The one you don’t hear is the one coming to get you – why ethics standards alone are insufficient
NASA conducted a flight simulator experiment where commercial pilots were tested to see if they would notice distractions on a runway during simulated landings. 25% of the time, the trained pilots, knowing how to land (of course) didn’t see the distractions presented by the experiment, landing dead-center on top of them. Untrained pilots, being a lot less blasé, noticed everything, including the distractions, avoiding them [Wikipedia]. This is a decent real-world definition of a situation called inattentual blindness, when people don’t see the obvious right in front of their noses.
In business, how many times have we said to ourselves, how come [insert company name’s CEO] didn’t see this coming or didn’t know about an ethics lapse, often eventually becoming a legal issue, such as falsified paperwork or ridiculously shoddy preventative maintenance leading to an expensive catastrophe and horrendous PR exposure affecting the share price?
When working with CEOs, we often hear about ethics. Then we hear about these companies allowing supply chain abuses in 3rd world countries, or how Microsoft, CISCO and others readily comply with Chinese censorship and dissenter tracking and arrest infrastructures to gain access to that huge market. By the way, this is not new. IBM tabulators and personnel ran the ‘IT’ backbone of the holocaust in a means to hedge their bet on who would win WWII and things turned out Ok for IBM. I recently met a genial sales rep for a brass nozzle manufacturer whose products are designed for cleaning a variety of mining and other heavy equipment with less water. His growth market however was in adapting these nozzles for crowd suppression water cannons in a variety of interesting places in the news. Are these examples of unethical behavior on the part of a company? Surprisingly, no because there are multiple parallel streams of ethics in any society, such as national ethics, business ethics, social ethics, professional ethics, and so on. Ethics are situational and geographical as in China, where Microsoft and CISCO’s actions are perfectly ethical. So why do employees feel unsure of what to do, affecting their ability to execute without tomes upon tomes of detailed procedures, processes and rules, all of which limit creativity and initiative and cost a fortune to administer?
Employees may feel a company’s ethics in a particular country or situation is grinding against personal morality, causing a serious personal conflict, which can be overcome either by changing the company’s ethics (10% probability without an outside mandate to do so), leaving the company (10% in this economy) or just sucking it in and doing one’s job, hoping for the best (the remaining 80%). After a short time, the 80% soldering through their ethics disconnect start to have reduced productivity. LRN, a company focusing on ethical business cultures, recently published a study documenting how small ethical lapses undermine a company’s values in employee’s minds; over time, everyone does what they feel is expedient for a particular situation, rather than doing the right thing over the non-immediate term (note I didn’t say long-term since in business today, there isn’t a long-term). This is not a new human behavior pattern – when NYC was at its crime filled worst, the City began tracking even the smallest infractions, such as turnstile jumping in the subway system (among other leading indicators) – each small ‘lapse’ allowing a culture of ‘whatever’ to thrive, rapidly taking down entire neighborhoods such as the South Bronx and large parts of Brooklyn and Manhattan. They also discovered that people who commit even small offenses were more likely to ramp up and commit more serious crimes as part of the ‘whatever’.
Per the study, people spend an hour or less contemplating the ramifications on each ethical incident they encounter at work. Best case for productivity – your workforce is detached from your ethics statements, thinks your pronouncements are just banner-speak and therefore let infractions slide without any thought or even thinking the hypocrisy is sort of funny or ironic. Oddly, in the ‘best’ case, they spend the hour doing an internal burn or feeling ‘used’. An hour spent thinking through their mis-alignment to your ethics is not much time, until you have a workforce of 5,000, 10,000 or 20,000 spending an hour each internalizing workplace unethical behavior. Even worse, the study found 51% of American workers would not report the incident at all, or, most troubling, 31% would talk about it to someone on the outside, such as family or friends, posing the risk of an infraction going viral on social media. Only 26% would take it up the ladder past their immediate supervisor, which is not surprising given any sane person’s desire not to tick off their direct supervisor in this job-scarce economy. The bottom line – you’re often managing in a fool’s paradise and for every cumulative 1900 hours spent by employees wrapping their head around a moral-ethical conflict, you’ve paid for a phantom employee. 5,000 employees taking 1 hour each, only 3X per year means you have 8 no-show employee equivalents, along with an ongoing reduction in productivity, most likely far exceeding this wasted 8 FTEs.
The solution is to restate your ethical code of conduct as morals – group values which will not change. Morals are powerful; they define a group of people in a united cause, a society which can also be a company, transcending the situational ethics of multiple countries. Morals allow us to see who is a member of our team or who isn’t. It allows us to judge ourselves and others relative to our commonly accepted baseline. They are the broad yet meaningful boundaries of behavior, allowing people to function in a broad spectrum inside those moral borders. They embody both the spirit of a regulation (or law) as well as the letter. In todays’ business climate, where responsiveness, efficiency and effectiveness are required for success, we can have a Code of Ethics, with either platitudes or exhaustive rules limiting behavior or a range of commonly held beliefs providing, as dictionary.com says ‘motivation based on ideas of right and wrong’. Look at it this way – we all have an ethics statement stating we do not discriminate. This can permit us to be a lousy employer equally to everyone. The moral statement would be ‘every individual inherently deserves acceptance and self-dignity’. Which is more powerful and easier to self-police? Which is a better motivator? Which will sound better in social media and attract the best employees?
