Evolving Excellence

Mulally Culture at Ford

A hat tip to our friend Karen at Lean Reflections for pointing us to this article on how Ford CEO Alan Mulally is trying to change the company's entrenched culture... before it's too late.  Since Ford's fortunes have a direct impact on her personal fortunes, Karen writes from personal standpoint.  She concludes with some interesting commentary on the inside nicknames for several Ford buildings. But back to the article on Mulally.

Although Mulally lacks in-depth auto industry knowledge, he is also free of many of the intellectual biases and habits that have gotten Detroit into so much trouble.  But Mulally knows that changing the organizational chart won't cure Ford. The company's deeply ingrained hierarchical culture needs to be blown up. He wants managers to think more about customers than their own careers. He has made it a top priority to encourage his team to admit mistakes, to share more information, and to cooperate across divisions. He's holding everybody's feet to the fire with tough operational oversight and harsh warnings about Ford's predicament.

Mulally is taking advantage of his outsider status to question some deep aspects of Ford's culture, starting with his executive staff.

At a meeting last fall, one of Mulally's operating chiefs chattered on for several minutes trying to answer a question to which he clearly did not have the answer. After the meeting, Mulally asked Fields why the executive droned on for so long. "Because 'I don't know' isn't in Ford's vocabulary," Fields explained. Now it is. To reinforce the point, Mulally has actually banned the thick background binders executives used to bring to the weekly meetings. That means they sometimes can't immediately summon the necessary details to answer Mulally's questions.

And then communication between groups.

For the first time ever he's forcing every operating group to share all its financial data with every other group. That information used to be closely guarded. Shortly after he ordered the change, three separate executives called him to make sure they had heard right. Says Mulally: "You can't manage a secret."

And demonstrating to his engineers how to listen to the customer.

On a chilly morning in February, the new chief executive of Ford Motor Co., Alan R. Mulally, boarded one of the company's Falcon twin-turbo jets and flew to Consumer Reports magazine's automobile testing facility in East Haddam, Conn. He was joined by two senior engineers. After a couple of hours on the firing line, Ford's engineers got defensive. Mulally says he handed each one a pad and pen. "You know what? Let's just listen and take notes," he said. The episode was a perfect illustration of what Mulally considers one of Ford's major problems: the tendency of employees to rationalize mistakes instead of fixing them. "We seek to be understood more than we seek to understand," he observes.

And treating the rank and file just like the executives... or vice versa.

He is also taking symbolic steps to treat white-collar and blue-collar employees more equitably. This year many workers on the shop floor will receive bonuses of $300 to $800, based on a new formula that is also being applied to executives.

Instead of complaining about wage costs and foreign competition, he's looking an the internal waste of overly complex processes and designs.

It has four parallel operating units worldwide, each with its own costly bureaucracy, factories, and product development staff. According to a Mulally audit designed to uncover cost-cutting opportunities, no two vehicles in Ford's lineup share the same mirrors, headlamps, or even such mundane pieces as the springs and hinges for the hood. And that's just taking into account the Ford brand. Add Volvo, Jaguar, and Land Rover to the mix, and the company has more than 30 engineering platforms worldwide.

Whether all this will save Ford remains to be seen.  Negotiations with the union later this summer will provide a big telling point.  But we have to give Mulally credit for understanding that Ford's culture needs to be changed, and culture is driven by example from the top.

Education Destroying Creativity

Over the last few days I've been perousing some of the presentations from last year's TED conference.  TED, or Technology, Education, and Design, is an annual conference that brings together about 1,000 thought leaders from those three perspectives.  The confluence is fascinating.  Videos of almost all of the presentations are available online at no cost or even registration.

One of the topic areas was Bold Predictions and Stern Warnings, with presentations as diverse as genomics and our future, how technology will transform us, and the world's killer diet.  However the one I found most fascinating was by Sir Ken Robinson titled Do Schools Kill Creativity?  It's a relatively short 19 minutes, but well worth watching, and he's a pretty funny guy to boot.  If I can invoke some tech gods I'll embed the video at the end of this post.

