Yearly Archives: 2008

Cost Cutting is Much Different than Waste Removal

Cost Cutting is Much Different than Waste Removal by Jim Womack

The very last thing to consider is the one thing managers seem to embrace most readily: cost cutting. This means leaving out steps and features that actually create value from the perspective of the customer and removing employees who are actually needed to get the job done right using the current process. The hope, usually wrong, is that the customer won’t notice.

This last expedient is the one I most fear, because it is likely to be justified in the name of “lean.” Every recession seems to produce a major cost-cutting campaign sold by traditional consultants. Their key promise is rapid financial payback, even within one quarter, and the only practical way to achieve this is layoffs. I truly hope that the recession of 2009 will not be known to history as the “lean” recession and everyone in the Lean Community should vow to avoid the cost-cutting urge in their own organization.

To avoid the need for cost cutting, I hope that every would-be lean enterprise will assign someone responsibility for developing a “recession A3” that carefully reviews the background situation. The critical step in the A3 process will then be to develop a set of countermeasures that can protect the organization and its people through the current recession while laying the ground work for a sustainable lean enterprise in the future.

Related: Operational ExcellenceGoing lean Brings Long-term PayoffsBad Management Results in LayoffsCutting Hours Instead of People

A Programmer’s View of the Universe

A few weeks ago I wrote about integrating information technology and business process management. This post from Steve Yegge is interesting and discusses one reason I find that a good strategy. Programmers, by and large, are good, practical systems thinkers (this is in the management context, thinking of inter-related systems, whatever those systems are – not to be confused with a computer system).

A programmer’s view of the Universe, part 1: The fish

The first thing you notice as a programmer is that it trains you — forces you, really — to think in a disciplined way about complex logic problems. It also gives you a big booster shot of confidence around problem-solving in general. Junior programmers tend to have very high opinions of themselves; I was no exception.

In time, though, programming eventually humbles you, because it shows you the limits of your reasoning ability in ways that few other activities can match. Eventually every programmer becomes entangled in a system that is overwhelming in its complexity. As we grow in our abilities as programmers we learn to tackle increasingly complex systems. But every human programmer has limits, and some systems are just too hard to grapple with.

When this happens, we usually don’t blame ourselves, nor think any less of ourselves. Instead we claim that it’s someone else’s fault, and it just needs a rewrite to help manage the complexity. In many cases this is even true.

Over time, our worldwide computer-programming community has discovered or invented better and better ways ways to organize programs and systems. We’ve managed to increase their functionality while keeping the complexity under control.

But even with such controls in place, systems can occasionally get out of hand. And sometimes they even need to be abandoned altogether, like a dog that’s gone rabid. No matter how much time and love you’ve put into such systems, there’s no fixing them.

Programmers also tend to be active life long learners. This isn’t to say programmers tendencies are all easy to manage. They also are more likely not to accept what most people are willing to accept and can therefore be annoying to some. Now, I happen to think it is good to question conventional wisdom and authority… (which might explain one reason I am annoying), but it also explains why often management find dealing with IT staff annoying. Programmers often refuse to accept management’s belief system, including that the programmers job is just to do whatever the manager tells them to.

Related: A programmer’s view of the Universe, part 2: Mario Kart What Motivates Programmers?Reddit, a live view of how software coders thinkExplaining Managers to ProgrammersA Career in Computer ProgrammingProgrammers – cartoon formSigns You Have a Great Job … or Not

Management Blog Carnival: 2008 Overview

Over the next 2 weeks several management blogs will be posting their contributions to the management improvement annual blog carnival. Posts will highlight some of the best posts on other management blogs in the last year.

This posts is updated to link to annual review posts as they are posted.

See all previous management improvement blog carnivals.

Happy Holidays,

Related: Management Improvement Carnival, Best of 2007Curious Cat Management Improvement SearchManagement Management Improvement Blog Carnival

Cutting Hours Instead of People

When financial and economic realities reach the point that labor costs must be cut I believe a good option to consider is cutting hours (and pay) instead of people. Some people will have extreme hardship if the cut in hours and pay is significant, but once you get is a bad situation no answers are likely to be without problems. I would try to offer the cuts to those that want them first. I would likely take an unpaid sabbatical, if offered, and the organization was in financial trouble.

