Evolving Excellence

In The End Value Is All That Matters

by BILL WADDELL

The big money people around the world are in a full blown panic over the financial implosion in Dubai.  The state owned bank there says it is about $35 billion short on its ability to pay its debt's - at least - and the best and brightest from around the world apparently have as much as $130 billion at risk with the money changers from the UAE.

The fact that Dubai can't pay its bills should come as no great shock to anyone.  Look at the map (doctored up with a few crude pointers I added):

You might wonder why Dubai became such a big trading Mecca since it is basically on the road to nowhere.  Anything going from China or India to or from Europe has to go way out of the way to get in and out of Dubai.

The answer is simple.  As I wrote in Manufacturing Crunch way back in August, "The UAE – Dubai – is not very widely understood. The Discovery and Travel channels paint a picture of a Disneyesque place, and it is true that there is a staggering amount of money in Dubai. The real economy of Dubai, however, is built on what amounts to non-violent piracy. Want to get around prohibitions against selling your US-made products into Iran or Syria? Sell to a broker in Dubai. Think the 35% import tariff into India is too high? Your Indian customer has a cousin in Dubai who will buy your product for $20 each, then sell them into India for an invoice price of $10 each, thereby cutting the tariff paid to the Indian government by half. Got a couple of containers of counterfeit name brand goods from China you want to unload – the brokers in Dubai are open for business. Need to buy a couple of containers of legitimate goods from a US or European manufacturer in order to keep your franchise even though you have no market for them? No problem – the diverters in Dubai will take them off your hands and sell them into someone else’s territory at a bargain price. Have some product with Israeli content you want to sell into Saudi Arabia in violation of their laws? The country of origin will disappear when the paperwork comes out of Dubai."

In other words, Dubai is a lousy location logistically, but it works just fine for people whose primary interest is breaking trade laws and generally cheating governments and others out of their money.  Dubai adds no legitimate value to anything, but there have been plenty of scammers, cheats, money launderers and assorted low-lifes mucking up the world's trade to make Dubai into quite the boom town - but none of it was based on real value.

The silver lining behind the tough economy is that, when the going gets tough, the houses of cards are the first to collapse - and so it is with Dubai.  The palm tree shaped man-made islands, indoor ski resorts and other absurd toys for the wealthy who made their money doing business in hollow places like Dubai are the first to go.

Contrast that with Germany - expensive, way-too-rigid, low-on-humor-and -long-on-hard-work Germany.  In spite of a lousy exchange rate, and in spite of high labor costs, the Germans are pulling themselves and much of the rest of the Eurozone up by their bootstraps with solid German value exports.

Whether it is countries or companies, solid fundamentals and a tunnel vision focus on value adding is what pulls people through and out of the tough times.  Whether it is in Dubai, Wall Street, or among the manufacturing community rife with companies who have lived on clever marketing and even more clever financial nonsense and profits that are not based on real value, cannot sustain.

Standing on the Road

By Kevin Meyer

Many of us are traveling this holiday, and I for one struggle to remain productive.  A break from work is good, but falling behind isn't relaxing either.  For those of us that have embraced the stand up desk, Jon over at Gemba Panta Rei provides a road warrior productivity solution.

Yes, a portable stand up desk.  Perhaps not the most elegant, but definitely functional.

One of the commandments of kaizen is "Instead of making excuses why something can't be done, think of ways to make it possible." So think I did. Looking around the room for a way to boost up the desk about 30 cm, I began opening drawers and doors.

Et voila! A light, portable, folding ironing board gave me the perfect platform for my stand up desk. But not quite. I am not a tall person, but the ironing board was still too low, causing me to stoop. The search continued. Luckily there was a wicker laundry basket of sorts in another drawer, the perfect booster to fit between my laptop and ironing board.

Nice job Jon!  But as is typical with his posts, there's a more fundamental lesson:

The lesson is that we need to stop making excuses and will ourselves to improve. Then we need to think positively about how to overcome each obstacle. And we need to turn each small improvement idea into concrete action. First engage the heart, then the mind, then the hands. I write these words from a road warrior stand up desk built from these principles.

Absolutely.  Happy Thanksgiving!

