Lost Jobs Never To Return?

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According to a story in last Friday's Wall Street Journal (click here for video report), economists expect that about 2.1 million of the jobs lost during the recession will never return.  This is a scary prediction for those who lost their jobs and expect to return to the workforce as the recovery begins.

Reasons given for the permanent loss of jobs included process improvements as well as increased offshoring implemented as a means of survival during the recession.

A Normal Process?

The loss of jobs has been a normal economic occurrence for many years, but the lost jobs are usually replaced by new jobs created in new or growing industries.  According to those surveyed, however, the severity and length of the recession has resulted in a loss of balance among job losses and job creation - meaning that, in this circumstance, job creation will greatly lag behind the job loss.

My Thoughts

I am a business consultant, not an economist, but I don't necessarily agree with the outlook given by many economists.  There has been so much doom and gloom reporting over the last couple of years that I believe a bandwagon effect has taken place.  It's much easier to report negative news than attempt to restore hope when things have been bad for so long.  I see a couple of factors that, under the right circumstances, can actually lead to significant job creation.

Onshoring, or moving offshore jobs back to the U.S., is gaining in popularity.  For quality and cost reasons, many companies are beginning to move jobs closer to where they can be effectively managed.  Also, when fuel prices rise again - which they ultimately will - the cost of transporting materials over long distances may offset the savings in labor costs.

Another factor that can increase onshoring (or decrease the motivation to offshore) is tax breaks for companies that create jobs for Americans.  In addition to reducing the cost of unemployment-related benefits, more American workers pay more U.S. taxes, which can help reduce the growing deficit.  Unfortunately, the U.S. government relies so heavily on corporate taxes that giving breaks to growing companies will delay recovery in corporate taxes collected.  Something like this may have to be done, however, in order to break the down cycle and discourage companies from further offshoring jobs.

Rapidly Integrating an Acquisition

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Note:  This is a follow-up to an earlier post on preventing an acquisition from becoming a distraction (located here).

Over the last decade, acquisitions have become very common in the world of business.  With all the collective experience gained from the enormous amount of M&A activity that has taken place, you would think the process of integrating a newly acquired company would have been perfected.  Unfortunately, this is not the case.  Studies continue to show that up to 70% of M&As fail to meet expectations in terms of financial performance.

There are a variety of reasons for making an acquisition, but all relate in some way to benefiting the acquiring organization.  With this in mind, the longer it takes to integrate the newly acquired company, the longer it will take to reap the benefits of the transaction.  The process of assimilating the new organization needs to be planned and executed with at least as much care as the due diligence process, and quickly enough to prevent the acquisition from becoming a distraction to the business.

The Focus of the Process

Integrating an acquisition requires focus on the technical (processes, systems, etc.) and human elements.  Although the technical element often gets most of the attention, it is the human/cultural issues that cause most of the problems.  In fact, the majority of technical issues could be handled much more easily if enough focus is given to the human element of the integration process.

This post will deal with the human aspects of acquisition integration with specific attention to two areas:  fear and alignment.  With serious and proper focus on these areas, integration can be done quickly and with surprisingly few problems.

Fear

Fear is an obvious by-product of any acquisition.  Mergers almost always lead to job losses, and it is most often the acquired company that loses the most jobs.  With this in mind, the integration plan needs to include honest and open communication about potential job cuts, as well as some type of bonus for those who stay until the end of the process.  Ignoring this subject will serve to demotivate employees, break down teamwork, and increase the length of time it takes for full integration.

Alignment

Alignment refers to indoctrinating those in the newly acquired organization with the purpose, values, and focus of the parent company.  Indoctrinating the new team members with this focus clarifies expectations quickly by communicating to the employees of the acquired company that they are now part of a new, larger, and different organization.

The Integration Plan

Just like any change initiative, integrating the acquisition needs to follow a carefully developed plan with a responsible person leading the effort.  The process must include frequent reviews with senior leaders to assure that problems are addressed quickly and effectively.

