Evolving Excellence

Facts Required? Egads!

By Kevin Meyer

Sometimes you really have to wonder...

A U.S. Supreme Court ruling focused on national security may end up as the most significant decision for business in the court's about-to-conclude 2008-2009 term.  Ashcroft v. Iqbal, released in May, will make it harder to bring a lawsuit without specific factual evidence, raising the threshold for moving a case into expensive litigation and possibly saving companies millions of dollars in legal fees.  The case was overshadowed by other business rulings on consumer lawsuits, environmental and employment law and other matters in a term set to end Monday, but legal experts said it may be the most important.

"It's the case that will be cited more than any other by a factor of 100," said Tom Goldstein, partner at Akin Gump Strauss Hauer & Feld LLP and founder of the Scotusblog Web site. He called the ruling "an unexpected gift for the business community."

Ah yes, facts.  Such pesky things.

"While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations," Justice Anthony Kennedy wrote in the 5-4 opinion.

As a result of the Iqbal ruling, businesses may find it easier to fend off lawsuits by persuading courts to dismiss complaints early in litigation.

"Lawyers were citing it within days and putting it in their motions to dismiss," said Jane Willis, partner with Ropes & Gray LLP. "Everyone saw it's a new touchstone."

A lawsuit must be supported by factual allegations?  What a novel idea!  Maybe they're on to something.  Perhaps projects, plans, capital expenditures, hiring decisions, root cause analyses... also supported by facts?  Perhaps you're already doing that, or think you are?  Really?

The Sticky Matter of Ethics

by BILL WADDELL

The Federal Trade Commission is going after bloggers to compel them to disclose any value they receive from companies for endorsing their products, which of course has the blogosphere worked up into a fine lather.  Seems a tad hypocritical since the primary value bloggers have to offer is information that, for whatever reason, formal media outlets, companies and government organizations have chosen not to disclose.  Balking at transparency is hardly befitting.  It doesn't affect me any.  I don't take anything from anybody except the occasional unsolicited book I am sent by some author hoping I will endorse it on these pages.  I may or may not read the book, I may or may not comment on it - good or bad - on Evolving Excellence, and I always give the book away to someone who might benefit from it when I am finished.  I don't know exactly what the value of my reputation and integrity is, but it is more than the price of a book.

My purpose is not to talk about dubious blogging ethics, rather it is to give you my take on day to day business ethics, especially in manufacturing.  I have spent a lot of time in places like China, Mexico and Brazil where significantly different ethical standards exist.  I am struck, however, by the speed with which many American manufacturing managers jump on the pulpit to condemn the folks in such countries.  Typically those managers are no more ethical - they just draw the line at a different place.

There is a continuum of kickbacks ranging from calendars, pens, donuts and free lunches at the low end, on up to fruit baskets, ball game and concert tickets and supplier paid dinners with spouses, to golf outings, and nicer Christmas gifts, and then to cash and that scale goes from a few bucks on up to go-to-jail money. Unless your company has a zero tolerance - not even a pen or a donut and everyone pays for their own meals 100% of the time - then your company is just as 'unethical' as the Mexican buyer or government official who expects a bottle of something good and a Christmas card with $50 or $100 every year.  You just draw the line at a different level on the continuum, but you really have no claim to ethical superiority.

I am reminded of the very wealthy man who meets an attractive young lady at a cocktail party and asks if she would be willing to travel around the world with him on his yacht and allow him to shower her with designer clothing and jewelry.  When she excitedly reacts in the affirmative, he pauses, then asks if she wouldtake $50 to go out to his limo in the parking lot to fool around in the back seat.  When she is offended and asks if he takes her for a common prostitute, he answers, "Madam we have already established that.  Now we are simply negotiating the price."

I guess the point I am trying to make - and how this relates to lean - is that anyone who thinks that their position, be it as a blogger, a buyer, a manager or an engineer, entitles them to anything more than a paycheck like everyone else in the company is not on board with the whole 'Respect for People' thing.  The idea that a buyer works any harder, or is under any greater stress, or is more anything that makes him or her any more deserving of free donuts than the folks working on the line out in the plant is just plain wrong.  If anything the opposite is true.

