Focus on Long Term Success

Posted on May 29, 2007  Comments (1)

Put Investors In Their Place by Clayton M. Christensen and Scott D. Anthony:

The notion that managers must above all appease investors drives behavior that focuses exclusively on quarterly results. Thus, many management teams hesitate to invest in promising innovations that are likely to hurt near-term financial performance.
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Perhaps it is time for companies to adjust the paradigm of management responsibility: “You are investors and speculators, not shareholders, and you temporarily find yourselves holding the securities of our company. You are responsible for maximizing the returns on your investments. Our responsibility is to maximize the long-term value of this company. We will therefore act in the interest of those whose interests coincide with our long-term prospects, namely employees, customers, the communities in which our employees live, and the minority of investors who plan to hold our securities for several years.”

Good idea – as we have discussed previously.

Related: Think Long Term Act Daily – Going lean Brings Long-term Payoffs – Innovation in Organizations – Rethinking the Social Responsibility of Business

Boston Travel Photos

Posted on May 28, 2007  Comments (0)

Photo of Boston

After I presented the Deming Seminar in Boston last year a spent a few extra days in to enjoy the city. See photos from my Boston visit including: Boston Fine Arts Museum, Boston Science Museum and Boston Common.

Related: Shaker Village of Pleasant Hill, Kentucky – New York City Photos – Glacier National Park photos
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Eliminating Quarterly Earnings Guidance

Posted on May 25, 2007  Comments (1)

It is good to see more people understand the bad practice of excessive short term focus on quarterly profits. It is also a bit amusing to see the Chamber of Commerce pushing an idea Deming was called unrealistic for pushing.

The right way to handle a surprise:

The U.S. Chamber of Commerce is calling for companies to halt “earnings guidance,” or coaching analysts, toward a precise target for quarterly profit. “The incentive to meet that number is an incentive to manipulate,” says Robert Pozen, head of the MFS mutual funds. The negative surprise comes in the end: Remember Enron.

Roughly a quarter of the companies in the S&P 500 have stopped giving guidance (or never started), including Berkshire Hathaway, Coca-Cola and Google. Check the investor-relations area of a company’s web site to see whether it plays what David Hirschmann of the Chamber of Commerce calls the “fool’s game” of earnings guidance.

Related: Management: Geeks and Deming – Deming’s Seven Deadly Diseases of Western Management – Goodbye Quarterly Targets? – Distort the System

Louisville Slugger – Deming Practices

Posted on May 24, 2007  Comments (1)

photo of Louisville Slugger plant

In 2004 I was part of a group to put together a 2 1/2 Day seminar for the Deming Institute (recent seminar in Michigan). We held that meeting at the Louisville Slugger plant (see photo). It was a great experience. If you find yourself in the area they offer tours of the plant. This article discusses the efforts at Louisville Slugger: The sweet spot:

“You would have thought that in 123 years of making baseball bats we would have figured it all out,” says plant general manager Frank Stewart. “But as you well know, in the business of improvement, you are never there. It’s always, what can I do better? What can I improve today?”

Continual improvement is a critical practice to adopt as a standard practices (more of Deming’s 14 obligations of management). They moved production from a plant in New York to there headquarters in Louisville,

“Over the past six months, we have doubled our workforce,” says Stewart. “Half of our workforce averages 35 years on the job; the other half has six months.” In many respects, the new employees are starting at square one.

“Most of these people have never worked in a manufacturing facility before,” says Bob Hillerich. “We’ve had to provide a great deal of education about our business and processes. We’re also teaching them 5-S cleanliness techniques at the same time that we are teaching them the TPM system. It’s a lot to digest.”
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In maintenance, Bob Hillerich has been focused on trying to retain the wealth of knowledge in his crew. “I’m terrified about Rouns leaving,” he says. “We know what his 44 years of experience brings to this plant. We are going to spend the next six months really picking his brain and documenting what he does.”
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But on the other hand… “Having zero turnover is just as challenging,” says Bob Hillerich. “You have great people, but they have done it the same way for so long that it’s hard to convince them to really shake things up and push the envelope. In our case, we have had to embrace technology to a much greater extent. That’s been difficult for some.”