Specifics of the plan will differ depending on the size, type and culture of the company, but need to include the following components:

1.  Indoctrination with Purpose & Values (Alignment)
   
   Time must be spent discussing the fundamental purpose of the company (mission and vision) and how they will operate (values).  Every organization is different and integration will most likely involve some type of shift in purpose and values.  I have found that this is best accomplished in two phases.  First in a general message from a senior leader (preferably a C-level executive), and followed up by smaller group discussions led by a function leader and HR representative.
   
   
2. Leadership Coaching (Alignment)
   
   To protect the organization's values, it is important to work with leaders at all levels of the acquired company to assure they possess the values of the acquiring company.  A good amount of coaching will most likely be required to give those who don't display the values a chance to modify their behavior and leadership style.  Obviously, some people will need to be replaced when it is determined that they are not capable, or do not desire, to change their style to fit in the new organization.
   
   
3. Employee Survey (Fear)
   
   A survey of existing and new employees can provide information about the fears, concerns, frustrations, belief in leadership & direction, and confidence in the future as related to the acquisition.  To be effective, however, people must believe in the confidentiality of the survey and that action will be taken based on its results.

Remember the People

The people issues increase the complexity of successfully leading an organization.  It is a difficult and never-ending responsibility to keep people united toward a common purpose in a way that leads to continual growth in revenues and earnings.  This complexity grows exponentially when a new group of people with a unique set of values and concerns are added to the mix.

Recognizing the complexity of the process and attending to the human elements of integration - specifically, fear and alignment - can greatly increase the speed and potential benefit of the acquisition.

Toyota Bashing

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It seems we have a new pastime in this country: Toyota bashing.  It started when the first round of accelerator problems were announced and became a full-blown fad after the issue resulted in suspending sales of the company's most popular products.

Even Transportation Secretary Ray LaHood got into the act, saying that anyone who owns a Toyota vehicle should "stop driving it" (he later recanted his statement).  Call up virtually any news site today and there's a good chance you'll find something negative about Toyota.

I'm not here to downplay the seriousness of the accelerator problem.  The company deserves some of the criticism because of the massive scope of the problem.  We spend a lot of money on our cars and expect them to work safely and reliably.  Toyota's reputation for quality has also most likely contributed to the fallout in this situation.  They have been a hugely successful company for many years now and they have to take their licks just like any other company facing a massive recall.

The problem I'm having is that some of the criticism seems to be based on politics or ignorance rather than facts.

Lean is Not the Problem

The Wall Street Journal (WSJ) ran a story last week entitled, "How Lean Manufacturing Can Fail," claiming that the Toyota Production System contributed to the accelerator problem because of standardization of parts across models and a reduced number of suppliers.  I can see how someone who doesn't understand lean could think this, but the WSJ is a respected business news source and its reporters should know better.

Lean has been a key to the company's success (in terms of quality and profitability).  Standardizing parts across models - which, by the way is not just a "lean" concept - is what makes cars affordable.  It's the way the high volume automakers (as well as manufacturers in many other industries) do business.

Reducing the number of vendors also contributes to improved quality because it enables the company to work much more closely with each supplier.  Also, more suppliers means more variation in incoming products - thereby increasing assembly time and quality problems.

CEO Visibility

Another issue that's causing problems for Toyota is the lack of visibility of Akio Toyoda, the company's CEO.  Although I agree that this problem was large enough to warrant more media presence from Toyoda, it's really not how Japanese executives operate.

To demonstrate the difference between U.S. and foreign companies, how many people can name the CEO of Honda?  Volkswagen?  Total?  ING?  These are among the world's largest companies, but very few people can name their chief executives.  CEOs of foreign companies don't tend to grab the spotlight the way American executives do.  Toyota is learning a difficult lesson right now that Americans expect swift assurance from the chief executive that the problem is being resolved.

