Rules for the revolution

clock with change

(Courtesy of Guest Blogger Alex Pendleton, Big Ideas for Small Companies powered by the MPI Group)

Alec Pendleton

In my last blog in March — “Time For A Revolution” — I described experiences I’ve had with organizations in need of major change. Now I’d like to look at principles I’ve found helpful in starting down the turbulent path ahead. Revolution is possible without them, but it runs a lot more smoothly when they are followed. I’ll focus on manufacturing, because that’s where I’ve had most of my experience, but the principles apply in any situation.

First, you’ve got to have a vision — and in the more detail, the better. Every factory runs on a variety of systems: to initiate orders, to schedule workstations, to store inventory, to measure efficiency, to assure quality, and many more. Some of these are clean applications of specific theories (Just-in-Time, Theory of Constraints, etc.), while others may have started clean, but have degenerated over time. Others were simply made up as the company went along. Typically, whatever symptom has triggered your need for revolution – bad delivery, quality problems, inventory issues – is the result of a breakdown of one or more of these systems.

It’s always tempting at this point to look for a silver bullet. You read an article (or a blog!), or go to a seminar, and you have an “Aha!” moment. “That’s it! Lean manufacturing [or whatever has caught your fancy] is the answer! All we have to do is install that, and our problems will vanish!” But “all we have to do …” is a dangerous statement.  If you leap into major change without fully understanding the implications —and potential unintended consequences — you’re likely to trade the old problem for a new one.

So: Think it through! Envision every step of the way, and how each step will affect everything around it. Imagine what might go wrong, and have a plan to fix everything. Obviously, you can’t do this to perfection, but the more thinking and planning you do before you go live, the better chance you’ll have of a smooth launch.

Next, clear the decks! STOP doing things that aren’t working. Early in my career, I struggled with a small company with three unrelated divisions. The largest was a perpetual headache, consuming most of management’s attention in exchange for occasional small profits. A second division was tiny, and an also-ran in its market, overshadowed by larger and more professional competitors. The third was starved for resources, but had potential — and was central to my vision of what the company could become. But before I could work on that vision, I had to get rid of the other two divisions. I sold the larger one, to a yet-larger and more professional competitor, and I closed the tiny one. Rid of those distractions, I was then able to concentrate on my vision. Sales quadrupled in seven years, and we turned a chronic loss into a perpetual profit.

Similarly, in another plant later in my career, there was a peripheral product line that we struggled to produce. Quality and efficiency were inadequate, and we invested enormous effort into trying to fix it. Our sales team felt that the product was important to our overall offering, so I arranged to simply buy the stuff, marked with our label, from a competitor. Profitability improved, but even more important, we removed a distraction — allowing us to focus on our primary business.

Before you start your revolution, ask yourself two questions:

  1. Do you have a detailed vision?
  2. Even more important, can you rid yourself of distractions so that you can focus on the vision?

I’ll have more rules for revolution in my next blog!

Time for a revolution

clock with change

(Courtesy of Guest Blogger Alex Pendleton, Big Ideas for Small Companies powered by the MPI Group)

How’s your Change Initiative going? Are you having fun yet?

I’m guessing you answered, “No!”

Why? Because bringing major change to any organization is a tough assignment. Entrenched people, and ideas and habits favor the status quo, and even when that status quo is no longer working, the response of the organization is typically to just give the problem more time. “This too shall pass,” everyone says. “We’ve been through rough times before, and this is no different. What worked then will work now.”

But sometimes it IS different. Sometimes, the organization has quietly aged in place while the world around it has changed to the point that what worked before will NOT work now. Sometimes, what’s needed is a revolution.

For some time, I’ve been involved with two organizations – a manufacturing company and a non-profit – both of which have faced this dilemma, and it fascinates me how much these very different organizations have in common

The manufacturing company was living in the past. It had a dominant position in a niche market, but that market had been slowly shrinking for decades, to the point that the 70-year-old factory was badly underutilized and the fixed overhead was being carried by a smaller and smaller base of business. The aging workforce was resistant to change (there was a sign in the foreman’s office reading “When pigs fly,” evidence of his disdain for any new ideas), and rejection of modern manufacturing methods made it impossible to find customers for new work. The necessary changes all required various certifications, but that was regarded as nonsense, a waste of time and money. An attitude of “we’ve always done it this way” prevailed. Once, they cleaned up the place for a customer visit, and were proud of the result. “The place looks great,” they told themselves — but it didn’t. It looked RELATIVELY good, better than it had in years, but of course the customer saw it in the context of a wider world, and to him it looked ABSOLUTELY awful.

