits of a reduced headcount.

Does a layoff really result in the savings to an organization that we think it does?

There are hidden costs that are often not considered (or are ignored) when making the decision to institute a reduction in force. These costs are difficult, if not impossible, to measure, but exist whether they are recognized or not.

Besides the severance and social charges associated with a layoff, the hidden costs show up in areas like productivity, customer service, and absenteeism. Since they are not measurable, however, they are easy to debate and not considered relevant in the number-obsessed world of business.

The hidden costs of layoffs include the following:

Increased Fear: Nothing can increase the level of fear within an organization like a layoff. Fear leads to a host of problems including reduced creativity, safe goal-setting, increased health problems/absenteeism, and a lack of willingness to take risks.

Loss of Teamwork: A layoff forces a person to worry more about his or her own situations than that of a co-worker. The atmosphere becomes more competitive as people do as much as possible to demonstrate their personal value to the company.

Loss of Customer Focus: When a layoff occurs, people turn their focus toward pleasing the boss instead of the customer. After all, it is the boss, not the customer, who makes the decisions regarding who will be released.

Drop in Morale: Layoffs make people feel expendable which, along with the loss of friends and coworkers in the organization, leads to a drop in morale. As a result, dedication is lost, and people will be less likely to contribute ideas for improvement or go the extra mile to help the company succeed.

Increased Employee Turnover: Because remaining employees will begin to worry about their own jobs, those who can find other work elsewhere will do so.

Loss of Trained/Experienced Employees: Losing employees means the loss of trained and experienced people to handle the increase in work when business returns. New employees lack experience with the process, systems and customers, and result in increased hiring and training costs (in addition to a higher incidence of quality problems).

What to Do Instead of Layoffs

Many business leaders have come to the conclusion that layoffs are necessary during a downturn in business. There are steps that companies can take to reduce the need for layoffs - even during a recession as deep as the one we've experienced over the last two years. These actions, which equate to cost management as compared to cost cutting, include the following:

1. Shorten the workweek and adjust pay accordingly;
2. Offer unpaid vacations/holidays;
3. Eliminate overtime;
4. Freeze all hiring;
5. Eliminate all bonuses and associated accruals;
6. Cut dividends;
   
7. Focus continual improvement activities on cost reductions.

In addition to the potential savings from the above actions, imagine the loyalty and dedication a company would earn from its employees if it manages to survive the recession without reducing headcount.

Sprinting Into a Death Spiral: Sprint Nextel Announces Layoffs

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Last week, Sprint Nextel announced plans to cut up to 2,500 jobs in an effort to - once again - reduce costs. This is the third round of layoffs since early-2008, when the company announced job cuts of 4,000 (they also eliminated 8,000 jobs in January, 2009). Employees who manage to survive this latest round of layoffs are probably thinking that it's only a matter of time before the next one occurs.

In 2008, Sprint lost 4.6 million subscribers. During the same period, AT&T and Verizon added 7 million and 5.8 million, respectively. Sprint also reported a $4.2 billion loss for the year. I'm thinking that addressing the problems at the company are going to require much more than cost cutting to resolve.

Remember that this is the company that, in 2007, made the much publicized decision to drop customers who make too many calls to customer service for help. Whether or not this decision made sense from a financial perspective, it did a lot of damage to the company's reputation for customer service.

According to their website, Sprint's mission statement is: To be No. 1 in providing a simple, instant, enriching and productive customer experience. Judging by the number of subscribers lost last year, I'm guessing that their customers do not think they are achieving their purpose.

The company needs to get back to the basics and focus on the customer instead of just costs. This means reflecting on its purpose and openly and honestly debating what it means to the company. Do they truly believe in it? Does the leadership team in place feel they can achieve it? If not, there is little chance of getting anyone else to believe in it either. Many companies, especially during the recession, have acted as if their purpose is to cut costs instead of provide value for their customers.

Once it is clear that the leadership team absolutely believes in the purpose and feels confident that it can be achieved, they need to identify the barriers that are preventing the company from being number one and start aggressively attacking them. This will require creating initiatives in critical areas like product & service offering, market development, process improvement, or people development. Chances are, there will be some pretty daunting barriers to overcome, but they need to be addressed for the company to become competitive again.

Ignoring the barriers is not an option - neither is continuing to focus on cost cutting. The company shrinks in size and the culture is damaged with each round of cuts and eventually there will be nothing left to cut without completely shutting down the company . . . which is definitely not the way to become number one.

Culture: The Critical M&A Element

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As we make our way to the other side of the economic downturn and confidence in the future increases, M&A activity will most likely return as a common fixture in the world of business. As this occurs, people involved in the process will make decisions like they always have, by evaluating deals in terms of market capitalization, cash flow, EBITDA, goodwill, etc. Unfortunately, many will ignore a critical element that can ultimately make or break the merger: culture.

Studies continue to show that a vast majority of mergers fail to ever achieve intended results. The intensity associated with the traditional due diligence process pretty well assures that the reason for failure does not lie in the financial analysis. Since culture is considered a subjective element, many people think it can't be effectively assessed. Whether assessed or not, though, cultural issues will appear after the deal is done, often resulting in excessive costs and stress that can greatly lengthen the time it takes for the merger to produce results - if not kill it altogether.

In my experience, I have found the cultural elements that interfere with a successful merger consist of the following:

• Misaligned values between the acquirer and acquiree;
• Misunderstood purpose of the new/larger enterprise;
• Poor communication with team members of the acquired company;
• Fear throughout the organization.
  

As a consultant, I spend a lot of time with companies helping to sort out problems encountered after an acquisition occurs. Too often, investors discover well after the merger takes place that there is ab enormous mismatch in culture between the acquiring company and the acquired company. And the longer these problems are allowed to continue, the more damage that is done to the organization as a whole.

What to Do

An organization, by definition, is a group of people who work together for a shared purpose in a continuing way. Along this line, a due diligence process is not diligent if it does not include a cultural assessment. Although there will never be a perfect match, an upfront cultural assessment will at least provide a picture of the issues to be faced after the merger takes place.

