Back to Basics: The Key to Improving Performance

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After many years of working with organizations in different industries on a variety of issues, I have discovered that the most common reason for performance falling short of expectations is a lack of attention to the basics.  I have seen numerous initiatives fail because of misalignment between, or inconstancy within, a company's purpose, values, objectives, and reward systems.

Consider the following objectives:

• Improve EBITDA by 20% over the next two years;
• Achieve compounded double-digit revenue growth each year for the next five years;
• Introduce 5 new products to the market next year.

In each of the above examples, the organizations failed to achieve the stated objectives.  This was not because of a lack of talent or desire to meet the goals.  In each case, managers responsible for the objectives felt extreme pressure to succeed but were handcuffed by the problems related to trust, teamwork, reward systems, and overall company focus.

An organization cannot perform at a level beyond its capabilities for a sustained period of time - and its capabilities are determined by the basics.  Setting objectives that are beyond capabilities will do little more than create frustration or apathy among those assigned the responsibility to meet them.  You can challenge, pressure, or cheer as much as you want but unless you deal with the fundamental roadblocks to success, you will end up sorely disappointed.

In sports, it's common for individuals and teams to address a slump by getting back to the basics.  In tennis for example, correcting poor performance requires thinking about footwork, watching the ball, and focusing on each point.  Attempts to ascend to a new level of performance will be fruitless without mastering these basic aspects of the game.

Getting Back to the Basics

Addressing the fundamental issues in an organization can take several different paths depending on the company's situation, but generally involves the five areas listed below.

• Reaffirm & Recommit to the Purpose:  Assure that the organization's purpose - including mission and vision - is absolutely clear.  Obtain commitment to the purpose at all levels and develop objectives that support its achievement;
   
• Clarify & Commit to the Values:  Define the company's DNA and assure that the hiring process includes some type of assessment to assure candidates possess the desired values.  It is important to understand that, regardless of how successful an individual appears to be performing - if he or she does not follow the same values as the rest of the organization, damage will occur;
   
• Align Focus on the Customer:  In relation to the purpose, assure that everything the organization does is focused on the customer.  As Gene Perkins, retired Group Vice President-Flow Products at Emerson Electric Company once said to his management team, "if we're not thinking about the customer first in everything we do, we might as well fold up our tents and go home;"
   
• Increase Understanding of the System:  Especially at the management level, people must understand the company's overall system (i.e., how the company serves the customer) and work to continually improve how materials and information flow through the system.  Managers must be company-focused rather than functionally-focused;"
   
• Align Measures & Rewards with Direction:  Once the direction and focus has been established, make absolutely sure that there is close alignment between them and the reward systems in the organization.  Be continually on the lookout for rewards that may encourage undesirable behavior.

It is very easy for an organization to stray from the above areas.  There is often so much going on and everyone is so busy that it is easy to be distracted with internal issues that do not tend to be as glamorous as improving EBITDA by 20% or achieving double-digit revenue growth.  Without a strong foundation on which to build the business, however, achieving and sustaining any type of significant improvement will not happen.

Successful Job Search: Getting the Interview

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It's been a few years since the worst economic downturn since the Great Depression began and a large number of highly talented people remain unemployed and frustrated at their lack of success in the job search process.  Many regularly submit resumes for positions for which they feel perfectly qualified and receive only electronically-generated rejections - if they receive anything at all from the hiring company.

From a pure numbers perspective, it is easy to understand why this is happening, but understanding the reasons does little to reduce the frustration and depression that many searching for jobs are feeling.  It comes down to the fact that anyone applying for an open position needs to find a way to stand out from the crowd and get noticed by those doing the hiring.

Below are my thoughts on the job search process.  Although I would never describe myself as an expert on the subject, I have witnessed these steps achieve a 40% success rate in getting a positive response from the hiring company.  Keep in  mind that these steps will only help you get a dialogue going with someone in the company - getting beyond the initial contact is up to you.

Resumes are Secondary

Most people focus on the resume or CV as the critical part of the job search.  Resume writing services are booming these days with the promise of providing a CV that will set a candidate apart from the thousands of others who may be applying for an open position.

I believe that the resume is actually secondary in finding a job.  Attempting to communicate the ways in which you will benefit the company through a resume puts the responsibility on the person reading it to make the connection between your background and the needs of the job.  Regardless of how impressive they may be, a listing of qualifications, accomplishments, and keywords will not set you apart from others.  You really need to find a clear and concise way to communicate to people exactly how you will help the company.

Your resume will come into play after you convince the hiring company that you can provide what they need.  With this in mind, it is critical to have a clear and well-organized CV - and one that is specifically tailored to the open position - but it is not the most important part of the job search process.

The Critical Steps

With this in mind, a successful job search process should include the following elements:

1. Read the Job Description very closely to gain a deep understanding about the company's needs.  Use the job description along with other information (e.g., website, annual report, etc.) to look for themes that identify what the company is truly looking for in the position.  Highlight the areas that identify critical issues and those where you have particular expertise.
    
2. Develop a Plan that clearly addresses the issues identified specifically in the job description and, more generally, in your research.  Present a basic overview (exhibit 1) and include a more detailed explanation of the steps that need to be taken to be successful (exhibit 2).
   
   
   
   Sections of the plan will differ depending on the specific position.  The plan shown in the example is for a Lean Director position.  It would obviously need to change for other jobs (e.g., for a VP of Operations, the categories may include such things as People Development, Process Improvement, Product Development, etc.).  It depends entirely on the scope of the position and the needs of the organization.
   
   
   
    
3. Identify the Hiring Manager.  With apologies to my friends in the HR field, most of the people who screen resumes do not really understand the position well enough (or have the time needed) to look beyond what is written in the job description.  In many cases, a junior person or computer filters the resumes to screen out those that don't have the correct keywords.  Your chances diminish greatly if you don't send your information to the person to whom the position reports.
   
   Depending on the level of the position, the hiring manager can be located through sources like LinkedIn, the company's website, or a web search.  This can take time, but is extremely important to assure you reach the correct person.  For higher level positions, don't be afraid to send the plan directly to a C- level person (i.e., CEO, COO, CIO, CFO, etc.).
    
4. Send the Plan to the Hiring Manager.  This step requires patience and creativity to determine the company's email address format.  In some cases, the domain name for the company's website differs from the domain for email addresses, so it may take several attempts to finally get it through.

I can't take full credit for the above approach.  A friend of mine is a lawyer and told me that pursuing a position at a law firm often requires submitting a business plan to identify the target clients the candidate can bring to the firm and how much business these potential clients represent.  Combining this with my own experience leading an organization, I thought that a similar approach would make sense for those in other professions as well.  When I led an organization and hired for an open position, I was much more interested in how well the candidates understood our needs and how they could help than what was in their CVs.

The drawback of this process is that it takes a lot more time to apply for a position and you will probably not be able to apply for more than three or four positions per week, at best.  Besides getting you an interview, however, the plan can also provide a point of reference for discussion during the interview and help you get started once you land the job.

Good luck!  Everyone deserves a job that is challenging and rewarding.

Fast Does Not Mean Cutting Corners

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I believe that, to be successful today and in the foreseeable future, companies will need to continually increase speed and flexibility.  Changes are occurring faster than ever, and those companies that are able to adapt to - and drive - changes quickly will be much more competitive than those that are not.

Whenever I  mention the subject of improving speed and flexibility, however, I inevitably receive comments about the dangers of making decisions and acting too quickly.  The comments often include examples where efforts to increase speed have resulted in major quality or safety problems.

In my view, however, "fast" does not mean cutting corners or operating out of control - since dealing with quality or safety issues does little to improve speed or the ability to adapt to changes int he environment.  Being faster and more flexible actually requires improving focus and perfecting processes on a continual basis.

Successfully streamlining processes and systems requires understanding and continually improving the activities that add value to customers while reducing or eliminating any activities that do not.  And when the focus is on customer value, cutting corners on safety or quality is not an option.