Related: Kentucky trip photos – Change to Survive: A Brand New Ball Game (video by the producers of the Deming Library) – Deming’s Ideas at Markey’s Audio Visual – Free, Perfect and Now (on Applying Deming’s ideas at Marshall Industries – Improvement at UTC – Transformation and Redesign at the White House Communications Agency

Reduce Computer Waste

Posted on May 24, 2007  Comments (6)

High-efficiency power supplies for home computers and servers (pdf) by Urs Hoelzle and Bill Weihl – Google:

Most likely, the computer you’re using wastes 30-40% of the electrical power it consumes because it is using an inefficient power supply. It’s difficult to believe that something as basic as a power supply could be responsible for that amount of waste, but it’s true.
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The opportunity for savings is immense — we estimate that if deployed in 100 million PCs running for an average of eight hours per day, this new standard would save 40 billion kilowatt-hours over three years, or more than $5 billion at California’s energy rates.
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The net result of these changes is a dramatic improvement in efficiency (including the power supply and the regulators) to about 85%, at virtually no cost. In other words, you won’t have to pay more for a higher-efficiency PC, because the power supply is actually getting simpler, not more complicated. By spending another $20 or so extra, it is possible to use higher-quality components and achieve efficiencies well over 90%.

Google has adopted the technology for their servers. And they are working to have the technology adopted by manufacturers; so when we buy computers they will use this technology to reduce waste. This is good since not many of us cannot eliminate this muda ourselves (since we don’t build our own computers – as Google does). It is also an example of a company with a higher purpose that makes a good deal of money. Google definitely understands the concept of eliminating waste.

Related: Cost of Powering Your PC – How Google Works – Engineers Save Energy – Innovate or Avoid Risk

Moving Jobs to Silicon Valley from India

Posted on May 23, 2007  Comments (3)

India grows up:

The costs of having two offices, which are twelve time zones apart, is significant. People in both offices frequently had conference calls at 10pm and midnight every night (as a result the office in the US didn’t get started until noon sometimes or people rolled in tired). We were all traveling constantly. Development and communication moved slower due to the distance and teams. However, all of this was worth it so long as the ROI was there.
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Bangalore wages have just been growing like crazy. To give you an example, there is an employee of ours who took the first 5 years of his career to get from 1% to 10% of his equivalent US counterpart. He then jumped from 10% to 20% of his US counterpart in the next 1 year. During his time with us (less than 2 years) he jumped to 55% of the US wage. In the next few months we would have had to move him to 75% just to “keep him at market.”

A good post on some of the difficulties of outsourcing. Also a good illustration of how economics is suppose to work. If labor is underpriced in India and the market is opened labor rates should rise to a level where they are equivalent (given productivity… differences). Don’t be lead to believe all labor prices in India have experienced anything like this. Those areas where the value to cost difference was largest is where rates increased a great deal in a short period of time.

Related: IT Outsourcing Slowing – Google India not Finding Enough Engineers – The Power of Silicon Valley

Kaizen

Posted on May 21, 2007  Comments (0)

Great post – Do Kaizen Like Toyota:

Standardize how you solve problems… This is where following a standardized approach to problem solving based on the scientific method can help keep your kaizen efforts on track. Not to be prescriptive, but the PDCA wheel is hard to beat.

Very true.

Rethinking the Social Responsibility of Business

Posted on May 17, 2007  Comments (1)

Rethinking the Social Responsibility of Business, a debate on the correct focus of business:

Not that we’re only concerned with customers. At Whole Foods, we measure our success by how much value we can create for all six of our most important stakeholders: customers, team members (employees), investors, vendors, communities, and the environment.

Great – my previous post on the purpose of a business. John Mackey, the founder and CEO of Whole Foods, closes the debate with:

Someday businesses like Whole Foods, which adhere to a stakeholder model of deeper business purpose, will dominate the economic landscape. Wait and see.

I agree. In the debate, he stresses that he believes in the marketplace and that this focus on providing value to all stakeholders is in the best long term interest of the enterprise (as apposed to the sole focus on profit presented by Milton Friedman). I agree with John Mackey.

Related: Compensation at Whole Foods

via: John Mackey of Whole Foods

Comparative Performance of American Health Care

Posted on May 16, 2007  Comments (0)

Mirror, Mirror on the Wall: An International Update on the Comparative Performance of American Health Care

The U.S. health system is the most expensive in the world, but comparative analyses consistently show the United States underperforms relative to other countries on most dimensions of performance.

This study compared only 6 countries and focused more on survey results than I think is best for comparing country health care systems but it is another study pointing to the systemic failure of the USA health system (high costs and poor systemic results). These high health care costs must be born by companies doing business in the USA (given the setup in the USA where health care is tied to employment) burdening them in competition against companies producing (good or services) outside the USA. The poor performance creates huge problems for those living in the USA: not just limited to health outcomes but significantly negatively impacting economic well being as well.

