"If your manager knows what you're doing all the time, you're not doing your job, and he's not doing his."

Hew Evans, Sony HR Director - Asia

I know, I've been merely pointing at Tony Schwartz's stuff lately, and again I found this quote in another great HBR article "Reward Value, Not Face Time" by Tony Schwartz.

Are you facing "presenteeism" in your company? Are people at work, but hardly working?
Might be time to leave as productivity suffers and workplace climate is impacted as managers try old-fashioned solutions such as checking people's desks for their presence.
This can start a death spiral and impact the bottom line.

Four Destructive Myths Most Companies Still Live By

See Tony Schwartz's Blog at
http://blogs.hbr.org/schwartz/2011/11/four-destructive-myths-most-co.html

Myth #1: Multitasking is critical in a world of infinite demand.
Myth #2: A little bit of anxiety helps us perform better.
Myth #3: Creativity is genetically inherited, and it's impossible to teach.
Myth #4: The best way to get more work done is to work longer hours.

Also recommend his book: The Way We're Working Isn't Working: The Four Forgotten Needs That Energize Great Performance

Why Companies Should Insist that Employees Take Naps

http://www.theenergyproject.com/blog/why-companies-should-insist-employees-take-naps

"If encouraging employees to take a half hour nap means they can be two or three times as productive over the subsequent three hours — and far more emotionally resilient — the value is crystal clear. It's a win-win and a great investment."

Tony Schwartz, The Energy Project. September 21, 2010.

REAL Productivity

Tony Schwartz published a great summary of his research on The Harvard Business Review blogs site:"6 Ways to Supercharge your Productivity"
http://blogs.hbr.org/cs/2010/09/six_ways_to_supercharge_your_p.html

Also be sure to check out "For Real Productivity, Less is Truly More"
http://blogs.hbr.org/cs/2010/05/real_productivity_why_less_is.html
(This article corresponds to numbers 3 and 4 on the list below)

1. Make sufficient sleep a top priority. Schedule your bedtime, and start winding down at least 45 minutes earlier. Ninety-eight percent of all human beings need at least 7-8 hours a night to feel fully rested. Only a fraction of us get that much regularly, in part because we buy into the myth that sacrificing an hour or two of sleep a night give us an hour more of productivity. In reality, even small amounts of sleep deprivation take a dramatic toll on our cognitive capacity, our ability to think creatively, our emotional resilience, the quality of our work, and even the speed at which we do it.
   
2. Create one to-do list that includes everything you want or need to do, on and off the job — and I mean everything, including any unresolved issues that merit further reflection. That's the essence of David Allen's simple but profound work (see Getting Things Done). Writing everything down helps get it off your mind, leaving you free to fully focus on what's most important at any given moment.
   
3. Do the most important thing first when you get to work each morning, when you're likely to be have the highest energy and the fewest distractions. Decide the night before what activity most deserves your attention. Then focus on it single-mindedly for no more than 90 minutes. Productivity isn't about how many tasks you complete or the number of hours you work. It's about the enduring value you create.
   
4. Live like a sprinter, not a marathoner. When you work continuously, you're actually progressively depleting your energy reservoir as the day wears on. By making intermittent renewal and refueling important, you're regularly replenishing your reservoir, so you're not only able to fully engage at intervals along the way, but also to maintain high energy much further into the day.
   
5. Monitor your mood. When demand begins to exceed your capacity, one of the most common signs is an increase in negative emotions. The more we move into "fight or flight," the more reactive and impulsive we become, and the less reflective and responsive. The first question to ask yourself is "Why am I feeling this way, and what can I do to make myself feel better?" It may be that you're hungry, tired, overwhelmed, or feeling threatened in some way. Awareness is the first step. You can't change what you don't notice.
   
6. Schedule specific times for activities in your life that you deem important but not urgent. With so much coming at you all the time, it's easy to focus all day on whatever feels most pressing in the moment. What you sacrifice is the opportunity to take on work such as writing, strategizing, thinking creatively, or cultivating relationships, which may require more time and energy, but often yield greater long-term rewards.
   

Analytics Life Cycle

Whether it's Business Analytics or Cost Analytics such as Activity-Based Costing, modeling and analysis are just the beginning and render no value unless followed through the entire Analytics Life Cycle.

The Secret Origins of Corporate Strategy

Transcribed portion of Harvard Business Review IdeaCast
http://blogs.hbr.org/video/2010/03/the-secret-origins-of-corporat.html

HBR Host: "There is an open question as to whether these kinds of thought leaders really add value to a business."

Walter Kiechel: "Well, if you believe that it's important for a business to have the facts, and if you believe that it's important for a business to be able to recognize patterns, to know what's happening to them and how their business works, then I think it's pretty tough to dismiss the role that consultants can play in helping a company out."

Walter Kiechel is the author of The Lords of Strategy.

Analytic Management is Impeded by Common Organizational Pathologies:

• A powerful conventional wisdom, often associated with powerful people, is allowed to sustain itself absent critical testing.

• Decision making, especially at high levels, not only fails to demand rigor and dispassionate analysis, but often champions the opposite as the scarce talent that identifies CEOs and visionaries from otherwise smart but less inspired people.