Speed Requires Stability

When driving, the more stable the car, the safer it is to drive at high speed.  In business, the more stable the organization - in terms of purpose, values, leadership styles, employee turnover, and focus - the safer it is to increase speed.

The loss of control, along with the increased variability in processes and results caused by impatience and short-term thinking can quickly throw an organization off-course.  These are the behaviors that drive people to think that being faster means cutting corners instead of strengthening and improving processes.

Focusing on value for the customer can speed up decision-making and processes while prventing the haphazard cost-cutting measures that too often lead to financial trouble, industrial accidents, encvironmental disasters, and deaths.

Keep the Focus Clear

Speeding up an operation requires constant vigilance for anything that interferes with processes operating perfectly every time.  Interference in processes can result from design, handoffs between people, or a variety of other technical, organizational, or cultural issues.  Because of this, it is important for a company to develop the ability to honestly and objectively assess itself for those things that slow it down.

When leaders maintain stability in the organization's basics, and focus attention on improving speed and flexibility, remarkable things can happen.  The improvements in agility will be accompanied by reduced costs, increased customer satisfaction, and a safer operation.

Does Size Matter?

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Is There a "Best" Size for a Company?

I had coffee with a colleague awhile back and we got into a discussion on whether there is a "best" size for an organization.  Small companies are fast and flexible but often lack the capital needed to grow.  Although large companies tend to be slow and unable to deal with change effectively, they have the capital and geographic reach that small companies lack.  A large company also has the ability to crush or acquire a smaller competitor that is seen as a threat, if the threat is recognized early enough.

An interesting observation about this subject is, as a company grows, it tends to become slower and less able to do many of the things that made it successful in the first place.  Additional layers of management and more formalized systems can slow the decision-making process to the point where it becomes unable to respond quickly to changes in its environment.  Another common characteristic of companies as they grow is a tendency to become more risk averse in an effort to meet conservative financial targets or protect share price.

Does it Matter?

So what is the optimum size for a company?  Does it depend on industry?  There are obviously some industries like consumer electronics where, no matter how large a company is, it can't survive without the ability to quickly adapt to, or drive, changes in the market.

These are interesting questions to debate, but I wonder if they really have answers.  What if an organization can remain fast and flexible as it grows?  Think about how successful a company could be if it could continue to be as fast and flexible as it was when it was small and growing.  There are not many examples of large, fast-moving companies, but that does not mean that it is not possible (or important).

A Matter of Survival?

Like most aspects of leadership, it's an issue of focus.  When leaders of an organization determine that speed and flexibility are competitive issues, they will give it the focus they need to make them happen.

I believe that success in the years ahead will require the ability to drive and adapt to changes quickly and effectively.  The world is changing at such a rapid pace that the organizations that are unable to adapt will not be competitive.  Developing the capability will require addressing areas like speed of new product development, flexibility of processes, implementing and upgrading information systems, etc.

Increasing speed and flexibility for many organizations will require transformation.  For too long, we have become obsessed with the idea of growth as the focus of a business.  Investors tend to lose confidence in companies that experience slowing growth [refer to Fortune magazine articles on Google and 100 Fastest-Growing Companies] which can cause problems when, in an attempt to appease the financial community, a company shifts its focus toward growth through acquisitions that are not necessarily strategic or sensible.

If the focus is on developing the ability to drive change through innovation, and respond to change by increasing flexibility, the growth can occur organically through increased competitiveness.  Although organic growth in revenues does not tend to match the growth that can occur through acquisition, it can be much more profitable and less destructive to the company and its culture.

Innovation and speed do not need to be limited only to companies like Samsung, Apple, and Facebook.  Every company has the ability to improve flexibility and adapt to changes in its environment.  Size does not need to be a deterrent to change.  It is a company's characteristics and capabilities, not its size, that determines its flexibility.  All it takes is recognizing the need, being sensitive to the friction created as the company grows, and continually addressing the elements that interfere with the ability to change.

Getting Support from Support Functions

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"Everyone here has a customer.  And if he doesn't know who it is and what constitutes the needs of the customer . . . then he does not understand his job."  - W. Edwards Deming

One of the most difficult jobs of a leader is getting everyone in the organization to work toward the same objectives.  The issue is especially difficult in support functions where team members are generally isolated from customers, which makes it harder to create a connection between work performed and the success of the business.

The problem is magnified even more when the company utilizes a shared services model (i.e., decentralized business units with centralized support functions).  I've heard many business unit leaders over the years complain about poor quality service and lack of support from corporate functions.  In many cases, business units hire their own support people - even if it results in the company doubling up in some positions - in an effort to have more control over these functions.

With the focus and pressure on reducing costs these days, more companies are implementing the shared services concept and combining support functions into a single team in an effort to reduce the company's costs of providing support.  If not done correctly, though, this concept can actually increase costs due to poor quality service or slow response to operating units.

Establishing and communicating the company's purpose can help, but it's not enough.  It is also important to show people how their roles align with the purpose and, without a systems thinking mindset, this can be very difficult, if not impossible.

It's About Value for the Customer

The key to reducing the total cost without sacrificing the quality of support is to continually focus on value.  Focusing on value to the customer is what keeps everyone aligned on what is truly important, and helps make decisions regarding where to invest and where to cut much easier.

It is the entire company's responsibility to serve the customer, and doing it effectively requires a systems thinking mindset by those in leadership positions.  But merely telling people to be systems thinkers is not going to make it happen.  Increasing understanding of the company's high-level system requires education and coaching on a continual basis . . . and the value stream map is a great place to start.

A company's value stream is the chain of events that the transforms knowledge, information, and materials into goods or services to customers.  The value stream is how the company serves its markets and makes its money.  In theory, a company should not do anything that is not directly related to the value stream because it does not provide value to customers or bring in revenue.  Even those functions that exist for purely regulatory reasons should be oriented directly toward supporting the value stream's efforts to serve the customer.

The better people understand the company's value stream (i.e., the high-level system), the better they will understand their jobs.  It will become much clearer to everyone why their job exists, who they serve, and where improvement efforts need to be focused.

The Value Stream Map and Shared Services

Once developed, the value stream map (a diagram, or flowchart of the value stream) becomes the foundation to implementing an effective shared services function.  The internal service providers are just as critical to the company's success as the operations functions.  Without an understanding of the value stream, however, it is difficult to know exactly what value service functions provide to the organization, and particularly how to improve quality and reduce costs.

With this in mind, implementing an effective shared services function requires addressing the following:

• Clarifying expectations that serving customers is everyone's responsibility, and those who do not directly serve external customers are responsible to support those who do (i.e., their internal customers);
• Develop the purpose of the shared services function.  Since this is most likely a new approach for the company, it is important to bring support team leaders together to develop the purpose and assure that, once developed, the purpose is clearly communicated throughout the company;
• Map the company's value stream.  Develop the high-level value stream map for the company and clarify how the shared services functions fit into the system.  Follow up with more detailed maps to show how each support function serves the value stream, keeping in mind that support functions can also serve each other;
• Understand the barriers to effective teamwork.  There are likely obstacles that will interfere with getting people to focus completely on serving the value stream.  These obstacles (e.g., fear, or objectives and rewards that discourage serving internal customers) need to be clearly identified and addressed.

Outsourcing services or cutting support budgets will not, by themselves, result in improving company performance.  It is critical to clearly understand the interactions between functions that exist and how these relationships contribute to serving the external customer.  It is only with this level of understanding that costs can be reduced while service to customers is improved.

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Hire Trustworthy People . . . Then Trust Them

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"Every knowledge worker in a modern organization is an 'executive' if, by virtue of his position or knowledge, he is responsible for a contribution that materially affects the capacity of the organization to perform and to obtain results." - Peter Drucker

What would happen if you offered your employees an unlimited number of vacation days?  Could you trust that people would not take advantage of your generosity?  Would work still get done?  As crazy as it may seem to some, DVD and movie rental company Netflix did just that and, by every indication, it's working just fine.