Another way of doing something similar is profit sharing (where costs go down when profits go down). You should be careful how such sharing is designed, it can create bad incentives if done incorrectly. Also by paying a portion of wages as bonuses that expense can be reduced when times are bad without layoffs.


The Rise of the Four-Day Work Week

Like many companies, Pella is looking to cut expenses because of the economic downturn. But instead of laying off more workers, the Iowa manufacturer of windows and doors is instituting a four-day workweek for about a third of its 3,900 employees. Chris Simpson, a senior vice-president at the company, acknowledges it’s an unconventional move… it doesn’t want to be caught short of experienced workers.

According to the U.S. Bureau of Labor Statistics, the number of employees who normally work full-time but now clock fewer than 35 hours a week because of poor business conditions has climbed 72%, to 2.57 million in November 2008, from 1.49 million in November 2007.

Related: Bad Management Results in LayoffsSome Firms Cut Costs Without Resorting to LayoffsOperational Excellenceposts on respect for employees

Managing Passionate Employees

Passion vs. Productive

There are actually few organizations that can support passionate employees – even if they say they want them. That’s because the original industrial revolution was designed to support productivity. Productivity means you produce. That’s how you’re measured. Passion is difficult to quantify

Managers want passionate employees, but don’t always know how to manage them. Passionate employees question things, probe and push. Who’s got the time to deal with that? Productive employees get things done. No questions asked.

if you align someone’s passion with their job description—you just might boost your department’s productivity.

Passionate employees are often not the easiest employees to manage. If a manager confuses ease of managing with best employee they discount the value of a passionate employee. And they often do confuse the two values. A passionate employee can seem like a bother, not willing to just go along but constantly challenging and pushing for new ideas.

One of the things that great managers do is to understand the value of passion and make the extra effort to cultivate and support those passionate employees. Even if occasionally they just want that person to just do their job and stop being so different. The great manager realizes that treating everyone the same is a very bad meme that somehow seems to have taken hold in many people’s mind. People are not the same. Managing a system of people is not the same as maintaining a machine.

A managers job is not to make their own job as easy as possible. When the system is best served by an extra passionate employee, then the manager needs to support that employee. And smooth out others that might get annoyed (often others find the passionate employee should just be like everyone else).

Related: Enhancing Passion of EmployeesDon’t ask employees to be passionate about the company!Signs You Have a Great Job … or NotJoy in Work – Software Development

Management Improvement Carnival #50

Corey Ladas is hosting the Management Improvement Carnival #50 on the Lean Software Engineering blog, highlights include:

  • Where did middle managers come from? by Jeffrey Krames: A new anecdote from a conversation with Peter Drucker, which leaves the reader wondering…where should middle managers be heading?
  • 7 habits of highly effective program managers by J.D. Meier: Microsoft has a lot of Program Managers. What do the some of the best ones have in common?
  • Exploit the workers! by Pascal Van Cauwenberghe: A provocatively titled anecdote about applying Theory of Constraints to software development teams.
  • Starbucks queue by Kevin Meyer (sorry just can’t get enough of Kevin this month): A simple visual control can help your friendly coffee shop staff level out response times in the face of irregular demand (something about this example looks familiar!).
  • Is ‘Design To Cost’ better than ‘Estimation of Cost’: I think so! by Tom Gilb. “[Time and cost estimates] are an old custom, intended to prevent overruns, and to give management some feeling that the job will get done in time at a reasonable cost. But they do not in fact prevent overruns or assure value.”

We are working on a special annual management blog carnival that will include posts on several blogs from the period of late December through early January.

Looting: Bankruptcy for Profit

Looting: The Economic Underworld of Bankruptcy for Profit by George Akerlof, University of California, Berkeley; National Bureau of Economic Research (NBER) and Paul Romer, Stanford Graduate School of Business; National Bureau of Economic Research (NBER). George Akerlof was awarded the 2001 Nobel prize for economics. This is the abstract to their 1994 paper:

During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent – and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust.

In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds.

Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society’s expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

That is exactly what has been happening. People that are not honorable and are given huge incentives to risk the future of all the other stakeholders for immense personal gain will do so.

via: New York Times Pulls Punches On Wall Street Bubble Era Pay

Related: CEOs Plundering Corporate CoffersObscene CEO PayWhy Pay Taxes or be HonestTilting at Ludicrous CEO Pay 2008Excessive Executive Pay

Creating Customers For Life

How These Businesses Made Me A Customer For Life

So I walked out of Ray’s that day with a great deal and everything that I needed to get started. Since then, I have made every single sewing related purchase possible from their store. In some cases, I have gone way out of my way to drive there (it takes 20 minutes) just to pick up some spools of thread. I have also referred them to all of my friends. As far as I’m concerned, there are no other sewing dealers that I’m willing to deal with other than Ray’s.

I can speak so highly about these businesses because I’m extremely passionate about what they have to offer. Can you extract this kind of loyalty with your small business? You bet you can. Just think about the places and businesses that you are loyal to and replicate what they do. What sets your business apart from the competition? What can you do to provide lasting value? Keep a tally of these attributes, focus on the long run and you’ll be on the right path.

I love how easy it is to deal with Amazon. I’ll use them unless they don’t have an item. Shopping at Trader Joe’s is odd. The workers actually seem like they like that they have customers. And seem as though they want to do what they can to please customers. You wouldn’t think this would be an odd trait if you read about management in a book and never actually went to stores. But I find almost few retail employees see happy provide customer service.

Related: Ritz Carlton and Home Depot contrast in customer serviceGood Customer Service ExampleSeven Steps to Remarkable Customer ServicePaying New Employees to QuitCustomer Service is Important

Some Firms Cut Costs Without Resorting to Layoffs

Some Firms Cut Costs Without Resorting to Layoffs

Hypertherm Inc. has never laid off a permanent employee in its 40-year history. A 20% downturn in sales in recent months led the closely held maker of metal-cutting equipment to eliminate overtime, cut temporary staff and delay a facility expansion, says Chief Executive Dick Couch.

Managers are transferring employees to busy segments from those with less work. The Hanover, N.H., company also may bring some outsourced manufacturing in-house to keep its 1,100 workers busy, Mr. Couch says.

Private companies, like Hypertherm, may feel less outside pressure to cut jobs and a deeper commitment to employees than publicly held firms, some experts say. Still, a few public companies — including Lincoln Electric Co. and steelmaker Nucor Corp. — also have no-layoff policies.

Good for them. Smart management practices that pay off in long term results. One thing I think some employees forget is the value of such respect for employees. When times are good it is easy to see the lure of higher pay, over long term stability. Layoffs are never good. If you work with an employee and cannot find a way for them to provide value after serious effort then letting them go is fine with me. But that shouldn’t have to do with the economy. That has to do with them not being able to fulfill their responsibilities. I am very suspicious of such claims though, normally management either needs to fix the hiring process or the employee management/development process. The system is the problem not the person (the vast majority of the time).

Related: Bad Management Results in LayoffsFiring Workers Isn’t Fixing ProblemsFind the Root Cause Instead of the Person to Blamemanagement improvement jobs

Management Blog Posts From November 2005

  • Management Improvement – Management concepts should evolve and improve over time. We should build upon the good ideas of yesterday and build in new innovations as they are shown to be effective. It is difficult to do so when consultants try to make their “solutions” proprietary methodologies that are sold in that way.

    Luckily working with the ideas of Deming, Ohno, Drucker, Ackoff, Shingo, Scholtes, Womack, Box, etc.. and building upon them is what is needed to be successful.

  • Google: Experiment Quickly and Often – this is basically piloting changes on a small scale, analyzing the results and doing that quickly and often. That quick, frequent experimentation is something organizations should strive to achieve.
  • Government Lean Six Sigma – Once the political decision has been made to eradicate polio then that desire can be carried out: politics really has little impact. Other examples are not as simple. A political decision to eliminate AIDS runs into political controversies in selecting the best strategies to accomplish the goal.
  • Management Guru Peter Drucker 1909-2005 – “There is only one valid definition of business purpose: to create a customer,” he said 45 years ago. Central to his philosophy was the belief that highly skilled people are an organization’s most valuable resource and that a manager’s job is to prepare and free people to perform.
  • Innovation and Research and Development – A company could innovate with an ideas like the remote control for televisions (or microlending or air bags). That innovation may not contribute in any way to manufacturing televisions more productively… Many innovations will provide a combination of both benefits. Both innovation and productivity improvement are important.