Executive Insight

Rethinking Lean: Beyond the Shop Floor

Once the domain of manufacturing, lean has migrated far beyond the shop floor, transforming service organizations and innovation efforts. The principles of waste elimination, worker involvement and continuous improvement haven’t changed, though, and the results are still impressive. In a special report, Wharton and The Boston Consulting Group look at how lean is transforming health care, R&D and finance.

Examples:

¨   An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions – while improving customer satisfaction through more differentiated service.

¨   A lean audit of one North American asset manager uncovered ways to make product pricing 12%-20% more efficient by carefully identifying and eliminating non-value added activities.

¨   Analysts using a lean approach in one investment bank reportedly gained 20%-30% in analyst productivity — and a 60% reduction in cycle time — by redefining credit processes.

¨   Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency.

Read more…

 

Wall Street Journal indepth report on growing labor discontent in India, at times leading to bloodshed.

In a major article today The Wall Street Journal reported:

"Battle lines are being drawn in labor actions across India. Factory managers, amid the global economic downturn, want to pare labor costs and remove defiant workers. Unions are attempting to stop them, with slowdowns and strikes that have led at times to bloodshed.

The disputes are fueled by the discontent of workers, many of whom say they haven't partaken of the past decade's prosperity. Their passions are being whipped up, companies say, by labor leaders who want to add members to their unions and win votes for left-leaning political parties. Adding to the tensions are the country's decades-old labor codes, which workers and companies alike say require an overhaul.

The country's manufacturing sector, after growing about 7% annually for the past 16 years, logged 2.4% growth in the 12 months that ended in March. That has pressed manufacturers to make some unpopular cutbacks -- spurring labor actions that have slowed production further and suppressed growth.

For India to grow faster, economists say, manufacturing must grow more than GDP.  Instead it now lags:

 
Strikes at India's manufacturing and service companies rose 48% in 2008 from the year before, India's Ministry of Labor says. This year, labor actions have hit manufacturers from Indian automaker Mahindra & Mahindra Ltd. to Finland's Nokia Corp. and Swiss food giant Nestle SA.

Indian manufacturers are governed by two old labor laws. The country's Industrial Disputes Act of 1947 requires companies to gain government permission before dismissing workers. The Contract Labor Law of 1970, meanwhile, prohibits employers from using temporary workers for long-term jobs. Both aim to encourage companies to protect workers by making them permanent.

Manufacturers have long complained that it can take years to dismiss their permanent employees, leading to bloated work forces and hampering companies' ability to respond quickly to changing business conditions. Executives and industry groups say relaxing the labor laws would allow companies to hire more workers and would attract more manufacturers to India, ultimately underpinning a rise in wages.

Read the article.

Interactive Graphics: Deadly labor wars hinder India’s growth.

An Organizational Strategy Primer

Effective organizational strategy enables a company to develop an organization capable of delivering its strategy.

In this trilogy of articles, we argue that few companies look at their organization as strategically as they could and should, and suggest that this is surprising considering the extent to which organizational capabilities and performance now drive business value.

We start by explaining why organizational strategy matters; we contend that absent effective organization strategy, gaps and misalignment will frustrate business strategy and desired performance objectives will not be met. It’s as simple as that.

Then, in the second article, we define and clarify the discipline and requirements of organizational strategy; namely it is a lucid description of how the organization needs to change – over time - in order to be able to deliver the strategy of the enterprise and an actionable plan of how to make the transformation. This requires both the thinking and analysis to compare current state to desired state and define the gap and the execution requirements to make the requisite changes happen.

Finally in the third article we lay out a framework for the effective implementation of organizational strategy; this article centers on how to best formulate and effectively implement organizational strategy so that strategic intent is converted into sustaining and differentiating results.

Despite the challenges of the current economy, taking the long view has never been so vital for business leaders; tomorrow’s competitive advantage will only be achieved and sustained if your organization is good enough; effective organizational strategy provides the framework and the means to build the requisite organizational capabilities.

These three thought leaders – never previously published together - provide an essential foundation for business and human resource executives to understand the nature and importance of organizational strategy and how to integrate it into their strategic agenda and the operating fabric of their business.