• The organization lacks people who get up in the morning eager to do analytic empirical work and are really good at it. Instead, analytic work is seen as the last resort, undertaken by those unfamiliar with proper methods.

• People tend to win over ideas rather than the reverse.

In "Competing on Analytics - The New Science of Winning",
by Thomas H. Davenport & Jeanne G. Harris

When Leaders Fall Asleep

"It's not unusual for leaders to start sleeping on the job once they hit year three or four. At this point, they have molded the organization in their own image. They know their people, processes, and technology aren't perfect, but have adjusted to their imperfections and lose sight of the opportunities for improvement. Every day brings the same set of problems and the same responses. From a performance perspective, the sharp "blacks" and "whites" so obvious on Day 1 become indistinguishable shades of gray. "I can't believe what's going on here!" slowly but surely becomes "I can't believe how tired I am!" "



Found on Susan Cramm's Blog.

She is the founder and president of Valuedance. A former CFO and CIO, she is an expert on IT leadership. She is the author of 8 Things We Hate About IT.



Read the entire article here:

http://blogs.hbr.org/hbr/cramm/2010/01/three-reasons-why-you-should-f.html

3 Reasons why (certain) US Companies are Struggling

Ignorance and/or Lipservice to Lean & 6Sigma

When I'm out of sugar, I take the pack in the pantry, and put 'sugar' on the shopping list. Minimal inventory, never out of sugar.
When my son was 3 he helped me wash car wheels in the drive way. When the water bucket was too far away and he had to keep running back and forth to wet his sponge, he didn't ask for a bigger sponge so he didn't have to run as much. He moved the bucket closer. What a concept. And here we are in 2010 asking for bigger sponges in so many US companies.

The same companies will claim "yes, we're a lean company". This can mean that they are running scarce resources (typically manpower) or they may actually be trying to apply some lean ideas, but don't really get it.

6Sigma is taking on a whole new twist. Seems like everyone is pursuing or already a notorious Black Belt. I think belts are what holds your pants up. It's what's between your ears that matters. For what it's worth, we will at least have a belt-wearing army that speaks the language of lean and six sigma. Now all they need is the authority to really change things around, instead of tweaking process a little here and cutting waste a little there.

Bill Waddell makes a similar point on his blog http://www.evolvingexcellence.com/blog/2009/12/global-ignorance.html based on a study in The Economist.


Reliance on Standard Cost Systems

Unlike the lean perspective on inventory, inventory is better than gold for many finance and accounting departments and their respective heads of organizations. When you produce something, it becomes an asset. Assets are good. You can borrow against them. And as long as the ROA is decent nobody pays too much attention.
When you reduce inventory (with stable processes and other lean benefits), your balance sheet shrinks. Although cash flow is great, your 'profitability' actually suffers.
This is just one obstacle.

Another would be the stubborn focus on overhead absorption and variances. Besides bashing operations upside the head with every month's variance analysis, is there ever an endeavour into root cause analysis? Or do we just adjust overhead and labor rates for next year to minimize our variances?
The desire for overhead absorption leads to undesired activities, namely period end rushes to build something, ANYTHING, to make sure the accountants are happy. It's the sales department's job to sell it right?

I assume the most obvious use of standard cost would be to figure out what something costs. There's just a slight problem. Although any cost accountant can accurately determine a widgets cost to 4 digits after the decimal, it is rarely the true cost. Widely known as 'peanut-butter spread', the assignment of overhead arbitrary. And what does direct labor have to do with assigning activities such as material handling??
Incomprehensible to many, a widget's unit cost varies from week to week, if not daily.
The problem is that standard cost cannot even get close to the true cost.

And try to make decisions based on a cost structure consisting of material cost, direct labor cost, and an overhead portion. I guess you pressure purchasing to get better deals, you can't really do much about overhead in the short term, so you're left with increasing productivity and/or letting people go.

What about the rate of flow through all processes? What about capacity levels? What about the stability of your processes?


Outdated Leadership 'Styles'

Command and control. Don't let people think on their own. And God forbid they make a mistake. The intimidation of workers or managers is so great that they do as they're told and never step outside the box. Successful companies foster an environment that let's people experiment, and do not punish them if something does not work out, but make sure that the organization learns from the mistake.

Again, just one aspect, but in its entirety, Leadership is misunderstood, misapplied, and misguided by way too many people.

Dan Pink made a point on TED about it.


Some more thoughts added on Feb 1, 2010 - I found this in John P. Kotter's "What Leaders Really Do" (emphasis mine):

"A close examination of the day-in, day-out actions and responsibilities of a "manager" or "leader" will produce a picture that doesn't resemble anything like the "able manager" or "visionary leader" of our dreams. In "real life", effective executives spend a lot of time just talking to other people, including people who are not their subordinates. They deal in a broad sweep of topics rather than just their functional specialty, are much more likely to ask questions than give orders, and actually make "big" policy decisions only rarely."

Nice highlights of real leadership vs. the command-and-control still prevalent in too many organizations.