Free-market economists will say that a moral company is weak, what a company needs to do is maximize profits. It’s a canard for having no regulations, doing whatever they want, relying on a market correction. Personally, I like knowing my pilot is sober, licensed and well rested, sitting in the cockpit of an inspected airplane. Market corrections at 35,000 feet or on an operating table can be harsh. Here’s the counter argument showing how a common set of moral values, with inherent self-policing by members, is the most profitable example. Online dating sites are used by decent people looking for relationships as well as some nut-jobs and some downright creeps. Each site has an internal function to protect their members as much as possible, but the most profitable dating sites focus on tight ethnic communities because they tend to have common morals and are self-policing, i.e. chat messages go around telling others to avoid a particular person. Less internal monitoring (overhead) combined with self-policing results in a better reputation and a lower cost of new customer acquisition and longer retention – all key components to profitability. In another example, a large company with a strong ethics statement on their website, in workspaces, virtually everywhere, recently had a specialized HR consultancy perform an employee attitude survey due to low productivity. The results came back not too surprising – 1 – the brand is good and 2 – the culture is venal. At the televised town hall to present the results to all employees worldwide, the COO proudly stated finding #1, and about #2 said “they’re wrong, let’s move on”. The daily manifestation is incredibly high politics, meetings to plan meetings and few if any important decisions made either at all or in a reasonable timeframe, mostly due to a combination of CYA and kicking it upstairs to provide political cover. Ethics alone is not enough; the morality cannot be off-pitch to the workforce.
You can control people by limiting their activities (the E. German Stasi tried that – high overhead) or provide them the common understandings and reinforcements to do the right thing in all cases, which is the best preventative for the high cost of inattentual blindness. Every company has ethics posted in the lobby and cafeteria alongside the mandatory HR posters, but moral companies post higher profits.
Rich Eichen is the Founder and a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program Rescue and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT/Systems Integration and key initiatives. He can be reached at richard.eichen@growroe.com
So the ‘be a revolutionary in your business’ hogwash has already hit the business email blogosphere
No doubt, it’s going to also hit the mags and books as soon as the print dries and the electrons hit the spamosphere. Why do we all say (per the business pundits) we want to be revolutionaries?
Calling for a business revolution is a nice way to feel something is changing when very little is. As for thinking you can keep things largely the same and still make a revolution, think about Gorbachev’s Perestroika. Opening that closed society to outside information and switching to a market economy while keeping the society the same, the Party still in place, sounds like a great Tom Peters idea. Sort of revolution lite; the safe revolution. Being a business revolutionary is great for consultants, writers and motivational speakers, but given the USSR’s collapse under Gorbachev, not a great way to affect meaningful and constructive change without completely blowing the place up.
On CNN while I’m writing this, Egypt is teetering on the fix it/replace it inflection point and what we’re seeing in the Middle East does apply to us. We’re not seeing armies or bands of militants descending from the hills (ok, deserts) a la Fidel, we’re seeing everyday people being organized through Twitter, i.e. a mass revolution self-organized on the fly by the average person being tuned in to that society’s Twitter based conversation. Reports say one of the key ‘revolutionaries’ in Egypt is an English teacher in her 30’s with a hot Twitter finger, not exactly a bomb thrower, but very much tapped into her society’s sense of timing and need for change and truth. Today, every group of people has their own Twitter or other Social Media real-time info stream and companies are no different. What we used to call the ‘jungle telegraph’ is now keyboard, not verbal, based.
The most significant business culture change we most often see is the disjoin between the Senior Leadership Team keeping things close to the vest and the average person’s new cultural norm (outside of work) for transparency and information sharing. All those lobby and elevator court TV’s replaying your vision will not hit home. You have to control your company’s Twitter stream. As the CEO you have to send (or have sent) multiple Tweets per day, on things big and small, including public versions of your questions and frustrations. Use the Dr. Pepper rule – 10, 2 and 4 for timing. People will read them and reply once they see you actually read and reply (or have a close aide do so) and that they contain your real (and public versions of) concerns, frustrations and truths. The era of the imperial CEO is over as far as information is concerned. Your company has an internal conversation and if you don’t control it, it will control you through your KPI attainment.
High Performance Organizations and their supporting cultures are values driven, defined, communicated and reinforced by numerous small internally consistent messages. While we all like to talk about bottom-up, and that’s fine for a range of tactics, but the overall structure of the culture, its values and internal conversation needs to be framed top-down with calls for action followed by more calls for action. Want an example of someone who gets it? Not to get political, but Cory Booker, the mayor of Newark gets it. During the recent snow storms, he tweeted on what street corner he was with a shovel and asked for help. People responded and then he tweeted he was going to another intersection and people would meet him there to help shovel. He controlled the conversation and showed leadership, far removed from the typical mid-morning and mid-afternoon photo-op press briefings by most snow bound mayors.
Does this work in the real-world we inhabit every day or is this another Perestroika idea? Here’s an example of how people responded to Mayor Booker’s tweets for help shoveling out his city: ‘You inspired me to snowblow the whole block for the Chicago snowpocalypse. Good workout!’
Low cost, fast feedback and inspiring people to action, the real business revolution is managing by values fueled by tweets guiding the company conversation towards your vision of culture and KPI success. The real revolution is for us to implement company cultures more aligned to how we, as a collective group of 10, 100 or 10,000 regular people live in the greater culture and this means we have to tell it and read it, like it is, at 10, 2 and 4.
Rich Eichen is the Founder and a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
What States will recover first? What States will have the most jobs created? Which States will have the highest average wages? If I could move, where would I want to live? If I was opening a new plant or company, where would I find the most talent skilled in high-tech and high value-added manufacturing?
We pulled some data from the Kaufman Foundation, a think tank focusing on entrepreneurship and several sorts later, came upon some interesting results.