A cultural assessment consists of observation and a series of interviews with people at all levels of the organization to address the following topics:

• Values: Determine the values that exist within the target company (or whether a consistent set of values actually does exist). The objective is to understand how aligned the values are with the acquiring company and where problems may occur;
  
  
• Fear: Assess the level and causes of fear within the company. Fear will obviously exist in any organization that is being acquired, but the key is to discover whether it is a fundamental part of the organization's culture;
  
  
• Leadership Style: Ascertain whether the target company's leaders use a command and control or participative style of management. This will be important after the acquisition to give an idea of how much work will need to be done at the supervisor and management level;
  
  
• Teamwork: Understand the level of teamwork between people, departments, and facilities. If there are problems, it is important to understand what is interfering with people working together. Teamwork needs to be assessed at all levels within the organization;

As part of the cultural assessment process, it is also important to develop a plan to address the issues as quickly as possible after the acquisition. Cultural problems tend to grow exponentially - especially after a merger - and the longer the issues are allowed to continue, the greater the chance they will interfere with the performance of the new organization.

If a cultural assessment had not been performed before the merger, it is important to do one as quickly as possible afterward. Acquisitions generally consume an enormous amount of time and money, and the quicker the new organization begins performing as expected, the better for everyone involved. Unless the cultural issues are understood and corrected, however, the merger has no chance of living up to its potential.

The Case Against Goals

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For years, Western management has embraced the notion that setting goals and holding people accountable to achieving them is a vital component of effective leadership. According to a BusinessWeek article published last July, goal-setting is especially important during tough economic times like we're experiencing today.

In the midst of a decade in which the world of business is undergoing significant transformation, however, I wonder why leaders still hold tightly to the traditional goal-setting process, even though it continually causes more harm than good.

Among the problems caused by assigning goals to people and tying rewards to success (and punishments to failure), include the following:

1. Goals set for individuals often conflict with one another. As a result, goals are not consistent throughout the organization. Even though many of these goals may be met, there is little, if any, improvement in performance of the organization;
   
   
2. Holding people accountable or tying bonuses to the achievement of goals results in "safe" goal-setting and mediocre results. People will resist committing to stretch goals if it means they could lose their jobs or bonuses if they fail. People will accept aggressive goals enthusiastically if they know their job or bonus does not depend on meeting them;
   
   
3. When money is involved, people will pretty much do whatever it takes to meet goals set for them. Whether or not their actions are in the best interests of the company is secondary;
   
   
4. Tying the achievement of a goal to a bonus can turn the best of team players into dictators or Lone Rangers. If you really want to transform someone into a micromanager, set a goal with a strict deadline and tie the result to a fairly large bonus.

Real World Examples

A plant manager for a small valve manufacturer was held accountable for the shipping budget and given a 10% bonus each quarter the budget was met. The budget was met every quarter during the year, but was accompanied by increases in returns, customer complaints, overtime costs, and employee turnover - all resulting from the increased pressure to ship products at the end of each quarter.

A procurement manager was given the goal of reducing the annual costs of rental equipment (the equipment was mostly used to support new gas production facilities). The operations managers, on the other hand, were given uptime goals for the facilities they managed and felt that they needed to keep the rented equipment for long periods of time after startup to handle any problems that occurred early in the process. The conflicting goals resulted in a breakdown of the teamwork between procurement and production because the achievement of the goal by one could only come at the expense of the other. Further, neither could afford to care about the other's ability to meet their goal.

A product manager was given a goal to grow the business for a certain material in Asia and South America, and was given a bonus when certain targets were hit. He met all targets during the year by lowering the price of the material, when necessary, to get orders. One of the new customers for the material was an Asian company that purchased the material at a significant discount. The VP of Procurement for a large European customer (a sister division of the Asian company) found out about the lower price and pulled the business from the supplier. As a result, the product manager got his bonus but at the expense of the European business unit's performance and the company's gross margin.

Enough Already

There are countless other examples with similar results as the above. The key is to get the entire team to focus on improvement objectives that benefit the company as a whole. In line with this, objectives should be set system wide (facility, division, company) rather than at the individual level. Also, specific targets really do not accomplish more than mediocrity when the real goal is to improve as much as possible.

Remember that it is the performance of the company - rather than the individual - that matters. Attempting to manage the company by breaking it down into components rather than focusing on the whole creates a host of problems and oversimplifies the role of a leader.

As Douglas Adams once wrote, "If you try and take a cat apart to see how it works, the first thing you have on your hands is a non-working cat." The same philosophy applies to organizations.

How Happy Are You?

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How happy are you? If you are an American, chances are you are not - or at least not as happy as you were 30 years ago. You're also not as happy as people in many other countries. There are actually several studies regarding happiness published around the world and most agree that Americans are generally not happy people. How can this be? After all, the term American Dream was coined to characterize the U.S. as a nation with limitless potential for a richer and better life than anywhere in the world.

We have the largest GDP of any country in the world; the dollar is generally accepted as the standard global currency (at least for now); we own 2.2 cars and 2.4 televisions sets per household; and we get pizza delivered to our door. Shouldn't all of this make us happy? Apparently not . . .

The surveys and studies on the subject attribute the lack of happiness in the U.S. to a variety of factors; many of them rooted in the workplace. According to the International Labour Organization, Americans work more hours per week and have less vacation time than those in many other industrialized nations. researchers at Siena University in Italy have surmised that this extra work time negatively impacts our social relationships - an important component of happiness. Working overtime and/or spending significant time in traffic commuting to and from work leaves little time for friends and family. In other words, our drive to succeed and stay on top has resulted in a lack of balance in our lives. People are social by nature, and a lack of interaction can lead to unhappiness and depression.

The Fear of Layoffs

Another factor contributing to the lack of happiness is increased stress in the workplace. The fear of layoffs is always present in American business (even during good economic times), which adds pressure from a lack of job security. Add to this a weak system of social programs for the unemployed and an extremely expensive healthcare system, and the result is a feeling that losing one's wealth is a very real possibility.

Workers in Europe are much more protected than American workers. Layoffs in continental Western Europe occur much less often than in the U.S. and when they do happen, require a fairly significant severance to be paid. In the U.S., these types of laws do not exist, and when severance is paid to fired workers, it is often very temporary and fairly insignificant (laws obviously differ from state to state).

To make matters worse, the current downturn has put additional pressure on those who were not laid off to demonstrate increased value in the workplace, leading to more hours and even less time for social relationships.

