No Excessive Senior Executive Pay at Toyota

Toyota Boosts Executives’ Bonuses on Record Earnings (link broken by Bloomberg has been removed – why can’t companies with huge IT budgets follow even basic web usability rules like not breaking urls?):

Toyota Motor Corp., the world’s biggest automaker by market value, will increase the total amount of executives’ bonuses by 33 percent for the year ended in March after the company posted record earnings. The automaker will pay a total of 970.5 million yen ($7.8 million) in bonuses to its top 32 executives, including President Katsuaki Watanabe, for the previous fiscal year, it said at its shareholders’ meeting.

Toyota’s 32 top executives received just over $12 million in salaries in the 12 months ended March. Lets see Toyota made something like $13,000,000,000 in profits. With the top 32 executives getting about $20,000,000 that is .15% of earnings. Even if there are some other benefits not included in the total that .15% figure for the top 32 executives doesn’t really compare to ludicrous pay of many CEOs in the USA. They are in a different paradigm than the others. I think their paradigm is much more effective (and the pay is the symptom of that system). I’ll take the executives of Toyota over the overpaid executives any time.

Related: More on Obscene CEO PayExcessive Executive Payaddition to the seven deadly diseases12 Stocks for 10 Years Update – Jun 2007 (Toyota up 69%)

Posted in Deming, Lean thinking, Management, Psychology, Respect, Toyota Production System (TPS) | Tagged , , , , | 5 Comments

At Ford, Quality Was Our Motto in the 1980s

Former Ford President responds to the Wall Street Journal with At Ford, Quality Was Our Motto in the 1980s:

I strongly disagree with a statement in “Detroit Pursues Sweeping Cuts in Union Talks” (page one, June 14), that the Big Three U.S. automakers “allowed quality to deteriorate in the 1980s,” at least as it applies to Ford Motor Co.

I was first president, then chairman and CEO of Ford in those years, and my major undertaking was to make significant improvement in the quality of Ford’s products.

Shortly after becoming president, I arranged to meet with W. Edwards Deming and contracted with him to consult with us and assist us in improving our quality. We established six guiding principles for the company, the first of which was “Quality comes first — To achieve customer satisfaction, the quality of our products and services must be our number one priority.”
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Posted in Deming, Management, Manufacturing | 3 Comments

Standard Prepaid Cell Phone Policy

I ran across a specific example of standard policy that I found amusing (related to the post earlier today on Why Isn’t Work Standard). Like the authors, I can’t really see a reason for why you would want a policy that no more than two prepaid cell phones can be purchased. But if it is important, couldn’t you design a much better system to assure this policy was followed. And, at the very least, let customers hear your reasoning (so make an accurate explanation part of the standard work instruction stopping the sale of more than 2) behind such a restraint on their options. Doing so wouldn’t really help solve the problem (if they want more phones) but it seems it would be better customer service not to make up stuff like claiming it is the law – which is what happens when you tell people to do things without explaining why. Why Wal-Mart Will Refuse to Sell You Prepaid Cell Phones:

He collects my phones (seven in total) and walks me over to the register.Then another sales associate named Tara looks at me, then at Tom and finally at the phones and says to Tom, “you know he can’t buy all those phones”. Tom looks puzzled for a second and then his eyes light up with recognition. He turns to me and says, “I’m sorry sir, she’s right. We can’t sell you more than two phones”

Later, the post author explains the answer he receives after calling Walmart headquarters and being directed to the District manager – “the only person that could quote policy.” The person that answers says the district manager is busy but she can answer, there is no policy that only the district manager can quote policy:

A few minutes later, she calls me back and says that yes, it is indeed a Wal-Mart policy not to sell a person more than two prepaid phones. However, she said that the official policy was that they “could not sell more than two phones per person, not per household, per day”. So, Tara was clearly not listening on Wal-Mart policy day. I asked why this was an official policy (again, I stayed mum about what Tara and Ann had told me) and she said she wasn’t really sure, but that she could find out and give me a call back.

