Business Best Practices
For many businesses, our current knowledge of computing technology, manufacturing processes, machine capabilities, and integrated information systems, will be outdated in a few years. “The only constant we face,” said an ancient philosopher, “is change.” For top management, success depends on more than merely being able to articulate a vision of where and what the organization needs to be. Top management must develop a solid approach and methodology that managers will use for fostering and implementing positive change throughout the organization. Process-oriented leadership is what organizations need today.
The clear delineation of a vision for the organization’s future is a key role for top management. But all too often, this vision has focused mainly on achieving certain financial results such as gaining market share, return on investment, and inventory to sales ratios. Envisioning what the business needs to be requires that the vision be aligned foremost with customer requirements and an assessment of the organization’s current status and overall ability to achieve its long term objectives. If top management is to successfully manage change, what needs to be developed is a description of issues such as:
- What the company will look like when working inventory turns are increased by 90%?
- What will be required of self-directed, small work groups to achieve throughput reduction targets?
- How will we interact differently with suppliers and distributors after integrating our information systems and business functions?
- How will management processes change?
- What skills will our workforce and managers need?
- How will people be measured and rewarded when goals are achieved?
Asking these kinds of questions will help top management better define the vision of what things the organization will need to do and how it will have to do them. This is the basis on which a solid methodology for managing change depends, and leadership rests.
Whether you are implementing Lean Operations, Six Sigma, Supply Chain Management (SCM), Enterprise Resource Planning (ERP), or some combination of these management philosophies, you are introducing a major change into your organization, and it must be consistent with—and support—the firm’s overall strategy. There are three steps–critical to achieving lasting performance improvements–that are preconditions to successfully bringing about any major change:
1) evaluate the environment
2) Develop the Organization’s mission
3) Originate a strategy
Southwest Airlines has followed the process, as described above. At its inception in 1971, Southwest surveyed its environment and targeted an underserved market segment: short hop flights in Texas.
Realizing that the firm had to keep its costs down to compete against its full service competitors, Southwest’s operations strategy included use of secondary airports and terminals, first come first serve seating, few fare options, smaller crews flying more hours, snack only or no-meal only fights and no downtown ticket offices.
As result of its experience in Texas, Southwest developed the capability to wring-out costs from its airline operations. This capability—competing on the basis of being the low cost provider—continued to fuel its growth. For example, Southwest designed a route structure that matched the capacity of the Boeing 737, the only aircraft in its fleet. The use of only one plane minimized the costs of pilot training and aircraft maintenance. Superior leadership, strategic planning and execution on the part of top management has enabled Southwest to be a consistent money maker while other airlines have lost billions.
Top management is ultimately responsible for the positive changes that can transform the organization. Regardless of the changes being undertaken, they ought to be understood clearly within the context of the organization’s strategy. In our next post, we will describe another ingredient that must be present for change to take root, namely, instituting a change management process.
Mr Milz overhauled
this 100 years-old grandfather clock.
Despite having an unacceptably high unemployment rate, the US manufacturing sector has over 600,000 unfilled jobs. This is due to the fact that our educational system isn’t producing graduates with the skills that are sought by employers.
Nancy Hoffman, author of the book Schooling in the Workplace: How Six of the World’s Best Vocational Education Systems Prepare Young People for Jobs, argues that the United States should adopt a European-style education system, in which students in their last two years of high school have the option of participating in highly structured workplace apprenticeships that involve working for pay several days per week, and spending the rest of the time in the classroom. This system is known as vocational education and training or VET.
So what are VET’s advantages? Meet August Milz, a product of Germany’s VET system. As a youngster, Mr. Milz spent two years at a clock school in Germany, and then served as an apprentice at a clock manufacturing company. He went on to run a number of successful clock repair shops, and is currently the owner of A M Clock Repair SVC, Inc
Following is a recent interview with Mr. Milz. It describes how he ultimately found his calling through VET.
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How did Germany develop such a strong vocational education and training (VET) system?
Unlike the US, Germany doesn’t have natural resources that are the basis of the economy. In Germany, the economy is based on production—not on the stuff that comes out of the ground. The government supports—and the system supports—learning a trade, doing something, building, working. The whole system goes back to the Middle Ages. Working in a trade was highly valued as only honorable people were eligible to participate. During this time, Germany wasn’t even a national entity; it was a political entity. In contrast, in the US, the only entity that supports education for tradesmen are the unions. For example, carpenters and electricians have to be licensed, which requires that they are able to demonstrate that they have been properly trained and educated in their specific trades.
What made you decide to go into the clock field?
Two things. One was that my schooling for higher education was interrupted because of World War II. When things normalized again, I was told that I was too old to pick up where I left off. My father had a small clock factory before the war that was closed during the war. My grandfather was a clockmaker as well..so it was a family tradition. I grew up in manufacturing.
