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!

Does STEM really matter?

S.T.E.M. education infographic
Courtesy of edutopia.org

 

(Courtesy of Guest Blogger Fran Stewart, Ph.D., author of The STEM Dilemma: Skills That Matter to Regions via The MPI Group)

Engineers are the world’s problem solvers, but will creating more of them fix what ails some regions?

Policymakers must think so.

The pursuit of science, technology, engineering and math (STEM) degrees is no longer simply one of personal interest or professional ambition; it is now also considered an economic imperative and public priority for regions. Changes in the curricula (and even names) of local schools, as well as state and federal education spending, reflect a clear policy assumption: Local economies benefit when scientists make discoveries, engineers solve problems, and computer experts program solutions. The places that can attract or develop these professionals are seen as potential winners in today’s technology-driven economy.

The certainty of this conventional wisdom drives countless interventions targeted at growing local STEM “pipelines.” Yet, an important question remains: Does a greater supply of STEM-degreed workers actually generate economic gains for regional economies? New research suggests that (largely) imitative efforts to expand the ranks of STEM workers may not work — because they neglect important differences in regional demand for these skills, as well as the importance of other skill sets for regional competitive advantage.

Why? Because implicit in many STEM initiatives is the belief that a larger pool of workers educated in STEM will lead to the technological innovations, new products, and new processes that drive employment growth and economic well-being. Yet, it’s unclear whether mastery of specific technical skills creates new products and markets, or if entrepreneurial talents — recognizing trends, envisioning opportunities, assessing risk, and persisting in the face of obstacles — are what really generate growth. Focusing solely on technical aspects of innovation minimizes the importance of other skills, such as problem-solving, critical thinking, teamwork, communication, and resilience. Research indicates that:

Not all STEM jobs require a college degree.

STEM is more than just scientists, engineers, and software developers. Many technical and mechanical jobs, such as electro-mechanical technicians, industrial production managers and computer numerically-controlled-machine programmers, require advanced STEM capabilities. These STEM jobs are associated with higher regional wages and other measures of regional economic well-being.

STEM investment may not bring employment growth.

Despite the benefits associated with a higher concentration of regional employment in STEM jobs, investing in STEM talent as an economic development strategy isn’t necessarily a jobs program. Why? Because occupations with higher STEM requirements tend to employ disproportionately fewer workers.

Not all high-paying jobs require STEM degrees or skills.

Occupations with higher STEM requirements tend to pay higher wages, but so do occupations demanding high-level “soft” skills (e.g., critical thinking, problem solving, teamwork and communication). The occupations that pay the highest wages are those requiring both high STEM and high soft skills. These occupations include scientists, engineers, software applications developers, and doctors, but also industrial production managers, science teachers, and certain business operations specialists. In addition, some occupations that require high-level soft skills but low-level STEM skills — chief executives, managers, lawyers, teachers, financial advisers and mental health counselors — reward workers with higher wages.

Highly skilled STEM jobs benefit regions, but so do ones requiring high levels of soft skills.

A region may see improved economic well-being from promoting STEM skill development, but regions also can benefit from focusing on soft-skill development. In my study, regions with greater concentrations of workers in high-level soft-skill/low-level STEM-skill jobs tended to enjoy higher median wages and per capita incomes. This suggests the need for greater policy focus on the development of valuable soft skills, which often cut across a large variety of occupations.

Low-skill, low-wage jobs predominate in most regions.

Economic development policy focuses largely on growing the supply of workers to fill “high-skill” jobs that benefit regional economies; not enough attention is being paid to the effects of low-skill work. More than half of all U.S. employment is relatively low-skill, and large concentrations of low-skill employment drag down regional economic well-being. Regions with a higher share of low-level STEM-skill and low-level soft-skill employment tend to have lower wages, less economic growth, lower productivity, and lower per capita incomes. These relatively low-skill occupations — which include work in food services, retail and home health care — play important roles in regional economies and provide thousands of essential jobs, but their limited pay and benefits present significant challenges not just for individual workers, but for communities, as well.

Regions differ in their demand for skills.

The region in my study with the largest share of employment accounted for by engineers, scientists, software developers, and similar STEM occupations had five times more STEM employment than the region with the smallest share of these occupations. Some regions have nearly 60 percent of their employment in occupations requiring a bachelor’s degree, whereas other regions have 60 percent or more of their employment in low-skill occupations. Wide variation in skill concentrations and educational attainment reflect differences in regional industrial mixes and heritages. Despite the largely universal goal of growing the supply of high-skill workers, these differences continue to shape the demand for talent and the well-being of regions in different ways.

Imitative policies may not pay off.

