Monday, February 23, 2009

What if We All Chose Not to Participate in the Recession?

Most mornings, we wake up and feel pretty good...that is, of course, until we turn on the financial news. The doom and gloom pundits are busy spewing their morning chatter: highest unemployment in twenty years; some call for more government stimulus, others say less; some call for bailing out defaulted mortgages, others say don’t. It’s enough to make you want to go back to sleep or have a breakfast of Bloody Marys!

Recently, one of our favorite radio personalities stated that he has decided not to participate in the recession. Now, it’s hard to criticize a positive attitude, but the economic numbers aren’t any cause of celebration. A radio host can afford to be a bit flippant about the economy; after all, it makes for good debate with call-in listeners. But then we started thinking, why not look at the glass as half full? Even with 8% unemployment, 92% are employed; and yes, 7% of mortgages are in default, but 93% of us pay our mortgages every month.

The latest issue of Fortune magazine cites their identified 2009 “100 Best Companies to Work For” (several of which we are proud to say are featured in the revised edition of The Disney Way). The Fortune study is arguably the most extensive survey in corporate America, with more than 81,000 employees from over 353 companies participating. The final decision and ranking are both based on the survey as well as a detailed cultural company audit.

Of these top 100 companies, 70 are now hiring at least 50 positions! The top 50 companies have added over 38,000 jobs in 2008. We know from our extensive research at several of these companies that they are driven by long-term vision, mutual respect and trust, and compassionate customer centric service. We don’t know if these organizations have gone so far as to openly admit they are not participating in the recession, but we do think they see the glass half full, not half empty. Their posture is consistent in planning for long-term growth rather than reacting to short- term fear.

After 9/11, many of the hospitality companies experienced massive layoffs due to the sudden downturn in travel. Isadore Sharp, CEO and founder of the Four Seasons Hotels and Resorts, refused to lay off one employee. Four Seasons is one of the outstanding companies that is featured in the 2007 edition of The Disney Way. Shortly after 9/11, we interviewed Isadore who told us that he has invested a great deal in each and every employee. He went on to say that when the economy picks up, he will need these well- trained and loyal employees to meet the demand. However, Isadore took measures in the short-term to elevate decreased business, but without compromising the Four Seasons long-term future. The company put a freeze on new hires, slowed down or stopped new construction, and encouraged employees to take any accrued vacation. As a result of the 2001 attacks, Southwest Airlines took similar measures without laying off any employees. When the economy did recover, Southwest Airlines and Four Seasons were positioned to best serve their customers. We do not believe it is any accident that Southwest Airlines in one of the very few airlines to consistently generate a profit and that most authorities cite Four Seasons as the best luxury hotel chain in the world.

If you are a business leader, you can learn a great deal from these companies. Instead of reacting to short-term fear, plan for the long-term with cautious optimism.

Monday, February 16, 2009

Partnerships

True partnerships must be built on cooperation, trust, and extraordinary levels of communication. Focus on gaining win-win agreements and don’t allow greed to kill a good relationship.

Anyone who goes to EPCOT at Walt Disney World can experience partnerships in action. The World of Energy, partnered with Exxon; Test Track, partnered with General Motors; the partnerships with the many countries around the world -- the list goes on and on.
But as successful as Disney has been with its partnerships, the company fell into a trap that kills many organizations. That trap is greed. In 1985 Disney owned only 14% of the hotel space in Walt Disney World during the time when EuroDisney was being planned. The remaining 86% of the hotel rooms were operated in partnerships with other hotel chains. When Disney opened EuroDisney (now Disneyland Paris), the company did not partner with any European hotels. Disney wanted it all. As a result, the Walt Disney Company made some very costly, strategic mistakes that may have been avoided with the proper partnerships.

Developing partnerships or strategic alliances is not just for the Fortune 500 large multi-national organizations. PriceWaterhouseCoopers studied 436 immerging companies, and after conducting extensive interviews with the CEOs, they determined that 43% of the companies established long-term strategic alliances with suppliers and customers. These organizations grew 31% faster, introduced 79% more new products and recouped their investment 20% faster.

Take a lesson from Disney: be committed to your partnerships for the long-term.

Monday, February 9, 2009

The Only Thing We Have to Fear is Fear Itself

This glimmer of hope came in 1933 from President Roosevelt’s first inaugural address: “And so, my fellow Americans, ask not what your country can do for you, ask what you can do for your country.” We baby boomers also remember this call to action from John F. Kennedy. And, we remember Ronald Reagan saying, "I hope I have appealed to your greatest hopes and not your worst fears.” Contrast these positive messages with, “a failure to act, and act now, will turn crisis into a catastrophe." President Obama, Feb. 4th, 2009.

The cloud of fear that is hanging over Washington reminds me once again of Dr. Edwards Deming’s teachings. Dr. Deming, known as the father of the Japanese post-war industrial revival, was also regarded by a great many U.S. business leaders as the “father of modern day quality management.” One of his now infamous 14 points for transforming a business was number 8: “Drive out fear. Encourage effective two-way communication and other means to drive out fear throughout the organization so that everybody may work effectively and more productively for the company.”

Dr. Deming, FDR, JFK, and Reagan realized that fear is not a method for motivating a workforce. Throughout our consulting careers, we have seen the damage that fear can produce within individuals, teams and departments. When fear is the motivating force, failure is the results. Employees fail to question, to innovate, to report ineffective and even unsafe processes. Catalysts for fear, whether they be supervisors or policies, must be removed! Deming once said, "The economic loss from fear is appalling!" Has anything really changed?

