Disregard the sound of innovation passing you by

The number of US firms making horse-drawn vehicles dropped from nearly 5,000 in 1904 to only 88 by 1929 and shortly thereafter, it was just a handful of artisan shops.  By the early 1900’s, general availability of components made assembling a carriage at low cost very easy.  Was their means of production so nailed down (sorry for the pun) they couldn’t see they were actually in the people/freight vehicle business?

This is hard to say from someone who has spent the last 15 years implementing lower cost operating strategies and methodologies, including Six Sigma and Lean.  Problem is, like the early Business Process Redesign world of the 1990’s (the Dr. Hammer and Index era), you can make your production so finely tuned that innovation becomes a disruption. Case in point is Toyota, which produces great but mostly bland cars.  In a world where cars, particularly luxury cars, had spotty reliability, Toyota’s quality was their competitive advantage.  Now with virtually all cars reliable, quality is the new norm and Toyota was taken back a few months ago by the founding Toyoda family to put some passion back into it. How do you lock down proper process while still embracing innovation?

The knee jerk answer is listening to your customers, which is so intuitive it has to work.  Well, it does, but only under 2 conditions.  First, the fundamental way you use the product has not changed in eons, basically because the underlying biology or physics are unchanged.  Office chairs come to mind.  People have sat the same way since the African Savannas 200,000 years ago.  You can make the chair more ergonomic or stylized, but basically it has to have a seat and back.  Secondly, your product or service has to be so widespread no single group of vocal customers or power users/consumers can hijack the conversation and misdirect the product to suit their needs while you miss emerging markets. Twitter is well regarded for monitoring its millions of users, observing widespread use of new user-created features and adaptations.  Those with the most ‘legs’ are then built into future releases.  The counter example is a long defunct software company, ISSCO Graphics, which by listening to its few power users and largest customers missed the desktop graphics market transition from a select few customers on Sun workstations at $7500 per license to mass adoption of PowerPoint at $250 for the entire Office suite.

Innovation, the game changing new product/service or business model, is as much about intuition as it is about low cost, high quality production.  Steve Jobs realized his iPod was a game changer while walking in NYC shortly after rollout, noticing someone with the distinctive white ear buds, then turning a corner and seeing two more people and so on.  All during an era dominated by the Discman and it’s evolutionary competitors.  The safe bet was to develop a white (Apple’s signature color) Discman clone, produce it at low cost and high quality.  Design it, implement Six Sigma defect free production and let the units slide off the conveyor and right into the dustbin of history. Instead, Apple used intuition and imagination to take 70% market share and control of the future by defining the new market of listening to customized content rather than transporting at-home music to the outdoors. Similarly, Apple could not get shelf space, no matter what the slotting fees, at the big box stores where most people still buy PCs.  No doubt, these stores did the ‘on one hand vs. on the other hand’ equation and decided not to totally tick off Microsoft, Dell, Sony and HP.  Apple instead built their own retail stores, which sold both product and experience, and now Best Buy has Apples on their shelves.  Innovation creates new revenue streams.

To innovate, the culture has to be the antithesis of Six Sigma.  What, how can this be, Six Sigma is the default answer to every ill in business, or so goes the common logic.  In a fast moving product cycle or where an entirely new product is required, the focus has to be reversed from “how can we have no defects” to “what is the customer wanting to experience?”   This is less the land of quantitative analysis than it is based on a heuristic view of the world. There is a transition point where the innovated product becomes a ‘standard’, but first, there has to be that innovation.

This is not to say Six Sigma does not have a place.  If you are making the same thing for years, it’s a no-brainer to lock down a production line into a well oiled machine, forcing vendors into ever tightening quality parameters so assembly/integration/mixing is easier.  As example is a syringe, where the parts supplied by vendors have to snap together without rework so billions can be assembled each year.   Another would be food, where once the recipe and form are finalized, cranking it out for years becomes the norm.  Candy bars come to mind.  Take a look at how long these bars have been around:

• 1900 Hershey’s Milk Chocolate Bar
• 1916 Clark bar
• 1923 Reese’s Peanut Butter Cups
• 1923 Butterfinger
• 1923 Milky Way
• 1925 Kandy Kake (the original name of the Baby Ruth),
• 1925 Oh Henry
• 1925 Mr. Goodbar
• 1930 Snickers Bar
• 1932 3 Musketeers Bar
• 1933 Kit Kat
• 1938 Nestle’s Crunch
• 1941 M&Ms

The point is someone had to invent each item, ex: innovate, and then ramp up production. Without the innovation, the ‘secret sauce’, each candy would have been just another flavor of some else’s product and probably failed.

Will your company survive by simply making what it currently does cheaper and faster?  Wonder how it felt to be in one of the 62 now defunct US locomotive factories hearing Charles Edgar Duryea’s horseless buggy and the Wright Brothers’ Flyer pass by?