Remembering Maslow

Virtually every business school around the world includes a something about Maslow's hierarchy of needs in management classes. In general, Maslow theorized that people need to achieve their basic needs (physiological and safety/security) before moving up to the more satisfying needs (love/belonging, self-esteem, self-actualization). he referred to the basic needs as deficiency needs, because not achieving then can result in negative feelings (stress, depression, etc.), while satisfying them does not necessarily create positive feelings. In other words, as long as we are worried about losing our job or financial security, we will never be happy. This situation will also prevent us from striving for the higher level needs, which can lead to increased happiness.

Since we have all been educated on Maslow's theory, I can only assume that many American leaders either do not believe in it or do not see the value in having happy employees. If they did, they would stop the practices that keep people worrying about their jobs and financial security. I have actually worked a CEO who believed that the fear of losing one's job was an effective motivator. This CEO also told me that he was working to cut back on the vacation time the company offered to employees.

It's a Question of Balance

I don't feel we will ever be happy unless our culture undergoes a fundamental shift toward a better work-life balance. I also feel that unless we start valuing and focusing on increasing the level of happiness, U.S. businesses will continue to decline, eroding our standard of living in pure economic terms (leading to a further decline in happiness).

The cost of labor puts U.S. businesses at a distinct disadvantage when competing with companies that have overseas operations. We have seen hundreds of thousands of jobs move offshore for this very reason. How we can compete, however, is by continually improving the products and services we offer, and by finding more efficient methods with which to produce and deliver them. This requires a high level of innovation and motivation throughout our workforce because to succeed, everyone has to contribute ideas for improvement. People will not be creative or motivated to contribute ideas, however, when they are stressed overworked, and worried about their jobs.

Is GDP a Complete Indicator?

There has been a debate among economists regarding whether or not GDP is a sufficient indicator of a nation's success because it does not include a quality of life component. In terms of pure numbers from the IMF for 2008, the U.S. ranks number one in the world, accounting for roughly 24% of the world's GDP, and is almost triple that of Japan, which is ranked second on the list.

We have to ask ourselves, though, if being number one really means anything if we are not happy. Are we better off than The Netherlands, for example, which is ranked 16th in GDP but much higher in the happiness index than the U.S.?

I truly believe that if we don't improve our happiness in this country, it will eventually sink us. We have got to change our lifestyles, which includes improving the workplace, to enable us to become a happier nation.

Improving our level of happiness will be a long process, but we have got to start making it a priority before the situation deteriorates to the point of severely impacting our prosperity and our lives. The components of a plan to increase happiness must include, among other things, improving job security, making the workplace more enjoyable, and improving the work-life balance. We may never totally self-destruct economically because of the sheer size of the U.S. market, but that is no reason to ignore the situation.

I had a conversation with a Swedish citizen recently who, based on what he's witnessed in the news media, characterized Americans as "grumpy people." I have to admit that it was difficult to argue with him.

The Declaration of Independence states that the pursuit of happiness is an unalienable right. This does not mean, however, that it is guaranteed. That part is left up to us.

Fixing U.S. Healthcare

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How do we fix the U.S. healthcare system? It's an issue that has sparked a great deal of emotion and debate among people for a variety of reasons. Perhaps the most important reason is that healthcare is an issue affects virtually every American in one way or another. If you have health issues, you care about the quality, cost and availability of treatment. If you don't have any current health issues, you care about how much it will affect your taxes and insurance premiums.

Another interesting angle in this debate is that it covers all facets of the issue from how to fix the system to whether or not it even needs fixing.

What is "Fixing?"

First of all, I think the term "fixing" needs to be eliminated from the issue. Healthcare is such a large and complex system that it is crazy to think it can ever be "fixed" - especially within a four-year term of an elected official. The problems run so deep and have become so ingrained that even if they could be fixed, the actions would be so drastic that they would create a shock wave that could bring the entire system crashing down.

The system needs to be improved on a continual basis - with a large number of relatively small steps so the improvements can become standardized and actually stick. Following a continual improvement approach will also assure that actions implemented result in improving the system instead of making things worse.

Unfortunately, the U.S. government does not work this way. The legislative process tends to be an all or nothing endeavor, and revisiting an issue that was addressed in a prior session of congress is looked at by the media and much of the public as a failure. . . which brings up another problem.

Fixing the healthcare system cannot be done solely by the government. It must include all stakeholders, including doctors, hospitals, insurance companies, drug producers, and most importantly, the consumers. Unfortunately, this makes the problem exponentially more complex and difficult to resolve.

What Needs to Happen

There are several components to an improved U.S. healthcare system. It is important to note that these are long-term steps - not short-term fixes, but if we start focusing on these things now, we should begin to have noticeable improvement within the next 10-20 years. It is not necessarily the American way to think that far ahead and take steps that will not bring immediate benefit, but a problem like this requires a drastic shift in thinking and it will take time.

The items listed below address the what more than the how of healthcare reform. The reasons for this include the importance of agreeing on what needs to happen before taking action and making changes. Also, some of these thoughts require a fundamental shift in thinking that will not happen overnight or through legislation. Thirdly, I'm desperately trying to keep this article short, as it could easily turn into a 1000+ page legislative document.

1. Eliminate Waste in Healthcare Processes

This involves adopting a lean (i.e., waste reduction) strategy for all facets of healthcare in order to reduce waste in processes and systems across the industry. Hospitals, insurance companies, Medicare, drug companies, testing labs, and medical practices should all learn about lean and how to apply it within their operations. It is generally accepted that a process that has not been analyzed for inefficiencies can consist of 85%-90% waste.

2. Eliminate Duplication in Testing Procedures & Equipment

There is an unbelievable amount of duplication within the healthcare industry which is expensive and adds very little value to the patient. As an example, there is an overcapacity of expensive diagnostic equipment in many hospitals. For competitive or status/ego reasons, neighboring hospitals may each purchase new test equipment instead of sharing unused capacity. This creates a need to use and pay for tests that may not be absolutely necessary in order to prevent the equipment from sitting idle.

