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Warren Buffett’s Letter to Shareholders 2009

Posted on February 28, 2009 by John Hunter

Warren Buffett published his letter to shareholders yesterday. As usual, it is of great interest to anyone interested in the economic, investing and management ideas.

In 1995, MidAmerican became the major provider of electricity in Iowa. By judicious planning and a zeal for efficiency, the company has kept electric prices unchanged since our purchase and has promised to hold them steady through 2013. MidAmerican has maintained this extraordinary price stability while making Iowa number one among all states in the percentage of its generation capacity that comes from wind. Since our purchase, MidAmerican’s Wind-based facilities have grown from zero to almost 20% of total capacity.
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Our long-avowed goal is to be the “buyer of choice” for businesses – particularly those built and owned by families. The way to achieve this goal is to deserve it. That means we must keep our promises; avoid leveraging up acquired businesses; grant unusual autonomy to our managers; and hold the purchased companies through thick and thin (though we prefer thick and thicker).

Our record matches our rhetoric. Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.” We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses.

Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a
bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage. Their new label became “private equity,”

Berkshire Hathaway is a very well run company. Warren Buffett is a great investor. He is also a great executive. He hires honest and able people and lets them do their job. He ensures managers retain constancy of purpose by focusing on the long term and not getting overly focused on quarterly results. And have you ever read an annual report that talks of so many employees with such respect (granted it is a rare situation – something similar in an annual report could well seem disingenuous if it were not Warren Buffett writing)?

Posted in Deming, Economics, Investing, Management, Respect | Tagged Investing, managers, respect for people | 2 Comments

NUMMI, and GM’s Failure to Manage Effectively

Posted on February 25, 2009 by John Hunter

Gipsie Ranney recently sent me an article on her thoughts on NUMMI and the current problems with the Big Three car makers to post to the Curious Cat Management Improvement Library. NUMMI is the plant that Toyota and General Motors run together as a joint venture. The article is excellent.

The answer to a question asked by someone else on the tour was stunning to me. The person asked what kind of computerized inventory system they had at NUMMI. The leader of the tour at the time – a materials management person – responded, “we don’t have one; the Japanese say that computerized inventory systems lie.”
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The most remarkable insight I gained at NUMMI came as an answer to a question from a member of the touring group. The person asked what had been learned about the reasons that management/labor conflict had been reduced so much. The tour guide answered, “The answer we get from members of the labor force is that the Japanese do what they say they will do.” This was the same labor force that had held the record for most grievances filed per year in an assembly plant in the U.S.
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The Big Three are responsible for managing their organizations wisely. I think that will take more than money. It will take a different culture and a different mind.

I agree. The problem is that management fails to manage well and has been failing to do so for decades. They have improved over the last few decades but not nearly fast or consistently enough. Gipsie worked closely with Dr. Deming and serves on the W. Edwards Deming Institute Board of Trustees.

Posted in Deming, Lean thinking, Management, Management Articles, Manufacturing, quote, Respect, Systems thinking, Toyota Production System (TPS) | Tagged cars, curiouscat, Deming, lean manufacturing, Management Articles, Manufacturing, respect for people, Toyota, Toyota Production System (TPS) | 2 Comments

What Managers can Learn From Open Source Project Management

Posted on February 23, 2009 by John Hunter

What managers can learn from Open Source by Murray Cumming

Motivation: People work on open source projects because they enjoy it. These happy developers are productive developers. Managers of open source projects must ensure that the developers feel valued and fulfilled. They must minimise the tedious aspects of the work to ensure that development remains interesting. Otherwise, projects fail.

Although money can provide some incentive it does not provide as much. Managers who say that money is the greatest motivator are justifying their own poor performance. Managers of proprietary software, just like managers of open source software, must ensure that their developers are motivated properly. It is not enough to think that they should feel motivated.
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Open source projects have the benefit of direct feedback from users. Systems such as bugzilla and open mailing lists make it easy for customers to express their needs. That is the necessary first step to satisfying those needs. See the Structural Solutions section.

For instance, proprietary application server projects such as BEA and WebSphere seem deaf to the frustrations of their customers, but the open source JBoss project is happy to hear about those problems and avoid them in its own product.

Standards/Consensus: Open Source projects must conform to, and reuse, accepted, up-to-date standards. Proprietary projects, without the benefit of high visibility or feedback are free to make inferior decisions.

Don’t miss this great essay by Paul Graham: What Business Can Learn from Open Source. And you know what else? I don’t think open source projects use the annual performance review.

Posted in Creativity, IT, Management, Respect, Software Development | Tagged Customer focus, managers, managing people, project management, Software Development | 1 Comment

Management Improvement Carnival #55

Posted on February 20, 2009 by John Hunter

Submit suggestions for the management improvement carnival. visit the Curious Cat Management Library for online management improvement articles.