TOXIC Workplace, Culture, or Boss

Here is some food for thought to help you think about your current or future place of employment...

Do the 'Big Boys' think they are "more equal" than the Rest?

“If your boss scans you from head to waist versus waist to head as they extend their hand in greeting you, they are intuitively sending a message that you are smaller than they are,” explains Zannah Hackett, author of The Ancient Wisdom of Matchmaking. Though subtle, it’s the nonverbal equivalent of a belittling comment. “This is not a good sign that your talents are going to flourish in this environment.”

Do executives walk around the office or plant to visit employees?
Are they asking for genuine input or just pushing their agenda or checking up on everyone?
Who has special parking spots?
Who has their own rest room?

What is the Level of Respect?

Are employees who treat people with trust and respect considered weak and no management material? Is tough, no-nonsense supervisory behavior is rewarded? Either of these displays lack leadership skills.

Is rude behavior allowed? This can range from making negative comments either directly or (even worse) behind people's backs, to unprofessional behavior such as not returning emails/phone calls or showing up late for important meetings.

Obviously cursing is out of the question.

How about Trust?

It's one thing to state that you trust someone, but the devil lies in the details and comes out in unconscious behaviors. Who gets blamed for current problems? Who takes credit when good things happen?

Is information shared freely? Or do certain people have to find out through other channels?
Are some people privy to information that should be shared by peers?
Have you ever been discussing a subject and realized that the other person is trying to find out how much you know to see whether you are privy to the same information that he/she is?
Are you in the know and realizing that the other person is not providing information he/she should at a certain point?

Are salaried employees clocking in/out?

Performance Management

Is showing up more important than delivering results?
Are expectations and goals even communicated?

Are employees expected to intuitively know what is expected from them without explanation? Do managers have blow-ups when something goes wrong that you were supposed to be aware of?

Are employees merely trying to gain leadership's favor and do some employees routinely fall in and out of leadership's favor?

Are employees expected to assume heavier workloads and work excessive overtime while legitimate requests for headcount increases are denied, all while the company is promoting the importance of work/life balance or upper ranks seem to have all the time in the world?

"People are our greatest Asset"

How much paid training does the company provide?
Can you choose your own courses?
Is a development plan established and followed?

Do you feel comfortable voicing opposing view points or even your honest opinion?
Is trying something new encouraged or is failure regarded too much of a weakness?
Do employees merely do as they're told, rather than take initiative when they think something is worth pursuing?

Are employees let go without warning or explanation? Does a great cloud of silence and taboo try to wipe out that they've ever been a part of the organization?

Do external features such as beauty, weight, or race influence management's behavior, selection, and actions?

Are hiring decisions made in the upper ranks instead of through the hiring manager and HR?
Is HR merely an administrative function that is following directions rather than the partner to develop great people and work environments?
Do 'buddies' or long-time business relationships come aboard and then end up not performing to par, but are still tolerated?

How is turnover? Do performers switch within 5 years? Are certain employees merely hanging on? Are the long-term employees truly happy?
How do employees and leadership talk about previous employees?

---

Organizations with toxic cultures and/or bosses may seem very successful on the surface, but internally, the decline has already started. It's best to get out while you can unless maybe you are receiving a boatload of cash and your health and private life is not in jeopardy (yet).

I would welcome comments about additional signs of a toxic workplace, culture, or boss.

If Culture acts as an Immune System against Change, the 'Cure' is...

... On-Boarding.

Not just 'orientation' but proper, state-of-the-art on-boarding.

In a Harvard Business Publishing interview, Michael Watkins explains:
"The biggest reason why people fail and underperform has to do with the culture and politics of the organization. And culture functions like an immune system [...], it's there to keep foreign bodies out and to preserve the integrity of the organism. But the problem is when you try to bring people in from the outside, you can have an over-reactive immune system, and if the people coming in don't understand the culture, don't understand the politics, they're really going to generate a kind of immunological reaction that can really be terribly destructive, not just for them but also for the organization.

So I focus [on] three things in on-boarding beyond the orientation world:
1. How are we going to help this person adapt to our culture?
2. How are we going to connect them to the right people and form the right relationships?
3. How are we going to be sure that we really align expectations in every direction, so that they are set up for success?"

Here's the link to the entire interview:
http://www.youtube.com/watch?v=l6wetuKbW-E&feature=sdig&et=1256293116.45

Higher Productivity at 80% Effort.