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and key initiatives. He can be reached at richard.eichen@growroe.com

What happens on Wall Street stays on Wall Street

There’s talk now of ending the anti-trust exemption for Insurance companies, forcing them to really compete in each state without inter-firm ‘alignment’ of rates and coverage terms.  We’re now talking about changing the business model of medicine, where the service providers will be paid on outcomes, not procedures.  Wall Street is being pilloried for selling highly risky products and being paid based on sales or profits.  Now the talk is to change their compensation to a longer range plan, mostly in stock and as Goldman does, forcing them to keep 75% of their stock until retirement.  By the way, Bear Sterns employees had a similar culture and when their company blew up, so many homes went up for sale in the Hamptons  we had to mint a whole new generation of entertainers to buy them up. And for each suggested ‘fix’, our esteemed legislators, mostly lawyers (who are well known for their own efficient business operations), think up a new Agency to regulate them.  Soon, we’ll need the Agency Agency to regulate the regulators.  Let’s call a spade a spade; we already have an agency to effectively control Wall Street, no need for another.

The Nevada Gaming Commission was founded in 1959 to license, control, audit and tax the casinos in that state and has, overall, done a great job.  Currently, its functions include Investigations (of current and prospective employees), Corporate Securities (for publically traded companies),   Technology (wonder how they would look upon High Volume Trading if it meant the dealer showed me your cards 30 milliseconds before you got them), Audit, Tax – Licenses and Enforcement.  Say what you will, this is a tightly controlled industry which is why, even with the bad odds of beating the House, we all enjoy a trip to Vegas. When was the last time you enjoyed a trip to Wall Street, Second Grade?

Proving that my idea is not so novel and truth is stranger than fiction, Swaps (more generally, Derivatives) were specifically exempted from state gambling laws by Federal Legislation in 1992. In 2000, the Presidential Working Group on Financial Markets (PWG) recommended some minimal oversight on OTC Derivatives contracts but the power of Lobbying was in full force and hence the Bailout of 2008. Treasury submitted draft regulation to Congress, this past August, looking for “comprehensive regulation of all over-the counter derivatives”.  ‘Comprehensive Regulation’ would include open trading and clearing (the actual settling up on the bet) for Standardized OTC Derivatives (in casino parlance, think slots, table games, craps and ‘the window’) and new standards on non-standardized bets (like those made in the back rooms of the Social Clubs in my old Brooklyn neighborhood).

The likelihood of this occurring is near zero, which is a pity.  Too much money is being spent on K-Street and J-Street for this to take hold, no matter how good an idea this may be and then we have the Wall Street insiders comprising the PWG itself.  How ‘inside’ are ‘insiders’?  How about the Secretary of the Treasury, or his designee (as Chairman of the Working Group); the Chairman of the Board of Governors of the Federal Reserve System, or his designee; the Chairman of the Securities and Exchange Commission, or his designee; and the Chairman of the Commodity Futures Trading Commission, or his designee? You can hear the revolving door spinning. Even Congress, in hearings going on this week, expressed severe reservations about expanding the Fed’s reach because it and other regulators were asleep at the switch.

Main Street needs this new legislation.  Even if we are not actual users of derivatives to mitigate risk within our companies, recent events shows how secretive and not fully understood instruments hurt us all.  If not enacted we have a fallback plan – turn the Derivatives markets over to the Nevada Gaming Commission and comp everyone for a good dinner. Steve Wynn would run a great Goldman Sacks.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and key initiatives. He can be reached at richard.eichen@growroe.com

Exit 9 to Stupidville is paved with gold

Back in May of 2009 I posted a blog entry “Taking Exit 9 to Stupidville” where I commented about the situation with Ken Lewis, then the Chairman and CEO of Bank of America and why he allowed the Federal Government to jam the acquisition of Merrill Lynch down his throat. Shortly thereafter the Board stripped him of his Chairman title while he and his management team were “high fiving” it in their local bar. I questioned why the board didn’t take his CEO title as well.

Now, Ken is leaving the bank as of January 1, in what appears to be an early retirement. Enter the government once again. Kenneth Feinberg, the anointed Obama Pay Czar has stipulated that because of the banks poor performance Mr. Lewis should not be allowed to take his $1.5 million salary. What about the $60 million in bonuses the bank is going to pay him? $1.5M isn’t punishing him, at his level it’s a rounding error.  If you think he was such a bad boy take something that is actually punitive. It’s a joke to think that the Pay Czar with all of his alleged power is going to do something so trivial. If that is the case we surely don’t need Mr. Feinberg.

I am a strong believer in the “free market”, survival of the fittest etc. In most cases, I am not a believer in government intervention, especially when the government intervenes and does something patently stupid. What is even worse is that no one on the B of A Board raised an eyebrow but I’ll get to that in a minute.

If Mr. Feinberg wants to set a punitive bar for Mr. Lewis or for that matter any executive, set the bar high enough that it will be a real deterrent. Let Mr. Lewis have his salary for coming to work every day and going to meetings but take away the $60 million in bonuses. Taking away a $1.5 million and paying $60 million makes no sense and frankly is hardly punitive. A much bigger question here is; why has no one on the Board made any overtures about salary and bonuses due Mr. Lewis?