We witness both political party representatives attempting to jump start the economy with an economic “stimulus” package. It’s clear to us that we are just about to make a trillion dollar decision based on fear. Doesn’t anyone remember President Kennedy’s posture on economic stimulus: “federal government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures.” He went on to say, “I do not underestimate the obstacles which the Congress will face in enacting such legislation. No one will be satisfied. Everyone will have his own approach, his own bill, his own reductions. A high order of restraint and determination will be required …But a nation capable of marshaling these qualities in any dramatic threat to our security, is surely capable, as a great free society, of meeting a slower and more complex threat to our economic vitality.”

I do not underestimate the obstacles that Congress will face in enacting such legislation. No one will be satisfied. Everyone will have his or her own approach, his or her own bill, his or her own reductions. Obviously, a high order of restraint and determination will be required. But, those qualities seem to be more visible when there is a major threat to our national security, not to our economic vitality.

The current cover story of Newsweek is, “We Are All Socialists Now.” The article states, “As entitlement spending rises over the next decade, we will become even more French.” Even in these troubling economic times, our GDP is five times larger than France (sixth largest world economy) and three times larger than Japan (second largest world economy). We cannot practice capitalism during an economic upturn and socialism during a downturn. Do we really want the great government “business minds” who have been running the U.S. Post Office, Amtrak, and Medicare to now be running the banks, insurance companies and car manufacturers?

Reagan enjoyed poking fun at the insufficiencies of socialistic systems. He once quipped, “A Russian man goes to the official agency (to buy a car), puts down his money and is told that he can obtain delivery of his automobile in exactly 10 years. ‘Morning or afternoon,’ the purchaser asks. ‘Ten years from now, what difference does it make?’ replies the clerk. ‘Well,’ says the car-buyer, ‘the plumber’s coming in the morning.’”

Fear has no place in private or public sector management. I like French food and wine but certainly not their socialistic political system. Let’s always remember JFK’s timeless words, “The strength of our free economy rests the hope of all free nations. We shall not fail that hope — for free men and free nations must prosper and they must prevail.”

Tuesday, February 3, 2009

The Day the Music Stopped and The Day Rational Business Died

Fifty years ago today in a frozen field near Clear Lake, Iowa, an airplane carrying Buddy Holly, Ritchie Valens, J.P. (the Big Bopper) Richardson and pilot Roger Peterson crashed, killing all three rock stars and their pilot.

George Lucas' 1973 cinematic love letter to the “teen car culture” of the early 1960s, "American Graffiti," includes the memorable line: "Rock 'n' roll's been going downhill ever since Buddy Holly died."

Fifty-nine years before the infamous 1959 plane crash, a business legend was born in Sioux City, Iowa…W. Edwards Deming. By 1959, Dr. Deming was well into his transformation of the Japanese manufacturing industry. He is regarded as having had more impact upon Japanese manufacturing and business than any other individual. Despite being considered somewhat of a hero in Japan, he was only beginning to win widespread recognition in the U.S. at the time of his death in 1993.

To echo the words of George Lucas, “Rational business has been going downhill ever since Dr. Deming died.” Ten years before Dr. Deming’s death, Bill Capodagli had the privilege of working with and being trained by Dr. Deming.

Dr. Deming’s teachings of Profound Knowledge were comprised of four parts:
1. Appreciation of a system: understanding the overall processes involving suppliers, producers, and customers (or recipients) of goods and services;
2. Knowledge of variation: the range and causes of variation in quality, and use of statistical sampling in measurements;
3. Theory of knowledge: the concepts explaining knowledge and the limits of what can be known;
4. Knowledge of psychology: concepts of human nature.

The System of Profound Knowledge is the basis for application of Deming's famous 14 Points for Management:
1. Create constancy of purpose toward improvement of product and service, with the aim to become competitive and stay in business, and to provide jobs.
2. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.
4. End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move towards a single supplier for any one item, on a long-term relationship of loyalty and trust. 5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease cost.
6. Institute training on the job.
7. Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
8. Drive out fear, so that everyone may work effectively for the company.
9. Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.
10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.
11. Eliminate work standards (quotas) on the factory floor. Substitute leadership.
Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute workmanship.
12. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective.
13. Institute a vigorous program of education and self-improvement.
14. Put everyone in the company to work to accomplish the transformation. The transformation is everyone's work.

In the early 1980s, Dr Deming was warning American business about what he called “The Seven Deadly Diseases” (also known as the "Seven Wastes"):
1. Lack of constancy of purpose
2. Emphasis on short-term profits
3. Evaluation by performance, merit rating, or annual review of performance
4. Mobility of management
5. Running a company on visible figures alone
6. Excessive medical costs
7. Excessive costs of warranty, fueled by lawyers who work for contingency fees

Short-term mentality, excessive medical costs, lack of purpose…sounds like the editorial page from one of today’s newspapers. We never listened to Dr. Deming back in the 1980s. The future of rational business rests on the embracement of his teachings even more today. Instead of throwing money at the problem in the form of a TRILLION DOLLAR stimulus package, let’s apply Deming’s system of Profound Knowledge.

The notion seems almost silly today, but 50 years ago not even the musical pioneers themselves were certain that rock 'n' roll would survive much into the 1960s, whether before or after the Day the Music Died. "Buddy Holly totally was the model for the Beatles and everything that came after," says Dion DiMucci, the Bronx-born rock troubadour with blues roots and a doo-wop streak who remains the sole surviving headliner from the 1959 tour.

Will Dr. Deming’s teachings be reborn and become a model for business in this new century; or will this truly be the day that rational business as we knew it in the 1980s died?