The mainstream media talks about creating jobs on a national level but a job is not a job. High value-added manufacturing jobs pay more to the average worker and are more numerous than typical service jobs, sky high Wall Street bonuses paid to a select few none withstanding. So which States have the highest concentration of well paying manufacturing jobs?
| Washington |
| Connecticut |
| Arizona |
| Nevada |
| Delaware |
| Louisiana |
| Maryland |
| Massachusetts |
| Indiana |
| Texas |
It stands to reason the States with the greatest ability to attract workers (including technicians and if you‘ve been to a factory recently, many of the workers you saw are actually skilled and well paid technicians operating or maintaining sophisticated equipment) would include many of the same States and so the results of that sort are not too surprising:
| Massachusetts |
| Vermont |
| Connecticut |
| Hawaii |
| Maryland |
| Virginia |
| North Dakota |
| Rhode Island |
| Maine |
| New Hampshire |
In our globalized world, the best companies are able to successfully compete on the world’s economy stage and the States with those companies, the States with the fastest growing companies are:
| Massachusetts |
| Virginia |
| Utah |
| Maryland |
| Connecticut |
| New Jersey |
| California |
| Texas |
| Georgia |
| Washington |
By now you can see the trend – some States, most notably Massachusetts and Texas are emerging as leading the rebound. In fact, Texas never really had much of a recession to begin with.
Now it gets interesting. Overseas populations have a word of mouth social network focused on to what States should they migrate. Sometimes it’s based on established ethnic communities, but at the end of the day, you have to get a job. The sort was surprising, although Hawaii seems like a great place to live:
| North Dakota |
| New Hampshire |
| Montana |
| Missouri |
| Kansas |
| Maine |
| Hawaii |
| Vermont |
| Ohio |
| Maryland |
So, in the end, which States will, overall, lead the charge?
| Massachusetts |
| Virginia |
| Utah |
| Maryland |
| Connecticut |
| New Jersey |
| California |
| Texas |
| Georgia |
We had to ask – which States will be the laggards?
| Wyoming |
| South Dakota |
| Rhode Island |
| Alaska |
| Arkansas |
| Kentucky |
| Hawaii |
| Louisiana |
| Idaho |
| New Mexico |
And which are sort of neither here nor there, stuck between being on the uptick and wallowing along?
| West Virginia |
| Kansas |
| Ohio |
| Florida |
| Indiana |
| Tennessee |
| Minnesota |
| South Carolina |
| Oregon |
| Nevada |
Can a State empty out with a large percent’s of its population moving to more prosperous locales? As a result of the 2010 census, some congressional seats can be adjusted based on population increases/declines. Texas, our #8 State ‘leading the charge’ can qualify for 4 more seats while Ohio, part of our stuck in the middle group, will most likely lose 2, the largest single drop along with New York. For those who don’t know NY, it’s 2 States rolled into one border. Downstate is Medical, Financial Services and media, all rapidly recovering, or even having their best years while Upstate is unemployment, rust belt, prisons and colleges (which is ironic since it’s a very conservative area, but not conservative enough for them to not work in public sector jobs). States are living creatures, some thriving, some just getting by.
On Sunday the juxtaposition gods struck again. In the morning, NPR reported how the incoming Governor of, you guessed it, Ohio, said he didn’t want the new high-speed rail project, even with Federal funds. So much for being committed to advanced infrastructure requisite to attract new businesses and well-paying long duration jobs, such as building high tech railcars. Then later that evening, the Travel Channel had a piece on waterparks and one of the best was in Ohio. Sounds great, except the average employee looked like a member of the High School swim team, not someone trying to support themselves or advance a career/job path.
This morning, the NY Times has a front page above the fold article (see I’m old enough to relate to the paper edition) stating many new jobs are temporary, designed to reduce costs for benefits, etc. How many? ‘Since the beginning of the year, employers have added a net 307,000 temporary workers, more than a quarter of the 1.17 million private sector jobs added in total’ which is great for companies, but not for careers, communities, States or the social fabric. And the screamed about all over TV 50,000 private sector jobs added in November? As you would expect, 80% are temporary and January, as of this writing, is just 12 days away.
So in this age of partisan politics and ‘gottacha’ State legislatures, I strongly recommend the laggards and the middle rankers put it all aside and develop reasons to attract capital, high value added jobs and companies able to compete at the Global level. Quick action in education grants to State University systems for math and science/engineering 2 and 4 year programs, subsidizing internships at private companies, grants to open new companies and an excellent infrastructure as well as working cooperatively with local utilities can make all the difference and are locally (not Washington, DC) controlled.
As long as we don’t have a national industrial policy, each State should develop one of their own, properly titled ‘Survival Plan’. Has this been tried before? In the US no, but Israel has had great success even with their limited financial resources and small population. As was recently reported in the UK newspaper The Daily Mail’s online edition:
‘The warm and fertile coastal plain between Tel Aviv and Haifa is Israel’s silicon valley, something close to an ideal environment for hi-tech start-ups. Scattered along its length is a series of science and business parks, places where entrepreneurs and academic experts can work together, often with direct sponsorship from the state. Israel’s ‘incubator’ system allows small firms to receive up to 80 per cent of the funding they need to develop new products from the office of the government’s chief scientist, with no strings attached.’
Question #1 – How many US States have a Chief Scientist? Question # 2 – How many States have a Chief Lobbyist? Question #3 – Which would better steer a State’s leadership?
Rich Eichen is the Founder and a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
WikiLeaks on Big Business – ‘involuntary transparency’
No sooner had I hit the ‘Publish’ key on the last posting (Lead by aligning your Brand, your Culture and your Social Network) crying for openness, transparency, brand and internal culture alignment, did I see that Forbes interviewed the founder of WikiLeaks who is saying he will spill the goods on a major bank and his next target is ‘Big Business’. The term most relevant to our plea for open, trust and transparency as a corporate culture was a reference to “involuntary transparency”. Please read our most recent posting – it’s time to change management paradigms is NOW.
Lead by aligning your Brand, your Culture and your Social Network
Many of the brightest-bulb chief executives we talk to have been mentioning the end of command and control culture, what in the military is called C3 – Communications, Command and Control, instead using the easier to scale creation of healthy cultures. We’ve written before (we started this blog in 2007) about toxic cultures and embattled companies, but now we’re seeing executives ‘get it’. But there’s another aspect of brand and culture convergence based on the tenants of social media, making this transformation both more complex initially and ultimately, more successful.