Of course getting to a zero tolerance will be more difficult in those third world countries, and in many of them getting past the idea that whoever holds the title of 'Managing Director' is some sort of tin god might be impossible.  But as the adage goes, let he is who is without sin cast the first stone.  I believe an honest assessment of ethical policies would be helpful for any company before it starts out on the lean journey.  The rationalizations for anything other than zero tolerance might open a few eyes concerning company culture.

Another Day, Another Czar

By Kevin Meyer

Earlier this year I started to ponder the sudden propensity of our new administration to create czars... ostensibly in a democracy no less.

Every time I turn on the news these days I seem to hear about some new request, or outright appointment, of a "czar" of something or another in Obama's new administration.  Nancy Killefer as "performance czar" (or "czarina"?), for example.  I'm sure there will soon be a "green czar" and a "climate czar" and of course there's Dr. Sanjay Gupta as Surgeon General... effectively a "czar by any other name."  I opened up my latest issue of Men's Fitness to find an editorial asking for another "fitness czar."  A couple weeks ago we were discussing an "auto czar."

Of course we know by now that many of those particular czar nominees have since withdrawn for a variety of reasons I won't comment on.   My biggest problem was with the concept of such positions in the first place.

What is the true "responsibility" of a czar?  To pontificate?  And what is the accountability and authority?  Without authority and accountability, responsibility is a myth and true performance is probably a pipe dream. Czars without authority and accountability set targets and goals, which simply leads to gaming the system by those also without accountability to the authority-less czar.

Ah yes... this will be fun.  Czars and czarinas, already redundant with the responsibility of existing government organizations, spewing targets and goals galore with no one truly accountable to them, all trying to figure out how to make themselves look good.  Gotta love it.  Let the dysfunction begin.

And continue.  Because soon there will be another... a "cyber czar."

President Barack Obama will announce on Friday the creation of a "cyber czar" position, stepping up his administration's efforts to better protect the nation's computer networks.  The cybersecurity chief will report to both the National Security Council and the National Economic Council, a compromise resulting from a fierce White House turf battle over the responsibilities and powers of the new office.

Not only will there be no true responsibility and accountability... this particular czar will report to two feuding organizations.

The overall goal to improve cyber security is a good one.  Using czars to drive execution won't be effective.

Ford vs. The Taxpayer

If ever there was a demonstration of the absurdity of government playing in business, the drama unfolding with Ford and the government-funded automakers of GM and Chrysler is beginning to show it.  Unfortunately I doubt many will see the lesson, again.

Of course it's not just automakers.  Tack any number of greedy banks onto that list.  Free money for failure!  Free money for failure!  Hard to resist... until they take a hard look at the strings attached and realize it's not free.  And it shouldn't be... it's my money.  Being thrown at failure... my money again.  Now some of them are wising up and trying to give it back... and my government is refusing to accept it, preferring to use it as leverage for yet another social engineering scheme destined to lead us to banana republic status.  Last week we heard Bank of America got pressured into buying Merrill Lynch, Ken Lewis abdicated his fiduciary responsibility to his shareholders and government officials conspired to withhold information from the taxpayers that were helping BofA buy it.  The mess gets stickier and stickier.  But that's what happens.

A real kicker for me was when Congress and the President hauled a bunch of credit card companies before them and told them that credit card fees and information need to be written in "plain English."  Good for them, but talk about calling the kettle black.  How about attacking 80,000 pages of tax code first.  Individual taxpayers spend $26 billion on outside help with tax preparation, and lose $100 billion in productivity.  Hmmm...now where could I use that money?

If you're naive enough to think you can get something for nothing on a new mortgage, you should fail.  If you're dumb enough to invest in those mortgages without realizing there's no underlying value, you should fail.  If you're ingenious enough, in a mad scientist kind of way, to fashion complex financial instruments out of those packages of worthless mortgages, you should fail.  If you keep producing cars that no one wants, ignoring improvement methods right in front of your noses, and paying people several times the prevailing rate, you should fail.

I pay my bills on time, read contracts I enter into, understand that I must live within in my means, save money for the future to offset unknown risks, and accept accountability for poor choices.  And I'm ticked off.

Ok, sorry, perhaps I just needed to unload a bit.  So let's finally get to my point:

I'm even more ticked off now that I read about how Ford is beginning to rebound.  I'm a taxpayer (and one of the few remaining...), and my leader has decided to take my money, a big bunch of money, and invest in GM and Chrysler.  And yet, Ford is winning. 