Related: USA Healthcare Costs Now 16% of GDP – Health Care Crisis – Fixing Healthcare from the Inside – Health Care Spending in the United States and OECD Countries

Craigslist’s Ongoing Success Story

Posted on May 16, 2007  Comments (0)

Craigslist is a great web site focused largely on local connections and local ads (jobs, housing, classifieds…). It is in top 10 sites for the amount of traffic and a total staff of 24 people. eBay bought 25% of the company a few years ago but Craiglist retains a very pure customer focus. Craigslist’s Ongoing Success Story:

We don’t even look at what other companies are doing. We’re not setting out to conquer the world or achieve any particular market share. We’re just following up on what our users want us to do. We’ve got plenty of things to occupy our thoughts about how to do better by our users. That crowds out thoughts of fighting competition.
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If we’re so inept that we couldn’t provide a value proposition that users found important, yeah, I’d probably encourage them to go away.

Pretty radical idea that you would encourage customers to go if they find a better value proposition but I good one in my opinion. Your mission should be something about providing value to customers. If you can’t do so, don’t expect customers to stay customers. Maybe if your customers have been delighted you can count on a bit of time to regain your value to them (out of loyalty) but that is the most you can ask for.

Management Improvement Carnival #11

Posted on May 15, 2007  Comments (0)

Please submit your favorite management posts to the carnival.

  • Deming Point 2 – Adopt a philosophy of cooperation where everyone wins and teach it to everyone by Josh Nankivel – “The win-win environment spearheaded by the project manager and sponsor should make everyone think about issues and conflicts in terms of what is the best method of dealing with it for the whole project and everyone involved.”
  • The wanderings of a lean hitchhiker by Jamie Flinchbaugh – “These are great tools but they are only tools. Instead we need daily continuous improvement, value stream thinking, a culture of standardization and coaching.”
  • What Experiment are you Running? by Lee Fried – “Additionally, we need to greatly expand our efforts around developing standard work for management. Until we have effective checking processes in place it will be hard for us to establish the level of organizational learning necessary to make breakthrough improvement.”
  • Say “No” without Guilt or Embarrassment by Hal Macomber – “Ury’s insight, ‘You cannot truly say Yes to your priorities unless you can truly say No to other demands on your time, attention, and resources.’”, post onPositive No by William Ury.
  • LeanBlog Podcast – Jim Womack, State of the Auto World by Mark Graban – “GE has been a ‘make the numbers’ company as opposed to a ‘fix the company’ company, says Jim. But now GE is saying they have to be like Toyota…”
  • Repetitions versus Replications by Ron Pereira – “We should definitely randomize runs if possible within blocks. Like you said, this may not be possible for cost or time purposes.”

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Google Customer Service

Posted on May 14, 2007  Comments (1)

Google and Ice: A service story:

“Ice.com has been very vocal with its criticism. It’s a classic case of a dissatisfied customer. So from a PR dimension this was a problem for Google.”
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“We got a call from Google in February asking us what they could do to help us,” Gniwisch said. He said Google put together a team of people who flew to Ice.com’s headquarters in Montreal. “We were also on the phone with them two to three times a week for the first three weeks,” he said. “These folks put a lot of time into fully rebuilding our philosophy about AdWords from the ground up.”

Good reaction. Better to have avoided the problem in the first place, but still good to react at some point. The question I have is if they have improved the system to avoid the problems the customer experienced. And have they put in place measures which might indicate a problem (say a significant decline in customer spending) so they could intervene more quickly in the future. The last couple of paragraphs are not a great sign – but it is no surprise, Google (and any other organization) would have plenty to improve.
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Keeping Track of Improvement Opportunities

Posted on May 14, 2007  Comments (1)

The Priority Trap by Dan Markovitz makes some good points:

But if it’s not important enough to make the short list, then give yourself license to dump it. Maybe it’s something you would do if you had more time, or more energy, or if your mother would notice — but since you don’t have that time, and since you don’t have to tell your mother everything, be realistic and drop it.

I agree. It inspired me to write some of my thoughts on this area. I find prioritization important. Often deciding you will not do something (and not waste time and energy on things you won’t ever do) is the biggest step toward focusing on the most important items. Focusing on important, whether urgent or not, tasks often requires avoid seemingly urgent – but in comparison unimportant tasks.