A big, flashy and will-be successful restaurant, an outpost of a Vegas home run, recently opened in NY. The NY Times gave it a ‘Fair’ rating and I asked some 20 something’s how that would influence trying it out. The overwhelming answer was just short of “what’s the NY Times?” Their opinions are based on peer reviews, Yelp and other sites being most mentioned and this is part of the social media fueled conversation about everything. But why, I asked, would you trust a site that could be filled with paid-for bloggers/writers, hired by the restaurant or their very formidable PR firm? Their answer was, sure, that could happen, but overwhelmingly, the sites they use consistently align with their own experiences. Just like a person credible at face value, these few sites continually ‘re-earn’ their trust as the place to read and post experiences. But that person has to be somewhat specific or their input is ignored. For example, they told me the posting saying a restaurant or club is ”fantastic” is not very credible, while a more detailed posting about specific dishes or drinks and the atmosphere is relied upon.
Edelman, the giant PR firm, publishes a ‘trustbarometer’ report each year, having polled global opinion leaders, and the 2010 edition clearly shows how trust in the social media age depends on who is sending the message. If you’re an expert or academic, 64% said they would believe the source, while if a CEO says it, only 40% would take it in. Interestingly, one of the tenants of social media, that the group knows all/tells all, is rebuffed since per this survey only 32% would trust a company’s employees. Basically, they want a highly knowledgeable source they can trust based on past collective experience and that this person speaks ‘for them’, which is consistent with what the 20 something’s said about not relying on a (implied) 50 year old plus mainstream media food critic. Our society has evolved from people blindly adapting to their employer’s culture to needing their at-work and off-hours cultures to align around trust issues.
One survey area clearly resonates, aligning brand and culture. When asked what is most important in their positive view of a company, where in 2006 the top entries were quality of products and services followed by attentiveness to customer needs, in 2010, with our recession, people are concerned first about a company having transparent and honest practices followed by a ‘company I can trust’. In Marketing terms, trust is reflected in brand equity. In the US, cynical respondents (and presumably consumers as well), probably knowing someone who has been downsized, outsourced, laid off or having heard about a company defending adulterated products, feel a full 59% of companies will revert back to business as usual post-recession and so mutual trust and two way transparency will determine the winners. What‘s scarier is per this survey, in the US, from 2007 to today, Banks have lost trust by over 39 points (from 68% to 29% trusting), while impersonal technology has remained strong at 78%, which could mean we trust machines more than organizations at least when it comes to our money, even though the rules driving these machines were designed and programmed by humans. The other issue is, questionable business practices and sometime personal gluttony aside, we need Financial Services as our business lubricant unless we collectively decide to revert back to wampum. Leaving 79% of the population not trusting an essential business sector is a non-starter.
Aligning your culture, brand and trust is about communicating and living core values about who you are as a company, being open about how you do business and producing what you claim in ads and social media. For example, the CEO of a large soup manufacturer was recently reported in the NY Times as saying his company lacked new products in the R&D pipeline and price was not a driver. Bloomberg BusinessWeek, in a recent a report on the same company, said they were pulling costs out of manufacturing where one of the innovations was to base all soups on a core chicken broth base. So their answer to falling sales is to destroy trust since if they will no longer use a specific recipe for each soup, simply manipulating the seasonings and how much can that differentiate products? Didn’t work for GM or anyone else for that matter, but why not here? They seem to be selling based on lower COGS, which is great except that will not stem customers turning away from their soups towards inexpensive ready to eat meals and competing brands, which this CEO cited as his competition. Clearly, the culture is wrong and the internal conversation stilted in this very fixed-in-its-ways company.
The key to fixing culture in this kind of situation is to incorporate all stakeholders from floor level talent to supervisors to mid-level to senior executives in a one tier internal conversation, an internal social network, rather than doing what would be seen as ‘in the shareholders’ best interests’, i.e. the ‘numbers’. It requires giving up tops down metrics based command and control (“produce cheaper or else I’ll cut cost from my Wages P/L line!!!”), allowing peer communications across a broad range of activities to achieve a commonly accepted High Performance Organization operating language which is then implemented and managed openly and transparently. It means an end to defensiveness and the Ottoman Empire style politics inherent with too many management levels. It means living full heartedly within the regulations, not trying to skirt rules because “we’re smarter than the regulators”. To put it simply, it means forcing a new culture of openness, candor and honest conversations, actively moderated and guided towards driving permitted behaviors, standards and execution timeframes designed to achieve corporate goals. This is not reverting to kumbaya kindergarten or not protecting your IP; it means treating people at work how they run their lives after work, i.e. not barking out orders and directives, instead giving them a range of permitted behaviors, i.e. a common social norm. The usual practice of a ‘same as always’ culture and a hot Facebook page is unacceptable in this new paradigm since we’re proposing a new integrated and economically effective management, not corporate communications, strategy. For those companies in unionized environments, it will mean a hard effort to break through the kabuki theater like labor relations of each side playing an ancient role without fully knowing why it’s still being performed.
This change in paradigm, from C3 to managing by social network norms and trust will be the biggest change in corporate America for the next 10 years, forcing those managers who cannot evolve to leave, perhaps earlier than they had expected. It also is our only hope of ending a no-lending, no-expansion, no-investment general business climate based in defensiveness, selling by price or brand destroying via de-contenting products or putting less product in the same size package. It’s our best hope for empowering us to compete with the rest of the industrialized world.
Rich Eichen is the Founder and a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
Grands Projets’ing our way to jobs
James Dyson, the brilliant UK engineer, inventor and businessman was asked by the Conservative Government to lead a panel on how to reindustrialize Britain to the point where, as the study’s sub-title states, the country unites in ‘making the UK the leading high tech exporter in Europe’. Given Germany’s current ownership of that role, this is really a big audacious goal and worthy of energizing a nation.