HBR - October 2009

Making Time-Off Predictable -- And Required
by Leslie A. Perlow and Jessica L. Porter

"Professional services firms typically have a 24/7 on-call culture. But one management consulting company [The Boston Consulting Group] is getting better results by experimenting with downtime—even in this economy."

http://hbr.harvardbusiness.org/2009/10/making-time-off-predictable-and-required/ar/1

Face Time vs. Flex Time

Great article at HBR:

Attract and retain talent, display trust towards employees, save costs, increase productivity:

http://blogs.harvardbusiness.org/hbr/hewlett/2009/10/a_major_milestone_is_within.html

"[I]t's been proven that flexibility is a powerful lure in recruiting and motivating top talent. [...]. Eliminating watercooler gossip sessions — a significant time sink in a high-anxiety environment — is a huge boost to productivity. And knowing that an employer trusts and respects its people enough to help them do what it takes to perform better [...] pays back in greater appreciation and loyalty. "

How to formalize it:
"Eligible employees — workers with no past or current performance issues — propose their own flex arrangements; managers assess whether the arrangements will allow them to meet performance and productivity goals. Trial periods and semi-annual reviews gauge success and fix problems before they mushroom. "

"Formalizing flextime has one other unsung but important consequence: It takes the stigma out of asking for time off. Knowing that there's some give — and not all take — in the workplace does powerful things for high-performers on a tightrope. "

5 Leadership Rules

Quoted from "Decoding Leadership" by Norm Smallwood

http://blogs.harvardbusiness.org/cs/2009/09/decoding_leadership.html
5:55 PM Tuesday September 15, 2009

Rule 1: Shape the future. This rule is embodied in the strategist dimension of the leader. Strategists answer the question "where are we going?" and make sure that those around them understand the direction as well.

Rule 2: Make things happen. Turn what you know into what you do. The Executor dimension of the leader focuses on the question "How will we make sure we get to where we are going?"

Rule 3: Engage today's talent. Leaders who optimize talent today answer the question "Who goes with us on our business journey?" Talent managers know how to identify, build and engage talent to get results now.

Rule 4: Build the next generation. Leaders who develop the next generation answer the question, "who stays and sustains the organization for the next generation?" Talent Managers ensure shorter-term results through people while Next Generation Developers ensure that the organization has the longer-term competencies required for future strategic success.

Rule 5: Invest in yourself. At the heart of this Leadership Code - literally and figuratively - is Personal Proficiency. Effective leaders cannot be reduced to what they know and do. Who they are as human beings has everything to do with how much they can accomplish with and through other people.

12 Tips for Achieving Organizational Transformation

• Establish stretch goals, even if they require fundamental change in behaviors, processes, or systems. Have an end state and clear vision in mind.
• Meaningful change occurs at the front-line through the support of top leadership.
• Leaders must be driven by a vision of excellence. Disregard current obstacles when developing this vision.
• Build your organization around top performers. Do not waste time on the non-performers. This is a conscious effort for most.
• Change your culture by modeling and defining behavior through actions, not words. Monitor, reinforce, and sustain behavioral changes.
• Mutual trust is the lubricant of efficient business systems. Focus on inquiry, not inquisition. Create humiliation-free feedback.
• Confidence is generated through immediate results. Generate quick wins early.
• Address the systemic root operational problems. Look beyond symptoms.
• Simplify your business process, complexity increases the chance of error.
• Eliminate non-value added management processes that are in place to band-aid inadequate systems.
• Focus on performance outcomes, not specific continuous improvement tools or past experiences. Keep the end result in mind.
• Sustain your improvements by continually focusing on the desired outcomes. Do not become content with the status quo.
  
  
  Adapted from DefinityPartners - http://www.definitypartners.com/

Leadership is about Relationships

"Leaders shouldn't be at the front or end of the food line. They should know their employees and not separate themselves from the people they work with."

T. Boone Pickens - Founder and Chairman of BP Capital Management
PMI Today - September 2009

--- --- --- --- --- --- --- ---

'Carrots and Sticks' - R.I.P

A.G. Lafley - P&G's Leadership Machine

(These excerpts are from FORTUNE Magazine's April 13, 2009 edition)

"If you train people to work in different countries and businesses, you develop a deep bench"

'Lafley himself oversees the development of the top 150 employees.'

'All executives teach at the training center [...] and hold weeklong "colleges" for employees entering new levels. A willingness to train others ultimately determines who advances: If your direct reports aren't ready, neither are you. "A manager who isn't good at developing others doesn't attract the best talent [to be on his team]."

What NOT to do...

Let's not entirely blame China, the economy, policy, competition, unions, or what not for the demise of manufacturing in the US.

There is truth to W. Edwards Deming's words:
"Plants don't close from poor workmanship, but from poor management."
... and I would add that poor management results from poor leadership.

The following is a REAL email, from a REAL company.

-------------------------------------------------------------------------
From: [undisclosed office manager]
Sent: Friday, February 06, 2009 4:13 PM
To: [Managers & Directors]
Cc: [VPs]
Subject: MEMO: New Time Clock Policy


MEMO

TO: All Salaried Managers/Employees
SUBJECT: Time Clock Policy


Due to the increasing difficulty HR has maintaining Salaried Managers/Employees schedules, we feel it is pertinent to implement a Time Clock Policy for all Salaried Managers/Employees. This policy is effective Monday, February 9, 2009.