Robinson's premise is that creativity is as important as literacy, however schools are killing creativity.  His definition of creativity is "having original ideas that have value," which finally differentiates it from the ubiquitous "innovation."  When kids are young they aren't frightened by being wrong, but by the time they reach adulthood the focus of our (and he believes all the world's) education system drive a fear of risk.  In effect, as he puts it, we are "educating people out of creativity." 

Our current education system is inherently focused on "creating university professors," not a generalized educated population.  With math and science being at the top of the current knowledge pyramid, this is therefore a focus on one half of one organ, without any significant development of the rest of the body.  He ends with how this is really limiting human potential, as "education has mined our minds for a few specific commodities."  We are increasingly diluting the impact of such narrow education, as over the next 30 years the world will educate more people than have been educated in combined history until this point.  A bachelors degree is already almost the same as a high school diploma, with a masters, and increasingly even a PhD, required for an educational differentiation.

Obviously in the business world we are often focused on science, math, and primary technical skills. But Robinson's 19 minute talk will give you something to think about in a broader societal context.

Wal-Mart Bites China Back

Last month we had a post titled China Bites Wal-Mart, describing how long supply chains coupled with fickle customers created serious inventory problems for Wal-Mart... a shortage of a fashion t-shirt suddenly in high demand.

Wal-Mart failed to order enough of these China-made T-shirts last year, and so they and other George-brand basics will remain in short supply in most of its 3,443 U.S. stores until 2007's second half, depriving the retailer of tens of millions of dollars a week it sorely needs. "The issue with apparel is long lead times," says the quietly intense [Chief Merchandising Officer John] Fleming.

We followed up just last week with a post on how those same long supply chains and fickle customers created the reverse situation - excess inventory - on other fashion apparel items.

Wal-Mart's inventories jumped 10.3% in the fiscal first quarter, ended April 30, to $35.2 billion from a year earlier, driven by unsold apparel, home decor, and outdoor products.  About $2 billion of the increase represents unsold spring clothing and home goods that are expected to depress profit through the summer, analysts estimate.

I then went into the usual rant on total supply chain cost... including the risk of poor planning, obsolescence, demand quakes, quality, cash tied up, etc. etc... you've heard it before so I won't go into it again today.  But I probably will by the end of the week.

Funny thing about supply chains: they have two ends.  Wal-Mart was at one end, and China at the other.  China effectively "bit" Wal-Mart by suckering them into a long supply chain with all the inherent problems.  But when Wal-Mart choked, it then rippled all the way back to China, and now manufacturers in that country are feeling the pain.  From the Wall Street Journal yesterday,

Several months ago, Chinese clothing executive Shao Zhuliang got bad news from his U.S. agent: Wal-Mart Stores Inc., his biggest customer, wouldn't be placing any orders for the spring 2008 season.

The concept that orders for the spring 2008 season are being placed "several months ago"... early 2007... is mindboggling to most of us.  Some guy buried in the bowels of Wal-Mart HQ in Arkansas, probably with an electronic crystal ball, is trying to predict fashion and customer demand over a year in advance.  I'm sure there's some kind of science behind it, backed up with lengthy algorithms from dozens of PhD's, but after the two stories I mentioned earlier Wal-Mart's batting average isn't exactly very good.

The codependency is rather interesting.  Wal-Mart is dependent on Chinese manufacturers for miniscule savings, which are blown out of the water every time the demand chain hiccups.  Chinese manufacturers are dependent on Wal-Mart for a lot of volume that makes very little profit.

Wal-Mart "said they had inventory piled up over there," says Mr. Shao, who heads Boshan's [Linar Garments Co. in eastern China's Shandong province] sales department. "It's always hard to make money from Wal-Mart orders, but without them, we are finished."

Supply chains are complex animals, with costs and impact not very understood by most companies. 