Verizon seems to be doing a good job keeping poor customer focus as a guiding policy (double trouble at Verizon):
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Posted in Customer focus, Management, Process improvement, Respect | 1 Comment

Why Isn’t Work Standard?

Are You Really Asking? by Mark Graban

The worst form would be, “Why the hell aren’t you following the standard work??? How many times do I have to emphasize that??” A better approach might be, “It appears that the standard work isn’t being followed. Why is this the case? Has something changed? Is there a problem we need to fix?” (as a legitimate question that you want the answer to).

Good advice. When standard work is not followed by one person then it might be that intervention with that one person is needed (or in some cases it might be that person found a better way and you need to update the standard and figure out why the standard wasn’t updated before – probably a system problem, annoying to follow procedure to get improvement adopted…). Much more often “policy” (which might be similar to standard work – but I think standard work really requires a system that is missing in places where “standard work” is not standard at all) is not followed in general – everyone does their own thing.

Then obviously (at least to someone that understands management) the issue is why does the documented standard work differ from the practice and why is management allowing such a divergence… Fix the system. What needs to be worked on is the failure of the management to create a system where standard work is the way work is done, not blaming everyone for not following the standard in various ways. Often this can be the practice, though not as obvious as stated, for example, when common cause errors are examined as special causes. Instead of looking at all the data, the error in question is examined, hey they didn’t follow x procedure – obviously they are to blame. Ah yeah look a bit more – no one ever follows that procedure (or what crazy system design allows that type of error to be possible): European Blackout: Human Error-Not.

Related: Visual Work InstructionsFind the Root Cause Instead of the Person to Blamevariation description

Posted in Lean thinking, Management, Quality tools, Systems thinking | 5 Comments

Mistakes in Experimental Design and Interpretation

Mistakes in Experimental Design and Interpretation

Humans are very good at detecting patterns, but rather poor at detecting randomness. We expect random incidents of cancer to be spread homogeneously, when in fact true randomness results in random clusters, not homogeneity. It is a mistake for an experiment to consider a pool of 47,000 possibilities, and then only report on the 7 cases that seem interesting.

A proper experiment states its hypothesis before gathering evidence and then puts the hypothesis to the test. Remember when you did your seventh grade science fair experiment: you made up a hypothesis first (“Hamsters will get fatter from eating Lucky Charms than Wheaties”) and then did the experiment to confirm or refute the hypothesis. You can’t just make up a hypothesis after the fact to fit the data.

This is an excellent article discussing very common errors in how people use data. We have tendencies that lead us to draw faulty conclusions from data. Given that it is important to understand what common mistakes are made to help us counter the natural tendencies.

Related: Seeing Patterns Where None ExistsIllusions, Optical and OtherUnderstanding DataDangers of Forgetting the Proxy Nature of DataHow to Deal with False Research Findingsdescriptive “theory” and normative theory

Posted in Data, Design of Experiments, Management, Psychology, Science, Statistics | 2 Comments

People are Our Most Important Asset

One of the beliefs I try and get the organizations I work for to adopt is to truly value excellent people. The costs are challenges of hiring great people, to me, makes it critical to do what you can to keep your exceptional people. I probably haven’t written about this because it can conflict with my advice against performance appraisals. I do actually believe it is possible to know certain people are great and contribute greatly to the success of your organization. I also believe many (a majority) organizations do such a bad job of identifying those people they shouldn’t even try. But if you can identify some people that seem to be positive special causes of success there is a good argument for making sure they are happy.

I don’t believe you should try to pay these special employees fairly. Overpay them. I would much rather waste (10-20% on extra pay) than pay them fairly and make it easier for them to switch to another job. Talk to them and make sure they are doing what they want and making the progress they want. I find (I don’t have enough data to know if this is generally true) that the best people complain the least and so you need to make extra efforts to find out what they might like to see improved. Include these provisions during your human resource planning, make it a point to get the most qualified people to want to work for you.