I have served on the Board of Directors for several companies over the years and I always took the position very seriously. Especially, when I came to the Board as a “friend” of the CEO; I had a fiduciary responsibility to the shareholders and not my friend. Being asked to join a board is not about being in a beauty contest. It’s about bringing to the Board a set of skills and experience that complements the other Board members as well as the company. The job of the Board is to advise the CEO and his team about hidden pitfalls regarding actions on which the company is about to embark. Or perhaps issues that come up regarding audit, compensation, ethics etc. The Board is also meant to be a sounding board for acquisitions and divestitures and how that might play into overall strategy.

Is Mr. Feinberg the only one on the planet who perceives that Mr. Lewis’ on the job performance was something less than stellar? If that is the case and I don’t believe it is, why is it that not one of the B of A Board members had their voice heard either way? The outward appearance is that the entire Board abdicated to Mr. Feinberg. Shame on the Board! In my view Mr. Feinberg should not be making decisions about compensation limits and size.  It is the Board’s responsibility to set upside and downside limits on compensation issues and enforcing them! Until B of A’s Board steps up to its duty, Mr. Feinberg will and perhaps we should punish the Board by withholding some of their compensation.

Tom Bergeron is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and sales organizations. He can be reached at tom.bergeron@growroe.com

This posting is not about David Letterman and his alleged issues;

it’s about the other 99% of his or any company’s employees where this kind of activity is rumored to have taken place and the affect this has on their daily at-work wellbeing and hence, productivity.

As a turnaround artist, I’ve seen a lot when it comes to sexually charged workplaces – Intimate leather things charged by a CEO to her company credit card and describing the items in mixed company at staff meetings; a married President going out most nights to his favorite bar and wooing his favorite waitress on the company’s nickel –here too, describing his exploits in detail to his staff and encouraging them to do likewise, a VP-Sales dismissing an employee who by having an affair with his boss gets the VP-Sales fired instead and herself feared by other employees, an employee having an open affair with her boss who in turn channels sales to her at the expense of his other employees, employees knowing who is sleeping with the boss, and therefore being very careful of what they said in her presence.  By the time I got to each of these assignments, the employees were emotionally exhausted. Yes, this seems to be a litany of SMB company issues and examples, but rumors spread quickly and while an entire F10 company is unlikely to fall apart, an entire Division easily can if the most senior managers are involved.

The effect on uninvolved employees in a workplace where there is a sexual undertone cannot be minimized.  First comes the leering and laughing; then comes the pointing and snickering.  Finally, you can cut with a knife the tangible feelings of resignation and shame for working in such as environment. It’s not about sex in the workplace for these people.  It’s about a disparity in power and how it affects the 99% of employees not tied into whatever is going on.

Every organization has its formal and informal elements, and the ‘uninvolved 99%’ have now had a lesson in informal organizational power politics shoved in their faces. These employees take the train home and live by the Expense Manual guidelines while ‘others’ take black cars and eat dinners under the premise of a ‘sales call’ or ‘strategy session’. They know they are interfacing with a loose cannon of a boss and how powerless they are from 9 to 5.  It’s a classic Two Class organization.

A study published earlier this year in the Journal of Applied Psychology (January, 2009) found that a sexually charged workplace  is generally associated with negative work-related and psychological outcomes, regardless of whether it is quietly tolerated or openly disliked by both men and women. Bottom line – the ‘uninvolved 99%’ of employees are withdrawn, think of looking for a new job, have less productivity and tend to doubt their company’s mission and decisions.

What are the EBIDTA effects on the entire organization since the 99% of uninvolved employees are less productive?  While researching this posting, it became apparent that the legal implications and associated settlements/penalties involving a sexually charged workplace were all extensively covered (as it very well should be), but no one has put a price on how it affects the employer’s bottom line.  There’s the obvious – per the EEOC the average payout of a Sexual Harassment claim is $750K.  But less obvious is the cost of all those people who show up for work because they have to but are, as they would say, “depressed about where I work”.  The Social Scientists call this ‘presenteeism’ and it’s a big cost, spanning more mistakes, less throughput and even a higher chance of catching a communicable illness such as the flu.  It’s entirely feasible that a consulting company could come in looking for cost take out when, right under Management’s nose, the largest single cost could very well be presenteeism.

The Two Class organization isn’t new, i.e.

‘To be occupied … to be always on the watch, ears open, … to scan the faces of companions for signs of treachery, to smile at everybody and be mortally afraid of all’ – Etienne de La Boetie, circa 1552,

but how does a 16^th Century organization compete in 2009?

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and key initiatives. He can be reached at richard.eichen@growroe.com

Relationship Excellence – so crucial but so political and so hard…

The focus on relationship excellence in all organizations requires perpetual innovation and improvement. Successful marketing has always been about correctly identifying or anticipating customer needs and fulfilling those needs. However, the 21st century will be a world in which the deeper, emotional needs of relationship fulfillment become a predominant factor in the decision-making process not just for CPG companies, but in B2B as well and this is why relationship excellence, more than typical sales activity, is crucial.  Market Research professionals (such as those on our staff) call this ‘needstate’, the underlying psychological needs driving someone to buy a type of product or service (the trick is to get your positioning aligned with their needs).