Chief Executive Alan Mulally said "we do not expect to require a bridge loan from the U.S. government."  His optimism reflects Ford's effort to remake itself as a leaner car company without government oversight. Ford posted a net loss of $1.4 billion, or 60 cents a share, a reversal from net income of $70 million, or three cents a share, for 2008's first quarter. But the loss was lower than analysts expected and a marked improvement from the $5.5 billion Ford lost in last year's fourth quarter. Revenue fell 37% to $24.8 billion.

One of my President's (uhh... "financial advisor"?) investments is thinking about filing for bankruptcy as early as next week.  The other is rightfully shedding redundant operations like Pontiac, but moving slower than the Titanic.  I'm guessing I'll get to use that metaphor again in a couple months.

But my hard-earned funds got invested, purposely invested, in failure.  Not only that, but now Ford is actively using my own investment in its adversaries as a marketing tool!  Egads!

The results reflect in part Ford's strategy: to steal customers from its weakened crosstown rivals and separate Ford from GM and Chrysler in the minds of the public, investors and lawmakers.  One ad placed by Chicago-area dealers argues that "Ford's progress in the past two years demonstrates why it doesn't need a bridge loan from Congress." The ad assures customers that the dealers look "forward to serving you for many years to come" -- a barbed reminder that Ford, unlike GM and Chrysler, isn't on the edge of bankruptcy.

And it's working!

Chrysler and GM owners "have been defecting to Ford and Lincoln-Mercury products in great numbers since the beginning of the year," Amanda DeMouthe, a marketing manager for Ford's Northeast operations, wrote in an April 9 email to dealers. Independent numbers seem to back up Ms. DeMouthe's assertion. In March, 48% of Ford buyers turned in cars or trucks of other manufacturers.

This must stop!  We must pass a law to distort the market even further!  Uhh... wait a minute.  I better not say that too loudly... in this crazy confluence where policy and politics try to override markets, someone might think that's a good idea.

Ford "is successfully differentiating itself from its wounded domestic competitors in operating performance and with consumers," Efraim Levy, an auto analyst with Standard & Poor's, wrote in a note Friday. Ford's stock has risen from a low of $1.26 on Nov. 19, the day after the first Washington hearing, to $5 today.

If Ford and my President Financial Advisor keep this up I may have to hedge my investment by throwing some money at the other side... by buying a Ford.  And I need to keep a close eye on said Financial Advisor to see if he can turn my investments around in the next 3 1/2 years.  If I have any investments remaining by then.

That hybrid Escape is looking pretty nice.

Skin in the Game

A couple of recent articles on taxes and health care reminded me how important it is to create "skin in the game" for stakeholders.  The tax article builds on an op-ed from a few months ago on the "tax tipping point"... the point where a minority of people actually pay taxes and tax policy is by definition driven by the majority.  In effect, representation without taxation.

What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes? Economists Allan Meltzer and Scott Richard posed this question 27 years ago. We may soon enough know the answer. 

In 2006, the latest year for which we have Census data, 220 million Americans were eligible to vote and 89 million -- 40% -- paid no income taxes. According to the Tax Policy Center (a joint venture of the Brookings Institution and the Urban Institute), this will jump to 49% when Mr. Obama's cash credits remove 18 million more voters from the tax rolls. In all, three out of every five voters will pay little or nothing in income taxes under Mr. Obama's plans and gain when taxes rise on the 40% that already pays 95% of income tax revenues.

The recent article takes it a step further.

If you thought Bernard Madoff's Ponzi scheme was bad, wait until you hear about the inverted pyramid scheme the federal government is working on. While Mr. Madoff preyed on people who trusted him with their money, the federal government has everyone's money, and the implications of its actions are worse.

Picture an upside-down pyramid with its narrow tip at the bottom and its base on top. The only way the pyramid can stand is by spinning fast enough or by having a wide enough tip so it won't fall down. The federal version of this spinning top is the tax code; the government collects its money almost entirely from the people at the narrow tip and then gives it to the people at the wider side. So long as the pyramid spins, the system can work. If it slows down enough, it falls.