According the a story in the August 14 edition of the Telegraph [LINK], Netflix stopped counting vacation days for its salaried employees back in 2004.  Reasons given for the decision include the fact that employees regularly spend personal time (e.g., nights and weekends) handling company-related issues and responding to email.  Also, since hours worked per day were not tracked, leaders decided it didn't make sense to track vacation time either.  These are logical reasons, but I believe it comes down to something much simpler:  Netflix hires trustworthy people and trusts them to do their jobs.

It's About Company Objectives, Isn't It?

Many managers forget that it's more about quality of work than quantity of hours that determines the value of an employee.  If an individual is getting his or her job done, and is successfully contributing to the company's objectives, it doesn't matter how many hours or days is spent in the office.  For some reason, though, we tend to think that if people are not putting in 40+ hours per week, they are not valuable to the company.


If a company is effective in recruiting talented and trustworthy team members who fit into the culture, it does not need tight policies and controls.  In fact, the tighter the controls, the less effective creative and energetic people tend to be.  When expectations are clear and barriers to success are removed, people regularly surpass objectives.

The Importance of Culture

Netflix developed a presentation to describe their culture that is widely available on the internet.  As I read through the presentation - all 128 pages of it - it became clear that Netflix leaders understand the type of company they want to be and work tirelessly to develop - and protect - their culture.  The presentation, titled Reference Guide on our Freedom & Responsibility Culture, is worthwhile reading for anyone in business.

It's the Overall Approach - Not the Perks

Applying the Netflix formula for success does not mean copying what is in the presentation.  Unlimited vacation days only works because it is a component of the company's total approach to business.  It means taking care of the things that give direction and inspire people to act.  These include:

1. Understand the Purpose:  Clearly understand why the company exists - i.e., who the customers are and what value customers get from doing business with the company.  Make sure that decisions and actions support the purpose;
2. Set Direction:  Establish a vision for the future that inspires and excites people to make the company successful;
3. Develop the Culture:  Don't let the culture happen by accident.  Create an environment that will make people, customers, and suppliers proud to be associated with the company and want to make it successful.  Once the culture is established, vehemently protect it from the internal and external forces that can change its characteristics;
4. Hire Correctly:  Recruit the type of person who will thrive in the company.  Put more focus on finding someone with the right cultural fit than the correct technical qualifications and consider every hire from the perspective of bringing in someone who will be personally successful while contributing to the long-term success of the company;
5. Develop Individuals & Teams:  Improve the ability of individuals and teams to be successful.  Provide learning opportunities for everyone to assure that organization continually develops.  When possible, develop future leaders from inside the company rather than hiring from the outside;
6. Get Out of the Way:  Stay visible, but let people do their jobs.  Get involved when situations call for coaching and development and remain focused on leading, rather than managing, people.

Virtually every company wants an innovative and energetic workforce but very few know how to make it happen.  It comes down to taking care of the basics (above) and trusting the people you've hired to do their jobs.  You can hire highly talented and qualified people but micromanagement and tight controls shows a lack of trust and leads to a group of people who are uninspired and indifferent about the company's success.

Back in 1997, very few would have thought that a tiny startup from Los Gatos, California had a chance to supplant the mighty Blockbuster in the movie rental business.  As the people at Netflix have proven once again, though, the ability to unleash the talents of people is the most significant competitive weapon a company can have.

Staying Humble & Successful

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Arrogance diminishes wisdom.  Arabian Proverb

One of the critical but rarely addressed challenges facing a leader of a highly successful company is how to keep people hungry.  It is human nature for a group of people to feel invincible when they have experienced success for an extended period of time, and it is the incumbent upon the leader to fight the urge and keep the team humble.

Signs that a company is beginning to develop a superiority complex can include any of the following:

• ignoring customer input when developing new products and services;
• a drop in improvement activities;
• increased costs through quality problems, longer leadtimes, and higher warranty expenses;
• a noticeable decrease in the willingness to learn by team members.

There have been some highly publicized examples over the last several years of companies that fell from grace because they seemingly lost touch with what made them successful in the first place.  The biggest problem with this type of behavior is that a decline in revenue and earnings may not show up for years after arrogance has made its way into the culture, and by the time it is realized, it may be so ingrained that correcting it becomes a major effort.

Prevention is the Key

Like many business issues, the best way to address organizational arrogance is to prevent it from occurring in the first place.  Although sometimes difficult, taking positive steps to keep people humble and focused on satisfying customers is critical to remaining successful.  Some of the areas to address include the following:

Customer Focus:  Stay focused on the customer and coach people when they appear to lose sight of the customer's needs.  Question decisions and plans to assure that they were made with the customer's needs in mind.

Purpose - Purpose - Purpose:  Assure that the company continues to operate in a way that supports its fundamental purpose, including mission, vision, and values.  Look for signs that the mission is becoming unclear or changing and, when necessary, take action to get it back on track.  Although scaring people is not advisable, it is important to make sure that everyone realizes that the company is always vulnerable and letting up is never an option;

Continual Improvement:  Make certain that improvement activities within the company never stop.  At no time should people believe that a processes and systems are perfect and do not need improving.  A telltale sign that improvement activity is waning is arrogance toward other divisions or companies.  When people no longer feel they can learn from others, it's time to act.

Although seemingly simple, actions to keep the company humble and believing that overconfidence can be destructive is an ongoing and sometimes complex responsibility of leaders.  Companies are constantly looking to exploit weakness in competitors, and if your company has been the superstar in the industry for many years, the spotlight will be especially bright on you as others look for ways to take your place at the top.

The Value of Healthy Employees

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Why are exercise facilities, preventive care, and nutritional counseling considered perks?  We tend to treat these things as if they only benefit the employees and represent nothing more than additional costs for the company.

Consider the following:

• According to a story in the May 7, 2010 Wall Street Journal (link), it is estimated that obesity-related health issues will cost U.S. businesses almost $43 billion this year;
   
• A recent article in Fortune magazine stated that Americans will miss an estimated 6 million workdays in 2010 due to allergies compared to one million in 1995.  Medical expenditures related to allergies during this period have also risen from $4 billion to $17.5 billion.

If you add to this, the costs related to other health issues, I'm guessing the amounts would be staggering.

WORTH THE COST?

Although some companies offer wellness programs, most do not. The reason many ignore the issue may be that, although high on a national level, the direct costs (including sick pay and increased insurance rates) are not high enough in individual companies to justify such a program.  And since the indirect costs are not measurable, they also do not justify the investment in wellness.

This is the problem.  The costs of implementing a wellness program is easy to measure and will appear as expenses on the income statement.  The benefits, on the other hand, will not directly show up anywhere and therefore cannot easily be justified.  Besides the fact that there will be a delay in receiving the benefits from improved employee health, there is no way to directly tie an improvement in productivity, quality, or costs to the investment in wellness.

Although not directly measurable, the benefits of an effective wellness program can include the following:

• Productivity:  Reduction in productivity losses caused by presenteeism (not feeling well at work) and absenteeism (paying for a worker to stay home plus the inefficiency related to work being performed by someone other than the missing employee);
   
• Motivation:  People feel more valued when the company shows it cares about their health.  As a result, motivation, along with dedication from employees increases;
   
• Creativity:  People need to feel relaxed and healthy to be creative.  The endorphins that result from regular exercise have been shown to increase creativity while, conversely, the distraction caused by illness decreases it.

The decision regarding the implementation of a wellness initiative comes down to whether or not the company's leaders believe that the above benefits outweigh the costs of initiating and maintaining the program.  Even if they do believe in the benefits, leaders must also commit to an ongoing expenditure that the accounting system will not show adding value.

STARTING SMALL

I have spent much of my career dealing with organizational change associated with the achievement of strategic initiatives.  In doing this, I have always found that, whether talking about implementing lean, integrating an acquisition, or changing an ERP system, the process is much easier when people are relaxed, well-rested, and feeling healthy.  In my experience, companies that offer extensive wellness programs tend to have much more positive energy around a change initiative.