Most organizations upon which, as the leader of the outbound marketing unit of Return on Efficiency, LLC, I talk to have embraced the concept of relationship excellence from end to end, but are unsure if they can do it themselves or should engage an outside firm such as ours.  Reality is, the quickest and most cost effective way to introduce any continuous improvement program is through the experience and expertise of outside resources, followed by enrollment/ownership by internal personnel to sustain the changes and bake them into the company’s SOP.

Employees generally resist and resent change unless the person(s) implementing change demonstrate a level of subject mastery well beyond existing internal norms. This is unfortunate, for the very nature of business in the 21st century is a world consumed by change. Sometimes this change will be evolutionary, sometimes revolutionary. Either way, change and flexibility will be constant requirements for organizations to adapt to the changing and evolving needs of 21st century customers, and relationship excellence, rather than ‘sales’ and ‘account management’ will be the key factors making some companies much more successful than their competitors.

The role of the outside management consultant is to help the organization pass the various stages of change resistance, acceptance and implementation so that relationship excellence can be infused as a new core competency. To succeed in tomorrow’s highly competitive markets, management must be willing to invest today in the necessary financial and human resources, and in the internal procedures and processes, required to re-align the organization into a customer-centric concern.  One caveat here.  In my recent conversations with C level executives during this recession, I have noticed a visceral negative reaction to the usual consulting company practice of hiring top college grads and billing them at pricey rates while they fill out spreadsheets. Now fighting to save every dollar, these C level executives see no value add from this large but inexperienced staff.  They want people who have already implemented relationship excellence, both internally (and then had to live with the results) and for multiple clients.

The window of first mover advantage for implementing relationship excellence closes ever so slightly with each passing day. The most important value of an outside resource, particularly in the early stages of this re-alignment, is the advantage gained from an independent diagnosis of the organizations’ current market and image situation, and its future potential in both these areas. Additionally, the early stages of the process require an enormous time commitment by a range of business specialists and practitioners, time that is unlikely to be available by appropriate people within the organization unless they are completely relieved of all other commitments, duties and responsibilities. Once employees truly believe the truth is being stated in public, they can become enrolled in the process.

Enrollment requires both the consultants and the client viewing this process as an “arm-in-arm” program; an opportunity to work ‘shoulder to shoulder’ embracing their challenges, affecting real change in relationship management, especially where long standing barriers must be removed and political boundaries shattered.

The second greatest benefit of using outside resources comes from the impartial and confidential role of the consultant. Impartiality allows objective appraisal and analysis of the information uncovered during the investigative stage and this is particularly important in establishing relationship excellence where long term revenue streams, ‘I own this account’, glory and compensation are all directly affected and thus highly political.  Confidentiality allows a wide range of unknown issues, beliefs, feelings, and concerns to be raised by all parties. One of the key elements of objectivity is the correcting of ‘urban myths’ about how and why things are done within the company.

Additionally, the use of outside consultants can often harness across-the-board commitment to the project. Engaging an external consultant is often a key signal to the organization that the project is serious and that management is willing to admit that it does not have all the answers nor all the internal resources in place.

Also, external resources can often keep a project moving along, without it becoming delayed or bogged down by new priorities and day-to-day concerns.  As for those companies who say they can do it all internally, my only advice is to go to the window, open same and scream loudly “attention my competitors, please stand still while I figure this out”.

As Marketing & Business Development Practice Leader, everyday my staff and I speak to ‘C’ level business leaders, division heads, and process owners.  It is those very leaders and their frustrations as they embrace their challenges that inspired me to share the above.

Mike Resnick is a Partner of Return on Efficiency, LLC, who’s website is www.growroe.com and, is one of their senior Marketing & Business Development Leaders, with over 25 years experience in consulting and B2B Marketing initiatives. He can be reached at mike.resnick@growroe.com

Finally! It’s the time to panic

A ‘tip of the tongue’ global CPG company sells a personal care product which stains and bleaches garments.  Customers use the website to register complaints and ask for instructions on how to get the stain off.  The website ‘bot sends an email with a customer service tracking number to close the loop and then promptly does nothing about it.

A well known national coffee chain sells a slice of cake and a coffee which in turn, makes the customer violently nauseous.  Customer uses the website to register a complaint, asking only for an answer on how this could occur.  Website says “thank you for your inquiry” and the company promptly does nothing about it.

A regional appliance chain, competing with the big box store ½ mile up the road, sells a washing machine which soon after delivery, breaks.  Seeking an even exchange, the customer uses the website’s ‘Contact Us’ capability to ask for a straight exchange. Here too, the inquiry is acknowledged with a “thank you” response and promptly forgotten.  Finally, the customer, after almost 8 days of back and forth calling, resorts to sending a flaming fax to the Chairman of the Board. Almost 2 weeks later, someone from HQ calls and gets the replacement machine delivered.  The Office of the Chairman thinks the matter is closed, but no doubt, the customer has relayed this story multiple times.