Team Science

By Kevin Meyer

Fascinating article in the European edition of the Wall Street Journal last week on how scientific research is being performed by larger and larger teams, and the complexity and complications that creates.

The [Large Hadron Collider] atom smasher is so large that a brief status report lists 2,900 authors, so complex that scientists in 34 countries have readied 100,000 computers to process its data, and so fragile that a bird dropping a bread crust can short-circuit its power supply – as occurred earlier this month.

Its large research teams operate on such an elaborate scale that project management has become one of science’s biggest challenges.

Of course that’s an exceptionally large project, but an overall trend is beginning to forma as well.

Once a mostly solitary endeavor, science in the 21st century has become a team sport. Scientists are experimenting with the new technology of teamwork even in mathematics, where researchers customarily work alone.

To gauge the rise of team science, management experts [uh oh…] at Northwestern University recently analyzed 21 million U.S. patents filed since 1975 and all of the 19.9 million research papers archived in the Institute for Scientific Information database. “… we found that all fields were moving heavily toward teamwork,” says Northwestern business sociologist Brian Uzzl.

Team science can get rather bizarre… if not dysfunctional. Let’s return to the Large Hadron Collider…

Its science teams, drawing on independent researchers, resources and funds from 150 universities and dozens of government agencies, already transcend the physics of conventional management.

Strictly speaking, no one is in charge.

Consider Tejinder Virdee, who occupies the top spot in the organizational chart of the collider’s Compact Muon Solenoid Detector – an intricate 12,500-ton device the size of a medieval cathedral. At least 3,600 people from 183 institutes in 38 countries are involved. Ordinarily, Dr. Virdee might exercise considerable exeutive authority. Instead, he carries the misleading title of “spokesperson.” He was elected by researchers to negotiate with other groups on their behalf.

This concept extends to something of an extreme.

All around the collider, research groups organized themselves in democratic cooperatives, arranged in an anti-hierarchy. All deliberately are open – and exhaustive. Everyone gets their say no matter how long it takes.

“The entire collaboration will be authors of each and every publication,” says Andrew J. Lankford, the ATLAS deputy spokesperson.

Consider that for a moment. We like to tell you about innovative leadership structures, and this definitely is one.

But once again, is ensuring inclusion also effective?

The Ethnicity of Cattle and Other Matters

by BILL WADDELL

Lying to and generally abusing customers has been around as long as business has been in business, but we seem to have reached a point at which we are so casual about it that it that it goes unnoticed most of the time.  There is the garden variety bait and switch that is an art form in retailing, but at which Kmart has become especially adept - which may explain their financial condition.  In this ad for the upcoming Black Friday sales, you are offered a 32" Sony Hi Def TV for almost a hundred bucks below what you will pay anywhere else - but they are only going to have 4 of them in the store and they won't order another one if you aren' among the lucky 4.  In fact the circular is chock full of great deals, but they only have a couple of each item.  Safe to assume the rest of the TV's for sale at KMart aren't at quite the same discount.  Advertising stuff that you know full well will not be on the shelf when 99% of your customers get to the store strikes me as lying - but that is the way advertising is handled these days.

In a similar vein, some British coffee outfit is putting up signs proclaiming that 7 out of 10 coffee drinkers prefer their swill to Starbucks.  In the fine print, however, it turns out that those results only apply to cappuccino.  Presumably the folks in the sample did not have the same feelings about the rest of the merchandise.

Incredible as it seems, when you see an ad for the happiness of cows from California, the cows in question, and lush backgrounds in which they are grazing, are actually New Zealand cows.  Cheaper, it turns out, to go all the way to New Zealand to find some happy cows than to film the cows owned by the very people who fund the ad.  I think that when they show a picture of a cow and call it a California cow, it should actually be a California cow, although I have absolutely nothing against New Zealand cows.  I just think the truth ought to figure in somewhere.

The best, however, is Mr Steve Jobs- Fortune magazine's CEO of the Decade, and quite a wealthy man by all accounts.  It seems Steve does not approve of smoking - or maybe he is just fine with it, but saw the anti-smoking fever as an opportunity to turn a fast buck and throw a few more coins onto his sizable pile of them. Either way, deciding to unilaterally stop performing warranty repairs on Apple products owned by people who smoke because the repair techs might be exposed to second hand smoke is the same thing as stealing.

