unconventional management

There's an American music wholesale firm called Pepper whose working ways are downright peculiar. Everybody working in the company, from the CEO downwards, is expected to tackle any job, especially in the busy season. It's so busy that the staff work all hours and all days - the corollary being that, in the slacker times, they happily work short weeks. But the business doesn't rely on human effort for its efficiency: it's highly automated, and the entire process of picking and despatching the sheet music, complete with invoice, is triggered by the order.

The next day delivery is enabled by a system of eight warehouses, which Pepper sets up in partnership with local retailers - who might otherwise resent the competition: for the company will only sell to individuals, never to the trade. The service is so good that Pepper is a dominant force in its sector, for all its peculiarities; or rather, because of them. True, the management has broken with convention, but only for eminently logical, commonsense reasons. After all, if an urgent order needs packing, why shouldn't the chief executive do the job - if he has nothing more immediately important on hand?

Move into the realm of convention, and commonsense often flies out of the window. To give an example, you find a young mother who hardly ever sees her infants because her senior post in a London investment bank involves a 90-hour working week: bad for her, bad for the babies and very probably bad for the bank, since efficiency is liable to suffer under such a burden of hours. Her justified (but unavailing) objections are only an extreme instance of the general pressure of business. Complaining executives commonly describe their shortage of hours as oppressive - arguing that they have no time to think, let alone to act on any new wisdom they might achieve or imbibe.

PRECEPTS INTO PRACTICE
That was the answer given by a distinguished consultant to his own question, addressed to me after listening to a lecture on The Role of Innovation. He wanted to know why executive audiences, having heard such excellent advice, didn't dash off and put the precepts into practice. Wasn't it because their in-trays and briefcases were bulging with more immediate matters? Part of my reply was the same as the advice I tendered to the 90-hour mother. She needed to apply the famous Peter Drucker catechism:

1. What am I doing that needn't be done by anybody?
2. What am I doing that needn't be done by me?
3. What am I doing that can only be done by me?

Very obviously, you stop any activities under the first heading, delegate those under the second, and end up only doing the third - and having vastly more time in which to tackle those essentials. You will very rarely find managers who claim to spend all their hours under the third heading. Most admit to wasting time both on the totally unnecessary and on work that could and should be given to others. The paradox is that it takes some time to stop wasting time in this manner - the victim of executive overload has to conduct a time analysis: and it literally becomes too much trouble to save time and trouble.

That's the real answer to the consultant's question about why managers prefer staying in conventional ruts to changing their ways. Breaking with convention, no matter how high the rewards, involves more effort than continuing along the conventional path; and that's a deterrent, no matter how great the inefficiency - or the loss of potential profit. For very important example, the principles of establishing and sustaining brand leadership are just as self-evident - and self-evidently true - as the Drucker rules on time. Brand leaders should without doubt focus on...

1. Superior quality
2. Superior service
3. Differentiated value propositions
4. Innovation

What happens in practice, though? Even a strong brand leader will put most effort into quality, notably less into service, and may well have no clear differentiation. As for innovation, the following quotes from an actual case (with a huge market share) will ring true in many companies: 'Creativity is totally discouraged here'...'Product lead times are far too long'...'We're a market leader who behaves like a market follower'...They wear people down who have new ideas.'

Yet managers in that company, as in most others, would swear, hands on hearts, that they are devoted to encouraging the new: as they should be, for innovation is indispensable to progress. But new directions are by definition unconventional, eccentric. For instance, many companies are perennial victims of the business cycle. They land themselves with high inventories to meet the forecast peaks of demand; and have to offload the stock, after incurring heavy carrying costs, when demand contradicts the forecasts and descends into the trough. An intelligently eccentric manager would approach the matter quite differently:

'When you build to customer order rather than to inventory, you no longer have to make a production forecast. You also eliminate the cost of making the wrong stuff and then having to discount it in order to sell it.'