The fallout from Wal-Mart's problems shows how difficulties at one end of the global supply chain can ripple through to the other with the potential for significant economic disruptions.

Are you really sure you understand your total supply chain cost... and risk?

Pay For Performance and Wage Inequality

Pay for performance and merit pay have become popular in the manufacturing world to incentivize increased output, and if done correctly, quality and innovation.  In the lean manufacturing arena we believe that pay must also be tied to team and organizational performance. 

More traditional organizations continue to provide annual cost of living adjustment increases, however those are like a drug.  Employees become effectively addicted, performance often decreases, and as the Detroit Three have found out, you end up paying more than your competitors for an equal labor quantity.  COLA is also like a self-fulfilling prophecy in that as you increase pay, you increase buying power, which increases demand, which increases inflation... which increases the cost of living.

Tyler Cowen at the Marginal Revolution blog had an interesting post this morning telling us of a study that links pay for performance with wage inequality.  The income gap and reduction of the middle class have become a political hot button lately, although some of the facts about income inequality and the resulting tax contribution run counter to prevailing wisdom.

In effect the study from the National Bureau of Economic Research concludes that pay for performance has significantly contributed to wage inequality by boosting the income of the most productive while incomes of less productive workers, and those not in a pay for performance program, remain stagnant.

An increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using bonuses, commissions, or piece-rates.  We find that compensation in performance-pay jobs is more closely tied to both observed and unobserved productive characteristics of workers.  Moreover, the growing incidence of performance-pay can explain 24 percent of the growth in the variance of wages, and accounts for nearly all of the top-end (above the 80th percentile) growth in wage dispersion.

I had never thought of pay for performance being a contributor to this widening gap, and 24 percent is pretty significant.  Many on a certain end of the political spectrum want to reduce the gap by reigning in income growth on the high side.  Perhaps this study shows that that policy is misguided and would hurt productivity and performance, and instead we should reduce the gap by increasing income growth on the low side through wider use of pay for performance. 

As Tyler concludes, "For me the puzzle is why the world held back so much on bonus pay for so long."  Well, partially because bonus pay without true ties to performance is counterproductive and has been abused.  But with true performance goals it can be very powerful, and a win-win that increases productivity and quality as well as personal income.

LAME, but Successful... For Now

Have you heard about John Watson & Company, the printing firm from across the pond that supposedly hasn't laid off any employees in it's 182 year history?  Quite an accomplishment for a company that has seen multiple wars and uncountable business recessions.  Probably one reason is due to the diversity of their client base and products, from whiskey labels to stationery.

A 182-year-old Glasgow print firm is shaking off the blues affecting the sector by making one of the biggest investments seen in Scotland in recent years as it looks to maintain dramatic growth in sales.  The latest success continues a remarkable record of achievement for the firm, which is one of the few survivors of the nineteenth century heyday of production in Glasgow. Watson boasts that his firm has never laid off any workers.

Another is their implementation of lean manufacturing.

There has been a stream of failures among printers in Scotland, where consolidation in industries like whisky production and moves by manufacturers to cut costs by shifting work overseas have made life tough.  However, [CEO John] Watson is proud that his business has managed to compete effectively while remaining in Glasgow.  Watson attributes the success to the pursuit of "lean manufacturing" which entails constant efforts to improve efficiency.

That warms the hearts of many of us... until we read the next line.

For example, he found that producing one million labels in one run made better sense than producing 10 lots of 100,000, despite the increased stock-holding costs.

Uh, unless there's really a customer willing to take (and use, if you apply lean to the extended value chain) those million labels, that isn't lean. What would happen if an ongoing problem was only found late in the run?  What would happen if the customer's demand went down and a reduction flowed up to the printer?  Perhaps the customer would decide to implement a graphics change, which couldn't be accomodated.  As real lean people know, efficiency and cost isn't just a function of the number of of additional labels, especially if they aren't sold yet, that can be created during the time it takes for an extra changeover or two.  There is also value in being agile, responsive and to having less cash tied up in potentially questionable and perishable inventory.