A wellness program can start small and expand as leaders gain confidence in the resulting benefits.  Initial steps can include any of the following:

1. 24-hour nurse line for people to call with questions
2. Annual physicals/health screens
3. On-site immunizations
4. Nutritional counseling
5. Improved food choices at employee cafeterias
6. Exercise facilities or health club memberships
7. Newsletters with health coaching tips
8. Support for smoking cessation
9. Reward programs for health improvement/maintenance
10. Stress reduction at work (meditation, yoga, etc.)

IT'S NOT ALWAYS IN THE NUMBERS

We have got to get past the idea that the return on every investment can be measured.  As I have written about extensively in my book and in blog posts, there are many critical aspects of leadership where one has to understand the cause and effect relationship between an investment and the resulting benefits, even if it is not represented in the financial statements.  After all, if management involved nothing more than making decisions based on numbers, it would be a much easier to do and pay a lot less.

The Smarter Company

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When discussing the most innovative and successful companies over the last decade, people will most likely mention names like Apple, Facebook, Google, or RIM.  These companies are known for utilizing innovation in products, processes, services, and technology to give them a distinct advantage over their competitors.

But how do these companies maintain their edge?  Are the people who work at Apple or Google really any smarter than those who work at other organizations?  It's no secret that these companies have their pick when it comes to recruiting, but is that what keeps them more innovative and profitable than other companies around the world?  In my opinion, yes . . . and no.

It Takes More Than Talent

I will never downplay the importance the talents of people to a company's success.  Companies like Google and RIM are staffed with very smart and talented people which has undoubtedly helped them to introduce highly successful products year after year.  But without the leadership, culture, and systems that encourage and support innovation, there would be no way to consistently turn the ideas of these people into commercially viable products.

I have worked with a number of companies throughout my career and met many highly talented people who, for a variety of reasons, were unable to utilize their talents effectively.  In contrast to companies like Apple, the cultures and systems in many of the companies for which these people worked interfered with their ability to use their creativity.  The really sad part of the story is, the longer this went on, the less the people were willing and able to be innovative.  It's as if the ability to innovate atrophies when not used or developed over time.

It's the Company that's Smarter

The difference between the average company and a company like Apple, for instance, is that the leaders at Apple understand that innovation is a key to their success and they've created an environment that encourages creativity.  They have remained focused on creating a culture that fosters the use and continual development of team member creativity, and aligned systems to quickly turn their ideas into products.  In my opinion, this makes Apple a smarter company than most.

It is strange to think that a company would hire someone because of their talents and allow barriers to exist that prevent the person from utilizing these talents, but it happens fairly often.  It's not intentional, but for a variety of reasons, the environment in many companies encourages behaviors that interferes with success.  Mismatches in purpose, strategies, and values lead to confusion, frustration, and de-motivation of employees, interfering with sustained levels of success for the company.

Becoming Smarter

So how do leaders make their companies smarter?  How do they create the type of environment that enables people to utilize and develop their talents in a way that leads to success?  It obviously depends on a company's particular circumstances, but involves addressing one or more of the following areas:

• Purpose:  Be clear and consistent on the company's fundamental purpose.  Why it exists, what need it fulfills for its customers, and why it is different than other companies that serve the same markets;
   
• Strategies:  Determine, clearly communicate, and implement the best way for the company to compete in order to be successful (i.e., achieve its purpose).  Will it compete on the basis of innovative products and services?  Low costs?  High quality?  Assure that the company's culture and systems are aligned with the chosen strategies;
   
• Values:  Identify the company's personality.  Be very clear on the DNA of the type of employee who will make the company successful in the achievement of its purpose;
   
• Hiring:  Take time to hire the right people with heavy emphasis on a person's fit within the organization's culture.  Make sure that, once hired, they are able to utilize their talents effectively;
   
• Train/Develop People:  Continually develop the collective skills of the company's team in support of its business strategies;
   
• Foster Teamwork:  Identify and remove the barriers to teamwork on a continual basis in order to get the organization acting as one and focusing on common objectives;
   
• Value & Respect People:  Assure that people feel respected and valued for their contributions to the company's success.  Create systems and develop leaders that will encourage participation in the achievement of objectives:
   
• Continually Refine Environment:  Develop and refine the company's culture to assure it is aligned with business strategies.  Assure that the environment encourages, rather than hinders, implementation of the strategies.

I don't believe that a company needs to be innovative in order to succeed.  It is much more important for a company's offering to be "right" than "fast."  With that said, however, the faster a company can offer a new product or service that is right, the more successful it will be.  Determining the strategies and assuring that all internal systems and values support the implementation of the strategies will make the company smarter.

So to answer to the question:  I don't believe that the people at Apple or Facebook are any smarter than those at other companies, but I do believe that Apple and Facebook are smarter than other companies.

Finding the Right Mix of Talent

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Success in Business Requires a Mix of Generalists AND Specialists


Most people understand that businesses need specialists in order to be successful.  Having people with specialized knowledge in areas related to the company's products, services, processes, network infrastructure, etc. enable the ability to serve customer needs on a continuing basis.  What many people don't realize, however, is that it is just as critical to success to have generalists in the organization.

What is a Generalist?

A generalist is someone who has broad knowledge and skills, and understands the organization's high level system, including the hand-offs and interactions between people and processes.  A generalist is not interested in working and developing his or her skills within a single area and is much more motivated to focus on the big picture.  He or she is much more comfortable learning a little about many subjects than learning a lot about a single subject.

An organization can have the most talented specialists in the industry but be completely ineffective if these people are not able to agree on what's important and work together to turn their combined talents into commercial success.  By understanding the system, the generalist can bring significant value to the organization by focusing on overall company performance rather than spending time attempting to optimize any single function.  For this reason, generalists often excel in leadership positions and cross-functional roles like project management and lean/six sigma facilitation.

Why Generalists Are Necessary

By understanding the company's high level value stream, the generalist is able to continually remind everyone of the importance of working in the same direction to achieve common objectives.

No matter how talented the specialists are, without a common direction and continual effort to improve the way people interact and work together, there is no "organization" - there are only individuals working on what each feels is most important.

Peter Drucker wrote that management is a liberal art in that it requires skill from many different disciplines including psychology, sociology, history, and others.  W. Edwards Deming included psychology, learning, theory of variation, and systems thinking as components of leadership in his Theory of Profound Knowledge.  Deming and Drucker were referring to the idea that management is a role for generalists.

Harnessing the Company's Talent

The obsession many companies have had with specialists over the last several years has created a shortage of generalists that is hampering growth and success.  As a result, many companies are full of great ideas and new technologies but aren't able to transform them into commercially successful products and services.  A company may be staffed with highly skilled scientists, engineers, and chemists, but if it is not turning this knowledge into viable products or services, it is wasting money (and talent) and compromising its future.

Whenever hiring or promoting someone into a leadership position, I have found that a person with a varied background tends to be more effective than someone whose experience and training is related only to the function the person is expected to lead.  For example, I would tend to favor a candidate for a quality management position who has experience in procurement and/or manufacturing in addition to quality than one who only has quality experience.

It's in the Mix

Success in business requires leading people to consistently achieve high level objectives.  To do this successfully requires respecting the different talents people have and understanding how best to position and organize everyone to serve the customer effectively.  This means having the right mix of generalists and specialists to assure success.

Does Losing a Customer Matter?

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"There is nothing more vulnerable than entrenched success." - George Romney

When a company loses a customer, is it important to understand the reason?  Is business ever so good that it doesn't matter?  Although these seem like ridiculous questions, I've had a few instances lately where companies knew they lost me as a customer and did not ask me why I was taking my business elsewhere.

I recently switched my television service from one provider to another.  When I called to cancel my service, I was told how to return my equipment but never asked why I was canceling.