I am not advocating smoking, mind you, and I do not deny Mr Jobs the right to feel however he chooses to feel about the matter, but when you take money from people for a product that includes a warranty - then decide that you are not going to honor the warranty - that makes you a thief.  He could just announce that he will refund the money any smoker paid for a Mac if he feels that strongly about it, or he could hire technicians who smoke and presumably don't share his terror at the thought of exposure to a little used nicotine to do the repairs, or he could buy all of the repair techs those white suits the toxic clean-up guys wear if he really thinks it is that dangerous.  There are a lot of things he could do, but 21% of Americans still smoke in spite of Steve's opinions and I think it is safe to say that about 21% of the Mac buyers smoke.  To void their warranties after they shelled out good money either because the CEO of the Decade does not approve of their lifestyles, or simply because it saves 21% of the money Apple spends on warranties is an abuse of customers that even surpasses lying about the ethnicity of cattle.

In any event, none of these approaches to doing business are going to pay off in the long haul.  People will go into KMart and find that they have been lied to, folks will but Costa coffee and decide for themselves that Starbucks is better, folks everywhere will drink California milk and realize that it came from a cow with such a bad attitude that she would not even appear in a commercial, and 21% of the Mac crowd will say 'screw you' to Steve Jobs.

In the long haul, being open, honest and fair to customers is the only way to succeed.  And Steve Jobs can preach all day long about his commitment to and knowledge of his customers, but the 'CEO of the Decade' ought to honor a warranty once he sells it to someone.

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Since I wrote this I received the following email from Jennifer Giambroni from  the California Milk Advisory Board:

I wanted to clear up an error on your recent blog post – “The Ethnicity of Cattle and Other Matters.” The popular “Happy Cows” campaign is pivotal in helping to raise awareness for California milk and dairy products that carry the Real California Milk Seal. These cows and all shots of California pastures and farms were entirely filmed and will always be filmed and produced in California. The California Milk Advisory Board (CMAB) has never and will never misrepresent our industry and our dairy farms and families in that way.

This year we switched our advertising focus to a new “Auditions” campaign with UNhappy cows from around the world auditioning for the chance to come here to become California Happy Cows.  This new campaign does not show any California Happy Cows, therefore the CMAB made an economic decision to film four days of footage at a sound stage in New Zealand. It is important to note that all of post-production work – editing, music, effects and animation – will still be conducted with California production facilities. That means 6-8 weeks of work for each of the 10 commercials.

The dairy industry is facing its most devastating year since the Great Depression – we’ve lost 10% of our family dairy farms this year alone. All funds that pay for this campaign come from the dairy producers themselves and the money we will save on this small amount of production work means we can create more commercials touting California dairy (and in reality, California itself).

As Californians, we understand the critical importance of keeping as many jobs in our state as possible. That’s why more than 90% of our advertising production dollars will be spent in California next year. We value the pool of creative resources based in our state and we will look to maximize the use of these resources in the years to come.

Politicizing to the Lowest Common Denominator

By Kevin Meyer

I spent last week in Germany and The Netherlands, and as with any trip abroad I found it fascinating how other societies and political systems work. Last Thursday the European Union appointed its first president and foreign policy chief. After having discussed politics with a bunch of local folks (and finding that the bar maids were the best informed!), I was actually looking forward to the announcement.

You see, it was a big test of the EU and in particular the Lisbon Treaty. Here was the opportunity for the EU to present a combined front and take an active and powerful role on the world stage – presumably more powerful than any individual EU nation. So what happened? An editorial in the Financial Times on Saturday put it well.

This was not Europe’s finest hour. After eight hours of tortured labour, the mountain brought forth a mouse. Supporters of the European Union are dismayed, just as Eurosceptics are sneeringly exultant. Both camps should have little trouble agreeing this was a colossal failure of ambition.

Ouch! How would you like to be the two folks selected? So why, and how, were several potential outstanding candidates bypassed in favor of the meek?

They ticked all the boxes – balance between left and right, north and south, male and female and so on – but those are by no means the only boxes.

