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.