3. Accept and Adopt More Alternative Treatments

A fundamental shift in thinking is necessary in the medical community, the U.S. government, and the public toward adopting more alternative treatments for patients. Many other nations, including Germany, are leading the way in the research and application of alternative medical treatments that cost much less and tend to result in fewer side effects for patients. This also involves providing accurate statistical information on the effectiveness of the various treatments so the patient can decide which procedure to accept.

It is strange to me that we refer to things like massage, acupuncture, and herbal remedies as "alternative," since many have been in use for much longer than "traditional" treatments.

4. Shift Focus from Reactive to Preventive Healthcare

The U.S. healthcare system is oriented toward disease rather than health. If we are going to reduce the cost of healthcare in this country, we absolutely need to shift the focus toward maintaining health instead of merely reacting when problems occur. We are overweight, overstressed, out of shape, and eat poorly - all of which lead to a slow deterioration of our health and increased need for expensive treatments and drugs. Without a fundamental shift toward preventive healthcare - meaning better nutrition, more exercise, reducing stress, and improving our level of personal happiness, we have no chance of ever significantly reducing the cost of healthcare.

This involves much more than regular physicals - since physicals are, after all, more detective than preventive. It involves things like replacing our donuts and fries with whole grains and vegetables.

The human body is a complex system, and like any system, optimization requires maintaining balance among all components. This is counter to our current system of focusing only on treating disease. We change the oil in our cars to prevent damage to the engine from occurring, but fail to follow a similar approach with our own bodies.

Okay, Let's Hear It

Being a highly emotional subject, I fully expect to receive more comments on this blog than from anything I have posted in the past. That's okay because, as someone once wrote, the more we disagree, the more chance there is that at least one of us is right. If we are to improve things in this country, however, we need more constructive - rather than divisive - debate.

Saturn Crashes

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It was very disappointing to hear the news about Roger Penske pulling out of the deal to acquire GM's Saturn division. Of all American automakers, I believe Saturn had the best chance of transforming into the type of organization that could compete with Toyota, Honda, and Hyundai, and it's really too bad to watch it go down without a fight.

At one time, Saturn was a very interesting company. It started in the mid-1980s completely isolated from the poisonous culture of General Motors as a way for the company to compete with Toyota and Honda. They utilized a separate dealer network, built a new factory in Tennessee, and hired a completely new "non-auto industry" workforce. The division also focused on creating a positive customer experience - something for which GM has never been known.

It Should Have Worked

The idea was good; the implementation was mediocre; and the strategy over the last 15 or so years was extremely poor. At some point, the infinite wisdom of GM executives kicked in and interfered with the development of the company. GM management decided to virtually stop the division's development of new vehicles and bring it into the company's fold. As a result, Saturn lost any of the benefits it once had and entered a death spiral from which it had no chance of escaping. The interesting experiment quickly became the stepchild of the company, and was strategically lost among the other GM divisions.

My disappointment with the latest news is that I don't believe the bad habits that Saturn has most assuredly developed since being rolled into GM's culture have been around long enough to be ingrained into the Saturn culture. It probably would not take very long to move the company back to its roots and create the type of culture that is necessary to compete with other automakers.

To survive in today's market, an automaker must be able to quickly develop new models that people want to buy while improving quality and lowering costs on a continual basis. Given the decisions and actions over the last several years, however, I don't believe that this is possible at GM because there are just too many cultural barriers in the way. The people at Saturn should know what it's like to be a small, flexible company, though, and separating it from the mother ship would give it the opportunity to rebuild without the interference of GM management.

To succeed, Saturn would need to have a flat organization structure that is light on management and heavy on leadership, innovation, and teamwork. It is not rocket science, but is only possible if the people in charge have the vision of what a customer-focused, flexible organization looks like, and the attention span to stick with it through good times and bad. I don't think GM has such a vision - but I was hoping that the Penske Group did.

When I hear people within GM say that Saturn was never viable or necessary, I can't help but think about the parallels with Hyundai Motor Company. Originally created to build cars for Ford, company management decided in the 1970s to design and build their own cars. In the mid-1980s, the Excel became the company's first car sold in the U.S. - a small, fuel-efficient model that, to be honest, was very poor quality. But the company stuck to its vision and continually improved its product offering and quality and is now a serious competitor in the global market. This could have been Saturn had GM management been patient enough to not interfere.

Just Make It Quick

The senior leaders at GM have failed in their ultimate responsibility as stewards of the company. General Motors has a colorful and interesting history that has been a major part of Americana for more than 100 years. The company that employed hundreds of thousands of Americans (and affected exponentially more), and includes the likes of William Durant and Alfred Sloan, has steadily declined through arrogance, greed and poor decision-making. As a native of Detroit, the situation makes me very sad and very angry.

Company officials announced that, with the collapse of the Penske deal, Saturn will close its doors by October, 2010. As sad as the news is for the U.S. auto industry, a quick exit may actually be better than the type of slow, lingering death that Oldsmobile and Pontiac have experienced. As we look to the future, though, I have to wonder whether a similar fate awaits Chevrolet, Cadillac, GMC, and Buick.

The Fallacy of Across-the-Board Cuts

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One of the most commonly used practices by business leaders during a downturn is across-the-board budget cuts. Within the last year, a large number of public and private organizations announced comprehensive cuts in an effort to demonstrate action to address the drop in revenues. As a business tactic, however, across-the-board cuts demonstrate nothing more than an absence of imagination, a lack of control over the business, and an unwillingness to take the time to dig in and make the difficult decisions.

Implementing consistent budget cuts in every area of the company assumes the organization is running perfectly consistent across all departments, which as we all know, is never the case. Forcing cuts across all areas punishes an demoralizes those in departments that are running well. If one team has put a lot of hard work and effort into continually improving the quality and productivity of its processes while another has historically run inefficiently, both shold not be treated equally in a downturn. The leader of the inefficient area should be forced to reduce his or her budget by a larger amount and implement immediate improvements. Plus, a manager or supervisor who has resisted efforts to continually improve processes in his or her area of responsibility should be included at the top of any list of headcount reductions.

Another problem with across-the-board cuts is that there are certain products or services that, for strategic reasons, may require additional funding, thereby necessitating a budget increase. An across-the-board reduction not only consumes the attention of those leading the strategically important areas to reduce spending, but it also misses an important opportunity for the company to pull itself out of the crisis in a way that actually strengthens the organization.