As our friend Mark at the Lean Blog likes to say, that LAME, not LEAN. 

Those eighty employees, and the twenty or so more expected to be added soon, should consider their jobs pretty secure.  Or should they?

Knowledge, Safety Nets and Outsourcing

JP Rangaswami over at the Confused of Calcutta blog had an interesting post the other day on the dangers of the "inspection / repair culture."  I hadn't intended on discussing it but some of his comments really stuck in my head, therefore my only relief is to blather a bit.  JP was attending an event at a large private school when he noticed something: there were no prompters to help the students present.  The rationale and impact was interesting:

A simple decision — doing away with prompting — had a worthwhile impact on the talent and character of the students. They changed the way they prepared; they changed the way they responded when facing a problem; they changed the way they stepped in to help when others faced problems.

The prompters were a safety net that prevented a deeper understanding of the concept and the development of deeper presentation skills.  Now apply this to general business... or even life.

We need to keep examining what we do: every time we promote an inspection/repair culture, we tend to implement safety nets; the safety nets encourage slipshod behaviour, and soon we find that all we are promoting is mediocrity.

Which is exactly what we're doing on traditional production lines that have "QA Police" as the final step.  There's little inherent requirement, or even desire, for product to be perfect at each operation.  Processes aren't forced to be robust, people don't need to be deeply trained, and a certain rate of failure becomes acceptable.  But it goes further into the culture of the organization itself. 

If achieving mediocrity wasn’t bad enough, we tend to make it worse. Far too often, the mediocrity attracts another foul behaviour, an audit culture where the measurement process becomes more important than that which is being measured.  How else can mediocrity rise?

We've all been in organizations like this, where the robustness of the final QA inspection step is more important than overall product quality, where achieving a metric or goal is more important than really understanding what the metric means. And now let's take it one step, one big step, further.  Bill Barnett, who I wish I could learn more about, commented on the post from a more global perspective.

Our global sourcing models fly directly in the face of this movement. We are arbitraging labor markets, sending work far away to teams who are disconnected from our corporate cultures and imperatives, and finding that we can’t rely on them to deliver high enough quality deliverables. so we take our smartest, most skilled practitioners and turn them into reviewers and auditors. I’ve been concerned about this for while because we are outsourcing the roles from which we grow the next generation of experts — so it doesn’t seem very sustainable. but now you’ve got me thinking about the corrosive effect of transforming folks from doers to auditors.

"... we take our smartest, most skilled practitioners and turn them into reviewers and auditors."  That's what outsourcing is doing.  While chasing very questionable cost savings around the globe, we are transforming the activities of the "core knowledge" workers left behind.  No longer are they intimately familiar with the product being manufactured; they are now working to improve the systems that check outsourced product.  The robustness of the assembly operation itself, the inherent quality of the processes and subassemblies, is left to the outsourcing provider, if it is done at all.

"... we are outsourcing the roles from which we grow the next generation of experts."  The engineers that are designing future products are relying on third-hand knowledge of the processes, and the results of those processes, that create the product.  A very difficult way to improve the inherent quality of a product during design. 

That generational, or knowledge generational, impact of outsourcing could be monumental. 

Incestuous ERP

Oracle, SAP, PeopleSoft, TomorrowNow, Agile... it's hard to keep the relationship between all of these ERP players straight.  Especially since they are all somewhat related to each other in an almost incestuous way.  We like to pick on them for the complexity and cost they often add to organizations that are in reality fairly simple, but that's not the point of this post.  Today I want to try to peel back some of the business practices they use to grab customers, and how that sometimes ends up with the two heavyweights, Oracle and SAP, having same customers.