A large utility takes in customer feedback and complaints via its website, and as above, issues the obligatory ‘thank you for your inquiry’ message.  Customers are now not only incensed at the underlying issues, but at the lack of responses.  The utility in turn spends inordinate time and money explaining itself in front of its Regulators. Ultimately, the Regulators demand an outside audit, the results of which are not pleasant.

2014 is when full employment is expected to return and even the employed are not spending for much more than essentials these days.  Given the recent proliferation of malls and retail in general, one would think the easiest way to increase EBIDTA would be to sell more to the fewer customers now whipping out the plastic and honest customer service is a key differentiator.

There’s a new and cutting edge term in Social Science called ‘Elite Panic’, which is when someone in an elite position in an organization (or society) responds to a disastrous situation by protecting themselves and their power, rather than helping the very people who can help end the situation (or at least make it work as best as possible).  Typically, the phrases “restoring order”, “protecting property” and/or “they don’t understand how we operate”  are bandied about.  In our examples above, the very people who could help those companies are, you guessed it, the now angry consumer.

We have seen, more and more over the past year, Senior Management go into Elite Panic, withholding key information from Regulators or investors, imposing strict new rules, laying off workers and then asking the shell shocked remnants of the workforce to make it work “or else”. Yes, yes, here the usual path is to insert standard blather about ‘don’t panic’ (or ’panic at the disco’ if you’re following your 17 year old’s music choices) but you should panic.  Just panic about the right thing and that is customer service. Let’s call it Constructive Elite Panic.

Every executive should have, on their desk each AM, a dashboard with a full listing of every complaint relating to their SBU/Operation, with a full drill down capability to find the source of the problem.  Never mind the sanitized underling generated reports, especially in a bad economy.  Reroute the website’s complaint/inquiry form to the Constructive Elite Panic circuit rather than the ‘thank you message’  ’bot and delve into this valuable insight into the consumer and how they see your company and product.  For every crank message, multiple messages will provide insight.  To go further, consider revising the web page’s Contact Us pull down of issues from the innocuous “not sure how to use your wonderful product” selection or “gee, this would be great if it was available in my local store” choices and substitute messages which actually relate to both the nature of the inquiry and the implied urgency. The Contact Us form is not just a standard piece of every website, it’s a 24×7 customer focus group where you can elicit more learning from “the manual makes no sense” than from “inquiry on how to use the product”. In fact, consider having a Qualitative market researcher, someone who knows how to elicit feedback which relates to the product/company, rewrite the pull down entries.

Constructive Elite Panic can also be used internally.  Forget the hallway suggestion boxes or innocuous standard pull downs on the Employee Portal and illicit open, transparent communications from the lowest levels to the highest.  Publish every message, no matter how absurd or even foul on screens near the elevators or in the coffee rooms.  Let your employees know you read the messages and get the message.  If done properly, the internal conversation among your employees solidifies and unifies far better than the usual pep talk.

The last element of Constructive Elite Panic is to change the Enterprise culture from ‘inside fearfully looking out’ to ‘sunlight is the best disinfectant’. This is not as easy as it sounds – most of us walk into a conference room, demand culture change and watch as our employees and managers nod their heads in a mass example of passive-neutral or passive-aggressive behavior.  Save the banners and lapel pins, open communications, standardization, training and aligned compensation affect culture change. Focus strongly on the talent level and front line supervision.  Just like an army, the Sargent sets the daily tone.

We often see the need for coaching of long tenured executives who’s very rise is attributed to their living well in the existing customer not so centric culture. Many years ago I had just started working at a bank where employee morale was so low it was affecting customer service.  In comes an HR consulting firm who gives the employees an attitude survey.  Weeks later we were brought into a conference room where a Corporate VP lambasted us for allowing the employees to answer so negatively because, in his opinion, everything was OK

My late father-in-Law, witnessing the rising waters from the Great Wilkes-Barre Flood of 1972 approach his garment factories, mumbled “now’s the time to worry”.  37 years later, it’s time to  constructively panic.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website iswww.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and key initiatives. He can be reached at richard.eichen@growroe.com

These times are insane – but do we have to follow suit?

Someone once said that the definition of insanity is doing the same thing over and over while expecting different results.

In recent months, at an alarming rate, I have met, face to face, with several senior executives (CEO’s, CFO’s & COO’s) who, on the one hand, decry their organization’s inability to accomplish a certain goal(s), while on the other hand, won’t take the bull by the horns and say, “I am going to fix this”. Repeatedly, I see really senior executives, well compensated executives I might add, go along to get along. They’re resigned to keeping their jobs but must kick the pooch out of frustration when they arrive home each evening. Not long ago my Partner wrote a similar blog entry on a related topic.