The March 2010 report, available online, is a rallying cry for that country to build a go-forward sustainable economy based on investments, exports and savings. Being the quintessential engineer and inventor type, he focuses on high tech, but his definition of high tech is illuminating in that it’s not just Silicon Valley, but ‘ those who, regardless of the sector they are in, are making genuine investments in research and development to gain an advantage over their international counterparts’. Given the reality of Chinese labor underpricing the West, and continuing to do so even as Chinese wages sort of rise (forget about them revaluing their currency – their prime directive is internal stability, not world happiness with their policies), the UK focusing on higher value items makes sense as does Germany with great success.
This report looks around the few ley areas which directly affect the potential to become that lead exporter:
- Culture change to give high societal praise to engineers and scientists
- Education in Engineering and sciences, including the basic sciences
- Exploiting knowledge between various Universities, not for profits and other companies
- Financing high tech start-ups with venture capital and grants
- Sustaining R&D through public policy and tax incentives
So let’s compare this to our current state. We talk about buying American again, from what we hear during our Accelerated Market Research sessions to integrate the Voice of the Consumer into our clients, to of all places, a broadcast last night on NPR. Remember the old joke with the punch line “who do you believe, me or your lying eyes?” What’s real and what’s talk? I took the easy path and Googled, finding a single academic, peer reviewed article from a City University of New York (CUNY) publication dedicated to new thinking about Labor issues. ‘Reindustrializing America’, (also my search term) from the Spring issue of New Labor Forum talks about some very similar concepts to the Dyson report, particularly the need for inspiring national goals, such as high speed rail and renewable energy equipment.
But this report is different in that unlike the Dyson report’s long term focus, the authors have an ingenious plan which could begin to show benefits within a year –over the next 5 years, increase by 50%, the number of public transportation buses on the streets of our communities. The idea is to have government order busses, revitalizing the automobile industry (GMC busses, for example), cut pollution (presumably by using the hybrid and CNG technology already in place on NY busses, for example), reduce dependence on fossil fuels and ease the commuting burden on those who cannot afford cars. It would also have another very positive effect, not mentioned in the article. National obesity experts all say everyone, particularly those in the urban centers, needs to eat a healthier diet, rebalanced towards fruits and vegetables away from sugary and fatty sodas and processed food. Of course, many urban centers do not have decent grocery stores and therefore transporting bags of higher volume vegetables and fruits is hard on the skimpy bus services typically serving outlying city neighborhoods. With more busses, perhaps even dedicated to starting/ending their routes at key grocery stores, we can also improve the health of a generation of kids, saving society significant healthcare costs down the road. I grew up in Brooklyn, NY and trust me on this, we weren’t exactly overflowing with vegetables and we had an OK grocery within walking distance.
Next, I wanted to see what the Corner Office Orthodoxy had to say and so I went to the Harvard Business Review website and searched for ‘reindustrialization’. No responses. Hum, so I tried ‘jobs’. First hit – ‘Guide to Getting a Job’. Not promising, but the second hit was ‘Wealth and Jobs, the Hidden Link’ by the Dean of the Harvard Business School, dated Nov 1st and so pretty current. Her input was less than the roadmap I had hoped for (and expected, to be honest)
‘I don’t have the answers, though government policies and business practices that promote innovation, entrepreneurship, and the formation of skilled human capital seem essential. Executives and politicians must find new ways to link value creation and job creation.’
If this group doesn’t have answers, or at least some ideas to be actively considered, refined and implemented, who does? At least less elite CUNY had a plan. Her article sounded very similar to the global outlook expressed by a really smart journalist on a Charlie Rose program focusing on how this country has changed and our companies, being Silicon Valley and services oriented (Facebook and Google were mentioned) now see themselves as global players. This is true, but this pundit was quietly dismissive of people who were not at the SAT/IQ/education levels in these firms and even when Charlie Rose asked him what we should do, he simply said that, “things are changing”. I lived in a country undergoing social strife and let me assure the global thinkers it’s less personally threatening to deal with people in other countries wanting more of our jobs sent there than it is to see local people take their fates into their own hands.
Bottom line is we have to regain national will, control national spending but still spend wisely. We need a national dialogue on how to marshal our talent, restore stature to engineers and scientists (now that the generation who saw aerospace engineers being laid off in droves have sort of forgotten that time), on how to best utilize our national workforce, our venture capital markets (with their long term view of growing companies) and reinstall a bit of protectionism. We need to ensure, like the DoD required years ago, that components of systems and gear be manufactured, not just assembled, in the US and reward core R&D as well. The multiplier effect of those bus orders will be immediate and widespread. Give any business person a 5 year vision and they will hire. Give them a 6-month tax break, reflecting tactic but no national vision, and don’t bother even asking what about jobs.
Where’s our James Dyson and can he help us order those buses?
Rich Eichen is the Founder and a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
When 85% of your troops are in the rear, it’s time to rethink ‘rear’
Some 85 percent of the troops in the US army are not warriors but essential (OK, and some not so essential) specialists and support personnel, often doing complex and demanding jobs. In business, what is the right mix of Line to Staff, ‘tooth to tail’?
The answer is: everyone is Line. High Performing Organizations erase silos, implementing horizontal processes, end to end, spanning and describing the organization. For example, for a manufacturing organization, we described the entire company as Forecast to Procure, Procure to Ship and Ship to Pay. To put it another way, how much should we build? Getting the raw materials here in time to meet customer OTIF requirements (see a previous post for the definition of OTIF) and finally, Shipping it to the customer and receiving cash, which is both an obvious but not so obvious quality KPI. Notice we didn’t use the ERP standard terms of ‘Procure to Pay’ or ‘Cash to Cash’ and such – the brand name consultancies love these exoteric terms, but most people understand and relish simplicity. Think of what it would be like if the army had 1 major process to describe to each soldier – ‘enlistment to victory parade’.