Most of you know that Oracle acquired PeopleSoft a few years ago.  As we told you a couple months ago, right before the transaction closed 37 PeopleSoft employees left and started a new company called TomorrowNow.  This new company provides technical support for PeopleSoft products.  SAP immediately snatched up TomorrowNow, closing the transaction at about the same time as Oracle closed on PeopleSoft.   Using TomorrowNow, SAP then went after Oracle customers and offered them support on Oracle products for half the price of Oracle's own support.  The program was called "Safe Passage," as it was intended to offer a "safe" pathway to migrate from Oracle to SAP products. 

This obviously didn't sit too well with Oracle, so they filed a lawsuit alleging an ingenious attempt by SAP to offer better and cheaper customer service on Oracle products to Oracle customers than Oracle itself does in order to eventually convert them to SAP.  Actually the meat of the suit alleges SAP TomorrowNow (SAP TN) then began to access Oracle's protected customer support databases, using usernames of PeopleSoft (now Oracle) customers that would soon expire.  Massive downloading of technical and support documentation was recorded and traced back to Bryan, Texas.

The May 14th issue of Information Week tells us that the lawsuit took a step back when Judge Maxine Chesney dismissed herself from the case. I can't say I blame her... it would be hard to stay awake in a battle of ERP software companies. 

But then the May 21st issue of Information Week describes how Oracle is hitting back by acquiring Agile Software.

With Agile, Oracle plans to strengthen its presence in both supply chain management and enterprise resource planning. "Agile offers a very strong product lifecycle management solution that companies can use to differentiate from competitors and properly and cost effectively innovate products," said Jon Chorley, VP of supply chain execution at Oracle.

Whatever.  Here's the real reason:

At least 40% of Agile customers use enterprise software applications from Oracle, the executives say, although a good number use SAP. "SAP customers have probably gone through a long and costly implementation of SAP," Chorley said. "With Agile you have a solution that's superior to [SAP PLM] that plays nicely in the sandbox of SAP," he argued, yet added: "If someone is looking at a full ERP implementation, that's great, too." SAP customers already using Agile include Coca-Cola, Heinz, Conagra, Symbol, Tyco, and Lucent, Chorley said.

So... SAP is going after Oracle customers by acquiring a company that provides service to Oracle customers, Oracle is going after SAP by acquiring a company that has a substantial SAP customer base.  They are intertwined in a maelstrom of uber-complexity, to paraphrase Ian Alexander.

Don't you want them managing your own internal business processes?  I'm laughing too.

John Wayne - The Duke of Lists

Today would have been John Wayne's 100th birthday, and David Hinckley at the New York Daily News penned a remembrance that embraces one of my favorite tools of effective execution: the simple to-do list.

John Wayne, who would have turned 100 on Saturday, doesn't represent The American Man only because he was tall, rugged, straight-talking, confident and impatient. No, his real qualification, often overlooked, is that he understood that life is one long to-do list.

I've always felt that listmania was something of a guy thing, as my wife to this day doesn't really understand that she needs to actually write something on my refrigerator list in order for it to finally get done.  I don't have the ability to mentally keep track of hundreds of tasks, like she does (cough...).  Mr. Hinckley helps confirm my suspicion.

That's what American Men do. They live and die figuring out ways to cross items off. It's their quintessential trait.

Lists provide a path to execution, to getting things done.  They may not inherently include vision and strategy, but work gets done.  Maybe this penchant for lists is tied to the conquest of the American West.

They saw how things were and how they needed to be, and their mission was getting there. Yes, many famous American men shared some degree of this trait. That's what "conquering the West" was about, which is why "conquering the West" and Westerns became the great American metaphor.  Buy a wagon and a gun, pack in some vittles, round up the womenfolk, head West, push the natives off the land and settle down.

A to-do list, a can-do attitude, and not an apology in sight.

I live and die by my lists.  I've tried various electronic methods from laptop to PDA to phone, but they never have enough speed, flexibility, and downright simplicity, therefore I always revert back to scribbled notes in my journal.  Occasionally I will tie them to longer-term projects and strategies, but in general they lie buried within the other notes I take at meetings, on phone calls, or while experiencing the random brain fart at lunch. 