Japanese companies (especially Toyota) also tend to study problems methodically and do not jump to implement fixes until they feel they truly understand the causes.  Unfortunately, when we're talking about an issue like this, those using the product get very nervous about their personal safety while the problem is being analyzed.

Political?

My guess is that the media bashing is also heavily political, in nature.  American automakers have been beaten down so badly - mostly by Toyota - over the last several years that the buy American sentiment is driving many of the attacks. I guess we'll learn more about this when Volkswagen takes over as the world's number one automaker as a result of this crisis.

Several months ago, I wrote that Toyota had taken its eye off the ball and, as a result, problems were starting to surface (see Taking Your Eye Off the Ball).  It was evident to me back then that, in its push to supplant  General Motors as the world's largest automaker, Toyota seemed to forget what got them there in the first place.

I also wrote in the blog that it appeared that their problems were being addressed.  They have a new CEO and he seems to be refocusing the company on its fundamental purpose (to enrich society through carmaking).  I also don't believe that the bad habits the company developed had been around long enough to cause major damage to their culture.

My guess is that they will survive this slip-up and return to the number one spot over the next few years.  Toyota tends to be a very long-term focused company and I'm betting that they won't take short-term action that will result in hurting their future.  The company undoubtedly does not want anything like this to happen again, but if it does, they really need to channel their obsession with learning toward improving the way they deal with the American media.

Is Strategic Planning Dead?

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The Wall Street Journal ran a story last week on the downfall of strategic planning.  According to the article, companies learned during the recession that flexibility and quick decisions are more important to a business than planning, and that strategic planning as a practice is becoming outdated.  I hope anyone who decides to scrap a company's strategic planning process based on this article clearly understands the ramifications before doing so.

As I read the article, I found that the authors pointed out many of the misconceptions of the strategic planning process more than the problems with the concept itself.  People often mistakenly utilize the process as solely a financial review and confuse strategic planning with budgeting.  The article mentioned several examples of companies that realized during the recession that they were not reviewing sales and spending numbers often enough to react to quick changes in their markets.  By itself, this realization makes perfect sense as the last two years has been characterized as the worst since the Great Depression.  With that said, however, the need to stay on top of budgets has nothing to do with the value of an effective strategic planning process.

Strategic Planning 101

Strategic planning is a process by which an organization defines its strategy to successfully achieve its fundamental purpose.  The outputs of the process include high-level objectives (critical improvement areas) and initiatives (action plans to address the barriers that prevent achievement of the objectives).  It is a valuable process to assure the organization understands its strategies to improve its competitive position and be successful for many years into the future.

Periodic review is required to (1) assure that the initiatives are progressing as intended; and (2) assure that the initiatives - if they are progressing - are actually resulting in achievement of the high-level objectives.  For example, an organization may create an initiative to change its ERP system in order to support the objective of improving inventory management.  If the new system is implemented but inventory turns do not improve and stock-outs continue to delay shipments, it may be that the ERP system was not the problem and, therefore, should not have been an initiative.  The management team needs to revisit the inventory management system in order to determine how to improve the situation (e.g., identify other initiatives that will result in achieving the objective).

There is no single approach for strategic planning that will work for all organizations.  The process must be tailored to the specific circumstances and culture of each company.  The depth, frequency, and type of review will be different for everyone, but it must still be done if the organization is to become and remain successful.

Remember the Future

Eliminating the strategic planning process will only serve to increase the number of attention deficit disorder (ADD) companies that already exist.  The short-term behavior that has severely weakened so much of western business will continue, resulting in a continuation of dramatic swings in earnings and share price.

Let's be clear - I am not discounting the value of quick decision-making to a business.  Problems occur, though, when "quick" becomes "careless."  A company can benefit from continually focusing on speeding up decision-making without sacrificing quality.  Improving information systems and training can speed up decision-making without putting the company at risk.  If this is what a company needs, though, it will become evident through the planning process.  Those who believe that strategic planning is a slow process that does not add value are not doing it correctly.  If the process is too slow and is not helping the business grow and succeed, it needs to change.