Download Organizational Strategy Trilogy

Russell Ackoff - unconventional management theorist - 1919-2009

An evangelist of the big picture, Russell Ackoff was a management theorist who helped U.S. corporations by reimagining their challenges as opportunities to restructure.

Mr. Ackoff, who died Oct. 29 at age 90, was an expert in conceptualizing problems. He liked to say they came in three flavors: problems, messes and puzzles, and each needed its own distinctive toolkit.

Mr. Ackoff was one of a small group of management-studies pioneers who changed the way corporations thought about their businesses. Peter Drucker once wrote to Mr. Ackoff that his early work "saved me -- as it saved countless others -- from descending into mindless 'model building' -- the disease that all but destroyed so many of the business schools."

No fan of most business education himself, Mr. Ackoff nevertheless ran a business graduate center at the Wharton School of the University of Pennsylvania. There, he trained generations of management graduate students in an unconventional program that he said had "no curriculum, no classes, no examinations, no admission requirements -- only exit requirements."

Acerbic and aphoristic, Mr. Ackoff was fond of sayings such as "All of our social problems arise out of doing the wrong thing righter. The more efficient you are at doing the wrong thing, the wronger you become. It is much better to do the right thing wronger than the wrong thing righter! If you do the right thing wrong and correct it, you get better!"

Mr. Ackoff published such sentiments in a series of books. He also wrote about how to manage in the face of extreme uncertainty, such as the crises presented by the oil shocks and inflation of the 1970s.

Mr. Ackoff implemented his ideas through consulting with hundreds of companies, and later in his career, with governments. He helped General Motors create its OnStar navigation system, and had a three-decade association with Anheuser-Busch in which he helped the St. Louis brewer achieve national dominance.

Working with August Busch III, later Anheuser-Busch's chairman, Mr. Ackoff in the early 1960s helped design an expansion strategy that included building new breweries and warehouses, after potential sites were identified via computer modeling, a highly unusual approach at the time.

Mr. Ackoff also studied Anheuser-Busch's marketing strategy, and came to the conclusion that increasing advertising budgets had little effect on sales. (Neither did the taste of the beer, he found through blind taste tests.)

"This was incredibly valuable," says Bill Finnie, a former director of strategic planning for Anheuser-Busch who studied for his Ph.D. under Mr. Ackoff. "It gave Anheuser-Busch the confidence to maintain its marketing budget flat from 1961 to 1976. We quadrupled sales."

According to Mr. Finnie, reduced marketing costs were passed on to the consumer, making Budweiser inexpensive compared with local brands that had dominated the market through the 1950s.

In Mr. Ackoff's more than 30 years working with Anheuser-Busch beginning in 1960, the company's national market share grew to more 40% from 7%.

In return for his insights, Anheuser-Busch sponsored Mr. Ackoff's academic pursuits, including Wharton's Ackoff Center for the Advancement of Systems Approaches.

But Mr. Ackoff grew frustrated with management studies, which he felt were too limited in their focus on private industry rather than looking at organizations in the public sector as well.

At the same time, academic departments objected to qualitative approach that lacked statistical backing, and Mr. Ackoff disappeared from reading lists in the 1970s and 1980s. Yet he remained in demand by corporate clients and increasingly by governments, such as Iran, where in the 1970s he helped design a way of clamping down on cigarette smuggling.

Born in Philadelphia, Mr. Ackoff sometimes credited his undergraduate studies in architecture at the University of Pennsylvania with sparking his interest in holistic systems.

After serving in the Army in the Philippines during World War II, he completed a doctorate in the philosophy of science at Penn in 1947, and in 1951 joined with his Ph.D. supervisor, C. West Churchman, to found one of the first schools of operations research, at the Case Institute of Technology in Cleveland, which later became Case Western Reserve University. In 1964, the Wharton School recruited Mr. Ackoff and a handful of colleagues from Case.

In a field he regarded as littered with charlatans, Mr. Ackoff rejected the term "guru," favoring "teacher," in the belief that he was helping his clients design their own solutions. He delighted in crossing discipline boundaries, and his influence sometimes turned up in unexpected places -- Mr. Ackoff was part of a team that redesigned the White House Communications Agency during the administration of President Bill Clinton.