Each process incorporates participants and assets representing every touchpoint. No, people are not assets. A doorknob is an asset; a person is a person, which is why I preferred it when Human Resources was called Personnel. Now, give each process an owner, whose job it is to keep their process at peak performance and you have an integrated, tightly knit, highly focused organization. You have a High Performance Organization, except for one last item – execution.
Many former Staff people are not used to having P/L pressure, of effect based KPIs. Feeling task overloaded, they can turn passive aggressive, or simply decide not to play career whack-a-mole and not speak up when something is going wrong. This is particularly true in organizations with long tenured employees and where a culture of entitlement has flourished. In today’s economy where many companies have streamlined and eliminated jobs but are making record profits, there’s a natural human tendency to cut costs and take ‘acceptable’ shortcuts. What’s ‘acceptable’? Apparently, to BP, ‘acceptable’ meant not replacing the dead battery in the backup blowout valve actuator. Thus, to get people to execute while protecting the company and ensuring a good chance of successful strategy fulfillment, you need to provide them with ‘GRC’.
GRC is the acronym for Governance, Risk [management] and Compliance and this function, today, is typically found in the offices of the Chief Risk Officer, CFO or Corporate Counsel. It should be distributed across each process, linked to strategy so everyone knows how their job relates to the corporate strategy, which policies affect their ability to achieve the strategy, what can go wrong and what controls provide early warning that indeed, something is going wrong. It stirs execution by clearly communicating to someone the what, why, how and oops on a daily basis. It also gives the process owners boundaries between which they can maintain, refresh and operate their cross-silo processes. In our experience, virtually everyone wants to make a difference in their organizations, but don’t understand how and most certainly do not understand why and so they’re afraid to act at all or will do only the barest bones activities by rote.
GRC today is typically relegated to reporting, taking care of the here and now at the expense of connecting the dots and making sense of it all for predictive purposes. As such, it’s often handled via spreadsheets and FTP uploads to the GRC Dept., whoever they may be, reinforcing the image of GRC as a speedbump and added layer of cost, when fully integrated and automated GRC is an execution accelerant. In Organizational Development terms, GRC is more about Situational Awareness disclosure (often as expressed on some regulatory required form) when it should be a 50/50 mix with Sensemaking to fuel execution. It’s still a Staff role when it should be core Line. You can even perform complete heresy and assign an EBIDTA affect goal to GRC, like any other cross-silo process component, rather than absorb the cost into some form of HQ support function, in effect declaring it a necessary evil.
We’ve heard from multiple CEOs who say their people are excellent planners and have plans to go offsite and plan. Somehow, no one ever executes on same. While most organizations have to keep their hierarchical structures (hopefully with as few levels as possible), the matrix implementation of a clearly defined GRC capability baked into cross-silo descriptive processes forces execution and is the cleanest, cheapest and fastest way to ensure the company remains ‘fresh’ over time and becomes that rare High Performance Organization who focuses on execution.
Rich Eichen is the Founder and Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
On Time In Full – The Pulse of your business
We recently assisted a privately held European light manufacturer which had suddenly lost its biggest single customer. Suddenly is a misnomer here – the underlying common story blamed the local sales manager who hid, apparently for over 2 years, the dissatisfaction brewing at a Big Box chain over inconsistent deliveries. Oddly, the Big Box stores had inflicted a bit of the pain on themselves as their policy was, having received a short shipment, not to show a backorder but to cancel the remaining unfilled order and issue a new PO. Thus, the manufacturer was living in a fool’s paradise where as far as far as they were concerned, order volume from the Big Box was rising and all orders were shipped in full.
A simple report, called On Time In Full, would have highlighted the issue on both a spot and trend basis. OTIF, as it’s abbreviated, shows the percent of the time when an order is shipped, in total compliance to the original PO and as initially promised. Most ERP systems either have this report, or in the case of Microsoft’s Dynamics AX (a very popular SMB ERP system and the one this manufacturer implemented), the data is in the database for a report to be created utilizing standard report writing tools. OTIF is worth the effort to track since it’s a roll up metric spanning Supply Chain, Inventory controls, Quality and Waste, Logistics and Account Relationship Management. Production or logistics glitches or communications gaps anywhere in your value chain will be immediately reflected in OTIF. And by the way, many large customers have an active Vendor Management function which does measure OTIF from their perspective and factors in, heavily, to any vendor rationalization initiative. As a Key Performance Indicator, OTIF must be near 95% to ensure customer satisfaction.
How is OTIF calculated? First, you have to share a common definition with your customers of what is a perfect delivery of your goods, as well as the acceptable range. Your Account Managers need to review this metric monthly with your customers to ensure both sides have a common perception of performance. Publishing a definition on your PO is useful in this regard. The actual calculation is rudimentary to the point of doing it manually if your business is small enough – it’s the Number of Customer Orders Delivered On Time and in Full (per your common definition) / The Total Number of Customer Orders x 100 %.
There’s another metric, also easily calculated, which when combined with OTIF provides a snapshot heartbeat of your business. Days Sales Outstanding (DSO) is simply how long, on average, customer’s take to pay their bills, the assumption being satisfied customers, having received their goods as promised and in useable quality, will pay their bills while unhappy customers or those receiving broken orders will wait until they’re satisfied.
By utilizing a common definition of OTIF, and monitoring DSO, SMBs can balance customer satisfaction, inventory carrying costs and cash flow on an ongoing basis.
Rich Eichen is the Founder and a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
I said right but I meant left!
The Bridge Officer screamed “hard a-starboard” – meaning turn this ship left – Now! But he said it in terms of his training which was from the age of sails. The Helmsman reacted per his training, from the newer age of steam and swung the wheel in the opposite direction, turning the ship right. Two minutes later, the Titanic entered history. Then the real crime allegedly took place – the Chairman of the White Star Line, fearing for his company’s reputation and not understanding his true status (his feet were still dry at this point), ordered the Captain to keep sailing, believing his own hype about an unsinkable vessel. The Captain, also from the age of sails, obeyed, hastening the sinking by several hours; one authority figure, 3 employees, the Officer saying turn the ship to the left, and the Helmsman thinking it mean turn the wheel left , i.e., no common communications system.