A very small number of taxpayers -- the 10% of the country that makes more than $92,400 a year -- pay 72.4% of the nation's income taxes. They're the tip of the triangle that's supporting virtually everyone and everything.

He goes on to discuss income redistribution and such, but I won't touch that third rail this time.  That's not my point.

Mr. Obama is adding to this trend with his "Make Work Pay" tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today. A certain amount of income redistribution in a capitalistic society is healthy, but this goes too far. The economic and moral problem is that when 50% of the country gets benefits without paying for them and an increasingly smaller number of taxpayers foot the bill, the spinning triangle will no longer be able to support itself.

His solution is to create skin in the game... everyone pays.  Not equally; very few people dispute that taxes should be progressive with the more successful paying more... to a point. 

I favor the abolition of all Social Security, Medicare and estate taxes. In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays. The bottom 50% won't be excused from paying the cost of government and top earners will no longer have the loopholes they're used to.

One letter responding to the article pretty much nailed it.

What could be fairer or more equal than requiring everyone to equally share the tax burden or, to paraphrase Vice President Joe Biden, to allow everyone equal opportunity to participate in the "patriotic duty" to pay taxes. Imagine the demand for government accountability, fiscal responsibility and spending limits if everyone's wallet were equally at risk. Perhaps this is what politicians are trying to avoid.

Revising and clarifying the tax code, closing loopholes, decreasing or eliminating politicized deductions is long overdue. A simplified tax code so straightforward that it could enable senators, congressmen, even U.S. Treasury secretaries to comply would be a welcome change.

Indeed.  Perhaps a few cabinet nominees could even figure it out.

Now on to health care, which has a very similar problem.  Costs are going up, and some portion of that is due to inefficiency.  Once again I won't touch the third rail discussion of whether that's due to insurance companies and such.  But a portion, a very significant portion, is due to the increased marginal cost of improved care technology.  Tiny improvements can cost much, much more... but who's to say they shouldn't be paid for?

There's nothing I've seen so far, however, that will fundamentally address the core issue, and that is that medical care costs are simply going up. Increasing access is great for various social reasons, but it's not going to have a big impact on increasing costs unless we actually start making some hard choices. Some of those hard choices are going to be very unpopular, especially when you start to ration care.

But the second approach is more of a long term approach, where you have to make people sensitive to how much... they spend on health care. That's the core problem: People always want the very best, even if the marginal benefit is much less than the marginal costs, because they don't bear the cost. In Medicare, the government bears the cost. And so people don't have any type of trade off between spending and benefits. They always want the very best. And... the innovators always come up with the better pill even though its efficacy may be just marginally better than the generic drug; or the better operation, even though its efficacy will be just marginally better than the cheaper operation.

How do you do that?  We like insurance that basically pays for everything, perhaps aside from a $20 co-pay.  Universal or single-payer would just make it easier.  What a great deal!  Or is it?

There are only really two things you can do. The first is you say, "Well, people still aren't sensitized to cost and benefits. We'll keep on paying for it." And in that case the government then has to say, "You know what, we'll keep on paying but for only some stuff." And now the government is the one in charge of deciding who gets what. The second approach is to actually make people directly sensitized to it. And you do that with things like health savings accounts in which people have to pre-fund some of their future medical care. They have to pay out the first several dollars of that care, and the government's only a back stop on a catastrophic case.

That second option is the only one that would really work.  Everyone has to have skin, at least some skin, in the game.  With some modification for income and ability to pay.

Ultimately, the best package is some type of hybrid where you have people being sensitized to health care costs for routine care. For catastrophic care you probably have a government back stop, but more of minimal back stop than we now have. It's not always wise to pay for the best device that's out there. It's really about taking into account cost benefits.

Medicare, by the way, will claim that it take costs and benefits into account. But in effect they do not. They will approve almost anything that has some type of marginal benefit and not really think very hard about the costs.

I learned the lesson about having skin in the game when I owned my own manufacturing company.  I had to pay all the various fees and taxes, including the employer side of employee taxes.  These days I still pay my taxes quarterly, but cutting a real live check.  It hurts, and I really feel what I am paying for roads and schools and bridges to nowhere.  Many are good things, many aren't, and I have become very sensitive to the difference.