What's the Alternative?

Instead of implementing across-the-board cuts, the organization's leadership team really needs to conduct a strategic planning session to establish a consistent, in-depth understanding of its current situation and develop a limited set (two or three, at the most) of critical initiatives to pull the company out of the downturn.

The entire company needs to become focused on productivity improvements - without sacrificing quality - to assure any spending that does not add value is reduced (which actually should be done whether the organization is facing a downturn or not). Some areas of the organization will undoubtedly face cuts and leaders will need to identify ways to reduce spending immediately in a way that does not negatively affect the company's overall health. As mentioned above though, some departments, locations, or projects will need to receive additional focus and investment to speed up developments or increase capacity.

Avoid the Easy Solution

It is not difficult for an organization to be profitable during the good times. The true test of leadership occurs, however, when the economy contracts and the market for a company's products or services shrinks. When a crisis does occur, leaders must mobilize their teams to analyze the situation and determine the actions necessary to pull out of the downturn as quickly as possible. Responsible leadership dictates that the plan consider the need to survive along with the need to strengthen the organization for the future. This means avoiding the temptation to implement easy solutions, including across-the-board cuts.

Taking Your Eye Off the Ball

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Nothing can get you back to your roots faster than a significant and unexpected drop in profits. As the worst economic year in recent history starts to wind down and companies begin to think about budgets and plans for next year, it is a perfect time to reflect on several items, including how to be ready for growth when the economy rebounds, and how to strengthen the organization to avoid significant damage when the next downturn occurs. The best way to begin assessing these issues is to return to the fundamentals and assess whether or not the organization has strayed from its stated purpose.

Many companies are finding that the success they experienced in the years preceding the recession actually led them to unintentionally deviate from their intended purpose. Some of these organizations are now refocusing on their missions as a way to emerge from the current downturn and return to long-term profitability.

TOYOTA

When people lose - or are afraid of losing - their jobs, one would fully expect a drop in automobile sales. Because of this, it is not surprising to see Toyota's revenues and profits to fall during the current recession. What is surprising, however, is the extent of the losses incurred. For a company recognized as one of the best run over the last 50 years, the large loss Toyota incurred over the last year or so has been staggering.

So what really led to Toyota's decline? How can the company that invented lean, treats its suppliers as partners, and has been so successful for so long go from earning almost $22 billion in operating income to losing more than $5 billion within one year?

I believe that the problems at Toyota resulted from the company's leaders taking their eyes off the ball over the last 1-2 years. Overtaking General Motors as the world's largest automaker seemed to become their main objective. In the race to be number one, they forgot what got them to that point in the first place: making high quality cars that people want to buy (or, as their mission states, to enrich society through car making).

I regularly read about CEO Akio Toyoda and other Toyota executives working to get the company back on track. Back on track means that they were off track - and off track means that they strayed from the path that made them successful.

For years recognized as the producer of the highest quality cars in the industry, Toyota has experienced a fairly large number of quality problems over the last few years, which may be a result of the enormous growth the company has experienced recently. In the past, managers would rise up through the ranks and be well-versed in the Toyota way, which meant they understood the systems and process for assuring (and continually improving) quality and productivity. As they battled GM for the top spot in the auto industry, however, their growth exceeded their ability to develop leaders and their quality suffered.

Recent comments made by the company's senior leaders means that they recognize the need to refocus before things got out of control. It is very common in business for companies to lose their way and not realize that anything is wrong until the organization is in severe trouble - which can take several years. Understanding the need to refocus now means that Toyota can fix things before significant damage occurs.

WHOLE FOODS MARKET

Whole Foods started as a modest grocery store in Austin, Texas and, within 25 years, grew into a major chain with more than 250 stores in the U.S. and U.K. Throughout the last few decades, the company became synonymous with healthy, organic and unaltered whole foods. Customers paid more to shop at Whole Foods, but were usually guaranteed to find a wide variety of healthy items in return.

Just like many businesses offering premium priced products over the last year two years, however, Whole Foods experienced a drop in revenues and profits. Rather than cut costs, close stores, and lay off workers, however, company CEO John Mackey decided to revisit the company's roots to return to profitability. As with Toyota, it appears that Whole Foods got caught up in its own success and strayed from its purpose during a period of high growth.

In an August 5, 2009 article in the Wall Street Journal, Mackey admitted that the company sells, "a bunch of junk." He went on to say, "we've decided if Whole Foods doesn't take a leadership role in educating people about a healthy diet, who the heck is going to do it?"

As Whole Foods grew into more of a mainstream supermarket, it replaced much of its healthier fare with gourmet foods. When the recession hit and people became less willing to pay more for gourmet foods, however, the company suffered. This, along with a few other factors, led Mackey to look closely at the reasons for the company's problems and come to the conclusion that Whole Foods had strayed from its purpose.

By definition, whole foods are foods that are unrefined, unprocessed, and resemble what they were in nature. What Mackey found when he recently walked through one of the company's stores was a large selection of white bread, gourmet desserts, and refined oils - in other words, foods that are not even close to being whole - the company's roots.

I'm betting that Whole Foods will succeed in returning to its purpose - and profitability - because Mackey realized that the company lost its focus before too much damage was done. The company has not strayed for very long and, like Toyota, can fix itself by reminding its team members why the company was created in the first place and what made it successful.

IT'S NOT ROCKET SCIENCE

The point of all this is that companies must regularly take time to reflect on their purpose to keep from taking their eyes off the ball. Consumer tastes change, technology changes, economic conditions change, but a company's fundamental purpose - it's raison d'etre - should not.

Cars will continually change in terms of technology and design, but Toyota's commitment to enriching society through car making cannot change or its employees will become confused and its customers will cease to see a difference between a Toyota and any other brand of automobile. If Whole Foods strays from its purpose of providing healthy, organic, and unrefined foods, it will lose the customers who will begin to question why they are paying more for the same products offered at Kroger or Safeway.

Do you run the risk of straying? If it can happen at companies like Toyota or Whole Foods, it can pretty much happen anywhere.

The Role of Business in the Swine Flu Outbreak

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With concerns over a global swine flu epidemic growing, it will be interesting to see the role that businesses take in dealing with and preventing the spread of the disease. Although there is no doubt that companies can help the situation, I am hoping that business leaders at least cease some of the common practices that encourage the spread of illness among employees.

