Monthly Archives: September 2007

CEO’s Given Lottery Sized Payouts

Fun With Statistics, CEO Life Edition [the broken link was removed]

In the US, CEO’s tend to be fairly interchangeable these days and it is rare for their tenure to exceed five years. There are some notable exceptions such as chain-saw Al and Neutron Jack, but in general a change of CEO doesn’t seem to do much over the long term. This is one of the criticisms of American CEO’s they seem to be more interested in feathering their nest and getting out quickly rather than running the firm for the long-term benefit of all the stakeholders.

Another useful comparison would be with Japan where top decisions tend to be much more based upon consensus and not as dependent on the American Superstar model.

Wouldn’t being “less and less critical to the long-term success of the organization” make it more and more difficult to justify salaries that would make a King jealous? If the USA CEO’s are less critical why are the USA CEO’s paid the highest (and most unbelievable crazy) amounts? I have thought for years CEO pay in the USA has nothing to do with their “worth,” this seems one more piece of evidence for that belief.

Today, in the USA, CEOs are basically win the lottery when they start and then either win some more and stay or don’t win and are let go. The lottery performance appraisal aspect Deming talked about (rewarding whoever random variation or macro economic and micro economic trends smiled upon during the period). So if a market (housing, oil, steel, investment banking, microchip, hotel…) is booming why give all the CEO’s in that market huge payoffs? What do they have to do with the economic boom in the entire market? Why pay them a lottery sized payout when a boom occurs? Occasionally a CEO may help make decisions that position the company to take advantage of a predicted boom particularly well (such a case could at least trigger a discussion on the worth of that action).

We also have to recalibrate Deming’s comments to say regular performance appraisal raffle winners. CEO’s are now actually getting $40,000,000 – lottery sized – annual pay so using the term lottery is a bit misleading for everyone else. The same issue hold though rewarding people for what is often just micro factors similar to the macro factors listed above for CEOs.

Warren Buffett on overpaid CEO’s:

Too often, executive compensation in the U.S. is ridiculously out of line with performance. That won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay. The upshot is that a mediocre-or-worse CEO – aided by his handpicked VP of human relations and a consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo – all too often receives gobs of money from an ill-designed compensation arrangement.

Related: Deming on performance appraisalExcessive Executive PayObscene CEO PayNo Excessive Senior Executive Pay at Toyota

Seven Fatal Flaws of Performance Measurement

The Seven Fatal Flaws of Performance Measurement [the broken link was removed] by Joseph F. Castellano, Saul Young, and Harper A. Roehm

Performance measurement systems are used to establish specific goals, align employee behavior, and increase accountability. Organizations often use these systems to set targets for component units (e.g., individuals, profit centers, divisions, plants). Each unit is expected to develop its own goals consistent with overall targets. This process, sometimes called a “roll-up,” reflects the premise that if all units achieve their targets then the overall goals will be met. The methods used by most companies to establish these numerical targets often involve the use of stretch targets or benchmarking best practices.

Once the targets are established, most organizations measure the performance of component units by comparing targets to actual performance for certain time periods. Variances from expected results are noted and explanations are required. The popular business press trumpets the efficacy of the above approach, but this methodology has serious flaws. In fact, the design and use of performance measurement systems in most organizations suffer from a number of fatal flaws that can undermine an organization’s ability to use its measurement system to improve processes and make better decisions.

The proper role of measurements should be seen in the context of helping employees connect with the overall aim of the organization. Management must gather and analyze information that will help employees become better contributors to the firm’s purpose.

The articles does an excellent job of explaining the flaws in how performance measurement is applied (both in Management by Objective (MBO) and performance appraisals).

Related: Performance Without AppraisalJeffrey Pfeffer on Evidence-Based PracticesProblems Caused by Performance AppraisalThe Danger of Forgetting the Proxy Nature of Data

Danaher Expands Lean Thinking One Acquisition at a Time

Sybron Focuses on Operations

Nearly 18 months into becoming part of Danaher Corp., life is different at Sybron Dental Specialties Inc. “Sybron was really a sales and marketing focused organization … and operations (were) part of supporting that,” said Don Tuttle, president of specialty products for Sybron, which is moving from Orange to Anaheim next year. “What Danaher brought to us, and has been successful with, is bringing us an operations focus.”

Sybron has adopted principles known as Danaher Business Systems, which he called a “playbook” to make the company run as a more efficient team. It’s centered on “kaizen,” a quality improvement process that grew out of the teaching of W. Edwards Deming. The focus on manufacturing and operations, combined “with our sales and marketing expertise (has) made us a much stronger company,” Tuttle said.