OLD BAD HABITS
The quote is from James P. Womack, co-author with Daniel T. Jones of Lean Thinking, a book which Thinking Managers has already praised to the skies. The authors, who were being interviewed by Fortune magazine, point out that 'Inventory management, a key measure of how efficiently a manufacturer operates, hasn't improved for US companies' - or European and Japanese ones - 'in the past 10 years.' Companies would rather stick to old habits, like running expensive machines for as long as possible, than move to a new order-based system that targets 'specific product runs on a timely basis.' The first appears to be the more economic on conventional criteria - but that's a snare and a delusion.

When Pratt & Whitney abandoned convention in Connecticut, manufacturing time fell by two-thirds and inventories by 70%. But will other manufacturers, even P&W's competitors in aero-engines, be rushing to put the same principles into practice? That's highly unlikely - until the point of real commercial and financial pain arrives. Like much new thinking, the Womack-Jones thesis is 'counter-intuitive': a word which really means that the intuitive opponent hasn't looked at the facts with an open mind, isn't prepared to admit that he is wrong, and prefers convention to logical truth.

A prime example of intuitive error is the idea that, if you improve parts of a system, you will necessarily improve the whole. In fact, the whole can only be improved as a whole - an obvious truth that might also be revealed even by a brilliantly successful reform like P&W's. How much did the Connecticut achievements benefit the overall divisional results? The safest assumption is that gross failures - like the previous fault of taking three times as long over manufacture as needed - are symptoms of deeper malaise.

Indeed, Womack found that P&W had invested millions to develop a new engine whose prime selling proposition was a 6% reduction in fuel consumption. Womack pointed out that today fuel costs less than water. P&W was pursuing an objective that, true enough, had been valid for four decades: but now 'fuel efficiency is way down on a customer's list of concerns.'

CUSTOMER VALUE
Such a list provides vital clues to systemic failure - for those prepared to be eccentric. What do the customers value most, and how does your provision stack up against those concerns? That's the starting point for the five steps in the Womack-Jones lean thinking process:

1. Specify where to create customer value
2. Identify every step in the process, from design to production to final distribution
3. Eliminate waste by smoothing the flow between each step
4. Produce only to customer order
5. Strive for perfection, in which every action improves profitability.

Again, what happens in practice? When consultants Develin & Partners investigated a company supplying beverages to caterers, they found an important discrepancy between the elements of service which customers thought critical and their perceptions of the suppliers' performance as compared with that of its rivals. The three top requirements were (1) quality products (2) competitive price (3) strong brand, followed by timely delivery, order completeness, helpful sales force and effective problem resolution.

The company was better than its competitors on the Big Three - but only slightly. It was worse on delivery and completing the orders, much better on the helpfulness of the salesforce and solving problems - as it had to be, given that there were all too many problems to solve. As the consultants observe, 'The field force was compensating for serious process failures, and wasting valuable selling time into the bargain.'

That whole-system defect, with its misallocation of time, ties in neatly with the 90-hour working mother and with another Develin case. It concerns a company supplying safety systems to high-risk premises. One huge problem was the very low success rate of tenders for new business - one in ten. The reason emerged clearly from a Drucker-style time analysis of the sales engineers. No less than 37% of their hours were wasted on activities which nobody should have needed to do: sorting out problems caused by late or incomplete delivery, etc.

The engineers were able to spend only 5% of their time on their essential activity of prospecting for orders - not surprisingly, since the activities of pre-tender estimating and producing proposals occupied half their time. Here the engineers were doing work that should have been done by somebody else - the estimating department. Some genius had decided to save on overheads in the conventional way, by employing fewer people. The reduced numbers couldn't handle the load, so engineers were asked to stop selling and do estimates; otherwise the tenders wouldn't reach potential customers in time. Naturally, the salesmen weren't equipped for the tricky art of estimating, and their poor quality work helped to explain the low hit rate.

The major factor, though, was that three sales engineers were being diverted from selling for want of just one extra estimator. Once the false economy was pointed out, the company went one stage further. It merged sales engineering and estimating into a single department. Working as a team, instead of two rival sides, the new department boosted the hit rate to one in six: and Develin reports that turnover is set to double in three years. Custom and practice had kept asunder what should never have been apart. The consultants' eccentric insight ('departing from the norm, not positioned centrally', in the dictionary definition) was required to crack the mould.