It is not unusual for organizations to award some type of bonus to people who do not use their sick days over a defined period. the bonus may be in the form of a direct payout for not using sick days or indirectly combined with some other type of reward (e.g., a bonus which, to be eligible, requires perfect attendance during the period). However the payout is packaged, it is basically an incentive to discourage people from using (or abusing) sick days.

This type of incentive makes perfect sense when you do not trust some employees. Offering a bonus to those who do not abuse sick days seems logical because it rewards the reliable workers while punishing irresponsible employees. What I have found, however, that this type of incentive actually results in increasing - rather than decreasing - the number of sick days taken by employees; especially during cold and flu season.

Some companies distinguish between excused and unexcused absences by limiting incentives to only those who present a note from a doctor after calling in sick. Besides creating a patriarchal culture within the company where managers are believed to be more trustworthy than workers, this type of policy forces ill employees to take the time, energy and expense to see a doctor when all they may need is to rest for a day or two to recover sufficiently to return to work.

Rewarded for Spreading Colds & Flu

Rewarding people for perfect attendance encourages employees to come into work when they are sick and need to stay home and rest. This results in spreading the cold or flu to other employees, thereby increasing the number of people who either take sick days or come into work when they, like the person who first came into work when he or she was sick, should stay at home. in a small company, this can be devastating because a large percentage of the workforce can end up sick. In one large company, I witnessed infections spread quickly - even to facilities in other countries - because sick employees were encouraged to come into work instead of staying home to recover.

One can imaging the effect this type of behavior can have on a swine flu epidemic. Whether faced with a worldwide epidemic or the common cold, however, managers need to understand that encouraging sick people to come into work shows a lack of regard for the health of all employees and can result in large costs for the company.

Why We Think It Works

Over the years, this type of incentive program has been very common among American companies for a variety of reasons.

1. Frustration:
   
   It is frustrating when someone calls in sick. We hire people because we need them to do a job and when they miss work without advance notice, it can cause problems with productivity, customer service, and scheduling, in addition to putting pressure on co-workers.
   
   An incentive to reduce absenteeism is an attempt to deal with the frustration that unfortunately can make the situation worse.
   
   
2. School Perfect Attendance Awards:
   
   
   Rewarding perfect attendance is a concept that many of us were first exposed to during our school days. Schools commonly award certificates to students who do not miss any days during the school year. As with companies, though, this type of incentive often results in sick students coming to school and spreading the sickness to other children - thereby increasing the total number of days missed by the student body (and teachers), as a whole.
   
   
3. Focus on Direct/Easy to Measure Costs:
   
   Determining the cost of absenteeism by measuring the number of sick days taken is easy, but unfortunately inaccurate. It is impossible to determine the costs associated with the lower productivity that results from sick employees coming into work. When multiplied by the number of employees who were infected by a person who came into work sick, the total drop in productivity can be staggering.
   
   
4. Hero Worship:
   
   Whether the result of a direct incentive or positive reinforcement, the American business culture tends to make a hero out of the employee who comes into work even when he or she is sick. We tend to look at anyone who is more committed to the company than their own health as a valued employee.
   
   I once worked with a company where the CEO publicly praised managers in the corporate office for coming into work when they were ill. As a result, people became afraid to call in sick and only did so when they were physically unable to come into the office. During flu season, infections spread quickly through the office resulting in a number of problems for the company.
   
   
5. Lack of Trust:
   
   If managers trusted the motives of the workers, they would believe them when they called in sick. This can be a reflection of the company's hiring practices and its process for screening employees. If the organization's values are clear and job candidates are carefully screened before hiring to assure they possess common values, management can trust the motives of those who are hired.
   
   Dealing with employees who appear to be abusing the company's attendance policy should be done immediately and on a case-by-case basis rather than through company-wide policy changes.

What Can Be Done?

There are a number of things that can be done to reduce absenteeism at a company. The most obvious is proactive health planning, which includes nutritional and health counseling to help employees strengthen their immune systems - especially during flu season. In addition to reducing employee sickness within the company, this type of initiative can improve productivity (by having healthier employees) and morale (by demonstrating that management cares about employees).

Another action that has been shown to help reduce absenteeism is to offer unlimited sick days to employees. When a specific number of sick days are offered, people think of them as something they are owed by the company and tend to believe they need to use them or lose them before the end of the year. An unlimited sick leave policy does not give the impression that people will lose days that they do not take.

As an example, a company I once worked with changed its sick leave policy from 10 days per year to unlimited days. Within the first year, the average number of sick days taken per employee was significantly reduced. [As mentioned earlier, care must be taken in any measure used to evaluate results from a change in sick leave policy]

Focus on Health

Basically, the way to reduce absenteeism due to sickness - including a flu epidemic - is to focus on health instead of sickness. Attempting to improve the situation through artificial means like monetary incentives will not help people get sick less often. On the other hand, providing information, counseling, and a healthier work environment can give those who are willing to change the ability to do so, leading to sustained improvement.

Some of the steps businesses can take to help prevent an H1N1 epidemic (and reduce the financial impact if one does occur) are as follows:

• Telecommuting: Encourage and help those employees who can work from home to do so. This obviously involved a certain level of trust that employees will, in fact, work when they are not in the office;
  
  
• Stress Management: Implement stress management and reduction programs for employees. Studies have shown that stress depresses the immune system and anything the company can do to help employees deal with stress can help to prevent (or reduce the effects of) the flu;
  
  
• Nutritional Counseling: Diet can help or hinder the effectiveness of a person's immune system. Counseling people on food choices and eating habits can help them strengthen their immune systems to fight off infections and disease, as well as improve their overall health;
  
  
• Education: Educate people on the ways to prevent the spread of disease. Provide hand cleaners and anti-bacterial wipes in convenient locations throughout the workplace;
  
  
• Stay at Home! Implement a policy that requires people to stay home when they are sick. Send people home when they are ill and come into work. Do not penalize people for using sick days and consider implementing an unlimited sick leave policy at least until the swine flu scare has passed. Also, eliminate the monetary incentives that encourage people to come into work when they are sick.

