Monthly Archives: May 2007

Focus on Long Term Success

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.

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 DailyGoing lean Brings Long-term PayoffsInnovation in OrganizationsRethinking the Social Responsibility of Business

Eliminating Quarterly Earnings Guidance

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 DemingDeming’s Seven Deadly Diseases of Western ManagementGoodbye Quarterly Targets?Distort the System

Louisville Slugger – Deming Practices

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 [the broken link was removed]. This article discusses the efforts at Louisville Slugger: The sweet spot [the broken link was removed]:

“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 their headquarters in Louisville, Kentucky.

“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.”

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.”

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 [the broken link was removed] (video by the producers of the Deming Library) – Deming’s Ideas at Markey’s Audio VisualFree, Perfect and Now (on Applying Deming’s ideas at Marshall IndustriesImprovement at UTCTransformation and Redesign at the White House Communications Agency

Reduce Computer Waste

High-efficiency power supplies for home computers and servers [the broken link was removed] (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.

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.

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 PCHow Google WorksEngineers Save EnergyInnovate or Avoid Risk

Moving Jobs to Silicon Valley from India

India grows up [the broken link was removed]:

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.

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 SlowingGoogle India not Finding Enough EngineersThe Power of Silicon Valley

Kaizen

Great post – Do Kaizen Like Toyota [the broken link was removed]:

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

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

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 GDPHealth Care CrisisFixing Healthcare from the InsideHealth Care Spending in the United States and OECD Countries

Craigslist’s Ongoing Success Story

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 [the broken link was removed]:

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.

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.