Leadership & Business

I Write About Reality--And I Want to Share It!

One of the burdens you accept when you decide to begin writing about what’s on your mind is criticism.  That’s because it’s all but a statistical certainty that 100% of the population—and even 100% of your readers—won’t agree with everything you write.

I’ve also been asked lately why I write about things like economics and politics, while my company’s focus is performance excellence. The reason there is simple, but even simple answers can have more than one part to them.  The first part of the answer is that I don’t see politics and economics all that differently than business and what I write about are my conclusions based on DATA driven analysis.  The second part of the answer is even simpler than that; these topics interest me.  I spend a lot of time studying them and figure my investment in time and analysis isn’t really worth much if I don’t share it.  In fact, to quote a friend who recently published a terrific book, “It’s not reality unless it’s shared.” I write about reality—and I want to share it.

To recap some of what I’ve written about in the past.

January 2nd, 2008: I said the recession had started. In June the economists were still talking about how we had skirted one.  November 26th, 2008:  I said the depression had started.  The economists are still denying it, but just yesterday, Paul Volker, Chairman of the President’s Council of Economic Advisors did call it a GREAT Recession (they’re “easing” us into it).  On December 10th, I wrote of the need to let at least one of the big three automakers go bankrupt.  How much money will have been wasted delaying that inevitable conclusion?  The point is that the data leading to all of these conclusions is fairly straight forward—and if we’d listen to the data, instead of emotions and politicians, we might actually solve problems a little faster.  So I will continue to write about a range of topics broader than the day to day focus, because as President Obama just demonstrated by appointing both a Chief Performance Officer and a Chief Technology Officer to focus on technology innovation, the principles that we espouse here at BMGI apply to just about anything—and everything.

The Odds are against it! Or so we thought.

It’s amazing how many things are considered so improbable that we just don’t worry about them happening.  It seems to me that we’ve had multiple 100-year floods in the past ten years.  Two satellites collided in space just a few weeks ago.  Last week, without prior warning, a meteor large enough to destroy New York City passed within 50,000 miles of earth—that’s inside the orbit of some man-made satellites.

The “odds” of these things happening are generally considered so low that they are mere statistical possibilities—not real possibilities.

Sounds a lot like what’s happened in our economy, doesn’t it?  Credit Default Swaps, for example, are a kind of unregulated insurance policy for financial institutions.  It seems no one really knew how to price the risk of large numbers of mortgages defaulting, but it was believed that the odds made it next to impossible, so it didn’t matter.  It was like free money, or so some thought.

There are lots of things that were once considered impossible, until they happened.  Dwight Eisenhower thought he’d be lucky to make Colonel. Then WWII happened.  Had you asked him the odds of becoming president one day, he’d have told you that the odds were so remote, it was beyond the realm of any actual possibility.  Yahoo! considered the possibility of Google becoming the search engine of choice beyond the realm of real possibilities.  History is replete with impossible things that happened.  So when something is considered “remotely” possible, we have to ask ourselves what’s behind the calculation of the odds.

There are practical implications, too.  Airplane designers gauged the probability of both engines on a commercial airliner being taken out by birds at the same time to be so remote that they didn’t incorporate a defense.

The British and French navies considered the possibility of two submarines carrying nuclear missiles colliding to be so remote that they didn’t share information that would prevent it.

When we begin “redesigning” elements of our financial systems, we would do well to consider those things that are so unlikely that they won’t happen, because they might.

But enough . . . it’s Wednesday night and I have to go by a PowerBall ticket, even though I know the odds of me winning are so remote, that I won’t.

A little perspective is in order

I’ll be the first to tell you that I think GM and Chrysler should be allowed to enter bankruptcy.  I’d do it in a well-ordered, prepackaged manner, but I would do it.  Even so, let’s be honest when we talk about these companies.  No company that size and that capital intensive should be expected to handle a 50% downturn in business.  And the downturn is NOT the fault of their mismanagement.  The auto industry is not responsible for the failings of the real estate and financial markets that have led us into this depression.  I’ve said this before, but now it’s time to write about it.