"He is representative of what I fear is a dying breed -- management scholars willing to tackle big and broad business themes," says Roger Martin, dean of the Rotman School of Management at the University of Toronto.

Source: The Wall Street Journal , November 11 2009

SEC Issues New Guidance on CEO Succession Planning

During the past two proxy seasons, the SEC received a number of no-action requests from companies seeking to exclude proposals relating to CEO succession planning in reliance on Rule 14a-8(i)(7). These proposals generally requested that the companies adopt and disclose written and detailed CEO succession planning policies with specified features, including that the board develop criteria for the CEO position, identify and develop internal candidates, and use a formal assessment process to evaluate candidates. The SEC judged that these proposals could be excluded in reliance on Rule 14a-8(i)(7) because the proposals related to the termination, hiring or promotion of employees.

The Commission had stated in a 1998 Release that proposals involving "the management of the workforce, such as the hiring, promotion, and termination of employees" relate to ordinary business matters. Its position to date with respect to CEO succession planning proposals was based on this guidance and the historical approach to proposals relating to employee hiring and promotion.

In an October 26^th 2009 Release however it changed its position.  Reiterating that one of the board's key functions is to provide for succession planning so that the company is not adversely affected due to a vacancy in leadership, the Release read,  “Recent events have underscored the importance of this board function to the governance of the corporation. We now recognize that CEO succession planning raises a significant policy issue regarding the governance of the corporation that transcends the day-to-day business matter of managing the workforce. As such, we have reviewed our position on CEO succession planning proposals and have determined to modify our treatment of such proposals. Going forward, we will take the view that a company generally may not rely on Rule 14a-8(i)(7) to exclude a proposal that focuses on CEO succession planning.”

This change in position will most likely bring issues of CEO succession more prominently to the shareholder relations’ agenda and cause companies to more rigorously and transparently develop Succession Plans of consequence.

Directors lose elections, but not seats; staying power of board members raises questions about investor democracy

A record number of corporate directors snatched victory from the jaws of their defeat by shareholders this year.

In a sign of investor discontent, 93 board members at 50 companies have received fewer than 50% of votes cast during annual meetings so far in 2009, according to RiskMetrics Group Inc. That's more than twice as many as any other year since the proxy-advisory firm began tracking the trend in 2003.

But none of those directors lost a board seat. All serve companies with "plurality" voting, meaning they can win uncontested elections with a single vote. Re-elected directors at two companies offered to resign under those companies’ "plurality plus" policies, but were reappointed.

The staying power of these board members raises questions about the limits of shareholder democracy. But snubs of sitting directors can help unhappy shareholders achieve other corporate-governance goals.

Activist investors pressing for more accountability in director elections say they aren't dismayed by the survival of minority-vote directors. Edward J. Durkin, corporate-affairs director for the United Brotherhood of Carpenters and Joiners of America, has pushed for majority-vote rules. Mr. Durkin says the rules are working, because boards are more responsive to investors. "It doesn't require people getting thrown off boards," he says.

The ranks of directors without majority support are likely to swell further next year. Under New York Stock Exchange rules effective in January, brokers no longer can vote clients' shares during elections.

Brokers typically back incumbents. Eliminating broker votes "could tip the balance" against board members opposed by activist institutional investors, predicts David Drake, president of Georgeson Inc., a management proxy adviser.

Source: Wall Street Journal; 09/26/09

Why Organizational Strategy Matters

Why Organizational Strategy Matters

View more presentations from Charlesmore Partners International.

Leadership Development - Why Experience is the Best Teacher

Leadership Development - Why Experience Is The Best Teacher

View more presentations from Charlesmore Partners International.

Do you have leadership continuity plans in place?

Management succession is one of the most critical strategic risks a corporation faces, particularly as 46% of executive departures are unplanned and 50% of baby-booming senior managers will reach retirement age in the next five years.

Yet 51% of companies do not have a succession plan in place and only 6 percent claim a system in place to build top-flight executive teams.