Cut Customer Service? You’ll Lose Customers by Scott D. Anthony – “Companies might think that innovation and survival are discrete choices. They are not. Companies that stop innovating are sowing the seeds of their own destruction.”
End Game at Wiremold by Kevin Meyer – “The Wiremold story shows how lean thinking can completely transform a company into a competitive powerhouse… and how quickly the success can be demolished by the return of a traditional mindset.”
Gemba-Based Leadership – Not Just for Chief Engineers by John Shook – “Here’s what lean practitioners do: grasp the situation, look for facts at the gemba, as opposed to analyzing data removed from it in time and place, and go through the Deming management cycle.”
Where Did Value Stream Mapping Come From? by Jon Miller – “Like any tool it’s success lies in how we use it. Stakeholder maps are essential tools of change management but only as useful as what you do with the findings.”
Agile Management with Chris Sims webcast interview by Wayne Turmel – “”
Helping Employees Improve by John Hunter – “A manager should be enabling their employees to perform. That means taking positive steps that help them perform.”

Posted in Carnival, Management | Tagged Carnival | Comments Off

Applying Disruptive Thinking to the Healthcare Crisis

Posted on February 19, 2009 by John Hunter

Update: Sadly MIT delete the video. It is a shame educational institutions lose interest in knowledge just a couple years later. Thankfully we didn’t have to rely on the people deleting web content at universities to keep all the historical content we have in books from hundreds of years ago. I think it is a huge lose to what the mission of these schools should be but that attitude doesn’t seem to be shared by the schools.

The Innovator’s Prescription: A Disruptive Solution to the Healthcare Crisis:

Christensen spies symptoms of such disruptions bubbling up in the healthcare industry, such as molecular diagnostics, imaging technologies and high bandwidth telecom, and business model innovations. Integrated health systems like Kaiser Permanente have a leg up in deploying and optimizing these disruptive technologies.

The push for widespread healthcare reform must come from employers, who in spite of their declared intent to cut healthcare costs also know “they profit when their employees are healthy and productive.” Affordable healthcare, he concludes, “doesn’t come by expecting high end, expensive institutions or expensive caregivers to become cheap, but by bringing technology to lower cost providers and venues of care, so they can become more capable.”

Clayton Christensen is the rare management thinker that I feel real provides profound insights into thinking about management. There are many other good management thinkers that offer valuable idea, just most of them (in my opinion) really are presenting material in ways that offer managers a good way to take action on all the long known good management ideas that we fail to adopt successful for decades.
Continue reading →

Posted in Health care, Innovation, Management, Management Articles, webcast | Tagged Clayton Christensen, disruptive innovation, Health care, health care system, Innovation, webcast | 3 Comments

Zara Thrives by Ignoring Conventional Wisdom

Posted on February 18, 2009 by John Hunter

Zara Thrives by Breaking All the Rules

Many U.S. apparel retailers are choking on slow-moving inventories as consumers hold back on spending. But Spain’s Inditex, whose Zara chain pioneered cheap chic, is zipping ahead. The $13.8 billion company, which is closing in on Gap (GPS) for the title of world’s biggest clothing retailer, has nearly quadrupled sales, profits, and locations since 2000
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Wages are higher at Inditex—its factory workers in Spain make an average of $1,650 a month, vs. $206 in China’s Guandong Province. But the company saves time and money on shipping. Also, Inditex’s plants use just-in-time systems developed in cooperation with logistics experts from Toyota Motor (TM), which gives the company a level of control that would be impossible if it were entirely dependent on outsiders.

In addition, Inditex supplies every market from warehouses in Spain. Even so, it manages to get new merchandise to European stores within 24 hours, and, by flying goods via commercial airliners, to stores in the Americas and Asia in 48 hours or less.
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As a result, the chain doesn’t have to slash prices by 50%, as rivals often do, to move mass quantities of out-of-season stock. Since the chain is more attuned to the most current looks, it also can get away with charging more than, say, Gap. “If you produce what the street is already wearing, you minimize fashion risk,”
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For rivals hoping to mimic Inditex’s results, analyst Luca Solca of Sanford C. Bernstein has a bit of advice: Don’t follow the Zara pattern halfheartedly. “The Inditex way is an all-or-nothing proposition that has to be fully embraced to yield results.”

Very true. Processes work well within a system. You can’t copy from one system to another. You can learn about what has been successful and figure out how you can adapt to take advantage of the ideas within your systems.