Don’t focus all of your energy on putting out fires and expect those that keep their areas of responsibility in decent shape without your intervention to just cope on their own. Since many managers adopt this “only dealing with the squeaky wheel” strategy (without saying that is what they do, of course), force yourself to spend time coaching, learning, helping… the most successful – as well as others. I want to have employees delighted (all of them ideally, but at least those that are most critical). As Deming said it is easy for competitors to take away satisfied customers – it is not easy for a competitor to take away delighted customers. The same holds for employees.
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Posted in Creativity, Deming, Management, Performance Appraisal, Psychology, Respect | Tagged , , , , , , , | 9 Comments

Innovation Thinking with Christensen

In my opinion Clayton Christensen offers truly insightful ideas on innovation and management. He presents the rare management advice that is not only good but also new – an incredibly rare combination. The current issue of Business Week includes an interview with him: Clayton Christensen’s Innovation Brain:

Yes. The problem is when you say “listen to your customers,” your customers are only going to lead you in a direction that they want to go in. Generally, that will never lead you to disruptive growth. You’ve got to find that new set of customers, and listen to them and follow them. That’s the trick. Once you have customers, they hold you captive to their needs.

It’s hard for me to see what will disrupt Google. I think they’ve got a pretty good run ahead of them.

While some of Christensen’s ideas are new he also builds on existing ideas. The idea on customer focus being a potential trap was discussed by Deming a great deal. Interesting point on Google, I must agree, though it makes me nervous to think that way: it is easier to mess up success than to fix a mess. I will be interested to read his ideas on the health care system.

Related: Six Keys to Building New Markets by Unleashing Disruptive InnovationManagement Improvement Leadersarticles by ChristensenThe Innovators SolutionWhat Job Does Your Product Do?
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Posted in Customer focus, Deming, Innovation, Management, Management Articles | Tagged , , , , | 3 Comments

Management Improvement Carnival #13

Please submit your favorite management posts to the carnival.

  • Outrageously Good Customer Service by Steven Levitt – “I would trade it all for a few more instances in which the airline does something out of the ordinary to get me home faster to see my wife and kids.”
  • Reflections on the Role of Technology in the Lean Workplace by Richard Tucker – “Observe the actual people, doing actual work, in the actual workplace. Second, Kaizen the process before implementing an IT solution.”
  • Heijunka in the Front Office by Ron Pereira – “One of the easiest ways to accomplish this is by using a heijunka wheel as shown in the picture above. In the wheel we can place the work, normally in folders, to be done in the slots in a leveled and balanced manner.”
  • You’re Not Developing Your People by Norman Bodek – “Your problem is that you are not focusing on developing people. You are very happy to have people continue to do those “boring,” repetitive jobs. Develop people to learn and build new skills every day. Challenge people to find and eliminate waste every single day. Let people learn from their own creative ideas.”
  • Complexity Creep by Peter Abilla – “[Institutionalize] simplicity. Amazon has become very, very good at this. In their product development approach, internally dubbed as ‘working backwards’, a focus on the customer weaves simplicity throughout the product development process.”
  • Excessive CEO Pay Disrespects Employees by Mark Graban – “The leaders aren’t showing respect for their employees. That’s where the cycle starts. No wonder so many employees are cynical and start looking out for themselves instead of doing what’s right for the company.”
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Posted in Carnival, Management | Comments Off on Management Improvement Carnival #13

How to Avoid Kaizen

‘Disillusioned’ surgeon quits UK:

In the theatre anaesthetists at the James Paget Hospital prepared the next patient while he was operating on another. He said: “I found I was wasting time between operations so I came up with this solution. Now I don’t waste any time and I have no waiting lists.

“After I won my award, I met Tony Blair. He said he would send someone from the Department of Health and that happened only after six months. They came but nothing happened.