Executives have the responsibility to take a role in preventing the spread of swine flu - not only for the health of their employees (and themselves), but also to help reduce financial impact that a flu epidemic can have on an organization. Implementing the above actions will not be easy for American companies because they require a fundamental change in the way managers think. The fear of an H1N1 global pandemic, however, may be just the thing that stimulates this type of change in thinking.

The Role of Business in Preventing a Swine Flu Epidemic

Tweet

With concerns over a global swine flu epidemic growing, it will be interesting to see the role that businesses take in dealing with and preventing the spread of the disease. Although there is no doubt that companies can help the situation, I am hoping that business leaders at least cease some of the common practices that encourage the spread of illness among employees.

It is not unusual for organizations to award some type of bonus to people who do not use their sick days over a defined period. The bonus may be in the form of a direct payout for not using sick days or indirectly combined with some other type of reward (e.g., a bonus which, to be eligible, requires perfect attendance during the period). However the payout is packaged, it is basically an incentive to discourage people from using (or abusing) sick days.

This type of incentive makes perfect sense when you do not trust some employees. Offering a bonus to those who do not abuse sick days seems logical because it rewards the reliable workers while punishing the irresponsible employees. What I have found with this type of incentive, however, is that it actually results in increasing – rather than decreasing - the number of sick days taken by employees; especially during cold and flu season.

Some companies distinguish between “excused” and “unexcused” absences by limiting incentives to only those who present a note from a doctor after calling in sick. Besides creating a patriarchal culture within the company where managers are believed to be more trustworthy than workers, this type of policy forces ill employees to take the time, energy and expense to see a doctor when all they may need is to rest for a day or two to recover sufficiently enough to return to work.

Rewarded for Spreading Colds & Flu

Rewarding people for perfect attendance encourages employees to come into work when they are sick and need to stay home and rest. This results in spreading the cold or flu to other employees, thereby increasing the number of people who either take sick days or come into work when they, like the person who first came into work when he or she was sick, should stay at home. In a small company, this can be devastating because a large percentage of the workforce can end up sick. In one large company, I saw infections spread quickly – even to facilities in other countries – because sick employees were encouraged to come into work instead of staying home to recover.

One can imagine the effect this type of behavior can have on a swine flu epidemic. Whether faced with a worldwide epidemic or the common cold, however, managers need to understand that encouraging sick people to come into work shows a lack of regard for the health of all employees and can result in large costs for the company.

Why We Think It Works

Over the years, this type of incentive program has been very common among American companies for a variety of reasons.

1. Frustration It is frustrating when someone calls in sick. We hire people because we need them to do a job and when they miss work without advance notice, it can cause problems with productivity, customer service, and scheduling, in addition to putting pressure on other employees.
   
   An incentive to reduce absenteeism is an attempt to deal with the frustration that unfortunately can make the situation worse.
   

2. School Perfect Attendance Awards Rewarding perfect attendance is a concept that many of us were first exposed to during our school days. It is very common for schools to award certificates to students who do not miss any days during the school year. As is does with companies, though, this type of incentive often results in sick students coming to school and spreading the sickness to other children – thereby increasing the total number of days missed by the student body (and teachers), as a whole.
   

3. Focus on Direct/Easy to Measure Costs Determining the cost of absenteeism by measuring the number of sick days taken is easy, but unfortunately inaccurate. It is impossible to determine the costs associated with the lower productivity that results from employees coming into work sick. When multiplied by the number of employees who were infected by a person who came into work sick, the total drop in productivity can be staggering.
   

4. Hero Worship Whether the result of an direct incentive or positive reinforcement, the American business culture tends to make a hero out of the employee who comes into work even when he or she is sick. We tend to look at anyone who is more committed to the company than their own health as a valued employee.
   I once worked with a company where the CEO publicly praised managers in the corporate office for coming into work when they were ill. As a result, people became afraid to call in sick and only did so when they were physically unable to come into the office. During flu season, infections spread quickly through the office resulting in a number of problems for the company.
   

5. Lack of Trust Offering an incentive that discourages the use of sick days shows a lack of trust in employees because if you trust their motives, you would believe them when they called in sick. This can be a reflection of the company’s hiring practices and its process for screening employees. If the company’s values are clear and job candidates are carefully screened before hiring to assure they possess these values, you should be able to trust the motives of individuals.
   
   Dealing with employees who appear to be abusing the company’s attendance policy should be done immediately and on a case-by-case basis and not through companywide policy changes.
   

What Can Be Done?

There are a number of things that can be done to reduce absenteeism at a company. The most obvious is proactive health planning, which includes nutritional and health counseling to help employees strengthen their immune systems – especially during flu season. In addition to reducing employee sickness within the company, this type of initiative can improve productivity (by having healthier employees) and morale (by demonstrating that management cares about employees).

Another action that has been shown to help reduce absenteeism is to offer unlimited sick days to employees. When a specific number of sick days are offered, people think of them as something they are owed by the company and tend to believe they need to use them or lose them before the end of the year. An unlimited sick leave policy does not give the impression that people will lose days that they do not take.

As an example, a company I once worked with changed its sick leave policy from 10 days per year to unlimited days. Within the first year, the average number of sick days taken per employee was significantly reduced. [As mentioned earlier, though, care must be taken in any measure used to evaluate the results from a change in sick leave policy]

Focus on Health

Basically, the way to reduce absenteeism due to sickness – including a flu epidemic – is to focus on health instead of sickness. Attempting to improve the situation through artificial means like monetary incentives will not help people get sick less often. On the other hand, providing information, counseling, and a healthier work environment can give those who are willing to change the ability to do so, leading to sustained improvement.

Some of the steps businesses can take to help prevent an H1N1 epidemic (and reduce the financial impact if it does occur) are as follows:

• Telecommuting: Encourage those employees who can work from home to do so. This obviously involves a certain level of trust that employees will, in fact, work when they are not in the office;
  

• Stress Management: Implement stress management and reduction programs for employees. Studies have shown that stress depresses the immune system and anything the company can do to help employees deal with stress can help to prevent (or reduce the effects of) the flu;
  

• Nutritional Counseling: Diet can help or hinder the effectiveness of a person’s immune system. Counseling people on food choices and eating habits can help them strengthen their immune systems to fight off infections, as well as improve their overall health;
  

• Education: Educate people on the ways to prevent the spread of disease. Provide hand cleaners and anti-bacterial wipes in convenient locations throughout the workplace;
  

• Stay Home! Implement a policy for people to stay home when they are sick. Send people home when they are sick and come into work. Do not penalize people for using sick days and consider implementing an unlimited sick leave policy at least until the swine flu scare has passed. Also, eliminate monetary incentives that encourage people to come into work when they are sick.
  