The leader is responsible for assuring that the organization survives the short-term so it can succeed in the long-term.  Quick decision-making and frequent reviews can help take care of the short-term while effective planning (and successful implementation of the plans) is the key to taking care of the long-term.  Stop strategic planning and you might as well forget about the future of the company.

Being Lean is Not Enough

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One of the hottest trends in business over the last few years has been lean.  Most of the Fortune 50 companies currently claim to be doing lean and the market is flooded with training and consulting companies touting the benefits of the approach.  I recently Googled the term lean+business and received 30.1 million results.  It appears that we're presently in the midst of a lean blitz.

Don't get me wrong, I think lean is a strategy from which virtually every company can benefit.  It is a great way to gain control over processes and improve quality while reducing costs.  Throughout my career, I helped many companies implement lean and have seen some great benefits as a result.

The problem I'm having is that lean is being oversold to business.  Consultants and practitioners are promoting lean as if it is the cure for all of a company's problems.  I have gotten into many discussions over the years with people who are disappointed when leaders don't place lean at the very top of the company's priorities.

Part of the Picture

Lean can be a valuable part of the company's overall strategy.  The critical word here is part.  There are other elements of a corporate strategy that are just as - if not more - important depending on the company's individual circumstances.  In the most simple example, a company can be highly successful with lean but go out of business if it is not offering products or services that people want to buy.

However strategic planning is specifically conducted, the process should generally include an analysis of the four high-level objectives that are necessary for success:  (1) People/Leadership Development; (2) Process Improvement; (3) Product/Service Development; and (4) Market Development.  There are times when one or more of these areas will need extra focus, but unless all are analyzed on a regular basis, the ability to understand which areas are in need of attention is limited.

Strategic planning requires an assessment of the company's situation to understand where the current barriers are to achieving success at any given time.  The barriers can be weaknesses that interfere with success, or opportunities that can help the company grow and improve performance, but they will become evident during the process of understanding and evaluating the four high-level objectives.  The analysis helps senior leaders understand where the company's focus (in terms of investment and resources) needs to be in the coming one to three years (or beyond, depending on the normal planning horizon).

Let's Maintain Perspective

The point here is not to oversell the benefits of lean, and to understand why executives don't necessarily put it at the top of the company's priorities.  As an initiative, lean can directly support the process improvement objective and indirectly aid product/service development, but to truly help an organization succeed, it is important to understand that it may be end up being something other than the top priority.

When an Acquisition Becomes a Distraction

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With business finally showing signs of recovery, the amount of M&A activity is sure to pick up again as money becomes more readily accessible.  We have already begun to see the increase with large corporations including ExxonMobil's acquisition of XTO Energy, Stanley Works purchase of Black & Decker, and Google's announcement to purchase AdMob.

Small company M&A activity has also begun to increase and I expect the trend will continue as the level of confidence in the future grows.  Although true of any size company, small companies must be especially careful that an acquisition does not become such a distraction that it pulls management attention away from running the organization, as a whole.

Fighting the Distraction

Since an acquisition ties up a lot of a company's capital, there  is often a great deal of pressure to assure the newly acquired company becomes profitable as quickly as possible.  Unfortunately, it is common for a number of problems that were undiscovered during the due diligence process to surface fairly soon after the acquisition takes place.  These problems have a tendency to become a drain on management resources, and can easily pull the attention of the company's senior leaders away from running the business.

Organizations do not run themselves.  Even with the most successful organizations, bad habits can creep in that will lead to long-term problems if not dealt with quickly.  Since senior leaders in small companies tend to be much closer to the organization's activities than do those in medium and large companies, they often have more of a direct effect on the company's operation than they realize.  A long-term distraction - like an acquisition requiring a lot of attention - can fundamentally change the parent organization before the leaders realize it has happened.