It would be a bureaucratic nightmare, but what if income taxes weren't deducted from payroll checks?  What if everyone (well, those few that still have to pay!) had to actually sit down a write a check to the government every few weeks?  What if gas taxes weren't simply included in the price of gas but were added on afterwards, like other sales taxes?  Ouch!  I bet people would be looking at those roads and bridges a bit differently.

And perhaps even volunteering to pay more.  Yes, really.

Think about the tip you give when going out to dinner.  Remember when it was typically 15%?  Most of us as we move into higher income brackets get a new appreciation for the amount of work it takes to provide good service at a dining establishment, and we slowly increase the standard tip to 20% or more.  Or perhaps it's just easier to calculate.  Compare that to some other countries where a standard tip is just included.

And finally, yes finally, think about your business or organization.  Do employees have skin in the game?  Profit-sharing or gain-sharing tied to real goals?  Goals that improve the value delivered to customers and thereby creating more return to the stakeholders?

Everyone needs skin in the game to feel a part of, and accountable to, the value creation process.

Thus Sayeth Warren

A couple days ago I received my annual report from Berkshire Hathaway, Warren Buffett's acquisition monster.  As Bill mentioned about a month ago, Buffett has never explicitly endorsed lean manufacturing, but he does know a well-run company when he sees is (and eats it), and some of those are lean-driven.

But what I really like about Warren is his straight-shooting no-nonsense style, peppered with a choice of flowery adjectives.  We could really use more of that these days.  Let's take a look at some samples from his shareholder letter.  First, on the performance of Berkshire Hathaway itself.

The table on the preceding page, recording both the 44-year performance of Berkshire’s book value and the S&P 500 index, shows that 2008 was the worst year for each. By yearend, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.

No kidding.  And what's his opinion of the bailout?

In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

He goes on to describe the impact of Carteresque hyperinflation and a country where organizations, not just individuals, are dependent on the nanny state.  Time to run for the hills, or at least invest in gold.  He is positive about the future, as most successful people are... or have to be.

In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.

But probably my favorite section is where he compares his investment strategy against the vultures of private equity.  We've also lamented these short-term cash-sucking banana slugs many times.

Our long-avowed goal is to be the “buyer of choice” for businesses – particularly those built and owned by families. The way to achieve this goal is to deserve it. That means we must keep our promises; avoid leveraging up acquired businesses; grant unusual autonomy to our managers; and hold the purchased companies through thick and thin.

Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.”  We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses. Their new label became “private equity,” a name that turns the facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing.

Right on, Warren.  Now do me a favor and spend a bit more time understanding why some of your businesses, especially those in manufacturing, do so well.  Then share.  You're leaving some money on the table.

Quick! Find Yahoo's Value Stream!

Leanophiles know that all organizations have value streams... the sequence of operations that creates value, and generally some tag-along waste, for the customer.  A known effective organizational structure is one aligned along those value streams.  So what value streams does an internet company like Yahoo have?  Delivering search value, advertising value, interactive social networking value?  We may never truly find out.

Not yet six weeks into the job, Yahoo Inc. Chief Executive Carol Bartz is preparing a company-wide reorganization that underscores the new CEO's belief in a more top-down managerial approach.

The plan aims to speed-up decision-making and give Yahoo products a more consistent appearance by consolidating certain functions that have previously been spread out across the company -- like product development and marketing -- into single, standalone departments, people familiar with the matter say.

Now I don't know the specifics, but I can hypothesize on them.  That's my right, even if I'm wrong.  So I'm guessing that there will now be a single marketing entity responsible for selling rather disparate products, a single development organization responsible for new products touching radically different types of customers.  It doesn't stop there.

Yahoo's European, Asian, and Emerging Markets divisions will be consolidated under one boss...

But of course all customers from all countries want the same thing!  Hmmm... Behold, the silos!

Good luck, Yahoo.

Taking the "Gen" out of "Genchi Genbutsu"

Well, GM is in the news again, this time for refusing to cancel its program that gives a company car and company-paid gas for about 8,000 white-collar employees. It's almost too easy to work myself into a righteous wrath over a perk that costs the company $12 million a year, at a time when GM has already received $13 billion from taxpayers and is looking for $16 billion more. But in the grand economic scheme of things these days, it's pretty much a rounding error.