I draw a small box next to them in the left margin so I can easily find them and check them off when complete.  And at least once a week I'll review the journal to find any orphaned tasks, putting a small tick mark on the top of the page when there are none remaining to speed future reviews.

Hey, it works for me.  It must be due to my inner cowboy.

Lean Baby Names

First off, family, and friends, no we DO NOT have anything to announce.  Believe me, we enjoy our lifestyle (and our sleep) and our kids' names are "Early Retirement" and "Tahiti", not necessarily in that order.

Did anyone else catch that wire service blurb in yesterday's paper on the growing penchant for baby names that are just initials?  In the olden days a kid that went by "DJ" was really named something like "Damion Jerimiah" and since even the parents were eventually embarassed they shortened it to initials.  Unofficially.  But now simple initials are becoming official names.

Apparently it was kick-started by the popularity of KT Tunstall, and the mistaken perception that since she doesn't put periods after her initials her real name is "KT."  Actually it is "Kate Tunstall."  But now we have a whole wave of people naming babies "KT" instead of "Katie," "DJ," etc.  And someone even named the fruit of their loins "D".  Just "D", presumably for "Dee".  And one guy actually suggests naming progeny numerically, such as "1."

There are some benefits, such as the time it takes to sign your name.  I already sign with just my initials, a habit I picked up many years ago when I shattered my right wrist in a stupid biking accident.  Yes stupid.  I simply fell over while trying to show off my biking prowess by balancing at a busy intersection instead of putting forth the miniscule effort of putting a foot down.  Signing with just my initials is quick; so quick that my wife picked up the habit, and since she has the same initials... hmmm... where did I put my credit card??

However naming a newborn blob "D" is going a bit far. I can see the headaches that will cause in the future.  It could even be analogous to the infamous Y2K problem of several years ago... how many electronic forms require more than one letter?  Is this a form of parent cruelty?  At least one baby naming website thinks so.

Short names are fine, but eliminating vowels?  As one gal says, "vowels carry the life force of language, and a first name consisting of only consonants attracts very physical experiences."  I won't analyze that second part very much, but it's probably something new parents don't wish for their new offspring.  At least until they're 18.

However "D" still sounds a lot better than "Moon Unit."

Lean, Lean, and More Lean

It may just be me, but it appears that the number of companies citing lean manufacturing in their financial reports, news releases, and general news articles has been increasing.  Of course many of them really have no idea what lean is really about, or perhaps they only understand the waste reduction pillar without even knowing about respect for people.  Lean is apparently becoming a requirement, or even an analogy, for success. 

Let's take a look at news stories for just the past twelve or so hours via the Google News aggregator.  Some are actual stories and some are press releases.

• Brahmin Leather Works - In 2000, it adopted “lean manufacturing,” a concept pioneered by Toyota, that has reduced its Fairhaven order turnaround time from two or three weeks to four days.
• Eggrock - Eggrock produces customized, ready-to-install bathrooms for the multi-unit residential market. Eggrock said its bathrooms reduce construction time and costs while improving quality in a room that is critical to multi-unit construction.
• Challenger Powerboats - In just the past several months alone our gross margins have improved dramatically due to the implementation of strict 'Lean Manufacturing' principles and processes.
• Federal-Mogul - The Company’s leading technology and innovation, lean manufacturing expertise, as well as marketing and distribution deliver world-class products, brands and services with quality excellence at a competitive cost.
• Bell Helicopter Textron - Production officials with Bell Helicopter Textron here say lean manufacturing processes put in place in 2005 are proving out so well that an extra V-22 Osprey can be  programmed for final assembly over and above initial planning requirements this year, bringing the total for 2007 production to 15.

That's enough for now... you get the picture.  Some look like real successes, some look like worthless self-promotion.  But lean is in, perhaps too much so. 

Let's just keep it real.