Danaher continues to do a good job improving management practices one purchase at a time. I continue to eye Danaher as a stock to buy but have not bought yet.

Related: Danaher Practicing Lean ThinkingLean Thinking at DanaherTilting at Ludicrous CEO Paylean manufacturing directory

This Too is a Kanban

This Too is a Kanban [the broken link was removed] by Jon Miller:

The orthodox description of a kanban is a rectangular card in a plastic sleeve used to reorder materials from a supplier or an upstream process, or a triangular metal plate used to signal production for a process that requires changeovers for lot production.

The tile of section 3 of chapter 4 from the first textbook on the Toyota Production System is titled “This Too (is a kanban)”. The author (possibly dictated by Ohno, possibly written by Fujio Cho, it’s not clear) states that as long as the item acts as a visual display and performs certain functions, it can be a kanban. Three examples are given, as summarized below:

Carts can be kanban. When a set number of carts containing a set quantity of parts of a set item is moved between set locations based on set rules, this can be kanban. Simply, when there are a certain number of empty kanban carts, the upstream process takes these and brings them back full…

Very nice. It is important not to fall into habits that confuse the concept with the method. Kanban is a visual display to signal a process (which helps manage the process). A common method is a signal card but kanban is not a signal card. A signal card is the most common implementation of kanban.

Related: Kanban resourcesKanban In Software EngineeringWhat Is Muda?One piece flow (continuous flow)Eliminating Complexity from Work

Search Share Data – Checking the ACSI

Last month, in a long post criticizing the ACSI I took issue with, among other things, the implications being drawn from an ACSI rating. The ACSI rating of Yahoo was higher than that of Google (though statistically insignificantly so). Anyway, here is some new data on search volumes of the leading providers:

Top 5 Search Providers for August 2007, Ranked by Searches (U.S.)

Provider Searches (000) Year over Year Growth Share of Searches
1. Google Search 4,199,495 39.8% 53.6%
2. Yahoo! Search 1,561,903 8.9% 19.9%
3. MSN/Windows Live Search 1,011,398 69.8% 12.9%
4. AOL Search 435,088 32.4% 5.6%
5. Ask.com Search 136,853 0.0% 1.7%

Source: Nielsen//NetRatings MegaView Search

So Google grew 39.8% year over year and Yahoo grew 8.9% year over year. Google now has 53.6% of the total searches. Granted this is limited data but it seems to confirm that Google is in fact continuing to increase their lead in search volume. Practically all evidence seems to support this belief – the ACSI seems to be the exception. Which might indicate great insight provided by the ACSI that everyone else is missing. Or it might show ACSI results are doing a poor job of providing a useful measure of customer satisfaction with search engines. I go with the second.

Related: posts on using data effectivelyWebsite DataUnderstanding Dataposts on Google managementCurious Cat Management Improvement Search

Kaizen – Yahoo Mail Style

Yahoo Mail Innovates, Gmail Stagnates

Yahoo Mail has begun rolling out of beta after releasing an onslaught of innovative feature improvements along the way. On the other hand, a whopping three years into their beta release, Gmail remains one of the most popular but stagnant web-based beta email apps around.

To me Yahoo is really continually improving the service, not innovating. Still an interesting exploration of visible improvement.

Related: Kaizen OnlineKaizen definitionInnovation ExamplesGoogle Innovation webcast

Employees That Telecommute are the Most Loyal

In Loyal Employees Stay Home, quotes from the Wall Street Journal (behind a iron curtain still in this day and age – oh well):

“When companies allow employees to work remotely or from home, they are explicitly communicating to them that ‘I trust you to be dedicated to the accomplishment of the work, even if I’m not able to observe you doing it,’ ” says Jack Wiley, executive director of the institute, which is in Minneapolis. “It boils down to respect,” he says. “I respect you and I have confidence in your commitment to the work — to do this under the conditions and at the time you feel will be most productive for you.”

I agree with the sentiment expressed here. And I speak from personal experience that it does make a big difference to me. I have trouble getting some of my work done in the interruption prone office. Working at home allows me some time to concentrate and focus with fewer interruptions (and ones easier to ignore if I really need to focus). If you wanted to hire me (given what I would be doing) and didn’t offer telecommuting options the odds of hiring me are not good.

Related: Five Pragmatic PracticesThe Siren Song of MultitaskingCurious Cat Management Improvement Jobsperformance appraisal posts

Keeping Older Workers

We’re Not Finnished With You Yet

Abloy and many other Finnish companies are suddenly treating older employees like a precious resource. Instead of nudging them into early retirement, they’re coaxing gray-hairs to work longer with better health benefits, extra weeks of paid vacation, and more. But these companies aren’t just feeling charitable. Finland’s workforce is aging faster than any other country’s–40% of Finns will reach retirement age during the next 15 years. Nearly a quarter of Abloy’s 820 workers, for instance, are already over age 55. And companies now recognize that seasoned hands are an important source of knowledge and productivity.