Swiping the Time Clock:
· All Salaried Managers/Employees will be required to swipe in and out in the morning and at the end of the day
· All Salaried Managers/Employees will also be required to swipe in and out for their lunch hour
· If a Salaried Manager/Employee works on Saturday or Sunday, then they need to swipe in and out as well for those days

Hours of Operation:
· Office Hours for Salaried Employees are 8:00am – 5:00pm, Monday thru Friday
· Salaried Factory Managers will need to swipe in prior to their departments scheduled shift

Time Away from the Office/Factory:
· For any time Salaried Managers/Employees are out of the office/factory during normal business hours due to business meetings and/or travel, you will need to communicate this to HR to account for the missed swipes
· For any time Salaried Managers/Employees are out of the office/factory during normal business hours due to vacation or personal time, they need to submit the required forms according to the Time Off Policy

This new Time Clock Policy is mandatory and is to be followed by all Salaried Managers/Employees.

[undisclosed]
President


-------------------------------------------------------------------------

[begin sarcasm]
So let's hold the whole team accountable, instead of dealing directly with the folks that don't pull their weight. Let's just have a display of distrust towards everybody. That should take care of it and boost morale, right?

Since we're not rewarding individual (or even team) performance anyways, we shouldn't single out the non-performers either.

The fact that we even have to HOLD people accountable couldn't be a lack in sense of ownership of what their duties are, could it?

And since when is it HR's job to maintain employees schedules anyways?? Shouldn't that be the job of the managers that people report to?? Oh, never mind, we just needed a lame excuse to use as justification.
[end sarcasm]


The meeting that followed (on Saturday!) explaining the memo to managers and directors contained this statement:

"Call me an SOB, as long as you put the word 'fair' in front of it."

Well, I don't agree. 'Fair' in my dictionary is not about 'treating everyone the same regardless of circumstance, situation, or behavior'. 'Fair' is dealing with the match or mismatch of expectations and actual results of each individual.

Unfortunately, any tiny environment of trust was wiped out with this memo, so obviously nobody dared to speak their mind about it.

In my mind, this example of pre-historic management style and other unhealthy practices at the particalur company will limit its growth. The company will not be able to attract and retain the right talent to be competitive.

Best practice leaders do not focus on the bottom performers. They continually set higher (achievable) expectations for their top performers (~20%), which mobilizes the decently performing 'followers' (~60%) to perform at new levels. The (non-)performance of the bottom 20% becomes more and more obvious. Which either leads to their dismissal, their voluntary separation, or they may step up and improve.

Leadership in a (Permanent) Crisis

"An executive team on its own can't find the best solutions. But leadership can generate more leadership deep in the organization."

My comments on the article 'Leadership in a (Permanent) Crisis' by Ronald Heifetz, Alexander Grashow, and Marty Linsky on page 62ff in the July-August 2009 edition of the Harvard Business Review:

The authors distinguish two distinct phases when it comes to crisis leadership:
In the emergency phase, leadership's task is to "stabilize the situation and buy time."
After that leadership needs to address the structural and systemic causes that led to the crisis in the adaptive phase. This is to prevent a similar crisis to happen again, but also to "build capacity to thrive in a new reality". Obviously we are not necessarily talking about production capacity. But what I like to call 'management capacity' or 'leadership capacity'.

"The danger in the current economic situation is that people in positions of authority will hunker down. They will try to solve the problem with short-term fixes: tightened controls, across-the-board cuts, restructuring plans. [...]. Their primary mode will be drawing on familiar expertise to help their organizations weather the storm."
Senior managers do not realize the fallacies of their decisions. Typically they have successful careers and have built organizations, so what can be wrong with their expertise and decisions? Well, what got you here, won't get you there.

Most companies (and people for that matter) like to go back to their own ways after making it through a crisis. The authors compare it to people going back to smoking and not changing their diet after surviving a heart attack. The crisis is averted and the sense of urgency dissipates. As such, they do not even enter the adaptive phase and are vulnerable to threats in the post-crisis reality. They are also vulnerable to competition that does enter the adaptive phase and becomes better suited to navigate in the new reality.

Hitting the 'Reset' button requires some new leadership practices. Executing today, while adapting what and how things get done tomorrow. The authors' demands to "confront loyalty to legacy practices" and to "distinguish the essential from the expendable" seem like standard change and strategic management practices, but the suggestion to "run numerous experiments" is something a lot of leaders and employees like to avoid because the failed experiments are viewed as, well, 'failures'. The key is obviously to view them as learning experiences, to make the required course corrections, and thus arrive at a better process, product, or competitive position.

To foster this environment of learning the authors call to "depersonalize conflict" and to "create a culture of courageous conversations". This type of leadership sets the groundwork for an environment of trust, spurring leadership, ownership and accountability at different levels of the organization.

Generating this leaderhip is key. "It is an illusion to expect that an executive team on its own will find the best way into the future". Leaders need to start sharing their burden and accepting input from different levels and areas in the organization. This means giving up some authority and (legal or psychological) ownership.

Essentially, the article is not just about crisis leadership, but gives light to general leadership qualities that are already required of leaders and will become ever more important as global competition increases.

Alan Mulally - Ford's Comeback Kid

(These excerpts are from FORTUNE Magazine's May 25, 2009 edition)

Although I am not necessarily a Ford fan, Alan Mulally's words made him one of my leadership heroes. I was glad to see that there are some executives out there that know how to lead in the new millenium.