GM claims that the perk, which is formally called the "Product Evaluation Program," is an important tool to improve vehicle quality, because employees can immediately report problems. But Walter McManus, a former GM economist during most of the 1990s, questioned the program's value:

I'm not aware — when I was in market research or in product planning — of anyone at GM ever using the information for any sort of analysis or any product development decisions. No one that I knew took it seriously.

Okay, so we've got some waste here: a program that certainly costs money to administer but doesn't do a damn thing to benefit customers. But to me, the real problem with this program is the way it isolates GM executives from the reality faced by its customers. The principle of genchi genbutsu ("actual place, actual thing," where "gen" means "actual") is designed to ensure that workers (and especially) managers get out their bubbles and see the reality of a situation. Yuji Yokoya, the Toyota chief engineer for the 2004 Sienna minivan is legendary for driving 53,000 miles around North America while developing the minivan, all in an effort to experience the reality of the US market.

You'd think that it would be easy -- even unavoidable -- for GM execs to experience the "actual thing" faced by their customers. All they need to do is simply drive their cars -- you know, to the store, to work, back home -- just like their customers. But leave it to GM to keep their execs in the bubble. What's the long term effect of these twice-yearly free cars twice and free gas? After all, if you're getting it for free, can you really understand what it's like for a consumer to own an SUV that gets 9 mpg when gas costs $4 a gallon?

GM insists its employees appreciate the impact of high fuel prices, but one current GM staffer interviewed for this story said the perk does blind some people. He recalled that when gas spiked last summer, a colleague complained. It wasn't because of the cost. It was because he had to swipe his credit card twice to fill up the tank of his big SUV.

Somehow, I don't think that the inability of gas pumps to register over $100, and the extra effort of the double swipe was the biggest problem facing consumers last year. When you're getting the car and the gas for free, you're not really experiencing the "actual" anything.

So, given the cost and questionably utility of this program why not end it?

GM has talked about ending the program, but a spokesman said employees have built their lives around it. It allows many to live far from their offices and commute at little expense. The spokesman said killing the program now would be "extremely" disruptive.

Ah, now I understand: 8,000 execs who are high enough up the corporate food chain to warrant (and I intentionally don't use the word "merit") free cars and gas can't afford to drive to work? Do they really make so little money that they can't afford to pay for the commute out of their own pockets? Did they really "build their lives" and choose where to live based on the assumption that they'd have free cars and gas in perpetuity? Are they really that asinine? If so, that explains an awful lot about how they can so seriously, and so regularly, misunderstand the customer.

Leave it to GM to take the "gen" out of genchi genbutsu.

The Battle for Lean

I recently came across a news article on how Fort Dodge, Iowa, population 27,000, has decided to dive into lean government.  There were a lot of good points in the article, reinforcing that this particular town government is a bit more enlightened than most... including our own federal government.

Management techniques introduced by Toyota may soon be used in a bid to improve the efficiency of Fort Dodge government services. Toyota called it lean manufacturing, but the city version is known as lean government. It's a long-term system of change that seeks to squeeze out any inefficiencies in a given task.

Fierke said hiring a firm is necessary because no one on the city staff has the training to conduct a thorough lean government review.

Lutz said laying off employees is not the ultimate goal of lean government. Fierke noted that the city is launching the process at a time when 42 employees will become eligible for retirement in the next five years.

Sounds great, eh?  Recognizing a problem, knowing that lean can help, and also knowing that lean is not about laying off people.  That's some pretty amazing leadership for a town like Fort Dodge.

But then you start reading the comments to the article, and it hits you why lean isn't more prevalent, why it is met with so much resistance.  And we can learn from that.

Wouldn't need to hire any one if some one in the city goverment had an ounce of COMMON SENSE.

How often have we heard that?  Yes, lean truly is a lot of common sense.  But it is often very hard to see common sense when you're ingrained in the status quo.

Can someone explain this to me? The city is struggling financially, and now they want to pay someone to show them how to slim down the city payroll. I thought we hired a city manager and created all these other positions to handle this stuff. I have an idea why don’t we eliminate all the overpaid positions at city hall that promised to bring in more businesses and have not delivered.