Management literature shows that failing in leadership transition can be deadly to even the most successful of businesses. Indeed, since it can be a source of such business uncertainty, The Conference Board recommends that succession plans and leadership development strategies be developed and integrated into enterprise-wide risk management programs. It also recommends that corporate executives dedicate full attention to their succession planning duties and use the challenges posed by the economic crisis as an opportunity to improve their companies’ leadership development programs.

Contact Charlesmore Partners International for more information on how to build and implement effective succession strategies, manage change in organizational leadership and mitigate the risk of leadership discontinuity. You can read a synopsis here.

What is a transnational organization?

Think global, act local has long been the mantra of the transnational.

True transnational capability requires:

·         Exploiting the global integration

·         Assuring local acuity, responsiveness and flexibility

The transnational corporation simultaneously pursues global efficiency, national responsiveness and knowledge development and exploitation on a worldwide basis.

The most successful global corporations have found a way to manage these dynamics successfully, interdependently and interchangeably.

Absent this balance companies typically operate internationally either as multi-domestics – providing a high degree of strategic freedom and organizational autonomy to subsidiaries or as mega-nationals – retaining tight control of strategic decisions and information at the global hub (worldwide facilities typically centralized in the parent country, products standardized, and overseas operations considered delivery pipelines to access international markets).

The problems with these models are:

·         The mega-national may fail by blindly applying home country rules and practices to the new environment (under adaptation). Local entities increasingly act independently, redundancies and conflicts abound and the benefits of global reach erode.

·         The multi-domestic firm can fail by playing entirely by the local rules (over adaptation). Increasing this model becomes out of touch with customers and employees and fails under its own inflexible weight.

·         A hybrid that attempts to balance both dynamics – often called a matrix – works in concept more than reality - the matrix may fail due to complexity and procedural confusion (over-engineering).

New transnationals (and some incumbents) continue to experiment with alternative organizational forms and BCG highlights many that are at the cutting edge of architectural design. Often flexible networks replace more conventional designs. The challenge is that organizational performance doesn’t happen by osmosis and is planned and orchestrated and an adhocracy ultimately will prove problematic to sustainability. The balance of global and local will still be necessary.

Global Integration

Global integration means centralized control over key resources and operations that are strategic in the value chain; decisions are made from a global perspective

Global integration can provide a firm operating internationally with a number of important benefits derived from a worldwide optimization of resources:

Economies of scale. A company can lower its unit costs by centralizing critical value chain activities, such as manufacturing or logistics. This may involve hav­ing a small number of large facilities to make prod­ucts for export, or creating a network of specialized and focused operations spread around the world that are tightly controlled by the central hub.

Value chain linkages. Sometimes competitive advan­tage comes from tight linkages between value chain activities - between R&D, manufacturing, and marketing in the home country which is a techno­logical leader (for example Silicon Valley in the In­ternet equipment business); or between manufac­turing and logistics. Tight integration allows the firm to stay ahead of technological and competitive changes.

Serving global customers. To the extent that customers are integrated and operate on a global basis, their suppliers may be forced to adopt a similar structure. Subsidiaries do not have their own stand-alone cus­tomers; prices, quality standards and delivery terms are determined globally.

Global branding. Consumer product companies such as Coca Cola or Gillette promote a united brand image around the world. Coke standardizes its for­mula and advertising themes (its two critical success factors), gaining efficiencies in utilization of mar­keting tools such as advertising and merchandising.

Leveraging capabilities. Some companies expand globally by transferring capabilities developed in the home market. The international expansion of both IKEA and Wal-Mart depends on supply-chain management skills that allow these companies to pursue their traditional low price strategies around the World.

World-class standardization. Key processes are stan­dardized and centrally controlled so as to maintain competitive advantage. The pharmaceutical giant Merck manufactures locally to meet government requirements. Its manufacturing processes are complex, however, and these are standardized in order to maintain quality.

Competitive platforms. Tight control of local subsidiaries by central headquarters may allow rapid response to competitive conditions and redeploy­ment of resources so as to facilitate expansion worldwide. For example, tightly centralized Japan­ese multinationals penetrated new markets in the past through price subsidization funded by prof­itable operations elsewhere.