Pick up the Wall Street Journal or the New York Times any day and see article after article about one company or another being reported about how badly they are doing. Listed below are 9 examples of companies veering towards bankruptcy as posted on 9/18 on Yahoo’s TechTicker site. These are venerable companies that have been in business a long time and are, in most cases, household names and span the gamut of US business:

Hertz

Textron

Sprint Nextel

Macy’s

Goodyear

CBS

Advanced Micro Devices

Las Vegas Sands

Interpublic Group

Hey, I know the economy is in the dumper but not a one of these companies had the problems develop on them out of the blue or for that matter in the last 12 month. The senior executives have seen this coming for a long time. Did their Boards of Directors just acquiesce to the pressure on an acquisition or to float a new bond issue at an inappropriate time or did they forget to freshen the products and services making their names in the worship of cost control?  How many big-name management consultancies told them to cut spending even if it meant prolonging the life of an already dated product (we’ve seen this multiple times in the past 6 months)?

From my perspective, it seems too many executives have got their eye on the wrong target. It certainly isn’t the shareholder. Far too many executives seem to be insulated from risk and reward equation. All too often it’s only on the reward side for the equation for which they have the most affinity. It also seems that when a highly paid executive makes a big misstep the reciprocal action is to implement a ‘reduction in force’ to impact expenses immediately. That is easy to explain to Wall Street and it’s, OK because everyone is doing it. But, I am sorry that doesn’t make it right.

Here are excerpts from a conversation we had just the other day. The executive we spoke to was experiencing a series of the issues. After the CEO described the current state and having been through small reduction in force just days before, he said, “I need to look at my business differently”. “I must be diligent about my cycle time, be more attentive regarding my cash flow and I must look hard at my product development implementation.” “Additionally, I need to rethink the DNA of my employees in sales, administration and other support functions”.

This executive gets it. It’s not about increasing debt and making ridiculous acquisitions. It’s about aligning your house now while the market sets the proper go-forward business level. This is about sending a message to your remaining core employees that we are going to trim this ship for continued rough seas. That means diligently looking at every internal process, removing all non-value add activity. Intensifying efforts to engage our clients as business partners and build and deliver products they want to buy in a means and price that makes sense to them and to you. Your suppliers have to be shaken out of complacency to learn more about engaging their resources to compliment yours. it’s all about creating a production and revenue machine supporting today’s anemic transaction volume while positioning to adjust markedly upwards without adding resources as recovery truly begins.

Kudos, here is an executive that the market needs to clone. He’s not insane. He did something different and is getting a surprisingly different result.

Tom Bergeron is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and sales organizations. He can be reached at tom.bergeron@growroe.com

Going forward, only the Bold will survive

9/10/09 – A Wells Fargo SVP, Cheronda Guyton, in charge of foreclosed commercial properties moves into a foreclosed ocean front Malibu mansion with her family and parties her head off.  The Bank says this is absolutely permitted and not a conflict of interest but will look into it. That’s brazen.

9/11/09 – The Coast Guard held a drill on the Potomac, scrambling local Police, the FBI and closing Regan Airport for 30 minutes.  A Vice Admiral came out of CG HQ, all white uniform with golden stars all over his epilates, and says this was scheduled and someone must have been listening in and acted unnecessarily.  When asked, he said no apology was needed since it was pre-scheduled.  That’s brazen.

The common thread here is a brazen culture, a ‘whatever is good for me is good for me and they don’t understand us’ attitude which we have built into many corporate cultures.  Have the Government go near bankrupt bailing out your financial institution and then pay yourself a huge bonus. Even though a home surrendered back to the bank is fair game to be held or resold, how about the ocularity?

What kind of a corporate culture produces a closed loop with its inability to see itself as outsiders do?  Over 25 years, we have found a series of ‘tells’ which almost always indicates a culture in need of help:

1. People think and talk about borderline behaviors as a means of proving they are bold when they really mean brazen
2. ‘Go along to get along’; no deep questioning; “that’s the way we do it” leading to many employees unable to articulate a decent understanding of why they do what they do or push back when asked to do something they feel is wrong.
3. Trying to fix reoccurring problems is wrapped in internal politics but working hard, unnecessarily hard due to bad processes and systems is rewarded
4. The same people who have lived with a problem for 20 years are tasked with fixing it
5. A general feeling that outsiders create internal problems and the outside world does not understand our company (or organization).  “They don’t get us”.  Regulators are put  into this category.
6. Senior Management says one thing and does quite, and publically, another.  This can be especially problematic in unionized environments.

Since many successful companies could fit this model, why is ‘brazen’ a bad thing?  Because times have changed and the public is completely untrusting of our institutions and therefore, the more publicly callus our culture appears to be, the more we have to advertize to protect our brand, coupon/discount to get business, deal with angry Congressmen or Regulators, or other measures which all increases either COGS or S&GA expenses or cuts both Top Line Revenues or EBIDTA. ‘Tells’ 1-6 are not signs of a strong, aggressive, bold culture, they’re signs of weakness.