Giving awards can serve to highlight the behavior leadership want to encourage (especially when trying to encourage new behavior the leader often has to make it visible what they value). Taking 6 months for someone to show up and then nothing happening really sends a message on what is valued. Shows of support only are valuable if backed up with actual support. When someone would ask Dr. Deming, I tried to get my organization to do what they should but I did x and y and z… but I can’t make any progress what should I do. He often said: quit. Go work for an organization that will do the right thing. This Doctor adopted that strategy. By the way if you actually go the the article you will see the Doctor says:

“The reason for that is very simple – there are no incentives for surgeons to become more efficient. If we don’t have performance-related pay, why should we change?”

Hmm, well I don’t agree with that at all. Oh well, that is the challenge of looking at management ideas in practice, I often see good points mixed in with things I don’t agree with. Via: Doctor who cut waiting times to zero quits – NHS shocker

Related: Change Health CareUK National Health System ManagementFixing the Health Care System from the InsideProblems with Bonuses

Posted in Health care, Lean thinking, Management | Comments Off on How to Avoid Kaizen

Tilting at Ludicrous CEO Pay

I continue to tilt at the robber barron CEO pay packages. Hopefully, at some point, the people approving these obscene pay packages can be shamed into stopping or replaced by people with some sense of decency. I was taught in the days of robber barrons the business world was seen as an amoral place (morality did not belong in this area of human endeavor) but that over time society decided that in fact morality did apply there. It is hard to reconcile that with the behavior of CEOs and board approving ludicrous pay packages. See previous post on the purpose of organizations. Half of S&P 500 CEOs Topped $8.3 Million

“It’s a complex subject and that’s really the question…Why is it so complex?” said Dominic Jones, Clarity’s president.

“Why is it that a CEO gets compensated in such a discombobulating fashion when the average worker gets a paycheck and can tell immediately what it’s about? … If you’re an investor and you get your (proxy) statement and it just goes on for pages and pages of the different methods used to pay the CEO, at some point you have to ask yourself why. ‘Why don’t I get all this?'”

Very good question. I would say they are intentionally trying and confuse the issue. Even as they spout defenses for such unjustifiably pay packages they know the pay is not defensible and so try to confuse the issue with byzantine explanations. Lets look at the CEO pay versus total earnings for several companies:

Company CEO Pay Earnings CEO %
Yahoo! Terry Semel $71,660,216 $751,000,000
   
9.5%
XTO Energy Bob Simpson $59,489,924 $1,860,000,000
   
3.2%
Goldman Sachs Lloyd Blankfein $54,300,000 $9,537,000,000
   
.6%
Occidental Petroleum Ray Irani $52,822,584 $4,182,000,000
   
1.4%
Merrill Lynch E. Stanley O’Neal $46,375,347 $7,499,000,000
   
.6%
Danaher H. Lawrence Culp, Jr. $46,215,671 $1,122,000,000
   
4.1%
Countrywide Financial Angelo Mozilo $42,994,306 $2,674,000,000
   
1.6%
Morgan Stanley John Mack $41,400,000 $7,472,000,000
   
.6%
Ford Alan Mulally $39,128,100 $1,540,000
   
2540.7%
Apollo Group Todd Nelson $32,626,442 $415,000,000
   
7.9%
AT&T Edward Whitacre $31,765,761 $7,356,000,000
   
4.3%

Data via: Best-paid CEOS (only those with fiscal years ending after December 15th – more pay data) – for 2006 according to an Associated Press analysis that covered nearly 400 of the nation’s 500 biggest public companies and Google Finance. I realize this chart could be improved by spending more time (especially looking out over several years for both pay and earnings…) but this is what I could do relatively quickly.
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Posted in Deming, Economics, Management, Performance Appraisal, Psychology, Respect, Systems thinking | Tagged , , , , , , | 10 Comments