The non-profit organization was also well-established and had been in the same location for most of its life. Decades before, they had made a major investment in upgrading their facility, but by now it was obsolete, and the city had grown away from it, leaving it isolated. However, entrenched board members had fond memories of past greatness, and they were determined that the drop-off in interest and financial support was only temporary. It wasn’t. Before long, they faced an existential crisis.

The solutions to these two problems were similar. In both cases, new leadership was brought in and changes were basically forced upon the organizations.

In the manufacturing company, the factory was substantially overhauled and modernized, quality certifications were obtained, and new markets opened up. A lot of people left (mostly by retirement – over a few years the average tenure dropped from 35 years to eight!), and those who stayed were given extensive training.

In the non-profit organization, a new leader was brought in. He had an abrasive personality and seemed hell-bent on offending all of the existing supporters, starting with the largest donors. But by the time the crisis arrived, he had succeeded in persuading a majority of the board that major change was necessary. Ultimately, they sold their building, collaborated with a couple of other organizations, raised millions of dollars, and moved to the city’s thriving downtown.

Looking back on these two sagas, it’s striking how different the picture looks than it did when we were living in daily crisis. In both cases, the consuming issues dealt with people — in one case, trying to get established employees to accept change; in the other, trying to temper the new leader’s troubling management style.

In the manufacturing company, the change was generational. A new, young leader had the vision and the skills needed to move the company forward, but members of the executive team – even new hires – struggled to perform. Operations went through five leaders in as many years before finding the right person, and the sales department went through two. Looking back on board meetings in those transitional years, it’s amazing how much effort went into trying to salvage the wrong person in the job and how quickly things improved when the right person finally arrived. There’s an important lesson there about insisting on top quality in people and not settling for anything less. Peter Schutz, a former leader of Porsche, always advised people to hire slowly and fire quickly. That’s good advice, albeit easier said than done. Once you’ve filled a critical position, it’s difficult to believe that backing up and starting over will be easier than trying to fix what you’ve got — but in retrospect it’s usually a good idea.

In the non-profit organization, the resolution was simpler, though no less painful. We ultimately realized that we had gotten from our exasperating leader all that we could — his revolution was already in motion — and all he had left to offer was his difficult personality. It was time to end the constant conflict and move forward. The new executive is an extraordinary leader and has the enthusiastic support of the entire staff and board. There still are problems, of course – non-profit organizations always face challenges — but the replacement of conflict with collaboration has resulted in a great place to do great work, and exciting innovation has ensued.

In both cases, I wonder if the rosy present would have been possible without the turbulent past. Revolution is frequently necessary, and almost always difficult and unpleasant; but I think it’s important to recognize that difficulty and unpleasantness don’t have to be new long-term realities, but can instead be short-term growth phases. So if your situation needs a revolution – and sooner or later it probably will – realize that it’s likely to be difficult and unpleasant, and that it’s possible that the right team to start a revolution may not be the right team to finish it. What is certain, though, is that once your revolution has succeeded, you’ll have a vast improvement over the status quo.

At least until the next revolution.

A lot can change in 10 years

changing technology and how we do business

 

(Courtesy of Guest Blogger Alec Pendleton, Big Ideas for Small Companies, powered by The MPI Group)

The iPhone was introduced 10 years ago, in 2007—or MMVII, as the Romans would have said. In celebration of that anniversary, Apple has just introduced its latest model, the X—or 10, as we would write it. While pondering this milestone, I realized that 10 years ago, I had no clue that the iPhone was coming, and once it did, I didn’t even begin to understand its implications. And not just the iPhone — but the hundreds of other changes that have transformed both the way we operate our businesses and how we live.

In 2007, Amazon was mostly in the book business and had just introduced the Kindle. Twitter was in its infancy. Airbnb didn’t exist. Tesla made a quirky little sports car. Facebook had about 100,000 business pages. Newspapers were profitable (well, sort of). I had a camera! If I wanted to deposit a check, I had to take or mail it to the bank; to pay a bill, I had to write a check. Buying a used car was a risky business.

Ten years later: Recent purchases from Amazon by my family include dental floss, office supplies, textbooks, a security system, and a hammock. We have a president who got where he is by tweeting. Millions of people pay to sleep in strangers’ guest rooms every night. Tesla can’t build its fancy electric sedans fast enough. Facebook now has more than 65 million business pages, and Internet advertising has taken (almost) all the profit out of the newspaper business. My camera is now in my phone, and I can deposit a check by taking a picture of it; I haven’t written a paper check in months. Even at the outdoor farmers’ market in our neighborhood, I can buy groceries with a credit card, which the Amish farmer scans with a tiny device on his phone. And a few months ago, I almost bought a used car until my daughter discovered – on her phone – that it had been in an accident a couple of years prior.