What to Do

If at all possible, attempt to understand the critical issues before the acquisition takes place.  For a variety of reasons, this is not always possible, so it is important to assess the acquired company quickly to learn about the problems that can prevent or delay success.

Once the issues are understood, it is critical for the leader to assign responsibilities and clarify expectations quickly to keep from getting too wrapped up in the issues.  There needs to be frequent updates about the progress in addressing the issues so action can be taken quickly to keep the changes on track.

Dealing with an acquisition without ignoring the overall business may require temporarily assigning people and/or bringing in outside help for a short period of time to help with the transition.

There will obviously be situations where additional attention is warranted by senior leaders to put the merger back on track, but it is essential to remain sensitive to the possibility of distraction in the process.  Above all, never forget the company's fundamental purpose throughout the process and focus effort on integrating the acquisition in a way that does not compromise the mission and vision of the new, larger organization.  Doing this will greatly enhance your ability to assimilate the acquired company quickly and successfully.

The Value of Thinking

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"Thinking is the hardest work there is, which is probably the reason why so few engage in it." - Henry Ford

Do we consider the ability to think critical to business success?  If so, why do companies place such a low value on thinking?  How many organizations today would truly appreciate an employee who takes time regularly to sit in his or her office to think?

I believe if we started to value thinking and took the time to teach our organizations how to think, we could revolutionize the world of business, leading to greatly improved performance, as well as employee satisfaction and quality of life.

Thinking in Business

When I led an organization, I encouraged team members to make decisions. I also encouraged people to think - individually and as a group - before making a decision.  What I found in many cases was that a vast majority of poor decisions were the result of jumping to a solution without thinking.  On the other hand, I have observed that the most creative solutions and innovative idea result from deep reflection and thought before acting.

The U.S. culture is heavily rooted in the Puritan ethic that greatly appreciates doing.  This contributes to the tendency of businesses to value the person who acts quickly much more than the one to takes time to think before acting.  Our organizations are fjull of people who stay very busy doing things, but rarely think about what they are doing.  As a result, we face the same problems day-in and day-out and fail to achieve or sustain significant levels of improvement in productivity or quality.

This general disregard for thinking creates friction that continually pulls even those organizations that value thinking toward a culture of doing.  I believe this is the reason that companies respected for creativity and innovation tend to lose their edge as they become larger and more successful.  Think about how many internet startups have changed from high growth companies with imaginative offerings to stagnant, poor performing organizations.  Companies like Apple
, Toyota and LG, on the other hand, are among the very few that have been able to maintain their creative edge in products, processes, and services.

Thinking Required

Organizations are very complex systems that make it difficult to clearly understand the effects that result from actions taken.  To truly comprehend how a change in one part of the organization will affect another requires thought and reflection.  On many occasions, I have seen a change implemented by one area of the company result in increased costs and headaches for another.

I also believe that the lack of thinking is one of the reasons lean initiatives fail.  Lean requires a level of creativity and systems thinking that are nonexistent in many companies.  solving a problem requires a clear understanding of the underlying causes and the creativity to develop effective solutions.  Without the ability to think and reflect, improvements will tend to be short-lived.

What to Do

Because of the cultural resistance to thinking, encouraging people to reflect on issues before acting is not easy.  Everybody is so busy doing things that it very difficult to get them to take time to think.  Orders need to be entered, reports need to be written, customers need to be called, and deliveries need to be made.  Asking people to stop and think will be seen as adding more to an already full plate of things to do.

The key is to start small.  Leaders can encourage thinking as part of the coaching process to help
team members deal with problems and issues.  In one company, I initiated a policy requiring people to sit and think about their jobs for ten minutes each day.  Some did it and, I'm sure, others just said they did, but eventually the organization began to change because it became clear that I valued thinking.

However it is done, transforming the culture toward thinking before doing will help release the dammed up potential within the company.  Eventually, the change will become evident in productivity improves, more innovative products and services are introduced, and ultimately, the performance of the organization improves.