Posted in Lean thinking, Management, Systems thinking | Tagged Europe, Innovation, lean manufacturing, Lean thinking | Comments Off

$60 Million Bonus – For all Staff

Posted on February 15, 2009 by John Hunter

This is similar to a story I posted last November: Family Business Gives $6.6 million in Bonuses to Workers. I both cases long time owners sold their company to a foreign buyer and then gave a significant amount of the proceeds to long time employees.
Miami banker gives $60 million of his own to employees

After selling a majority stake in Miami-based City National Bancshares last November, all he did was take $60 million of the proceeds — $60 million out of his own pocket — and hand it to his tellers, bookkeepers, clerks, everyone on the payroll. All 399 workers on the staff received bonuses, and he even tracked down 72 former employees so they could share in the windfall.

For longtime employees, the bonus — based on years of service — amounted to tens of thousands of dollars, and in some cases, more than $100,000.
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Sharing the wealth with staffers came naturally. Abess and his wife, Jayne, have long been big contributors to local organizations, such as the Greater Miami Jewish Federation and Mount Sinai Medical Center. In 2006, the Abesses gave $5 million to the University of Miami to promote environmental studies.

But he also wanted to reach out to his staff. ”I wonder if I did enough,” he recently mused.

”I knew some of these people since I was 7 years old. I didn’t feel right getting the money myself,” said Abess, who was concerned that their 401(k) plans had taken a beating in the downdraft on Wall Street last year.

Both these actions demonstrate respect for employees, rather than the hollow words many companies profess.

Posted in Respect | Tagged bonus, respect for people | 1 Comment

Helping Employees Improve

Posted on February 12, 2009 by John Hunter

One aspect of managing people is to provide positive feedback and show appreciation. Doing so is important. People benefit from encouragement and reinforcement. In addition to just telling them, take action to show your appreciation.

The Dilbert workplace is alive and well. And even in above average management systems there is plenty of resistance faced by those looking to improve systems. For those employees that are making the attempt to improve the organization go beyond saying thanks: actually demonstrate your appreciation. Do what you can to help them achieve.

A manager should be enabling their employees to perform. That means taking positive steps that help them perform. This is even more appreciated than saying thanks. And has the added benefit of helping the organization by helping along their good idea. It is win, win, win. They win, you win and the organization wins.

Thoughts on: Rewards and Recognition

Posted in Deming, Fun, Management Articles, Popular, Respect, Software Development, Statistics, Toyota Production System (TPS) | Tagged continual improvement, curiouscat, managers, managing people, Psychology, respect for people, tips | 2 Comments

Management Improvement Carnival #54

Posted on February 10, 2009 by John Hunter

In the webcast, Corey Ladas discusses lean thinking in software development, Deming and quality, customer pull vs Kano model and gemba.

7 Practical Ways to Respect People by Ron Pereira – “Some think that to be respectful you can never disagree. This is ridiculous. My old boss at Nokia used to tell his management team that if all 8 of us agreed he had 7 too many people in the room. So true.”
Is Brainstorming a Waste of Time? by Mark McGuinness – “For Sutton, the problem isn’t with the technique but the way it’s applied: ‘when brainstorming sessions are managed right and skillfully linked to other work practices, they can promote remarkable innovation.’”
The Remarkable Chief Engineer by John Shook – “So the Chief Engineer has no choice but to lead by the soft skills of true leadership. By soft skills, I am referring to the suite of skills written of in books about leadership or management books and taught in leadership training – characteristics such as ‘leading through influence’ or ‘servant leadership’ or ‘win-win negotiating’.”
Yet another form of muda by Dan Markovitz – “You’ll learn, among other things, that making an ironclad commitment to spend 15 or 20 minutes each day with your assistant is essential. Your assistant is there to extend your reach and capability to effect change in the organization.”

Continue reading →

Posted in Carnival, Management | Tagged Carnival, Software Development, webcast | Comments Off

Lean Thinking in Minnesota Government

Posted on February 8, 2009 by John Hunter

The Office of Governor Pawlenty issued a press release on Minnesota’s Drive to Excellence effort:

Increased Quality via Lean Continuous Improvement Reform – The State has adopted
“Lean Thinking” as its preferred process improvement tool. So far, 18 agencies are actively
involved, with 302 staff members participating in 38 Kaizen improvement events. These
events have yielded significant improvements in the delivery of state government services,
from issuing duplicate birth certificates to processing State Soldiers Assistance requests.
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The Drive to Excellence includes 15 specific projects for reforming state government, ranging
from strategic procurement to a Lean continuous improvement effort and the reform of state grants
management. The projects focus on improving quality and customer service and reducing costs in
the delivery of government services to citizens.

Read about more public sector management improvement efforts on my Public Sector Continuous Improvement Site.

Posted in Lean thinking, Public Sector | Tagged government, Lean thinking, Public Sector | 1 Comment