In another instance, the virus/spyware subscription for my computers was within a month of expiring and the developer, for some reason, decided to renew my subscription (and charge my credit card) without my consent.  I do not like this tactic and, after consistently using their product for several years, decided to call them to complain.  After being on hold for about ten minutes, the recording said that any product can be refunded via their website within thirty days of purchase.  I connected to a representative via the live chat link on their site, canceled my subscription, and asked for a refund.  I was given the refund but not asked why I canceled.

Do They Care?

When I thought about it, there were actually several similar instances over the last few years when a company knew I stopped doing business with them but did not ask why (e.g., newspaper subscription, internet service, web hosting, etc.).  The first thought that came to mind about these situations was that business is going so well for these companies that they truly don't care when they lose a customer.


Although this may be the case for some companies, I'm guessing that the most common reason for the apparent lack of concern over losing a customer is related to resources.  Companies are so thin these days, and, to keep costs down, call centers are so focused on meeting volume targets and time-per-call metrics that there is no time to ask customers why they are leaving.  Combined with the disconnect between marketing, sales, customer service, and quality, and the ability to collect - much less do anything with - the information becomes virtually impossible.

It's Important But Not Difficult

It's always important to know why a company loses a customer.  The companies referenced above were actually lucky because they knew I was leaving.  In most industries, it's difficult to know that a company is losing customers until business has dropped so much that it's difficult to turn things around.

It is absolutely critical - and not necessarily difficult - to know why customers are leaving, and the customer service representatives are in a great position to collect the information.  It should not take too long to ask the question, listen to the response, and check a box on the screen to classify the issue.  With little effort, a company can begin to collect extremely valuable data regarding trends and high-level issues that its customers are having.

Have companies like the ones mentioned above learned nothing from the experience of the U.S. automakers over the last 30 years or so?  No company is so successful that it can afford to lose touch with its customers.  Since the effort may take an extra one-to-three minutes of a call center agent's time, however, some companies may not see the value in such an exercise.  And to be honest, if the company is not going to take action in response to the data collected, they're probably right.

The World of Fashion Evolves

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Designs Aren't the Only Thing That's Changing in the Apparel Industry

According to a story in the July 16 Wall Street Journal (link), the apparel industry is facing a number of challenges that are affecting the entire supply chain.  After three years of excess inventories and idle labor, companies throughout the industry are taking steps to reduce the risk of similar exposure in the future.  Instead of reinventing themselves, though, it appears that the companies are dealing with the changes by attempting to push the risk to their customers and/or suppliers.

When industries face a changing environment, companies throughout the supply chain need to work together to respond to the change in a positive manner.  The immediate reaction to drive risks to customers or suppliers has effects that, although not immediately visible, have longer-term effects that are destructive to everyone involved.  It does not help a company to improve its own profitability at the expense of its suppliers or customers.

The New World of Fashion

Among the issues faced by the apparel industry include:

• Smaller orders placed by retailers to test demand before committing to larger runs;
   
• Increased material, freight, and labor costs;
   
• Delays in ramping up production capacity because of a lack of confidence in long-term demand.

If smaller runs and increased costs sound familiar, it's because these are issues that have been faced by many industries over the last 30 years.  Change happens in every industry, and those companies that are flexible and able to adapt to (or drive) the changes quickly will be the most successful in the years ahead.

The Focus Still Needs to be the Customer

One of the problems I noticed from the information in the article is that the impetus for change within the industry is profitability rather than the consumer.  As has been proven over and over again in business, changes made without regard to the end customer can have devastating effects.  While a focus on value can increase profits for the company, a focus on profitability will not lead to increased value for the customer.

Two key areas that companies in the apparel industry need to investigate in order to survive and grow in the years ahead include:

1. Lean Manufacturing  Smaller production runs require improvements in quality, setups, and changeovers.  Lean (when done correctly) gets everyone focused on eliminating the waste that forces longer leadtimes and larger lot sizes.  Lean will also address the issue of increased labor costs;
    
2. Closer Factories  Increased freight costs and leadtimes will force retailers to have production capabilities closer to the point of sale.  Although oil prices have leveled out since the initial drop at the start of the recession, it is only a matter of time before they start rising again.  As a result, the benefits of having factories in areas with low labor costs will be offset by increased freight costs.

In an industry that thrives on change at the consumer level, one would think that the fashion retailers and producers would have no problem adapting to changes themselves.  Unfortunately, this does not appear to be the case.  The environment has changed and, as has been the case in so many industries over the years, it's time for a new business model.  The sooner the apparel companies realize this and make the necessary changes to adapt, the sooner they can once again turn their designs into financial success.

When Cost Cutting Becomes the Focus

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The recent media coverage regarding the Gulf oil spill has reminded me of countless industrial accident and product recall news stories over the years that point in some way to misplaced cost-cutting as a fundamental cause of the problems.  The scrutiny that results from a major incident, however, tends to highlight the companies involved as if they are the exception when, in fact, arbitrary and misaligned cost-cutting is much more common in business than many realize.

It Happens Everyday

I have seen many examples throughout my career where attention was focused much more on cost-cutting than providing value.  In one instance, I was contracted by an energy company to help improve their processes for project planning and execution.  After spending time with some of the people involved in projects, however, it became obvious that the problems were not related to the skills of the employees or the processes and systems used for projects.  The problem was directly caused by an excessive focus on costs.

There had been so much emphasis throughout the company on cost-cutting that people worked as if the company's purpose was to control costs instead of producing oil and gas.  When conflicts arose between cost and production, cost won out every time.  There was virtually no analysis regarding the benefit of getting a well operational ahead of (or even on) schedule.

In another example, a plastic products manufacturer regularly missed its deadlines for new product introduction due to cost overruns.  The company had strict earnings targets and had gotten into the mode of, what many in the organization referred to as counting paperclips.  High-level meetings, as well as measures and rewards for managers, were heavily focused on meeting cost targets.  Because of this, whenever a product development project fell behind schedule for any reason, no consideration would be given to providing additional resources to get back on track.

Value as the Driver

Several years ago, study published by McKinsey & Company showed that a new product introduced on-time but with a 50% cost overrun negatively impacted profitability from the development by 3.5% as compared to a 33% loss in profits for a product introduced six months late but within budget.  There are obviously a lot of assumptions associated with the study, but the point is that getting investments - whether in new products or operations - to produce more quickly is beneficial to the company, even if it involves additional expenditures.  I believe the same philosophy applies to oil and gas producers as it does to product manufacturers.

The most successful companies focus on improving the value their processes provide rather than cutting costs.  Improving in this context does not mean finding shortcuts.  If value is the driver, improvement refers to reducing waste (i.e., anything that does not add value).  If only cost is emphasized, there will be a tendency to cut corners and implement changes that reduce costs without consideration as to the effect on quality, safety, or cycle time.

Value, Value, Value

Getting into a cost-cutting mode most likely occurs because it is much easier to focus on cost reduction than it is on increasing value.  Business leaders need to remember, though, that increasing value is what leads to success.  When the company focuses on continually improving the value it provides, it becomes much easier to keep costs under control.

Instead of a Layoff

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Those who have read my book, articles, or blog posts know that I do not believe in laying off employees to cut costs.  The long-term damage to the organization resulting from a layoff often outweighs the short term savings in payroll costs (see exhibit 1)

I will admit, though, the last few years has shown that the complete collapse of a company's products or services can dictate drastic cuts as a means for survival.  The questions that need to be asked before implementing something as destructive as layoffs include:  (1) how long do you expect the downturn to last; and (2) has everything possible been done to prevent a layoff.  In other words, a layoff should never be among the first cost-cutting steps.


Even during the last few years, the worst economic period since the Great Depression, there were several well-known companies that did not layoff employees.  Scottrade, AFLAC, Devon Energy, and The Container Store are among the organizations that have never implemented a layoff.  Imagine the loyalty and trust created within these companies by resisting headcount reductions during such a severe downturn in business.

Everyone has a stake in the company.  When a company has a history of layoffs, though, people feel powerless, disconnected, and expendable.  The organization's leaders send a very clear message that employees are not important when jobs are cut in response to a crisis.