What type of vocational education and training (VET) was available for someone wishing to learn about the clock trade?
I grew up in Schwenningen. a city located near the Black Forest where all of the major clock companies were located. There was a clock school in town. The institution had a three-year educational program involving a parallel apprenticeship. Students went to school and worked at the same time.
After going to school and apprenticing, a student got their diploma. But the diploma didn’t entitle them to own their own shop, or teach. The students had to work another 6 years under a Master, learning how to design their own mechanisms. Then they had to take an exam, which—if they passed—enabled them to become a Master. Only then could they own their own shop, or teach. That’s how the system worked.
What was your personal experience with the program?
While attending school, I worked in a factory that had a large machine shop where they made the clock’s internal mechanisms. I learned about the workings of the machinery, and how to set them up. Eventually, I was put in charge of production. As a result of this experience, I completed the entire program—schooling plus apprenticeship—within 2 years.
Does Germany still have clock schools?
Yes, it does. A couple of months ago I got a call from my nephew. His son is starting clock school, beginning as an apprentice at Junghans, where he works at the company three days a week, and then goes to school for 2 days a week. He will continue with this schedule until he finishes his apprenticeship.
In terms of the clock industry, how should VET be applied here?
There are two aspects to consider. One is designing new mechanisms; the other is repairing existing clocks. The education for each category is different. We don’t need Masters in the US, because —although the US used to be a great manufacturing center—today clocks are made in other countries, and then imported to the States. A Master learns how to design the mechanism, calculate the number of gears, and all that. There is no need or market for that. The need is for repair.
What should be done in terms of US vocational education?
For over 100 years clocks have been imported here. There are countless millions of clocks, but there is nobody to take care of them. That’s why I decided to come here to open up repair shops. There is definitely a need for a clock repair and maintenance school in the US; however, any new program must also include working as an apprentice.
August, Thank you!
[My comment: There are similarities between the plight of Doug Oberhelman, CEO of Caterpillar, whose company is unable to find qualified factory workers, and August Milz, owner of A M Clock Repair SVC, who can’t find properly-trained, clock repair people. Both individuals run businesses that are constrained by a lack of qualified workers. This is ironical, in light of our high unemployment rate.
Only by reforming our educational systems, can we hope to solve this problem. We must develop more meaningful partnerships between business, academia, and government. Ultimately, the goal should be to integrate school and work experience in a specific career area, ending the distinction between academic and vocational preparation.]
OK, wrap your head around this one. There are 600,000 unfilled jobs in the U.S. manufacturing sector, because employers are unable to find qualified applicants.
Furthermore, the Organization for Economic Cooperation and Development issued a report indicating that more than half of American companies are having trouble finding enough skilled workers. Given our unacceptably high unemployment rate, how can this be?
At a forum about Jobs, Education and the Economy, Doug Oberhelman, CEO of Caterpillar (CAT), revealed that his firm has recently been interviewing 1,000’s of people for shop floor jobs that require “basic skills, nothing fancy.” He was “appalled” to learn that the hiring managers at CAT rejected 60% of the applicants, because they “can’t read, they have no math skills, and they fail the drug test.”
The irony in these numbers is that the U.S. annually spends $650 billion dollars on public education, more than any other country in the world. However, Oberhelman points out that—based on his recent hiring experiences—we are throwing over $300 billion out the door. Not only is the aggregate level of spending on education high, but the amount we spend has increased dramatically and consistently. The Cato Institute reports a “25 percent increase in K-12 per-pupil expenditures, in constant dollars, between 1995 and 2005.”
These facts suggest that putting more resources into our education system will not solve the problem. Many countries—South Korea, Finland, Canada, Netherlands, to name a few—are achieving better results using fewer resources. Rather, we must radically reform our existing institutions, so that our schools produce an educated workforce, one that is capable of performing 21st century jobs.
Inaction is not an option. We are competing against China, a country that values education. And they want our jobs! Although they don’t spend much money on it, they are starting to leverage the benefits of having produced an educated workforce. CAT makes a 20-ton, hydraulic excavator system in a dozen places throughout the world, including a facility in Victoria, Texas. CAT’s CEO indicated that the number one plant in terms of “quality, safety of employees, and almost every metric is in China.”
In conclusion, there is still somewhat of a party atmosphere in the U.S.: the economy appears to be on the mend, employers are hiring workers, and the housing sector seems to be lifting us up. But if we do not fundamentally restructure our educational system, Oberhelman suggests that the party will be over for the next generation.
In subsequent posts, I will describe some specific reforms that need to be made.
In his book The Innovator’s Dilemma, Harvard Business School professor Clayton Christensen popularized the term “disruptive innovation.” Products that fall into this category bring different value propositions to the market than what is currently provided by existing market participants. Although disruptive technologies underperform existing products in mainstream markets, they possess other features that new customers value. In the near term, because a disruptive technology results in worse product performance, their initial sales volume is low.