This is becoming the reality nearly everywhere. The best hope is that companies learn respect for employees and want to keep employees because they truly value them. But failing that watch what happens over the next couple of decades as demographic trends mean that companies have little choice but listen to the desires of older workers.

Some finnish companies have done an about-face on retirement policies. Swedish-Finnish bank Nordea, which spent a decade restructuring and pushing older workers to retire early, reversed course starting in 2003. It has launched training, mentoring, and health-care initiatives and is all but begging them to stay.

Finland, Japan and a few others may lead the way but the western industrialized world is quickly aging. It seems pretty straight forward that the aging workforce is going to be needed. And companies are going to have to adapt (that is my prediction anyway). I have always thought it is crazy that we work full time and then stop all together. It makes much more sense to me for there to be a gradual easing of the workload. The biggest complication I think is companies that don’t want to be flexible. I think that desire to be inflexible will be overwhelmed by the demographics. There is also an issue of psychology – people don’t like to earn less.

I have a feeling that it may well be necessary for most to earn less at 70 than at 40 (many just can’t produce the same value they once could). There are some additional benefits that experience will bring but how everything balances out will decide what is justified. This will play out in the marketplace, but I think in addition to companies not comprising to make part time jobs work many employees insist on maintaining salaries – which might not be reasonable. I am happy to have the marketplace make the decision on salaries.

Another part of the reason this seems likely to me is people just don’t save what they need to in order to retire – so many need to keep working (as companies will need experienced workers).

Related: Saving for RetirementWorking LongerOur Only Hope: Retiring Later

Management Improvement Carnival #19

Please submit your favorite management posts to the carnival. Read the previous management carnivals.

  • Why Does Bad Management Thrive So Much? by David Maister – “My question is: why hasn’t this egregiously bad management been driven out competitively? How do firms like this stay in business?”
  • Kanban Systems for Software Development (four posts) by Corey Ladas – “Work-in-process is limited, and cycle time can be managed. Most importantly, it is a highly transparent and repeatable process with all of the right conditions for continuous improvement.”
  • The “multitasking” delusion by Karen Wilhelm – “Studies at University of Michigan, MIT, UC Irvine, and NASA, however, have shown that humans are pretty lousy at making rapid shifts in attention, especially when thinking is required.”
  • SAP & Whirlpool… Aha! by – Kevin Meyer “Perhaps you’d decide you still need an ERP system… but make sure it is agile and flexible to support your ever-evolving and improving processes. Improvements driven by the knowledge, creativity, and experience of your employees.”
  • Job Breakdown Sheets for Teaching TPS by Jon Miller – “A Job Breakdown Sheet details the Major Steps, Key Points and Reasons for the key points. Having a Job Breakdown Sheet creates confidence in the instructor as well as the trainee that there is a clear and unambiguous method to be followed.”
  • Several posts on Toyota North America president and Toyota board member, Jim Press moving to Chrysler after 37 years at Toyota: Nardelli Poaches Another OneJim Press Moves to ChryslerWatch Out Toyota, Here Comes…Toyota!Press leaving Toyota for ChryslerHope for Chrysler
  • Building a Process Improvement Culture by Monte Wright – “These 4 questions provide the basis or blueprint that identifies a process to be changed, the barriers that are present, solutions to remove the barrier and measurements for effectiveness.”
  • Continue reading

Deming on being Destroyed by Best Efforts

Best efforts are essential. Unfortunately, best efforts, people charging this way and that way without guidance of principles, can do a lot of damage. Think of the chaos that would come if everyone did his best, not knowing what to do.

Out of the Crisis by W. Edwards Deming, page 19

I am reminded of a quote I heard from Dr. Deming (though it may well precede him): “Don’t just do something, stand there.” First think, then act. His quote also relates to the tendency we have to tamper – institute “solutions” without understanding what is going on (often due to a lack of understanding variation). Many managers have learned their job is to act, even if they don’t have the knowledge needed to make a rational decision: they don’t just stand there, they do something. Learning to say, I don’t know, and then spend time learning instead of acting is a valuable skill to develop.

As regular readers of this blog know I think Ackoff is great. Dr. Ackoff’s ideas on this topic are wise (as usual): articles by Russ AckoffDoing the wrong things right podcast by Ackoff.

Related: Deming on Management – best effortsDoing the Wrong Things Rightertheory of knowledge