Some of the steps every company should take before considering a layoff include:

1. Shortened Work Week:  Although akin to a pay cut, a shortened workweek forces everyone to participate without the loss of jobs.  Also, receiving time off helps compensate for the reduction in pay;
    
2. Unpaid Holidays:  Similar to the shortened workweek, implementing unpaid holidays allow more flexibility in choosing the extent and timing of the cut back;
    
3. Hiring Freeze/Attrition:  Although an obvious step, I have worked with companies that laid off in one part of the company while hiring in another.  Any positions that are critical to fill should be done by transferring and training existing employees;
    
4. Elimination of Bonuses:  Nobody should receive a bonus during a period that people were laid off.  I was in a meeting several years ago with a large division of a Fortune 100 company where managers decided to implement a layoff in order to protect their bonus accruals - a totally unacceptable action;
    
5. Elimination of Dividends:  In spite of what many people believe, the resulting damage to the organization caused by a layoff does not protect shareholders.  By protecting its workforce, companies are actually actually protecting future returns for shareholders.  Studies have shown that companies that resist deep cuts during downturns recover much more quickly than competitors (in terms of earnings and share price);
    
6. Focused Kaizen Activity:  Improvement activities should be focused entirely on reducing costs (while improving or maintaining existing quality levels).  Kaizen activities focused on cost reductions will prevent employees from being idle during downturns and assure that the savings achieved will be sustained once business returns;
    
7. Pay Cuts:  As a last resort, pay cuts should be implemented to save jobs from being eliminated.  I believe in implementing across-the-board percentage cuts with executives being asked to volunteer a larger percentage.

When people see that company leaders are doing everything possible to navigate a crisis without layoffs, they will become much more motivated and engaged in the organization.  The espirit de corps that results will make the company stronger and ready to take advantage of the recovery much more quickly than others that opted to cut workers as an initial step.

The Power of Marketing

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Does your company have a marketing function?  Do the people involved in it actually do marketing?

I continue to be amazed at how few people in business truly understand the concept and value of marketing.  In many organizations, marketing activity consists of nothing more than handling the company's advertising, website, and product literature activities.  This is unfortunate because of the huge potential that marketing can have on the company's overall success.

What is Marketing?

Companies are in business to create value for customers and, because of this, they can't succeed without effective marketing.  Marketing enables an understanding of the customer's needs to determine the type and mix of products or services that will create value.  In effect, the more effective marketing is performed, the more successful the company will be.

Marketing has the potential to have an enormous impact on the organization.  It drives sales by aligning the product or service offering to the needs of the market.  It drives manufacturing by providing direction on cycle times, inventory levels, and target costs.  It drives new product development by providing information on what customers want and need.

Buried in the Organization

One sign that a company may not understand or value marketing is having it lumped into the sales function.  Often a company will have a "Sales & Marketing" department that is mostly (if not completely) staffed with salespeople.  I have worked with companies in the past where people were actually hired into "marketing" positions, only to have their responsibilities gradually shifted toward sales.  This is unfortunate because marketing drives sales - it is not the other way around.

I have also worked with companies that, except for advertising or promotions, had no marketing function at all.  Marketing strategy in these companies weas informal and inconstant.  And these were not small companies - one in particular had revenues of almost $1 billion.

When a leader does not understand what marketing encompasses, he or she will not see the value of having one or more full-time people responsible for marketing (unless, as mentioned above, those people are involved in advertising or promotions, which can produce fairly quick results).

It could be the inability to easily measure the effectiveness of marketing that keeps it from getting the emphasis it deserves.  Other functions like manufacturing, procurement, engineering, and sales are much easier to evaluate with traditional measures (although, as I have argued in previous posts, many of these "traditional" measures are ineffective and, in some cases, destructive).

A leader should never get so hung up on measures that an activity is not given proper focus.

Marketing Needs to Drive

Marketing is not just another function.  In fact, it is so critical to the company's success that it really needs to be elevated above "functional" status.  Rather than burying it deep inside the organization, it needs to reside at the highest level and drive the company.

Placing marketing at the organization's highest level will assure it has the authority to influence all aspects of the company's operation.  Organizationally, marketing should provide direction to operations, sales, and product development because of the direct impact it has over each of these functions.  Since this would be too much of a change for some companies, the idea of separating marketing from sales and elevating it to the senior executive level should at least be considered.

Continuing to ignore the importance and power of marketing will hurt the company and keep the business from ever reaching its full potential.  Without the development and implementation of an effective marketing strategy, any level of success achieved will be short-lived and the company will forever be in the shadows of the likes of Apple, Samsung, Pepsi, and others who understand how to use marketing to achieve success.

Television Advertising: The Internet's Next Victim

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"[Companies] must be prepared for major change in the future, and you must start now.  If someone else's revolutionary innovation catches you unawares, you must abandon what made you successful and take an entirely different course immediately." - Peter Drucker (1973)

I'm continually amazed at the way the internet has changed - and continues to change - the world of business.  Many of the changes appear to happen fairly slowly and are not readily apparent until well after the shift has occurred and left companies that didn't see it coming in serious trouble.

Lately, I've noticed a change in advertising that is affecting ad agencies, producers of consumer products, and television networks.  The internet is providing virtually free access to existing and potential customers - a situation that with the exception of a few isolated instances, had never before existed.

Seeking Out Commercials

Companies are starting to take their ads to sites like YouTube and, if successful, can reach millions of people for free.  As an example, a recent Coca-Cola Happiness Machine ad has had almost 2.4 million hits since being uploaded.  And since people are actually seeking out this video (and others like it), it's really falls into the category of indirect advertising, because it entertains as much as it sells.

This situation has many implications for those involved in making and airing commercials.  Television networks now face a serious threat that will most likely put downward pressure on rates for air time.  Advertisers now have somewhere else to go to air their commercials and, although the ads have to be creative and produced well enough that people will want to watch them, the money saved in airtime charges can more than pay for extra production costs.

For the television networks, it can mean a serious hit on revenues in the future, which is one of the reasons that has led to the battles between the networks and television subscription providers.  The networks can not count on ad revenues into the future to cover their costs and meet earnings targets.  To make up for lost future revenues, they are asking for more money from the subscription providers that want to carry their channels.  To read a blog post on the increasing tensions between the networks and subscription providers, click here.

Length No Longer An Issue

Another result of the birth of indirect internet advertising is that it no longer limits commercials to 30 or 60 seconds (the Coca-Cola video runs 2:03).  Fashion house Donna Karan has produced a "mini-film" entitled, Four-Play with Christina Ricci that is really nothing more than a 2:09 commercial.  The ad, which has not (and was never intended to) run on television, has had several hundred-thousand hits on a variety of fashion websites since its "release."  This type of advertising is becoming very popular in the fashion industry.

A final thought that comes to mind about this situation is the fact that it's much easier for advertisers to track the number of views its commercials are getting.  Television ratings services and subscription providers can report the number of television sets that were tuned to a particular station at a particular time a commercial aired, but there is no certainty that people didn't walk off or even paid attention during the commercial.  The growing use of DVRs has also made it very easy to skip ads to get back to the show.  When someone hits a video on the internet, on the other hand, it is pretty well certain that they are watching it.

Staying Ahead Of The Curve

Although it has been reported recently that television ad rates have returned to pre-recession levels, there's no telling what lies ahead for the networks.  One thing for sure, though, is that the television advertising industry is changing.  Just like other changes that are occurring - or will occur - because of the internet, it's vital for companies to pay attention to the world around them and be extremely sensitive to the subtle shifts that without warning can turn into whole-scale changes to the business environment.  And as fast as things are changing in today's world, falling behind is not something that a business wants to do.

Call Center Focus: Serving or Selling?

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There was an interesting article in the June 7 WSJ [link] about efforts to improve the quality of service provided by call centers.  My first reaction was "it's about time" as the article described efforts by some businesses to emphasize the quality of service more, and the quantity of calls handled per agent less.  As I read on, however, I concluded that some companies still don't understand the concept of customer service.