By lasering in on the lowest common denominator in this way, leaders of the big member-states – wherever they formally line up in the spectrum between intergovernmentalism and federalism – are united in their unwillingness tobe overshadowed by figures of calibre and clout. They thus reveal themselves as geopolitical pygmies.

The Financial Times is apparently one of the few rags that can rival The Wall Street Journal in terms of editorial effervescence. Gotta love em.

So what’s the lesson for us commonfolk? Perhaps that trying to satisfy everyone ends up satisfying no one, if not outright also harming everyone. Conforming to laudable PC intentions ends up being ineffective, and trying to satisfy all aspects of leadership can actually lead to a lack of leadership.

Look around – you’ll see it everywhere. And obviously not just in politics.

Sorry Kids

By Kevin Meyer

Once again we’re coming up on holiday season, and once again we have a bunch of retailers and toy manufacturers who tried to guess the latest trend in toys almost a year ago.

Why a year ago? Because that’s how long it takes to get a distant “cheap labor” supplier up and running and then to ship the product across vast oceans. But trends are a fickle thing, and predicting them a year in advance is something of an inexact science. So what happens?

It’s not even Thanksgiving and some stores are already running out of hot toys. Blame cautious buying by retailers trying not to get stuck with unsold inventory, as they were last year.

Among the items in short supply is a surprise hit: Zhu Zhu Pets, toy hamsters programmed to scamper around a plastic “house” whose rooms are connected by tunnels. The sets are sold out at Target.com and Wal-Mart.com. Meanwhile, the maker, tiny Cepia in St. Louis, is scurrying to get more shipments from China.

So how does that cheap labor compare against the added cost to manage low inventories, expedite new shipments, and especially lost sales from empty shelves? Or the look on a kid’s face when he or she doesn’t get the desired toy?

Yeah, I thought so.

Bringing Down the House

By Kevin Meyer

A while back I described a conversation, albeit one-sided, that I had with my mother in-law regarding desired features in a home. As is usually the case, I took the contrarian but obviously correct position (ahem!) that homes should have less storage space rather than more. More storage space simply leads to more… storage. Without that space you are forced to discern what is truly worth storing with the probable realization that very little is.

The recession is forcing home builders to take a similar approach, although not necessarily with storage. Well perhaps.

The other day, Ms. Bishop sketched a new Arden [a model home design] on tracing paper. She erased the rear staircase and flattened out the bay window. She cut the 94-square-foot pantry in half. She turned the mud and laundry rooms into a mud-and-laundry room. The three-car garage remained, but she redrew it so two cars now had to be parked bumper to bumper.

A smaller pantry? Smaller garage? Egads! Where oh where should all the stuff go? Perhaps to the food bank… how many of you have looked in your pantry recently? How much of that stuff has been sitting around for a few years? Oh that’s right… it’s in case of a natural disaster. Preparedness. Yeah, right.

Storage space isn’t the only thing being cut.

For the first time in four decades in the luxury-home business, executives at John Wieland builders are thinking the unthinkable: Maybe houses in the South don't really need a fireplace. They're also wondering whether new homes require 4,700 square feet of living space. Or private theaters with 100-inch screens. Or super-size-me foyers.

As they draw up blueprints for the house of the post-recession future, builders are struggling to distinguish among what home buyers need, what they want and what they can live without -- Jacuzzi by Jacuzzi, butler's pantry by butler's pantry.

Of course a primary motive is to cut cost. But that effort to reduce cost also create a focus on value as perceived by the customer.

"You have to keep taking things out until you hit a critical point where people reject your product," said Jeff Kingsfield, senior vice president of sales at Smyrna-based John Wieland Homes & Neighborhoods.

A few years ago my wife and I were casually looking at new homes and happened upon an Asian-inspired beauty surrounded by acres of vineyards. Cherry plank hardwood floors, decks galore, chef’s kitchen. What the heck, we made an offer and unfortunately at the time but fortunately in hindsight the negotiations could not get down to what we wanted to pay. It came close, but no cigar… or ball and chain. You see, it would have taken us from our current 2,600 square feet to over 4,000. Just my wife and I and a couple of cats. There would have been whole sections of the house we’d never see for months at a time. What a waste.