What’s a bold culture?  The ‘tells’ are very basic:

1. They redefine their business models periodically and make others play to their tune.  When was the last time your competitors said “I wish we had thought of that, we’ll follow suit”? Think Hyundai Advantage.  Brilliant for all the publicity and for being 1^st. The effect?  Look at their marketshare trend.
2. They are very self aware and have an innate, baked-in capacity to see themselves as others do, hence, their PR is generally very positive and accolade filled rather than explanatory. Think the University of Michigan Health System’s policy of apologizing for mistakes and how it cut the number and cost of lawsuits by over 50%.
3. Bold companies take control of their Regulatory Relations, managing this key relationship as if it was their single best customer. The police have an expression about highway speeders, “you can outrun me but you can’t outrun my radio”. Substitute ‘Regulators’ for ‘radio’. Many utilities have exceedingly solid relations with their regulators and are the better for it while others are always testifying before some angry Committee. This dance becomes even more complex in utilities that have both deregulated and regulated businesses under the same roof – it’s like being married to 2 different people at the same time.
4. Bold companies see all employees as wanting to make their lives easier.  Yes, even unionized employees want to eliminate waste from their daily jobs.  Let’s get real here; many of the seemingly arbitrary workrules are really disguised means to keep as many workers on the job as possible.  The constant Middle East like battle between Labor and Management is not written in stone. Management’s teaming and transparency goes a long way while non-adaptive Unions can join one of NY’s former strike ready groups, the Lithographers, in sepia toned history. Bold companies make their product or service more efficient while retraining existing workers in more productive skills.  Everyone wins.
5. Bold companies manage their costs over time and rarely go through the cost expansion/cost cutting cycles with the attendant morale and productivity implications.   They run lean but effective.

As business leaders, the choice is ours – if our company is brazen, a ton of resources has to be applied to ensure employees don’t cross the line or to defend itself in public.  Or we can chose to be bold, where much of the resources protecting us from our own brazen culture can be directed towards delivering our service/product.  Given the weak, jobless recovery for the next 5 years, it is far better to plow all energy into revenue based activities rather than waste it on public CYA.

Which culture do you have? If you don’t know, you do know.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website iswww.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and key initiatives. He can be reached at richard.eichen@growroe.com

Lean vs. Six Sigma vs. ERP – live together or live apart?

In my 20 years of implementing continuous improvement projects all over the globe for 50 companies, I frequently get asked by client personnel to explain which is better, Lean or Six Sigma?  My answer is simply: “That’s the wrong question”.  Both are excellent and if utilized appropriately will improve an organization’s quality, through put and customer service.  Both require leadership to be passionate about improvement and must “walk the talk”.  Both require skilled implementation experts to guide the process along a fairly long path to completion.  Both focus on the customer as the driving force for improvement.

However, there are some differentiating factors between the two programs.  The first is the ease of training the talent level personnel to get involved in the changes.  Typically a person with no statistical expertise what so ever can be taught how to remove waste from a process within a single day of training by a skilled lean Sensei.  This is not the case with Six Sigma.  Generally a candidate must be trained in some fairly sophisticated statistical concepts (scatter plots, regression, correlation and ANOVA) before starting down the continuous improvement journey.

The second differentiating factor between the two processes is the main focus areas of interest.  Lean’s focuses are on Taiichi Ohno’s People and Quantity Wastes – Processing, Waiting, Motion, Over Processing, Excess Inventory and Transportation.  Six Sigma is primarily focused on the seventh waste – Quality. This is not to say that Lean doesn’t focus on quality or that Six Sigma only concentrates on quality.  In fact both processes try to remove all 7 of the Ohno Wastes but their starting points typically are as stated.

Another difference is that Lean is a process that can be done immediately, Six Sigma requires much study, analysis and data.  The best example is a very fast and extremely effective improvement activity called a Kaizen Event.  A Kaizen event is a team based, focused, heavily facilitated, one week “mini project” that removes waste and generally improves productivity, reduces errors and improves customer satisfaction by removing non value added activities. The team is composed of talent level personnel who work in the work cell.  They are trained, find barriers, remove them, install the improvement process and celebrate the success in 5 days.  A Six Sigma project is generally much longer than a week (sometimes months) but does go through a similar problem solving process (the DMAIC; or Define, Measurement, Analysis, Improvement and Control).

Another topic which frequently surfaces when we talk about the power of Lean relates to the installation of an ERP system in an organization.  The typical response is:  “we don’t need a lean focus because our ERP system uses standard templates of best practices”.  This is the wrong answer.  The templates for SAP, Oracle and others are generally not lean.  They are structured, organized and SOX compliant, but not Lean.  In no large measure this is due to ERP systems and their templates being transaction/data/planning/scheduling driven while Lean focuses on continuous cost reduction and process improvement with the minimum number of transactions and processes.  Thus, it is best to remove the non value added activities and then insert the IT systems supporting the Lean operation.  Given how hard it is to alter an ERP system once it is installed, the case for a pre-ERP Lean initiative is quite strong.  Are ERP and Lean mutually incompatible?  Just the opposite – a well implemented Lean ERP infrastructure is a major competitive advantage, but it does have to be sequenced properly.