Here are some of his quotes from the article:

STRATEGIC PLAN:
"Communicate, communicate, communicate. Everyone has to know the plan, its status, and areas that need special attention".

COMMUNICATION FRAMEWORK:
"This is a huge enterprise, and the magic is, everyone knows the plan."

RESPECT:
"They don't bring their big books anymore because I'm not going to grind them with as many questions as I can to humiliate them."

ACCOUNTABILITY:
"We'll see them next week. We don't take action - I'm going to see you next week."

FOCUS:
"If somebody starts to talk or they don't respect each other, the meeting just stops. They know I've removed vice presidents because they couldn't stop talking because they thought they were so damn important."

TRUST:
"They can either work together, or they can come see me. They're not here. There's nobody outside. So they must be working together."

Best Practices in Strategic Cost Management

Under construction is a collection of Best Practices in Strategic Cost Management.

But first off, anyone who still believes that standard cost systems are adequate for today's management decisions need not read on, but first see the Strategic Costing quotes on Words to Lead By or the example on The Leadership Chronicles.

Everyone else can follow the link to Best Practices in Strategic Cost Management at http://strategiccostmanagement.blogspot.com/

Textbook vs. Reality

"Traditional bosses design and allocate work. Teams do that for themselves. Traditional bosses supervise, monitor, control, and check work as it moves from one task performer to the next. Teams do that themselves. Traditional bosses have little to do in a reengineered environment. Managers have to switch from supervisory roles to acting as facilitators, as enablers, and as people whose jobs are the development of people and their skills so that those people will be able to perform value-adding processes themselves.
This kind of managing is a real profession. Traditional practice undervalues both work and management. It undervalues work by stating that the only way a worker can get ahead is by becoming a manager. Managing, this implies, is more important than working. But the traditional practice also says that anybody who does well as a worker can manage.
In fact, managing is a particular skill, just like engineering or sales, and there is little correlation between excelling in a work skill and being a good manager. Casey Stengel was an adequate baseball player; he was a great manager. Most great players have made lousy managers.
Managers in a reengineered company need strong interpersonal skills and have to take pride in the accomlishment of others. Such a manager is a mentor, who is there to provide resources, to answer questions, and to look out for the long-term career development of the individual. This is a different role from the one most managers have traditionally played."

… from Michael Hammer & James Champy – Reengineering the Corporation – A Manifesto for Business Revolution - Forget what you know about how business should work - most of it is wrong. (p. 77) [highlights mine]

---


"Reengineering the Corporation" was published in 1993 and has been prime business literature and required reading in many MBA programs ever since. Yet, here we are 16 years later, and the roles of managers haven't changed in many companies.


This is a hard nut to crack in corporate America. In many companies it makes you the lay-off target, and with such a threat looming on the horizon, who wants to be the first to become the new model manager?
As mentioned in the Accountability post, managers will need to feel secure enough to let go of their stranglehold on their reports. Letting their reports run the daily activities, while the managers can focus on improving and growing the business.

"Overhead"

Strategic Management requires a shift in perspective when viewing "overhead".

The traditional view is based on a financial tradition of:

"CONTRIBUTING to Overhead (Absorption)"
Here we are trying to 'spread' the cost, to get as much 'out of it' as possible.
This leads to cost averages mixed into cost structures. The necessary detail of the cost structure is lost.

The perspective for strategic decisions needs to be:

"Overhead CONSUMPTION"
The key difference is the detailed link of what is actually consuming which overhead and by how much. Many items considered 'overhead' can truly be attributed to certain processes, products, customers, and channels. All of a sudden 'overhead' is not 'overhead' anymore.

This leads to profitability insights that can then allow proper strategic decisions about the respective 'overhead'.

Why Strategic Cost Management?

CEOs, Presidents, Owners, etc. always need to be examining, tweaking, and/or reinventing their business models towards maximum profitability. In order to do this, they need information about the cost structure and profitability of their products, processes, customers and channels.

It is crucial to know which parts (customers, channels, products, etc.) of the business are more profitable than others. Some parts may actually be removing profit from the bottom line. If all parts are considered to be adding to the bottom line, which parts add less profit than others? Because resources for these parts are underutilized and could be applied to more profitable parts.

Unless the company has a highly sophisticated ERP system with dedicated IT and analytical resources, this information is not readily available. Some companies have to rely on what they can get out of their standard cost systems, but these systems are typically designed for financial reporting, not strategic management decisions.

So, do you have the necessary detail, to confidently make these decisions?

• If you are sophisticated enough to have the information to make these decisions:
  - Is the information based on standard cost?
  Would you mind sharing your tweaks on the standard cost system to avoid averaging and cost distortion, and how you achieved the necessary level of detail?
  - If it is not based on standard cost, what types of analyses did you perform to arrive at the information?


• Your sophistication level is top of the line:
  - What actions has your team taken in the last 90 days based on the information you gather around customers, channels, products, and processes?
  - What other types of decisions do your team members make based on the data and information you have?
  - Are you able to attribute an increase in profitability to these actions and decisions? How would you quantify this?
  - If you decided not to make a certain change, what were your reasons for that decision?
  (for instance, why did company x NOT discontinue product line 5?)
  - How do you manage/incentivise/direct your sales force to go after the most profitable business?
  - How do you monitor changes in product mix and/or profitability? And how do you change your organization's behavior in light of any shifts?
  