UNALTERABLE FACT
In my own case experience, a very similar situation cropped up in a building products company. A progressive sales director had made many positive changes designed to motivate his sales force and mobilise its energies. At a group session, however, many of the sales complaints centred round the poor performance and lack of cooperation from the customer support team. Naturally, I assumed that this was another part of the firm. Astonishingly, the same boss ran both operations. Nobody had thought of either merging the two or ensuring that they performed to the same standards - or even that their rewards were comparable and compatible. What was given was simply accepted as unalterable, if unpalatable fact.

That can stand as a working definition of conventional practice: uncritical acceptance of the given. How do you combat convention? How do you build constructive eccentricity into the working habits of the organisation? A good start is to rate the company on these eight fundamentals of innovation:

1. Do you track and reward the new ideas implemented each year?
2. Do you involve staff widely, in the organisation and beyond it?
3. Does the chief executive cite innovation as a matter of priority?
4. Is there a formal innovation process?
5. Does the process work adequately?
6. Is the information technology department intimately involved in the process?
7. Is the working environment designed with innovation in mind?
8. Do you apply formal measurements to your innovative capacity?

Score nothing for a No, one for Partly and two for Yes. According to the IT Management Programme, from which the questionnaire was drawn, if you score three or less, long-term survival is in question, and from four to six, you need to do better. Between seven and nine is good news - 'now build on it.' With a score of ten, the news is better than good: you're already a leader. And, rather surprisingly, that was the news when new product development managers in half-a-dozen companies were questioned at an Oxford workshop. In all cases, the firms had either achieved leadership - on this definition - or were moving purposefully towards it.

Without question, this was a symptom of generally increased awareness in managements throughout the world about the importance of innovatory behaviour. Indeed, recent research published by the European Commission claims that 'business growth and employment are driven more strongly by quality, know-how and innovation than by cost advantages.' The research, conducted by PIMS Associates among 3,000 businesses in Europe and North America, concluded that innovation and exclusive know-how are so much more important than costs and productivity that they 'enable businesses to grow three to five times faster than their competitors.'

GREATER AWARENESS
So the greater awareness shown in the half-dozen firms mentioned above is a hopeful sign - if, that is, the better innovative processes actually are achieving better innovation. That's defined by PIMS as the percentage of revenue derived from products or services which require significant investment or meet a new need and which the company didn't sell three years ago. The definition is unnecessarily restrictive: innovations needn't involve much capital, may meet an old rather than a new need, and apply to process as much as product. In fact, the research found that speed of reaction - an effect of improved process - is the 'key determinant in turning know-how into growth': that's because 'products brought to market within one year can boost sales by 20 to 50%.'

The importance of improving processes is highlighted by an end-1995 survey conducted among members of the IT Management Programme, who were asked to rate their priorities. The leader was 'improving customer responsiveness' (54%), followed by 'cutting costs (34%), 'expanding markets/market share' (29%), 'raising productivity '(24%), 'improving quality' (20%) - and, strangely, 'becoming more innovative', bringing up the rear at 18%. That's strange, indeed weird, because all the higher-ranked priorities depend vitally on the degree to which companies can break new, innovative ground.

It isn't just a question of raising your own responsiveness to customers, but of outdoing competitors in that crucial respect. That can't be done by adopting the same or similar strategies and tactics, and at the same time. You want to be first (and by the longest possible distance) with novel, highly effective, hard-to-copy methods and with brilliant ways of sustaining their success. The same is true of cost-cutting, market expansion, productivity and quality - all of which, interestingly, were rated as higher priorities two years ago than at end-1995. The respondents plainly thought that the conventional strategies of the previous couple of years, built around downsizing, were more or less enough. They are plainly wrong. The Pepper case, mentioned at the start of this article tells the truth: the greater the innovative eccentricity, the greater the success that's likely - on each and every priority.