This is all amazing stuff. It and much more have made us happier and more productive, by allowing us to escape a lot of drudgery. It’s wonderful! But if you’re a retailer, or in the newspaper business, or in countless other fields impacted by these technologies, there’s also been a significant downside. Massive change means massive disruption, made all the worse because it was unforeseen by most of those who were damaged by it. Retailers and newspapers, for example, were caught unawares, and thousands of jobs were lost. It seems unlikely that former journalists and store managers are making ends meet by renting out their guest rooms.

So we must ask, what about the NEXT 10 years? What crazy, unimaginable new technologies will disrupt your business or your life? More importantly, what can you do about it?

I have a manufacturing company. If 10 years from now everyone has a 3-D printer, can I just transmit an e-file to my customer, allowing him to print my product for himself?

The possibilities are endless.

So how do we prepare? I’m not convinced that becoming an early adopter is the answer. All of these amazing success stories rest atop a much greater number of failures. Instead, I think the better course will be to focus on fully leveraging new technologies after they’re reasonably well established. The opportunities from last decade’s progress are still far from fully exploited; for example, there are many ways to deploy Apple or Amazon or Google technologies — or even our phones — to improve our businesses and lives that most of us still don’t use.

I also don’t think that guessing what comes next is a good strategy, because it encourages trying to time your investments — and few of us are smart or lucky enough to get it right. Get in too early and you’re often distracted, discouraged, or just plain wrong. Get in too late and you’ve missed the chance to seize opportunities or avoid threats. Perhaps the best approach is watchful waiting, with test investments of time and cash to embrace new technologies without being smothered by them.

That’s my plan for amazing change, anyway. What’s yours?

Alec Pendleton took control of a small, struggling family business in Akron, Ohio, at an early age. Upon taking the helm, he sold off the unprofitable divisions and rebuilt the factory, which helped to quadruple sales of the remaining division within seven years. These decisions — and the thousands of others he made over his time as president and CEO — ensured that his small manufacturing business thrived and stayed profitable for the generation to come. The culmination of a lifetime of experience, accumulated wisdom, and a no-nonsense approach to looking at the books allows him to provide a unique perspective on Big Ideas for Small Companies.

Low-Dollar Lou

car salesman

Alec Pendleton(Courtesy of Guest Blogger Alec Pendleton, Big Ideas for Small Companies, powered by The MPI Group)

In a not-very-nice part of the town where I grew up, there was a used-car lot with a prominent sign reading: “Low-Dollar Lou has the Best Buy for You!” A quick look at his scraggly inventory and an even quicker encounter with Lou himself, with his broad smile and his two-handed handshake (the better to remove my watch?), led me to doubt that his slogan was true.

Every survey of buyers I’ve ever seen ranks price well down the list of priorities, lower than such things as quality, reliability, trustworthiness, location, convenience, etc. — yet the vast majority of advertising focuses first and foremost on price. A large metropolitan area might have as many as a dozen Chevrolet dealers, for example, and yet somehow every one of them has the lowest price. Furniture stores, grocery stores, gas stations, pizza shops, and even Lexus dealers want the world to know how low, low, LOW their prices are.

But why? I can only assume these merchants think that price is more important to customers than the surveys report. And yet, does a Lexus dealer really believe that price is the primary motivator of someone shopping for a $60,000 car? So she or he can brag to friends about saving $500?

I, for one, believe the surveys. I’ve seen two gas stations side-by-side, one with prices $0.10 per gallon higher than the other — and both were equally busy. I’ve shopped for low prices when buying cars, and always left the dealership feeling that there was something I didn’t know — that somehow, some way, the salesman had fleeced me. Worst of all, as a salesman myself, in pursuing an order I badly needed for my manufacturing business, I cut the price myself — without even being asked! (I got the order, and promptly lost money on it.)

There’s an adage that opportunity lies in following a different path than everyone else and that applies to competing on price. It’s a desperate, flawed strategy that inevitably leads to a downward spiral of revenues and profits, as a fixation on low, low, LOW prices attracts the least desirable customers. In a sense, competing on price means that success is defined as being the last one to go broke. It keeps you in a constant state of vulnerability, which is a damn unpleasant way to earn a living.

So what about you? Are you caught in the low, low, LOW price trap? Or have you defined your business — and your customer value — in more meaningful (and margin-full) terms? I’m not suggesting that Low-Dollar Lou change his slogan to “High-Dollar Hal will be your Best Pal,” but he might have attracted different customers — and earned a better living — if he’d focused on something other than price.