Parkinson's Law

"Work expands so as to fill the time available for its completion."

C. Northcote Parkinson in The Economist (1955)

Accountability

So how do you make sure that those 'pesky workers' do their job right?

A colleague once asked me, 'So how do you hold them accountable? What are you going to do if they don't do what they are supposed to do? Are you going to discipline them?'

This wasn't even about value-adding tasks, but filling out paperwork correctly. The questions themselves display the wrong mind set.
Same thing along the lines of having to 'Inspect the Inspectors'.
Who do we trust in the end?

In my mind, accountability is not achieved by controlling/inspecting people's adherence to rules or assigned tasks, and enforce punishment on non-conformance. This obviously leads to fear (which unfortunately is still a widespread management style) and completely shuts off an employee's creative thinking and willingness to contribute outside the box.
The employee will wait until told, do exactly as he/she's told (even if they know a better way), and ask a supervisor's advice/direction before doing anything about non-standard/non-routine situations.
In this climate, you don't want to be blamed for trying.

I've seen a lot of people get really good at 'looking busy'. If you're measured by how much 'effort' you put in, why would you want to reduce that level of effort through process improvement? (That's of course if you had the authority to do anything about the way you do your job in the first place). It's scary when effort matters more than results.

And the managers are not letting go either. Why would they want to give up their self-defining and job-securing 'duty' of coordinating the work of (or rather FOR) their people on a daily basis? If employees all of a sudden started to think on their own and achieved outcomes without daily directions, what would happen to the poor manager? All of a sudden, he is 'not needed anymore'.
In this environment managers do not want to improve processes and procedures to make things easier. In their mind (and potentially in senior managers' minds), it would make them 'obsolete'.

They do not realize that 'making things easier' is everybody's job. To work yourself out of your job, is the best achievement you can have. Yet, in most cultures, you'll not just end up out of work, but out of a job entirely.

The right attitude has to start at the top of the food-chain. If the top dog does not lead this way, there is no way that the young pups will go anywhere.

So doing the right thing inherently gets you in trouble in such cultures. Like Drucker said, 'Most of what we call Management consists of making it difficult for people to get their jobs done'. He wasn't merely referring to adding bureaucracy or stove piping departments, but also to the underlying mindset of managers having to justify their existence.

I know a plant manager who almost fell victim (and still might) to doing the right thing. He forged a team (out of dysfunctional ruins) that was able to run a manufacturing department even when he wasn't there. Including handling all kinds of things that go wrong here and there.
Senior management ended up asking at one point, 'Do we even need this guy anymore?'. They wouldn't even give him credit for where he got that department. He got paid for what he did, right?
Who wants to develop a strong, high-performing team in such an environment? Raise your hand!

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The recipe for Accountability is Ownership.
No, we don't have to transfer legal ownership to every employee (although it helps). But the employees need to feel that they have authority over their 'world' to achieve the (clearly communicated) results that are expected of them.

Empowerment is an overused, often misapplied, and misunderstood buzz word in the management world, but employees need to have the tools and freedom to get the job done. In most cases it is not managers conferring power to their reports, but simply letting go of exerting too much power on them.

Employees simply need a clear direction, communicated goals, expectation of results, and a defined set of performance standards. THIS is what managers are supposed to be working on. NOT the challenges their employees are having. If the employees cannot solve their own challenges, then the manager has failed to grow them enough and give them the right tools to do their jobs.

A workforce with a sense of ownership is committed and pro-active. A culture of (the right kind of) accountability is a competitive advantage.

Let me end with a Deming quote: "Plants do not close from poor workmanship. Plants close from poor management."

The 85/15 Rule

There is a widely held belief that an organization would have few, if any, problems if only workers would do their jobs correctly. As Dr. Joseph M. Juran pointed out years ago, this belief is incorrect.

In fact, the potential to eliminate mistakes and errors lies mostly in improving the systems through which work is done, not in changing workers.

The observation has evolved into the rule of thumb that at least 85% of problems can only be corrected by changing systems (which are largely determined by management) and less than 15% are under a worker’s control—and the split may lean even more towards the system.

For example, a production line worker cannot do a top quality job when working with faulty tools or parts; a surgical nurse cannot do a good job with gloves that do not fit.

Even when it does appear that an individual is doing something wrong, often the trouble lies in how that worker was trained, which is a system problem.

Once people recognize that systems create the majority of problems, they will stop blaming individual workers. They will instead ask which system needs improvement, and will be more likely to seek out and find the true source of the problem.

Adam Smith - Division of Labor OUTDATED!