The Wall Street Journal reported that Toyota is seeking a loan from the Japanese government.  So too is Honda.  Their businesses are off more than 40%, too.  These are the companies that pundits keep holding up as the models that the big three should aspire to match.  While  Honda and Toyota are must better managed than the American car makers, the fact that they are also looking for bailouts speaks to just how bad things really are.  It’s become so easy for some to bash faltering companies—and others to jump on the bandwagon in agreement, that I hear fewer and fewer people taking a step back to try and be objective in their criticism.  I’d like to see us be more articulate, more data driven, and less glib when we talk about the failings of GM, Chrysler, and yes, even Ford.  They may run out of cash faster than their Japanese counterparts, but much of what they’re facing is not their fault.  Let’s let them go bankrupt anyway.

Coldhearted? Maybe...it's just reality!

Well, perhaps by now you’ve read my somewhat cold-hearted suggestion that companies should cut employee headcount fast—and cut deep.  In the Doomsday scenario I explain that there are few excuses for not making very deep labor reductions.  Unfortunately for many European companies, however, there is an excuse: their labor laws make it much harder.  Without question, this puts them at a significant disadvantage vis a vis competitors located elsewhere in the world.

For example, in Germany a number of large companies have made a deal with the government to hold off on layoffs for six months.  Employment contracts and the expectation of lengthy severance arrangements also make it difficult.  In cases where staff can be reduced, severance arrangements often mean that there’s no real financial benefit for months.  The need to downsize right now is not to reorganize a company for future profitability—it’s survival.  So if you’re going to be paying severance for the next six months, what have you really gained in the short term?

What this means is that many European companies (and my clients) need to consider a different approach than their leaner, more ruthless American counterparts.   Instead of reducing staff—they need to put their staff to work.  Think about it.  If business is down by 20 percent, then speaking at a very general level, there should be a lot of staff with 20 percent free time on their hands (of course there’s not a perfect correlation, but you get the point).  What can we do with that 20 percent of the time?  One thing is to actually start “InSourcing” work that was previously outsourced.  Outsourcing is usually seen as resulting in cost savings, but if you have idle staff, the opposite is often true.  Another is to turn them all to driving efficiency in other processes.

That’s where the tools of continuous improvement come in (such as lean and six sigma).  Idle time is a great time to train people, and those people should be put on cost savings projects immediately.  Focus on processes that produce savings in raw materials, consumables, contract labour and overtime. For example, BMGI recently guided Graphic Packaging’s Bristol, UK facility through a lean project that resulted in a substantial  reduction over time, and reduced scrap waste by ₤80,000

You may very well need help teaching employees new skills, but there are very cost effective ways of doing that today, such as with web-based training. Even coaching can be done by telephone and chat room as well as face-to-face to make it inexpensive relative to the cost savings associate with improvement projects.

What’s important is that you engage your entire workforce, from top to bottom, in an effort to identify cost-cutting opportunities. Taking Graphic Packaging as an example again, three Kaizen events were conducted with the company’s machine operators and uncovered immediate savings equivalent to in a 3:1 return on investment.  This was the first time that this group had been allowed to provide their perspectives on the production process in a formal environment which resulted a dramatic change in the culture of the workplace – employees felt involved and valued resulting in a willingness to move forward - GPI claim this to be more beneficial than anything they have done before because it means long term, sustainable results through understanding and involvement.

Non-headcount costs that companies are able uncover and eliminate can be huge.  Our European division is now offering firms a two day Performance Excellence diagnostic at no charge– conducting what is in effect a “mini” Kaizen workshop – during which we guarantee we will identify at least €250 000 in savings for any company with more than €300 million in revenues. For some, driving cost out of operations will prove a necessity for survival and we’re committed to ensuring our clients make it through these tough times.

The real point is that you need to PUSH people hard to use their free time effectively.  Look at any outsourced service:  janitorial services, transportation services (driving people to the airport, for example), maintenance services, etc.  If your people have 5 percent, 10 percent or 20 percent of their time free, you MUST focus on how to convert that time into money.

BMGI is offering to help businesses beat the recession with a two day Performance Excellence diagnostic at no charge. Click here to find out more.