Information advantage. Prime examples of mega-national firms - Japanese trading companies (sogo shosha) - are located in every corner of the world. Through the network of local offices, staffed primarily by Japanese expatriates, they optimize global business opportunities by tapping into pric­ing and delivery information about thousands of products.

Global integration does not necessarily mean distributing the same product or service in the same way all over the world. What it does mean is that decisions on how to address local customer needs or market differentiation are made by managers who have an integrated global point of view.

Forward-looking firms are finding that no region or country has a monopoly on business-level component capabilities and firms that actively seek the latest resources and skills from around the world can build superior knowledge and performance capability.

The ability of multinational firms to access foreign-based clusters of excellence is a clear source of advantage in gaining component knowledge-based advantage.

Implementing Global Integration

Important considerations include:

·         The alignment of decision-making to ensure that local decisions reflect a global perspective

·         The standardization of processes to achieve desired efficiencies and uniform behavior, using formalized control

·         The socialization of key individuals in central and expatriate leadership positions to ensure global orientation

A Case in Point

By way of illustration, one particular client company that occupies a valuable niche position in the global medical device industry saw developing economies as significant growth markets over the next five – ten years. Its business was sound, but not particularly profitable. Years of doing business internationally had not translated into global mindset or practices. Product development was centered in two locations – North America and Europe; products were designed with a local orientation and an export mentality; leveraging local manufacturing capacity and legal entity financial results were blatant priorities; you could drive to most suppliers within a couple of hours; sales reps often competed against each other for international orders. Candidly, the organization was less an impediment to global growth than a foundational barrier.

Amongst the many clear realties facing a new CEO was that he couldn’t get from here to there without transformational change; espousing new values and expecting the organization to miraculously globalize was clearly not going to happen. In fact, what was required was a carefully constructed organizational strategy that – over time – built the practices, capabilities and mindsets of a global company. It is an ongoing journey that involves new leadership, extensive organization development activity, a new organizational architecture, new operating, information and communication systems and practices, a global P&L tied to a new reward system, the development of a global product portfolio, lean manufacturing centers of excellence and a global fulfillment and distribution process. The organizational transitions are immense as the company preserves institutional knowledge, while foundationally changing its modus operandi.

Coordination Mechanisms

Coordination mechanisms that help build and bond global integration include:

Face-To-Face Relationships

·         Things get done through relationships not hierarchy

·         Ties are built that span boundaries

·         Events, projects, work assignments, knowledge sharing protocols, problem-solving

·         Boundaries can be intra- or extra-organizational

·         Conflicts are worked out through relationships, not because somebody decides

·         Relationships deepen over time; they represent the social capital of the enterprise

Cross-Boundary Teams/Groups

·         Fundamental coordinating mechanism for the transnational

·         Be clear on purpose and deliverables; provide authorities and boundaries

·         Staff for diversity and capability, not representation

·         Mix face-to-face, synchronous and asynchronous where possible

·         Promote learning as well as results

Global Process Management

·         Horizontal standardization of sets of activities that are regularly repeated and focus on clearly identified deliverables

·         Foundational pillar of coordination

·         Global definition of process, local responsibility for execution

·         Little room for local adaptation

·         Improvements sought and shared

Know-How and Best Practice Sharing

·         Create organizational opportunities, structures and technology platforms

·         Set expectations for sharing and knowledge development and deployment

·         Provide investment, visibility, recognition and reward

·         Maintain, sustain and refresh

Knowledge Management

·         Provides and advances competitive position

·         Transfers corporate knowledge from individuals to the firm

·         Converts established learnings into shared, organizational platforms

·         Develops new sources of value

·         Reduces redundancies and wheel re-invention

·         Strengthens corporate “glue”; fosters global-local understanding

·         Deepens networked relationships; builds organizational competencies

Normative Integration

·         The socialization that leads to shared attitudes, values, and assumptions - the shared culture of an organization – and emphasizes the importance of a communal sense of identity

Without normative integration, communication across borders would be time consuming since people would have to figure out what terms and concepts meant to others and repeatedly establish new norms for social exchange (leadership expectations, how to surface and deal with conflict, the nature of reciprocity, and myriad other such norms)

Other coordinating mechanisms include global mindset development, transnational leadership development and organizational capability building. We’ll cover each of these in subsequent postings.