Executives have the responsibility to take a role in preventing the spread of swine flu – not only for the health of their employees (and themselves), but also to help reduce the financial impact that a flu epidemic can have on an organization. Implementing the above actions, however, will not be easy for American companies because they require a fundamental change in the way managers think. The fear of an H1N1 global pandemic, however, may be just thing that stimulates this type of change in thinking.

Breaking Down the Silos

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GETTING PEOPLE TO WORK TOGETHER & SHARE BEST PRACTICES

One of the biggest issues facing leaders today is figuring out how to get people in different areas of the company to work together and share best practices. Whether the people are in different departments or locations, a lack of teamwork is a frequent problem and is difficult to resolve.

Whenever I am asked to help with this type of problem, I ask the following questions to the leaders to probe into the organization’s culture and leadership practices.

· How do you evaluate the performance of people and regions?

· What do you do if a particular location or person does not seem to be meeting objectives?

· When meeting with people or visiting different locations, what do you generally talk about?

· What is the company’s purpose? Is it clearly understood throughout the company – i.e., in different locations? How do you know?

In many cases, the answers to these questions point to the company’s leadership practices as the main cause of the problem of a lack of teamwork and sharing. The company’s system for evaluating performance, in addition to the actions and behaviors of management tends to inadvertently create barriers that interfere with the desire and ability of people to share information and/or accept ideas from others.

Evaluating Performance

It is important to exercise care when using measures to drive behavior because it just might work – although not necessarily in the way you intended. Holding a sales manager accountable for sales in his region tends to drive him to focus on sales in his region – even if it hurts sales in another region.

The following are actual examples of failed attempts to improve performance by holding people accountable to goals based on individual or localized measures.

· In a mid-sized global manufacturing and service company, the CEO measured the revenues generated in each region and made it clear to the sales managers that they were responsible for increasing sales in their assigned territories. Bonuses were based on exceeding forecasts and whenever he visited the different regions, he would meet with the team and review their YTD results and plans for growth.

The sales manager in Slovakia was an expert in a particular application of one of the company’s products. Although there were similar opportunities in other regions, the other sales managers needed the support of this person to capitalize on them. Because of pressure from the CEO, however, the Slovakian sales manager could not afford to take time away from his region to help others. He was aware (and frustrated) that this type of behavior did not benefit the company as a whole, but he felt he was doing what was necessary to meet his objectives and keep his job. As a result, he met his targets (as did the other regional sales managers), but the company missed out on a fairly easy opportunity to grow revenues.

Other companies I have worked with experienced similar results. Salespeople fighting over credit for cross-regional accounts, and different regions of the same company competing with each other for business are common results from the pressure to meet targets set by leaders.

· A purchasing agent in a manufacturing company was evaluated on containing costs for the products she purchased. Her main responsibility was to purchase pipe used by the production department for one of the company’s main products. She met her goal by procuring pipe from a variety of sources which saved on material costs, but resulted in a great deal of variation in the quality of pipe, as well as late deliveries. As a result, the production department experienced late shipments, increased cycle times, and additional labor costs to process the pipe. The situation hampered the ability of the production people to meet their targets and resulted in a deterioration of teamwork between procurement and production.

Organizations are far too complex to assume that evaluating performance of people or regions based on isolated or localized measures will result in optimizing the results of the whole. The issue has psychological and sociological ramifications which results in complications that have to be dealt with carefully.

If you take a cat apart to see how it works, the first thing you have in your hands is a non-working cat. – Douglas Adams

It is not possible to effectively lead an organization by breaking it into pieces and setting goals for each piece. What matters is the performance of the entire organization . . . not the individual people or departments.

In the sales manager example above, the CEO needed to stop worrying about the individual salespeople and focus instead on the sales of the entire organization. The objective of the regional sales managers should be to increase revenues for the entire organization – which by the way also involves procurement, production, engineering, and finance, as well as all sales managers. If the CEO made it clear to the team that their objective was to increase sales for the entire organization, the sales manager in Slovakia would feel empowered to help sales managers in other regions increase business. He would also feel better about his job knowing that he is helping other salespeople improve overall company’s results.

It’s About the Team

Getting people to work as a team requires treating them as a team. On the other hand, when you measure and hold people accountable as individuals they will act as individuals.

Although it seems simple, this premise tends to be difficult for many leaders because we are taught in business schools about the importance of performance reviews and increasing accountability to improve performance. Getting people to work together, however, requires holding the team – and ultimately the team’s leader – accountable for achieving results.

What About the Stars?

When you begin to manage and reward the team instead of individuals, there is a chance you will lose the “superstars” who like to work alone and be rewarded for individual effort. In every instance where I have seen this happen, however, the company actually improved performance after a superstar left. In the right environment, teams are much more effective than individuals – even if those individuals are superstars. Ridding the organization of those who put their own needs ahead of the company as a whole tends to unleash the talents of the team, enabling amazing things to occur. Superstars tend to shine in dysfunctional organizations where people do not work well together. Once teamwork starts to improve, the superstar starts to hamper, more than help performance.

Try It . . . It Really Does Work

When I work with organizations on teamwork-related issues, I suggest initially implementing changes in a pilot area to help reduce the apprehension of the leaders to change the way the organization is managed. In the sales example, the CEO agreed to change the high-level measures for the European business unit and focus on revenues and EBIT for all of Europe instead of country-by country. Regional measures remained, but were only used by sales managers and their teams to determine what was happening at the local level and to determine if action needed to be taken to improve results.

As a result, the level of teamwork between sales managers improved, and by year-end, revenues exceeded forecast by 27%. Sales actually declined in some regions because the team decided to focus on the areas where the biggest growth opportunities and higher margins existed – which contributed to EBIT surpassing budget by 57%. Customer satisfaction also increased because people in different regions were now working together to serve needs and resolve problems.