However, I like the idea of keeping a list of items that are pretty low on the priority list for several reasons. Sometimes they can be incorporated in another project without much effort (they are not worth doing on their own but while doing something else it can make sense. With a visible list (wiki technology is good for this) everyone can know what has been thought of and given low priority – they might be sparked by an idea either to give reasons why that should be a higher priority or as in brainstorming to propose another idea… You can look at the list when thinking about a redesign and incorporate whatever might make sense.

When staff have little blocks of time items can be assigned for them to work on (often serving double duty – getting the job done and serving to provide a task that provides some employee development…) – these tasks often may not be picked because of priority but a combination of priority, educational lessons and available time, skills…
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Six Sigma at Cummins

Posted on May 11, 2007  Comments (1)

Six Sigma winning supply-chain converts

“More and more of our decisions are made after data is collected and analysis done. It’s less of a gut feel and more data-based.”
On any given day, Cummins has 2,500 active Six Sigma projects involving 10,000 of its 34,000 employees, Strodtbeck said.

Next year, senior managers at Cummins will be required to have Six Sigma certification before they can switch jobs or be promoted. “Six Sigma is headed toward being a condition of employment,” Strodtbeck said.
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“In 10 years, will we be calling it Six Sigma? I don’t think so,” said Roger Schmenner, associate dean for Indianapolis programs with the Kelley School of Business. “We’ll have something else with a new name. Will it use the same statistical techniques? Absolutely, because some of these things are immutable.”

Six sigma has persisted for well beyond a 10 years already. I must admit I think the name “six sigma” is not the best but it seems to be holding its own. Six sigma is obviously achieving results many companies find worthwhile as they continue to grow their efforts year after year. While I would agree I think it is likely six sigma efforts will transform and be renamed within the next ten years, in many organizations, the momentum seems to be strong still – which is very rare for a management approach. I agree that is due to the benefits of applying statistical tools, education and focus on specific project based success.

Related: six sigma portal – Six Sigma Results – Can six sigma fix bad management? – Seduce Them With Six Sigma Success – 6 Sigma Conference 1999

Predicting Improves Learning

Posted on May 10, 2007  Comments (0)

The Power of Prediction by Jared Spool:

By asking these questions up front, we give the team members something to focus on. When a participant gets stuck somewhere they predicted, it stands out. They can take pleasure in knowing they identified a potential landmine.

In our experience, it stands out even more when the participant gets stuck someplace nobody expected. These opportunities allow us a chance to learn something new about how users approach our designs.

Great idea. As I discussed in, Management is Prediction:

The critical issue is making the prediction, then comparing the results to that prediction and then figuring out how your original understanding can be improved based on the new data.

Personally I have found the act of actually making predictions and examining the results incredibly helpful in improving the speed and depth of my learning. You can also learn tendencies for missed predictions (predicting greater improvement, prediction faster adoption of new idea, underestimate additional costs required by new procedures…) and then adjust to make better predictions over time.

Related: Write it Down – Metrics and Software Development – Theory of Knowledge – Google: Experiment Quickly and Often

Be Careful What You Measure

Posted on May 9, 2007  Comments (4)

Be Careful What You Measure by Mike Wroblewski:

Although this recalculation of productivity had a positive affect, it is not what I would consider a triumph. Ongoing efforts are still required to truly increase productivity, so it’s back to gemba. However, I am modifying the lesson to “Be careful what and how you measure, measurements drive action and behavior”

Excellent points. Behavior can be changed by what is measured. The problems with arbitrary numerical targets (to take one measurement related example) is not that attempts to achieve those targets won’t have an affect. They very well may have an affect. However they may not have the desired result. When focused on improving a number (which can happen when focused on measures – especially as the focus on those measures is tied to bonuses, favorable treatment…) the focus is not necessarily on on improving the system. Often distorting the system is the result.

Measures need to be used with a conscience effort to remember the data is merely a proxy to quantify the results (not the end themselves). Taking care in choosing the measures is one necessary step to assure the best improvement results. One strategy is to include some measures that are outcome measures. Often those measures are difficult to pin to specific process improvements tightly so you will also want to include specific process measures. The outcome measures help make sure you maintain a focus on the important system level results. Process measures will help you test and improve processes (as well as monitor and react, when necessary to ongoing processes).

Often improving the process measures can be mistaken for the aim. Care needs to be taken to underscore the role of process measures (process management). Also measures should be re-examined periodically to determine if they are still the correct measures. Systems with people are heavily influenced by what is measured. People will often react to what is measured and make adjustments to how the work is done to make the numbers better. The danger is that those attempts to make the measures look better can actually harm the overall system (when poor measures are used).