We’re better off where we are, especially since the value of that house took something of a dump. In fact, we’re now contemplating going in the opposite direction. You see, even in our current house we rarely set foot in nearly half of it and rely on the cats to tell us if anything’s amiss in those remote nooks and crannies. We’ve been busy getting rid of stuff… old clothes, books, nick-knacks, even sending boxes of old photos to be scanned. I’d personally like to downside to about half of where we are. A very nice but simple half, but still half.

Who really needs more? And what are the people in 3500 square foot (and up!) monsters trying to prove? Beats me.

"Lean Out" This, Boeing

By Kevin Meyer

Several of us often comment, or lament, the term “lean and mean.” Real lean is definitely not mean, although we appreciate the desire of journalists and editors to create a snazzy article title… again and again.

There’s one other phrase that has been eating at me lately, and that’s “lean out.” Such as this article on none other than Boeing.

[Boeing VP of Business Strategy Mike] Bair called the Renton plant a “lean enterprise,” indicating Boeing plans to transfer the lessons learned to lean out the 737 production to Everett.

It’s unclear whether “lean out” was a term used by Mr. Bair or simply a figment of the journalistic process. In either case it is both a negative in terms of what lean is really about but also accurate in terms of how Boeing practices lean.

“Lean out” conjures the whack-a-human process that unfortunately most organizations consider to be “lean.” Truly LAME – lean as misguidedly executed – as our friend Mark likes to say. Reduce waste… including that obscene waste of excess hands... without realizing that there’s a brain connected to those hands.

That recognition of brainpower is what real lean is about. Leveraging, not minimizing, the second pillar of lean, respect for people. Leveraging the power of human experience, creativity, and knowledge. As one comment to the article puts it,

Boeing will soon have to start hiring - they are running out of people to lay off.

Yep, that’s understanding real lean. Not.

Motorola's Continued Downward Focus

By Kevin Meyer

Boy those guys at Motorola really know how to run a business. Several months ago we told you about their “strategy” that included whacking R&D and then wondering why business suffered.

And if you're running a technology company that suffers from inferior products, what do you do?  Cut R&D!

Motorola Labs, which developed at least two-thirds of Motorola's patents, has been cut from 1,000 to 600 researchers.  Further reductions are expected this summer, according to people familiar with the matter, including 200 researchers to be laid off.  Only 200 would remain in the group, the people said.

Well, they’re still wondering.

While others are looking to bulk up, Motorola is trying break up as it seeks a strategy to combat plunging sales. It has tried and failed for nearly two years to spin off its mobile-phone business, which has been in steep decline without a hit device.

Unbelievable isn’t it? I wonder what wondrous biz school taught them that “strategy.” Hey why not try spinning off another profitable piece of the company…

Motorola Inc. is exploring the sale of its biggest business unit as it seeks to split itself apart, the latest sign of the once-mighty technology giant's declining ambition in the convulsive world of telecommunications.

The division, which makes television set-top boxes and networking gear, could fetch $4 billion to $5 billion, according to people familiar with the matter.

So $4 billion or so. Not a bad sum…

The set-top-box division, which had sales of $10.1 billion last year, was built largely from Motorola's 2000 acquisition of General Instrument Corp. for roughly $17 billion. The unit's biggest competitor is Cisco, which acquired rival Scientific-Atlanta in 2005.

Oops. But presumably that division is dragging the company down.

Handsets were long Motorola's marquee business. But this year, it has been surpassed by the set-top box unit, which is called the home and network mobility division.

That business has also been hit by the economic downturn, with sales falling 15% in the third quarter from a year earlier, to $2 billion. Still, the unit remains profitable, posting operating earnings of $199 million in the period. That strong cash generation is likely what has attracted the interest of private-equity firms. TPG and Silver Lake Partners declined to comment.

Ok… Must be that strategy thing again. Buy high, sell low, right? Spin off the profitable parts of the business to create funds to support the unprofitable part.

I’m sure it makes sense to someone.