Jump ahead almost 100 years and you can understand how American business today is being told to do one thing by their authority figure (the Gov’t, who makes the rules) and another by the on-site regulator’s auditors. Businesses in turn miscommunicate among themselves about what to do, and so no one does anything rather than pay fines or be named in the news. The result is not ‘just’ 1500 deaths, but a living death for the 26.2 million workers who are either out of work, involuntarily working part time or who gave up looking for the 4 weeks before the latest BLS survey (September 3rd) was released.
Community banks are the neighborhood residents who used to fund mortgages and had decent credit terms for local businesses, such as allowing them to collateralize their buildings rather than simply perform Balance Sheet analysis since many smaller businesses have seemingly dicey financials, often for favorable owner tax treatments. It’s not unusual for a big business bank to reject a loan but have the community bank understand the real situation and grant it. Reminds me of my uncle, a real NY ‘Garmento’ who’s belt factory barely survived for all 30 years he had the business per his financials. But he always repaid his creditors, often driving up to the bank in his new luxury car. These same banks routinely rent out on-site scanners to allow immediate crediting of checks to available funds which small businesses find invaluable (avoiding the 2.5 to 5% haircut charged by the credit card companies). They get those smaller businesses, typically owners of a few stores and trades people with a few trucks.
Under our new ‘we missed it before so I’ll do it twice as hard now’ regulatory system, these banks are being forced to reject loans to small businesses because the government auditors will reclassify the collateral at a lower value, forcing community banks to loan less to keep their capital ratios higher. One Florida community bank took a few million in TARP funds and then made the mistake of loaning about half (only about $2M, by the way) to small businesses, prompting job growth in their neighborhood. The various Gov’t auditors were furious the Bank didn’t keep all the funds in-house to bolster their capital. So we have, once again, the Government playing Bridge Officer saying ”make jobs, loan again” while their in-field regulatory auditors, acting as Helmsmen, say “if you do, I’ll come down on you like a ton of bricks”. The result of lacking a single communications system? Over 15% of SMB bank customers, very much the community banking sweet spot, are planning on switching banks, where the normal churn is less than 10%, sometimes only 4% in an SMB sub-segment. Given the added costs in attracting new customers over servicing existing customers, it’s reasonable to expect banks’ profits to suffer. On top of this, the Gov’t says we need SMB’s to provide jobs at the same time they’re starving the very banks who give the loans necessary to create those same jobs. Only the Controller of the currency and the FDIC, both playing the role of the iceberg, may be the winner here.
Healthcare is undergoing significant, and seemingly beneficial, changes, the first of which took effect yesterday. We can only hope everyone is using the same communications system. Will the State Depts.’ of Insurance update their ratios so insurers can survive as a healthy business, rewarding their shareholders (often including their employees as well as your 401K)? Yes, they can cut Admin expenses down a large measure with technology (go inside most large A&H insurers and the offices are very nice and there does seem to be plenty of staff). So if you force insurers to cover higher risk people without charging ridiculously high premiums, and not keep as much for profit and Admin recovery, you’ve increased their expenses. Worse, since you’ve had them insure a higher risk population, requiring more statutory reserves, you are further depriving insurers the cash to either expand their business or dividend to shareholders. Without the authority figure ordering favorable tax treatment for serving the public good by insuring the previously uninsurable, and with the other players using different communications systems (actually 50 systems; each state has their own viewpoint on board meetings, residency of Directors, reserves, etc.) we once again have multiple differing and conflicting communications systems.
The Government is now debating taxing overseas profits and further regulating transfer pricing. If the Government’s sole goal is to create US based jobs, including returning manufacturing as a means to restore the Middle Working Class, this makes sense. This will be a striking change in US business since, for example, IBM gets 65% of its revenues from its overseas operations. Implying that businesses are a form of US citizen (reinforced by the recent Supreme Court ruling on corporation’s having 1st Amendment protections, as does any individual), it assumes they should not hurt the country by taking jobs overseas. This flies right in the face of the prevailing view of a Global Economy where companies are transnational, acting to the benefit of their shareholders, allocating capital on a global basis. To be effective, our communications system has to differentiate between a foreign market and a foreign operation. For example, China and the US are the two largest foreign markets for Mercedes Benz, but their largest operations are still in Germany.
Back in Undergrad days I began to hear about how all these new environmental rules were going to hurt ‘the shareholders’. Since this justified why businesses couldn’t spend on cleanups and prevention, I had to assume these shareholders didn’t breather the same air or drink the same water I did, concluding these shareholders had to live on Mars. It was a great way to pass responsibility to an amorphous being called ‘the market’ or ‘shareholders’, much like there’s no need for personally taking care of what you eat, passing our personal longevity to ‘fate’. Change ‘Mars’ to ‘Global Economy’ and you’re living in 2010. Should we actually begin to think in terms of what is best for the country and for US shareholders, and not the nebulous Global Economy, this could be the return of managerial accountability to a nation’s citizens, a complete 180 degree change in business culture. Hopefully the communications systems of the tax codes, Financial Reform, Labor and EPA regulations will all align under a common communications system. Of course, after K-Street tries to influence the real powerbrokers – the regulation writers, it will be curious if the policy maker’s economic recovery goals will actually come to pass in real life or if we’ll have another set of unaligned communications systems.
In our consulting work we often see the need for one, consistent financial, operations and KPI communication system, which we call a ‘common language’. While we all do what we can to have common languages as business people, unless the Government joins in at the regulation definition and enforcement agent level, it will remain the Towner of Business Babble and the iceberg will once again win.
Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
If they can sell vodka at 14X retail, why are you still discounting?