“It is no longer necessary or desirable for companies to organize their work around Adam Smith’s division of labor. Task oriented jobs in today’s world of customers, competition, and change are obsolete. Instead, companies must organize around process.
This is an assertion as radical and far-reaching today as Adam Smith’s was in his time. Managers who understand and accept this concept of process-based work will help their companies leap ahead. Those who don’t will stay behind.”
… from Michael Hammer & James Champy – Reengineering the Corporation – P. 28

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In my mind, this is why so many western companies are in trouble. Management is not able to adapt to new paradigms. Blame goes to China, outsourcing, and so on, instead of taking a critical look at themselves. Many companies have been successful for long periods of time, doing exactly what they've been doing, so tighter margins must be the name of the game and making external competitive pressures the culprit is just so much safer for the ego than exploring internal opportunities that may entail radical change and throw everyone out of their comfort zone.

Would you buy a Can of Coke (or Pepsi) for $1 Million?

Say there's a bottling/canning factory with $1,000,000 overhead or fixed cost. It has a capacity of 10,000,000 cans per year. Obviously the cost of one can is 10 cents (plus any variable cost, or we can assume here that it is 'fully automated').

What if (for whatever reason and just to prove a point) all year long, the factory just ran ONE coke can through the factory?
What is the cost of that can? Most people would answer $1,000,000. That's what cost accounting has drilled us to believe.

Well good luck selling that one can to consumers at a price that covers the 'cost'.

Shouldn't it still be 10 cents and there is a cost of $999,999.90 in unutilized capacity?
Standard cost systems do not capture such important considerations. This is especially critical in times of changing product mixes and volumes.

Yes, this example is drastic, but it proves the point. Relying on standard cost for pricing decisions can lead to devastating consequences:
The company starts inching up the sales price because "cost has gone up" --> customers are lost --> volume goes down further --> standard cost goes up more --> time to increase prices again --> the company has entered a death spiral.

This is happening as I type. Not as drastic as in the example, but across all company sizes, types, and industries. I am seeing it over and over again.
The batch of MBAs and ACC graduates that understand the threat are not in positions yet to impact a shift in senior executive awareness.

Click here to read Strategic Cost Management articles.

When Worlds Collide: Operations vs. Accounting

…in 2007 I witnessed a classic debate between operations and accounting:

Ops: Why is this standard unit cost so high [$1.25]? It used to cost 50 cents and we used to sell this for a buck!
Acc: The material price went up and the labor/overhead rate went up.
Ops: But that doesn’t make sense! What overhead rate?
Acc: $80 per hour of direct labor
Ops: What? What’s in there??
Acc: It’s labor + the overhead derived from spreading it over total labor hours
Ops: Is it $80 everywhere?
Acc: No, this is for the molding department. Every department has a different rate.
Ops: Molding? But this product isn’t molded!! There’s only a little glue sprayer that they use to apply the Velcro to the foam.
Acc: But the people in the molding department produce it so that’s the rate we use in the routing and it went up from last year’s $45 because you didn't utilize the equipment well enough.
Ops: But that doesn’t make sense! This product doesn’t USE molding equipment!!!

I hear and see this kind of interchange quite a bit. The numbers, products, and processes change, but the underlying disconnect is the same. Standard cost is inadequate for today's management and operations strategies. Hence the importance of Activity-Based Costing and other Strategic Costing methods. Standard cost is fine for the finance/accounting side of things. It is necessary to value inventory (until lean thinking can reduce it) and create monthly financials.

Finance and accounting folks are entrenched with standard cost methodologies, which is good for regulatory requirements sake. There are only a few who possess the right lens to see things different. But it is very important for management to see true costs, and make their strategic and operational decisions based on that.

"Traditional managerial accounting is at best useless, and at worst dysfunctional and misleading.“

John K. Shank

Noble Professor of Managerial Accounting and Management Control

Tuck School of Business - Dartmouth College

“[Traditional standard cost systems] are inadequate for managers and employees in today’s competitive environment.”

Robert S. Kaplan

Baker Foundation Professor at Harvard Business School

(Online) Collaboration - The Next Generation Company

John Chambers - President and CEO of Cisco Systems - recently gave a wonderful speech at MIT about how Cisco is able to get to market so quickly, innovate at an incredible rate, and enjoy and maintain their growth and profitability figures.

I urge any manager, project manager, team leader, facilitator, etc. to sit and listen through it.

I found it here:
http://www.twistimage.com/blog/archives/building-a-next-generation-company/

If you think a one hour video is too long, start to whet your appetite here: http://www.fastcompany.com/magazine/131/revolution-in-san-jose.html

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After listening and reading, be aware of an article in the April 2009 edition of Harvard Business Review that cautions excessive use of collaboration. 'When Internal Collaboration Is Bad for Your Company' by Morten T. Hansen:

Collaboration comes with several types of cost:

1. The cost to have the infrastructure to perform collaboration - online or traditional. You may want a company internal version of facebook of some sort. The geeks at Cisco were obviously able to easily put something like that together themselves.

2. The time of employees spent on blogging and collaborating online or in meetings is a cost to the company.

3. There is an opportunity cost as the time spent on collaboration could be spent on doing the things they are originally expected to do.

All this needs to be outweighed by the benefit/return from collaborating. The author calls it the 'Collaboration Premium'.

"IT'S A MISTAKE to underestimate collaboration costs in the hope that collaboration can be mandated or will naturally improve during the course of a project."