Once again.  Yes we pay managers to "handle this stuff"... in government and in business.  But we also pay managers to know when to recognize that there's a better way, and then determine how to obtain the knowledge to implement that better way.

Answer me this Do you think spending $140,000 minimum to help us do what we should be doing ourselves already is a wise idea? 

Can they do it themselves without obtaining the knowledge?  If it is done right, the ROI will be incredible... far greater than $140,000.

Toyota has a terrible reputation for workers relations.

Huh?  That's basic misinformation.  But once again, a false opinion held by some people that needs to be dealt with.

Wasn't that what the city manager was hired to do? Of course Fierke wants them retained. Less work for him to do. Can't remember the last time someone was hired to do part of my job. Must be nice to work for the city.

Consultants make it easier for managers?  Not if consultants do their job.  Then the manager has the even more difficult task of implementing.

So there you have it.  A great program by an enlightened town government, dealing with the same misgivings of their constituencies as business has with theirs... except that business is not a democracy.  But for a lean program to be successful, those issues and opinions need to be dealt with.

Beware of Service Creep

Over the past several years we've been pounding on Detroit for building absurd amounts of excess capacity, often in response to how a "sale" is counted.  It really shouldn't be that hard: do some basic future planning and create and adjust plans as necessary.  Unfortunately, beginning many many years ago, the Detroit Three bet that the good times would just continue... and they based future plans on that unrealistically rosy outlook.

They weren't the only ones, as the Wall Street Journal reminds us.

When Detroit's auto makers begged for a federal bailout last month, Congress demanded that their CEOs make changes to their operating model in return for a check from Uncle Sam. If only Congress would demand the same from the state and local politicians now seeking $200 billion from federal taxpayers.

The state spending binge of the last five years has been almost unprecedented in American history.  Since 1998 state and local budgets have nearly doubled to $2 trillion, according to the Census Bureau. State and local expenditures rose 34% from 2003-2007 compared to inflation of 19% and population growth of 5%. They also loaded up on debt, which doubled to $2.23 trillion in 2008 from $1.14 trillion a decade earlier. This doesn't include nearly $1.5 trillion in unfunded health and pension liabilities.

This is something that has often puzzled me.  Sure there are some incremental new services that a growing economy should offer, but for the most part the growth in service cost should almost exactly mirror the growth in population.  If you needed one cop per x number of people twenty years ago, why do you need three now?  Perhaps, similar to the dreaded "scope creep" of new product designs, we have a "service creep"?  And to take that analogy or similarity one step further, just as scope creep creates a significant waste of resources that could be better applied elsewhere, so does service creep.

So what ends up happening?

A federal bailout for these distressed states means redistributing income to these big spenders from the most fiscally responsible states. Federal aid also creates a disconnect between the people who pay for the local services and those who benefit from them. Under Mr. Obama's plan, people in Mississippi will wind up paying for swimming pools in California, taxpayers in Colorado will pay for the sewer system in Detroit, and residents of Arkansas will underwrite health care subsidies in Philadelphia.

As a resident of California, looking forward to the prospect of IOU's being issued for a variety of state programs, I thank you.  Especially those of you with state and local governments that had the smarts to live within your means, with an eye toward the future.  Perhaps we were the smart ones though?

This creates an incentive for state and local officials to pad their budgets as their lobbyists race to capture as many federal dollars as they can. One especially ill-designed idea from the Obama Administration is to allow the federal government to pay a greater share of state Medicaid costs. So instead of reforming policy to slow the stampeding cost of medical care, states will have an incentive to spend lavishly, because every health-care dollar lures more money from Washington.

Obama and his new cabinet are very smart people, so I have hope things will change.  But now back to Detroit... doesn't this sound familiar?  I'm not just pounding on government; business, especially poorly-led business, does this all the time.  Remember all the lemmings trying to outsource as fast as possible without looking inside to see where they could become more efficient?  Now they're paying for it as trans-ocean shipping costs go up, WIP/in-transit inventory risk from quality issues goes up, and competitors that did focus inward are now cleaning house.

Detroit, and other traditional businesses, needs to learn from companies that create excellence and thereby competitive advantage by focusing on improving internal processes and the brains of their people.  Government can do the same by learning from local and state entities in the likes of Indiana and Wisconsin and Maine that are continually improving the ability to deliver more services with less taxpayer money.