When we ask a prospective client for their Customer Service mandate/mission/policies, we typically receive a PowerPoint full of ’fun place to work’, ‘make customer happy’, and other typical MBA speak. In this day of few dollars being chased by every still-functioning company, it is amazing to us how Customer Service still often performs two historical missions, seemingly helping the company but actually increasing customer retention risk:
1 – Satisfying customer demands where a corporate strategy would avoid this entirely. For example, if a company has a confusing series of services and fees, some of which can cost the customer more if not used, why have the customer call to complain about the size of their monthly bill when a simple sweep of all customer bills could highlight those spending more than needed to get a certain level of service? Which will engender more loyalty – an annoyed customer calls in and has their bill reduced because they complained or the customer receiving a notice that the company, on its own, kept the same service level but reduced the customer’s cost?
2 –Continually fixing orders so they can be processed, hiding either a broken customer facing configurator or a poorly designed product. If you make a product describable in a brochure or website, there is no reason why Customer Service has to repair orders so they can be processed. We know of a credit card company’s travel unit which cannot produce a form of invoice needed by most of its customers for expense accounting purposes, even though their own agents say “we hear this need a lot”. A B2C manufacturing company uses their Customer Service group to repair more than half of all orders placed through a poorly designed in-store configurator/order entry process rather than fix the configurator to get orders properly entered while the customer is standing there, negating the need to call the customer after the fact to get it straightened out.
Google’ing how any Customer Service standards are applied in the USA is illuminating. So many listings; so much blah-blah. There are multiple standards, in the US and globally, so figuring out Customer Service is not akin to the initial invention of the wheel. In fact, just in the USA, we have: (per Wikipedia):
ISO 9004:2000, on performance improvement,
ISO 10001:2007, on customer service conduct,
ISO 10002:2004, on quality management in handling customer complaints,
ISO 10003:2007, on dispute resolution,
as well as The International Customer Service Standard (TICSS).
For everyone wondering why IT is so poor at servicing their ‘customers’ while demanding inclusion in the core business (consultants love to sell Alignment Studies since they are rarely enacted, i.e. the consultant cannot be proven wrong in real operating life), there’s ISO/IEC 20000:2005 on IT service management. The UK has standard, BS8477, but which we have seen is not often implemented in the UK.
These standards all have the same basic structures, such as:
- Tops-down Commitment,
- Requirement for total credibility, not just ‘how do I get them off the phone’ productivity metrics,
- A customer service ethos throughout the company,
on and on and for pages and pages and pages.
Unfortunately, by following these standards in rote like manner, you’re tracking and fixing service levels, not transforming yourself to gain marketshare from your competitors who still don’t get it.
Customer Service has to think of itself as delivering an end to end customer experience, just like the trendiest restaurants. If you’ve ever gone to any of the highest revenue producing restaurants in the US, there are 2 common denominators. First, the food is somewhat better than Ok and typically over the top in terms of size and shock value, such as a fortune cookie, filled with chocolate mouse and more than large enough for an entire table. The second and most important factor is the end to end customer experience. Not just clean tablecloths, over the top food presentation and dramatic lighting; it’s a Disneyland ride while you eat. It makes the night out special where if the same food was served by your old standby eatery, you would say it was an ‘ok’ meal. Until recently, in NY’s Central Park, there was a restaurant who’s interior, for over 20 years, was filled with chandeliers and the trees glistened with lights so the experience started as soon as you got out of your taxi (even if the food was not that great, but no one ever went there for the food, anyway). Same applies for the casual dining sector, per a recent CNBC report. It’s not the food. The most successful casual dining chains manage the experience, thinking how the customer interacts with the business from the moment they walk through the door to the moment they leave. With the right customer experience, you can sell vodka at 14X retail and have them clamoring for more.
The biggest impediment for many companies to transform Customer Service from ‘us looking out’ to ‘customer looking in’ is typically the standard CRM system or ERP CRM module (and it makes no difference if it’s On-Demand or sitting in your data center). These are data driven and not problem solving focused (and by this we mean solving the customer’s issue plus avoiding its reoccurrence). What can upset a customer more than your being able to recall, in detail, their purchase history down to the exact second the enter key was hit but being unable to fix anything while they are on the phone or in a chat session? You can do all the human process redesign work you can pay for but unless the systems are changed to become solution focused on the customer’s behalf, you’re not giving them a solid customer experience worth a repeat visit. Many companies feel compelled to implement a CRM system these days but unless the customer experience is engineered in from the get-go, it becomes nothing but a large tracking device, full of data but not helping improve customer satisfaction.
Case in point: 13 years ago we designed and implemented a customer CRM system for a CPG manufacturer, focused on empowering the local sales representatives in getting on the spot credits, shipment delivery dates, defective product replacements delivered, etc., significantly reducing the incidents of “I’ll get back to you”. Through this CRM system, they transformed Sales and Customer Service, taking the latter out of a call center and into their customer’s stores. Customers started having a great experience every time the sales rep walked in.
As Einstein once stated, to paraphrase, the solution is all in how the question is framed in the first place. In Customer Service terms, a company should decide to improve not Customer Service; it should decide to transform Customer Service, first by renaming the department/function Customer Experience Management. All customer facing units need to align, from R&D to Product Management to manufacturing to marketing researching packaging and useage at a nuanced level. You can have all the Mission Statement bromides you wish, but unless everyone is focused outside-in, no meaningful change will take place. Organization structure, KPI’s and systems will all then fall in line, once you map out a cogent and commonly accepted Customer Experience Value Chain.
During the 1987 market crash, a 60 year old company, with notoriously poor customer service simply went out of business because new customers were not replacing fed up and ‘outta here’ customers. If outside Auditors are interested in the ongoing business test as a means of certifying health, then the Customer Experience (as a predictor of repeat business) can be tracked as a potential risk factor by internal auditors and reviewed by your Board’s Risk Committee.
Trendy restaurants use the customer’s experience to sell vodka at 14X retail. Why are you paying for a Customer Service department but still offer promotions?
Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.comand is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com