This definition of a disruptive innovation is an apt description of Apple’s first iPhone. When it was launched in 2007, the iPhone underperformed against benchmarks that were standard in the smartphone industry. As a result, just 1.5 million units were sold in its first two quarters. Here is how the original iPhone stacked up against existing smartphone competitors, using measurements that were considered important at the time:
However, Steve Job’s creation was not just a cell phone; rather, it was the world’s first, handheld computer. Its data processing capabilities—not voice—are what disrupted the cell phone market. Although other smartphone manufacturers offered web browsers, they were clumsy and difficult to use. In contrast, Apple’s web browser made surfing the Internet easy. Compared to its rivals, the iPhone’s user interface was simple, intuitive and uncomplicated. At the swipe of a finger on touch sensitive glass, one could get access to e-mail, text messaging, video, photography, maps, books, music, games and mobile shopping. The iPhone was a game-changer, the industry’s Swiss Army knife.
After having introduced a product that was revolutionary in some respects, but lacking in others, Apple began a structured process of enhancing features—and adding functionality—that satisfied customer needs. This is the essence of continuous improvement. For example, in 2008, iTunes was introduced, which solidified the iPhone’s role as a multi-function device that could seamlessly provide music and video on demand.
Unveiled on September 12, 2012, the iPhone 5 is the current iteration of the iPhone. In his Wall Street Journal column All Things Digital, Walt Mossberg describes the differences between the iPhone 5 and its predecessor model, the 4S, which was introduced a year ago:
The incremental improvements described in the previous table are not radically new. In fact, some commentators have described the iPhone 5 as a catch-up device, adding features that are already resident on the leading Android and Windows phones. For example, many of the Android phones already feature larger screens.
In conclusion, Apple’s product development strategy does not involve releasing breakthrough technologies, year after year. Rather, disruptive innovations—such as the iPod, iTunes, iPad, and the iPhone—are unleashed, upending entrenched market competitors. Then, the worlds’ most innovative company improves upon its breakthrough product by implementing stable releases, adding features and functionality that delight its customers.
I need to bring this blog post to an end, because I have to go down my local store, and place my order for an iPhone 5. The current backlog is 4 weeks, and I don’t want to wait any longer than that!
Stephen Covey (1932-2012), the business self-improvement master of our times, died last week. He authored The 7 Habits of Highly Successful People, a book that has sold over 6 million copies.
In addition to having read several of Covey’s books, I saw him present at a Lessons of Leadership conference. Here are the two most important take-always from his body of work:
Lesson 1: Point Your Compass Towards True North
In his book First Things First, he differentiated between the clock and the compass. The clock represents our commitments, appointments and activities. In contrast, the compass represents our vision, values and direction. Angst occurs when there is a gap between what we do, and what is most important in our lives.
This distinction painfully struck home. Once, I was scheduled to attend a Board meeting during a day when my 4-year old son had to undergo major surgery. I elected to attend the Board meeting, rationalizing my decision by telling myself that my wife and father-in-law were at the hospital.
Although the surgery was successful, I regret my decision, realizing that I did not put First Things First, which is to be there for my son. Had I spoken up, the Board meeting could have been delayed.
Lesson 2: Invest in the Goose That Lays the Golden Egg
This lesson is based on one of Aesop’s fables. A farmer and his wife had a goose that laid a golden egg every day. They assumed that the goose had a great nugget of gold in its inside, so they killed it. They discovered that the goose was no different from other geese. Instead of becoming rich, the coupled deprived themselves of the gain of which they were assured day by day.
Covey argued that we must invest energy in increasing our productivity. Using the metaphor of a saw, he suggested that we must sharpen the saw, otherwise the blade becomes dull. And a dull blade results in reduced output.
There are many ways of nurturing the goose. In a previous post, I described how playing bridge enhances one’s memory and mathematical skills. Is it surprising that Warren Buffet and Bill Gates are avid players? In tennis, I know that if I fail to do strengthening exercises, pulled muscles are the end result. My physical therapist can attest to that!
In terms of business, at Frito Lay’s Orlando, Florida plant , the largest inventory investment is not in the potatoes, corn oil and salt seasonings that are needed to make the company’s snack products. Rather, the biggest inventory item is in parts that are required to maintain the expensive machinery. Management knows that the costs of production downtime far outweigh the investments in inventory that are necessary to keep the machines in good condition.
Conclusion
Some of Covey’s notions are commonsensical—they will not put him at the table with the pantheon of self-improvement thought-leaders. For example, his 7 habits include advocating “being proactive; begin with the end in mind; think win-win, etc.”
But the ideas of nurturing the Goose That Lays the Golden Egg, and setting ones compass on true north, will stand the test of time.