The question has to come up – if Lean is relatively simple and can be performed with your own staffs, how effective is it?  Based on my own results in over 50 engagements, worldwide, I have seen cases where the combined revenue increase and Administrative cost takeout totaled $48M annually, and in just one more example, I managed a team of client employees who, post training, conducted over 60 Kaizen events that realized a combined $100+ millions in savings and reduced average cycle times by 30%.

In conclusion, whenever I speak to experienced Black Belts who first leaned Six Sigma and then Lean, they usually say it is best to identify and get the “quick hits” using the Lean processes, then, focus on optimizing the improved processes by applying Six Sigma processes.  I think this is excellent advice.

Gill Park, PhD is a Partner of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies and Operating areas through his Lean Administration process.  A former Deputy Commissioner of NY City, Gill has extensive experience in achieving significant cost reductions and non-value add activity/cost takeout within strong unionized workforces in both the public and private sectors.  Dr. Park leads RoE’s Lean Administration practice and can be reached at gill.park@growroe.com.

It’s not 2009 vs. 1929, it’s 2009 vs. 1849!

In the spring of 1842 Francisco Lopez discovered gold in California but, he was the lesser known of the many that started the ‘real’ Gold Rush. That ‘real’ event didn’t occur until January 1848 at the Sutter Sawmill. Given the maturity of the communication infrastructure at the time, it took until the middle of 1849 before tens of thousands of people risked everything, to go west in pursuit of vast riches. But that journey, in pursuit of instant riches can be equated in modern times to the acquisition of a LOTTO ticket today; your chance of striking it really rich had about the same odds. The difference was purchasing a LOTTO ticket was never life threatening; between robbers, fellow miners and Indians, turning your back was not smart.

Fast forward to the mid 1970’s, the American auto industry was collectively a fat, dumb and happy group making inferior cars and selling them to an unsuspecting and uneducated American public. The Japanese on the other hand understood that there was a ‘gold mine’ in the United States for quality automobiles. By the 1980’s Toyota had succeeded in stealing significant market share from the American auto makers. Why? Because the Japanese built quality automobiles with the creature features that Americans wanted but, more importantly the Japanese were able to build them at a price point less than that of their American counterparts.  The American manufactures also forgot to reinvest those huge profits into developing cars someone actually wanted, not just settled for – their product lines went stale just as multiple Japanese manufacturers were showing new , exciting, well built and nicely priced models.

The Japanese were able to accomplish this by utilizing a creative system they developed during WWII, and perfected after the war, called “The Toyota Production System”. At the very heart of this system is a philosophy of continuous improvement and a focus on the removal of non-value add procedures in ‘any’ process. In addition to capturing significant market share from the American auto makers the Toyota Production System was adapted by American industry into a process called “Lean”. This Lean process and that of Six Sigma have become the process by which almost all manufactures in the United States rely to efficiently and cost effectively manufacture products around the globe.

Fast forward to the turn of this century; American business has once again been shaken to its core by an economic tsunami. This time, however, executives have been challenged on multiple fronts. While most decent manufacturing companies have implemented Lean and taken out Non-Value Add production costs, the back office, the entire company wide Administration function, went unimproved.  Ok, we obviously have computers, but so much time is wasted in the average Admin day on workarounds, high-touch transactions that could be low touch, and being stuck with inflexible ERP based templated best practices.  The acid test to see if this applies to your organization – see if people say “the left hand has no idea of what the right hand is doing” or “we’re dysfunctional”. For those of our readers who have never been subjected to an ERP system, trust us, once in they don’t like to be touched and all the ERP vendors tell you they have best practices templatized and so all you have to do is reverse engineer your company so it’s basically as good as anyone else.   Try that with your best revenue producing product.   So why are the Big4 consultants in love with ERP for Administration and Financial processing?  Because they can put 100+ newbies asking out of the training manual questions which if a new employee asked, you’d wonder if they were a miss-hire.  If you could staff jobs at a $185 per hour billable rate on a pay basis of $75 per hour all-in and get away with it, what would you do? Would you trust your livelihood to someone who isn’t old enough to rent a car without the underage penalty?

The best answer is to take a deep cleansing breath and employ the same Lean process which produced such amazing results on the plant floor to company-wide Administration.  Take out all Non-Value Added activity, rethink what is high or low touch, and do this iteratively. Do this by addressing root causes, aligning roles, responsibilities and span of control at all levels, and make sure your ERP or other systems are sufficiently agile.

Lean Administration also has at its core functioning telemetry that aligns the organization at various levels into actionable data meaningful to the users at all levels. There is significant opportunity to recapture cash leaking from the organization from broken or misaligned process.

With the economy bottoming out and beginning to rebound, however slowly, now is the time to have your own personal and internal gold rush by pulling cash out of your Admin side.

Tom Bergeron is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and sales organizations. He can be reached at tom.bergeron@growroe.com