Fun With Statistics - Wine Ratings Edition

By Kevin Meyer

I consider myself lucky in many respects, not the least of which is the fact that I live in one of California's premier wine-producing regions with over 220 wineries within 30 miles.  Over the last several years I've been able to partake of many of their products and have refined my taste down to a very small subset.  Those of you that follow us on Twitter occasionally get to hear of my new favorites.

One tool that many vinophiles use is the 100 point wine scale, especially the one developed by Robert Parker.  The scale has an illustrious history.

It was in this climate that in the 1970s a lawyer-turned-wine-critic named Robert M. Parker Jr. decided to aid consumers by assigning wines a grade on a 100-point scale. Today, critics like Mr. Parker exert enormous influence. The medals won at the 29 major U.S. wine competitions medals are considered so influential that wineries spend well over $1 million each year in entry fees. According to a 2001 study of Bordeaux wines, a one-point bump in Robert Parker's wine ratings averages equates to a 7% increase in price, and the price difference can be much greater at the high end.

Pretty impressive how much power that dude has.  But I'm sure many of our more statistically inclined readers are already starting to wonder how something as subjective as taste and bouquet can be accurately determined, repeatably, to single percentage points. 

But what if the successive judgments of the same wine, by the same wine expert, vary so widely that the ratings and medals on which wines base their reputations are merely a powerful illusion? That is the conclusion reached in two recent papers in the Journal of Wine Economics.

Houston (or Napa), we have a problem.  Who is this heathen that dared question Robert Parker and his ilk?

Both articles were authored by the same man, a unique blend of winemaker, scientist and statistician. The unlikely revolutionary is a soft-spoken fellow named Robert Hodgson, a retired professor who taught statistics at Humboldt State University. Since 1976, Mr. Hodgson has also been the proprietor of Fieldbrook Winery, a small operation that puts out about 10 wines each year, selling 1,500 cases.

He started off with a statistical analysis of judges and the judging process.

In his first study, each year, for four years, Mr. Hodgson served actual panels of California State Fair Wine Competition judges—some 70 judges each year—about 100 wines over a two-day period. He employed the same blind tasting process as the actual competition. In Mr. Hodgson's study, however, every wine was presented to each judge three different times, each time drawn from the same bottle.

The results astonished Mr. Hodgson. The judges' wine ratings typically varied by ±4 points on a standard ratings scale running from 80 to 100.  Mr. Hodgson also found that the judges whose ratings were most consistent in any given year landed in the middle of the pack in other years, suggesting that their consistent performance that year had simply been due to chance.

Uh oh.  So then what?  He took on the medal process.

This time, from a private newsletter called The California Grapevine, he obtained the complete records of wine competitions, listing not only which wines won medals, but which did not. Mr. Hodgson told me that when he started playing with the data he "noticed that the probability that a wine which won a gold medal in one competition would win nothing in others was high." The medals seemed to be spread around at random, with each wine having about a 9% chance of winning a gold medal in any given competition.

To test that idea, Mr. Hodgson restricted his attention to wines entering a certain number of competitions, say five. Then he made a bar graph of the number of wines winning 0, 1, 2, etc. gold medals in those competitions. The graph was nearly identical to the one you'd get if you simply made five flips of a coin weighted to land on heads with a probability of 9%. The distribution of medals, he wrote, "mirrors what might be expected should a gold medal be awarded by chance alone."

Now that a substantial part of the framework of our polite society has come crashing down, what should we do?

One answer would be to do more experimenting, and to be more price-sensitive, refusing to pay for medals and ratings points. Another tack is to continue to rely on the medals and ratings, adopting an approach often attributed to physicist Neils Bohr, who was said to have had a horseshoe hanging over his office door for good luck. When asked how a physicist could believe in such things, he said, "I am told it works even if you don't believe in it." Or you could just shrug and embrace the attitude of Julia Child, who, when asked what was her favorite wine, replied "gin."

As for me, I have always believed in the advice given by famed food critic Waverly Root, who recommended that one simply "Drink wine every day, at lunch and dinner, and the rest will take care of itself."

Bottom line: just try some wines.  Preferably a lot of different wines.  And figure out what you like and dislike.  Then buy more of it.  Who cares about points and medals and especially the supposed value correlation with high price?  Just enjoy.