Local Responsiveness

Quando vai a Roma, fai come vedi?

(dipende)

·         It depends upon the specific situation – what is necessary and what is the context.

·         It depends upon the chosen (adaptive) strategy of the company.

Choices include:

·         Cultural accommodation (adapting practice to local norms)

·         Cultural compromise (deciding to find some middle ground)

·         Cultural synergy (finding a way to integrate practices)

·         Cultural relativism (practices are established relative to home country norms)

Differentiation of Subsidiary Roles and Responsibilities

Some companies have begun to differ­entiate the roles and responsibilities of their national subsidiaries.

The intersection of strategic and organiza­tional considerations defines four generic roles that country organiza­tions can play in fulfilling the global objectives of the transnational organization.

The principal strategic consideration is the overall importance of national environments to the firm’s global strategy. A very large market is obviously important, but so is a competitor’s home market, or a market that is highly sophisticated or technologically advanced. The major organizational consideration is the national subsidiary’s compe­tence - in technology, production, marketing, or another area. Depend­ing on its positions along these dimensions, a national organization may function as a strategic leader, contributor, implementer, or black hole.

Strategic Leader

National organizations with high internal competence located in strate­gically important markets must be legitimate partners with the head­quarters in developing and implementing broad strategic thrusts.

Contributors

Several companies we try to capture the benefits of certain local facilities or capabilities and apply them to the broader worldwide operations. This pattern was particularly characteristic of subsidiaries in which competence was high but the strategic impor­tance of the market was limited.

Implementer

Some national organizations have just enough competence to maintain their local operations in a nonstrategic market. Corporate resource com­mitments reflect the market’s limited potential. In most companies, the majority of national units play this role. It is characteristic of many subsidiaries in the developing countries of Latin America, Africa, and Asia as well as the national organizations in Canada and in the smaller European countries.

These national organizations cannot contribute much to the strate­gic knowledge of the firm. They do not have access to critical informa­tion; they do not control scarce resources.

Fundamentally, they are implementers - deliverers of the company’s value added. Their task is not unimportant, however. The implementers often maintain the com­mercial viability of the company and generate the resources that sup­port strategic and innovative processes. For this reason, their efficiency is as important as the creativity of the strategic leaders or contributors. The implementers make it possible to capture economies of scale and scope that are critical to most global strategies.

The Black Hole

There may be strategically important markets in which a worldwide company has minimal capabilities. This is true, for example, of Philips in Japan, of Ericsson in the United States, and of Matsushita in Europe. In each of these markets a strong local presence is essential for main­taining the global position of the firm. Yet these competitors have only token positions in these markets.

The black hole is not an acceptable strategic position. The task for management is to find a way out of this thankless role. In essence, the national organization in a black hole situation should be playing the role of a strategic leader but lacks the competence to do so. Remedies will not come cheap. Developing a significant local presence in a large, sophisticated, and competitive national environment is extremely difficult, expensive, and time-consuming.

One common response to this challenge has been to create a small sensory capability to exploit the learning potential of the environment, even if its business potential is beyond reach. Thus, many American and European companies have established small organizations in Japan to monitor technologies, market trends, and competitors. The assump­tion is that such monitoring will allow the companies to analyze the global implications of local developments and at least prevent erosion of their positions in other markets.

Why Localize?

Important reasons include:

·         National, regional and local market characteristics

·         Network development and leverage; connections

·         Customer needs, preferences and buying practices

·         Local regulations and infrastructure

·         Public opinion/political interests

·         Employment norms/workforce appeal

How To Localize?

There are many important imperatives that promote and reinforce a localization strategy:

·         Open-mindedness; tolerance for diversity and ambiguity; inclusion; reciprocity; sensory acuity

·         Investment and commitment; local presence, infrastructure and relationships; long-term orientation

·         Shared vision and goals; distributed authority; information transparency; mutual knowledge and learning

·         Product/service/business process adaptation; business, leadership and organization development