Focusing on the Wrong Lever

I spoke at a call center conference in Europe last year and was disappointed - although not really surprised - to learn that the industry's main (and virtually only) focus continued to be cost-cutting with little or no emphasis on quality.  The main topic of my presentation was related to increasing competitiveness by focusing on higher quality services at lower costs than their customers (i.e., the companies that contract their services) are able to do themselves.  The basic premise of the talk was, if a call center established a clear and consistent purpose, took care of and invested in its team members, continually improved its processes, and focused on its customers (those whose calls they handled), it would dominate the market.  Based on my personal experiences with call centers as a consumer since the conference, however, I don't think my message was accepted.

I don't totally blame the call centers for this misplaced focus.  These companies have responded to pressure from their direct customers to continually reduce the price of service, and have been forced to cut costs or die.  In Portugal, for example, the entire industry has been under attack by competitors in low cost countries where wages are lower.  The reduced prices offered by competitors is resulting in a loss of business for Portuguese companies on a daily basis.

Whatever internal problems the industry is facing, though, I can't think of anyone who hasn't had at least one frustrating encounter with a call center agent.  In fact, according to the article, 68% of people surveyed had stopped doing business with at least one company in 2009 because of poor service.

As I read the article, I did find it refreshing to learn that some companies are starting to understand the link between customer service and increased business.  As an example, in an attempt to increase customer loyalty, American Express has begun shifting the focus of its agents toward the level of service provided rather than the quantity of calls handled.

Do They Really Understand?

Most people do understand that financial benefits to a company are the result of customer satisfaction.  Statements in the article about increased loyalty leading to "a bigger share of the patient wallet," and increasing call center resources to upsell or "retain customers and sell higher-priced services," however, made me realize that many companies still don't comprehend the importance of, and reasons for, taking care of customers.

Looking at it as a simple cause and effect relationship, the cause is making customers happy and the effect is increased revenue.  Like any cause and effect situation, however, one cannot focus on the effect.  Attempts to increase business will not lead to happier customers and, therefore, will not result in actually increasing business.  High pressure sales tactics from call center agents will not satisfy customers who call, but judging by some of the comments in the article, it's clear that satisfying customers is not the objective of some of these companies anyway.

I can't imagine how angry a customer will get when an agent listens to his or her problem and responds by attempting to sell more of a company's products or services.  The situation could get downright ugly.

Internal or External to the Company - It's Still a System

One of the biggest problems with call centers is that they are often operated as separate entities from the business.  The producer or service provider causes the problems for customers that the call centers are expected to resolve.  When I asked several people at the conference about feeding information about the problems encountered back to their customers, I was told that it was not normally done (to be fair, I only talked to a small percentage of the conference's attendees).  During the discussion, I found that there is often so much pressure to process calls that no valuable information is recorded and fed back to the business to prevent similar problems from recurring in the future.  This practice results in losing a significant amount of valuable information for problem-solving.

Whether a company handles its own call center or contracts it to an outside agency, it is still a valuable part of its system.  Although call centers need to take responsibility for satisfying customers who call with problems, the real improvement comes from providing a higher level of quality in the first place.  The better the quality of products or services provided by the producer, the lower the volume of calls to the call center, making more time available to handle those who do call (provided that lower volumes do not mean laying off agents).

If Only . . . 

To be fair, some of the companies referenced in the article do seem to understand that better customer service from call center agents leads to more satisfied customers which, in turn, leads to more revenue for the company.  Others seem to think that skipping steps will lead to the same results.  Unfortunately, these companies will probably find out the hard way that it won't.

The more I learn about call centers, the more I wonder where we would be today if the obsession all along had been with quality improvement rather than cost-cutting.  My guess is that there it would mean a significantly fewer number of people in the world needing blood pressure medication.

A Systems Approach to Business - Part 3

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Note:  This is the third part in a three-part post on the subject of systems thinking in business.  To read the first two posts, go to Part 1 and Part 2.  To download the paper in its entirety, please go to the downloads section of www.praecedogroup.com.

Defragging the Company

Moving focus from individual components to the overall system requires a significant amount of commitment and patience by the company's leaders.  The steps to begin the process of defragging a company include the following:

• Promote the Generalists:  Move leaders from specialists to generalists to increase understanding and leadership of, people, information, material, products, and services- how they flow and work together to serve customers;
   
• Coach & Mentor:  Coach and mentor people to increase the level of understanding throughout the company regarding how each job supports other areas in the achieving the fundamental purpose.  Those who work in support areas need to clearly understand that they exist solely to support the company's main processes that serve customers (which, by the way, doesn't make them any less significant to the company).
  
  When done correctly, value stream mapping (VSM) is an excellent tool to help clarify the company's high level system, including the interactions of people and teams;
   
• Enable Relevant Feedback:  Implement a feedback system (e.g., a 360° system) that includes input from a person's internal customers, and is focused on improving performance - rather than documenting and blaming for poor performance;
   
• Clarify Expectations:  Set objectives based on supporting achievement of high-level (companywide) objectives and tie incentives to company or division performance - or, if done extremely carefully, based on success in supporting improvement efforts.  Clarify expectations regarding participation in change initiatives and improvement activities and focus efforts on the company's overall success - create an obsession for satisfying customers.
  
  As an example, a reward system for the plant managers in Situation #3 from Part 1 based on companywide results rather than individual plant results can lead to improved teamwork and cooperation between plants, and improved results for the company.

It's the Big Picture that Matters

Since there are few, if any, who would argue that company performance matters more than individual or department performance, it becomes a question of whether individual performance can be accurately measured as a contributor to company performance.  Although it's perfectly natural to want to evaluate how much value an individual or team is contributing, most organizations are far too complex to do it with simple, one-dimensional measures.  Most people are intelligent enough to do what it takes to meet virtually any goal or make any measure look good - even if it detracts from overall company performance.  There are unfortunately numerous examples over the last several years of unethical or illegal behavior driven by internal or external company measures.  Putting these examples aside, however, I truly believe that most people care about the success of the organization but have learned what to do to survive in today's business world.

Fragmented thinking is one of the biggest barriers to long-term success for a company.  Moving to systems thinking requires a fundamental shift that many will be unable to do.  Communicating the vision, clarifying expectations, and continual coaching must replace dictating and obsessive measuring and evaluation of people as a management style.  If you've hired the right people and are consistent in your approach, your move toward systems thinking - as measured by continually improving financial results - will occur.

A Systems Approach to Business - Part 2

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This is the second in a series of three posts on the subject of systems thinking in business.  To read the first post, please click [here]

Why We Fragment

I could cite many more examples in addition to those listed in the previous post where goals set for individuals or teams resulted in fragmenting the company and compromising results.  Although fragmenting is destructive to organizations, it continues to be used for a variety of reasons:

• Simplicity:  It's much easier to manage an organization by breaking it into components than to comprehend and manage the whole.  For example, holding a supply chain manager accountable for reducing material costs is easier than setting a total cost objective (which includes accounting for factors like incoming inspection, customer returns related to supplier quality, inventory carrying costs related to increased leadtimes and late deliveries, etc.).  From a systems perspective, however, total cost much more accurately measures the supply chain's contribution to the company than does material costs. 
   
• Lack of Trust:  Micromanagement - which is unfortunately very common in organizations today - results from a lack of trust in people, and cannot coexist with systems thinking.  Leading from a holistic perspective requires relying on vision, clear expectations, delegation of responsibilities, and encouraging people to support other areas, rather than setting easily measurable goals and dictating how work is to be done.  People must be given the authority (as well as a method, training, and the responsibility) to improve processes - including the hand-offs between processes - without detailed input from supervisors.
  