Related: Targets Distorting the System – Understanding Data – Operational Definitions and Data Collection – Dangers of Forgetting the Proxy Nature of Data

ASQ Deming Medal to Peter Scholtes

Posted on May 7, 2007  Comments (2)

I am happy that the ASQ Deming Medal was presented to Peter R. Scholtes:

for his efforts to inspire others to transform organizations by helping managers understand how successful leadership of people requires an understanding of the interdependencies among knowledge about variation, psychology, appreciation for a system, and the theory of knowledge. The Deming Medal is presented to those who, like Dr. Deming, have successfully combined the application of statistical thinking and management so that each supports and enhances the other, thus leading to quality in products and services.

I have known Peter since he worked with my father applying Deming’s ideas at the City of Madison. And since then I have had the pleasure to enjoy his company over the years in many arenas including at many Hunter Conferences, the Office of Secretary of Defense Quality Management Office, Deming Institute meetings and managing his web site.

His Leader’s Handbook is a great, practical and easy to read management book. I recommend it highly. The Team Handbook is also excellent for working with teams.

Related: ASQ 2007 Awards – Incentive Programs are Ineffective – ASQ Deming Medalists – recommended management improvement books

Out of the Crisis

Posted on May 5, 2007  Comments (0)

Entrepreneur.com has named their 9 best classic business books of the past 30 years including Out of the Crisis by W. Edwards Deming:

Deming’s teachings challenged American business practice at almost every point. Among his most revolutionary ideas were the notions that poor management–not slacker workers–was responsible for most quality problems, and the way to boost quality was to carefully measure defects and the effects of changing processes.

The article includes a section on what to ignore from each book, including for Out of the Crisis – “he was strenuously opposed to incentive pay plans of all types.” Incentive pay plays havoc with teamwork, systems improvement (encouraging sub-optimization), long term thinking, sales volumes (commissions increase variation in sales creating problems for production), shedding light on problems… Ignoring that is not a good idea. Other books they mention include: Innovation and Entrepreneurship by Peter Drucker and The Seven Habits of Highly Effective People by Stephen Covey.

Related: Deming’s ideas on Management – Curious Cat Management Books – Drum-buffer-rope

via: MIT Press Log

Learn From Success and Failure

Posted on May 5, 2007  Comments (1)

Toyota’s Win That Wasn’t, an interview with, Matthew E. May, author of The Elegant Solution: Toyota’s Formula for Mastering Innovation:

Toyota had a goal of 15% of the U.S. market by 2010. They’ve exceeded that number three years earlier than anticipated. The assumptions didn’t include the Detroit implosion. I know that hansei–the Japanese word for reflection–is being conducted to better understand what happened. At Toyota, exceeding an expectation often receives the same treatment as missing an objective. There’s a need to understand why a gap occurred between what was supposed to happen and what actually happened. So the internal advantage is deeper learning and newly set goals, goals you can be certain will stretch the organization even more.

This illustrates an important point in how the PDSA improvement cycle should be used: results are studied to increase knowledge. If results exceed expectations that should not be a reason to avoid learning. If you only study what results tell you when results are unsatisfactory you can fall into the trap that “you only learn from failure.” I guess many people only learn from failure, since that phrase is so popular, but that method leaves plenty of room for others to learn faster than you thus gaining an advantage (a more effective method of learning). Don’t wait to fail to learn.

Related: Toyota Targets 50% Reduction in Maintenance Waste

Information Technology and Management

Posted on May 4, 2007  Comments (4)

Dog Eat Dog by Andrew McAfee and Erik Brynjolfsson

The CVS experience is a microcosm of a pervasive trend toward using IT to replicate not only digital goods and services but also business processes. This trend encompasses core activities such as customer service and order management, as well as support activities such as accounting and human resources. Once a company embeds its processes in IT, the processes are executed the same way not only across locations, but also over time. This means, for example, that a company can ensure that no large customer order will be accepted until a specific credit check is performed.

While creating an innovative business process is less visible than developing a new product or investing in factories, our research shows it is actually more important to a company’s success. Intangible process capital is changing the way companies operate and the capabilities they possess. As a result, it also is changing the way they compete.

This is very true. But while on this topic, a risk I see is people seeing adoption of technology as the end rather than the facilitator. The IT solutions should support the organization and help the organization improve performance. The technology should not tie the organizations hands (as it can so easily do when implemented without an understanding of systems thinking, variation, process improvement, sub-optimization, psychology…). I believe in the value of in-house IT resources to create IT solutions that support the organization (rather than buying off the shelf solutions that end up making the organization conform to the software).
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