  Another factor that leads to fragmentation is a lack of trust and patience that the organization will achieve targets without knowing that the components are meeting targets.  Even if there is no proven relationship between the targets set for individuals or departments and the targets for the organization, people feel like they're being proactive when they can measure something.  And, as mentioned above, implementing an indicator that accurately measures a person's real contribution to the system is difficult and expensive to maintain;
   
• Functionally-Focused Leaders:  Leaders who lack experience outside of their own function have trouble clearly understanding how their areas support others in the organization.  As an example, a CFO who implements a system that improves productivity within the finance team but causes additional work for other parts of the company does not understand the role of finance within the organization.
   
• Layoffs:  Nothing can make people worry less about the company and more about their own jobs than a round of layoffs.  When layoffs occur, people turn their focus to pleasing the boss instead of pleasing internal and/or external customers, and will do whatever it takes to survive, even if their actions do not support the organization's performance.  Unfortunately, layoffs have become commonplace in U.S. organizations and the practice continues to fragment companies.

Many people know of no other way to manage a company than to break it into "manageable" pieces, but experience continues to show that the practice leads to suboptimal results.  Continual efforts throughout the organization to understand (see figure 1) and continually improve the system will yield much higher returns than worrying about measuring people and individual teams.

A Systems Approach to Business - Part 1

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Note:  This is the first in a series of three posts on the subject of systems thinking in business.  Systems thinking is an critical subject for organizational leadership that cannot be adequately covered in a single post.

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

In the most basic sense, an organization is a continually developing system of people, processes, equipment, and sub-systems working together to achieve a common purpose (the key word for this discussion being 'system').  Like any organic system, organizations are complex and need to be managed as a whole in order to achieve the purpose.  Efforts to break a company apart and focus on individual elements can negatively affect the balance and interfere with success by creating competition and fragmentation between components.

Although most people in business would agree that the performance of the company is more important than that of individuals or teams, the way many organizations are managed achieves just the opposite.  For a variety of reasons, leaders inadvertently fragment organizations, and set individual or team goals and objectives that often interfere with long-term success.

Consider the following:

Situation #1
In an attempt to reduce material costs, an incentive program for the supply chain team is implemented with rewards tied to containment and reduction of costs.  The program succeeds in reducing material costs but leads to increased production costs, customer returns, shipping delays, and warranty expenses due to the purchase of substandard materials and longer supplier deliveries.


Situation #2
Sales managers are rewarded based on revenues generated from the regions they manage.  The sales manager in Scandinavia has a significant opportunity with a new customer but, to secure the business, needs a good deal of technical assistance from the sales manager in France - who is very knowledgeable in this customer's particular application.  Although the French sales manager wants to help, he feels he can't afford to spend time on an activity that will not generate sales in his territory.

Both sales managers end up barely meeting their targets, but the company misses the opportunity to secure business from a new customer.  Also, teamwork between the sales managers has been damaged.

Situation #3
Plant managers in a global manufacturing company are measured and rewarded on meeting EBIT targets for activity in their plants.  Plant A has more demand than capacity, while Plant B has more capacity than demand.  The manager of Plant A decides to buy products from the outside to meet demand.  In order to meet the EBIT target, however, he orders product from a competitor instead of Plant B because of a lower price (the manager of Plant B priced the product high enough to assure the order wouldn't negatively affect his plant's EBIT).

As a result, the manager of Plant A met his targets and received a bonus while the manager of Plant B did not.  Because Plant B did not meet its targets, the company as a whole failed to meet its targets.  Teamwork between each of the plants, which was already strained, has deteriorated further.

There are numerous examples like the above where goals or measures encourage behavior that fragments the organization.  Although it seems perfectly logical to evaluate performance of a team member on a measure like EBIT or sales revenues, it can easily cause someone to act in a way that is detrimental to the performance of the organization, as a whole.

Organizations are far too complex to objectively, accurately, and easily evaluate an individual's performance.  Extreme care must be taken when setting objectives and basing rewards on achieving individual targets. 

The more one adopts systems thinking and understands how it is important to continually focus on improving the overall system - especially the hand-offs between people and teams - the easier it is to abandon traditional measurement and reward systems and move to a more holistic approach to leadership.

Speeding Up New Product Development

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As we emerge from the worst economic downturn since the Great Depression, it is clear that speed will be a critical competitive advantage for businesses.  Companies that are flexible and able to adapt quickly to customer demands will be the most successful as the recovery continues.

When it comes to developing new products, companies can no longer afford long cycle times or introducing products that customers do not want to buy.  Quality will also be a given, as people will no longer expect or accept problems with new products.  This means that companies will need to put a renewed focus on the process for developing new products.  Success awaits those organizations that are able to frequently and consistently introduce high quality, reliable products that satisfy the needs of the market.

Lean for New Product Development

There are many companies that practice lean methods for product and service processes but fail to apply the same type of thinking to the development of new products.  Like any process in business, attacking waste in new product development will benefit the company through increased revenues, lower costs, and higher customer satisfaction.  Also, the faster an organization can turn ideas into new products, the faster its investment will produce an income stream for the company.

I have worked with many companies over the years to improve the process for developing new products and services.  The approach to improve the quality, costs, and cycle times for new product development is similar to applying lean to a manufacturing process in that it requires high levels of systems thinking and teamwork, and consistent focus on the customer.

Some of the best practices I have seen from companies that have made significant improvement in new product development include the following:

• Customer Obsession:  The entire process is based on the customer - which, doesn't necessarily mean directly asking customers what they want and building products based on the feedback.  When it comes to products, customers can only convey what they want based on what they have received in the past.  Since they really do not know what is possible, they will rarely provide direct  feedback for innovative products.
  
  Understanding the customer's frustrations with your (and your competitors') products, and why and how they use the products will result in much more clarity regarding the customer's fundamental needs; and it is in the fundamental needs where the real value lies.
  
  
• Team-Based Development:  Representatives from every area affected by the introduction of a new product are actively involved throughout the project.  In a typical company, this means, as a minimum, including people from engineering, marketing, operations, procurement, quality, and finance.
  
  Having all areas involved throughout the project helps avoid potential problems by discussing and addressing concerns as the work progresses.  It also helps each area assure the necessary processes are ready when the product is released, and to confirm that the processes are designed to protect the needs of the customer.
   
• Project Management:  New product development projects are led by people with project management capabilities.  Typically, new product development is a cross-functional activity involving effort from marketing, R&D, engineering, manufacturing, and other areas.  Because of this, the person responsible to manage the project does not need to an engineer (in fact, assigning the role to the engineer - or anyone on the team - can distract the person from performing actual design work).  The project needs to be someone who is organized, able to keep the work progressing, and with enough authority to request additional resources or project scope changes, when necessary.  Depending on the size and design of the organization, this can consist of a single, full-time project manager or a project management office (PMO) that can handle multiple or cross-divisional projects.
  
  
• Logical Organization:  To increase the focus on customers when developing new products, some companies have moved the R&D function to report to marketing.  Others have combined engineering and operations to improve communication and teamwork between the two areas.  The key is to understand where the current organization interferes with success and to have the courage to make changes that will improve the situation.
  
  Some organizations physically relocate team members on a temporary basis in an effort to assure clear and continual communication throughout the project. 
   
  
• Knowledge Management:  Systems that improve organizational memory can significantly reduce new product development time.  Without a system that collects design, testing, and customer information, extra costs and delays can occur because of redoing work that has been done in the past.
  
  
• Process Simplicity:  The development process is simple with very few approval gates.  The team clearly understands their scope and is given the freedom to develop and qualify the product within these limits;
  
  
• Patience:  Improving quality while reducing costs and cycle time for new product development requires consistent focus, commitment from the company's senior leaders, and a good deal of patience.  It is a continual process that, similar to improving a manufacturing process, consists generally of many small improvements that add up over time to significant improvement.  Conducting post-mortem reviews of projects can provide valuable feedback regarding delays, cost overruns, and problems in order to improve future efforts.

Designing a product people want to buy is only one part of the equation - doing it quickly, reliably, and assuring that problems do not occur after release makes up the rest.  There is significant investment involved in attempts to turn ideas into profits, and the better this process operates, the better the return on the investment will be.