Place-based initiatives that aim to grow the supply of STEM workers to spur economic development run the risk that the newly developed human capital investments (or, skilled workers) won’t stay local. Well-educated young workers tend to be highly mobile, meaning they often take their in-demand skills elsewhere without rewarding jobs, emotional attachments, or area amenities to hold them. In other words, regions may inadvertently develop talent that ultimately benefits other regions. It’s important to remember that while a failure to invest in human capital is risky, it may be even riskier to invest in skills that don’t align with the talent needs of the region’s industrial mix.

The challenge for policymakers and economic development practitioners at local and state levels is how to craft programs and strategies that support the specific talent needs of their regional economies — building on existing industrial assets while identifying new opportunities for growth. The opportunities for workers and regions with the right mix of talent and luck are extraordinary; the speed with which technology is reinventing work environments and demands for talent is equally breathtaking. But the same technologies that are disrupting the workplace also can facilitate better understanding of job demands and skill concentrations, which enables cheaper, quicker, more accessible, and better-targeted pathways to developing necessary skills and knowledge. Regions need to take stock of their own assets and invest wisely — not just imitate the STEM efforts of others.

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.

Act and audit

watercolor painting of still life

George Taninecz MPI Group(Courtesy of Guest Blogger George Taninecz, VP of research, The MPI Group)

Did you make any plans for change in 2018?

Even this early in the year , many such goals and resolutions have already been abandoned. Or, at least, they’re at severe risk of being discarded. These failures are often not due to lack of desire. Most people who make resolutions do so earnestly, trying in some way to improve their lives, careers, personalities, or communities.

And yet why is it so tough to stick with our resolutions?

One reason is that we often embark on unguided resolutions. We lack the mechanisms to measure and monitor our progress toward our end goal. We strive for a marathon without running a mile. Even  the most ambitious resolution has a fighting chance if accompanied by a system to break it down into incremental actions and outcomes.

To achieve a year-end result (usually some form of a lag measure tallied at the close of the year), we need intermediary metronomes to keep us pacing toward the sought-after ending (lead measures). If we’re looking to lose weight, our weekly frequency of exercise and daily intake of calories will likely predict the 12-month outcome long before the new year rolls around.

For example, I’ve dabbled in watercolors for decades and have a drawer of unfinished (and unappealing) paintings to prove it. When I told my friend Jack, a distinguished painter, about my inability to finish a work, he matter-of-factly said that I need to practice finishing. So, with a resolution to improve as a watercolorist, my plan is to finish a painting twice a month. With each finished painting, I should move closer to reaching my resolution.

Some improvements and some resolutions may only require a “just do it” approach — you don’t need a future-state map to put out a fire — but most require time and long-term effort. Here, we can take a cue from lean practitioners.

When pursuing strategic goals, lean organizations establish routine monitoring throughout their operations to understand lead performances on an hourly, daily, weekly, monthly, and quarterly basis. With a regularly scheduled cascade of meetings up and down  the organization, teams share and review this information, take corrective actions if necessary, and escalate problems beyond their control up to the next tier of meetings. It is an endless whirl of many connected PDCA cycles (plan/do/check/adjust) that keep all aligned on the end goals. These companies may not always achieve their yearly targets, but they’re rarely surprised when they don’t. We, too, can regularly review progress, as well as engage others in helping us to achieve our goals.

We also can’t underestimate the need to actually do something: merely tracking our path toward progress won’t cut it. In order to accomplish a goal or in some way change our behaviors, we also have to act. This necessary cycle of actions, audits, and outcomes reminded me of a homily I heard decades ago: A parishioner prays weekly to God to win the lottery. After years of disappointment and winless, he lashes out and asks why God would refuse him. The voice comes: “You need to buy a lottery ticket.”

If we regularly buy a ticket — i.e., do the work to change — and have the means to periodically check the results, we at least have a chance to win with our resolutions.

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.

Poka-Yoke It: How mistake-proofing devices can prevent human error

tailor

George Taninecz MPI Group(Courtesy of Guest Blogger George Taninecz, VP of research, The MPI Group)

While buying a pair of dress slacks recently, I was surprised to see the department manager using a mistake-proofing device to mark the pant length for tailoring. He placed an upside-down, Y-shaped tool on the floor and against the back of my pant leg.

At the top of the device, he marked a line on the trousers, which established the distance to the ground. Based on that line and the amount of break I wanted in the trousers, the tailor would know where to hem. Poka-yoke for pants.

Shigeo Shingo came up with the term “poka-yoke” (“mistake-proofing” or “inadvertent error prevention” in Japanese) in the 1960s when designing Toyota production processes that would not allow a human error to occur: “A poka-yoke device is an improvement in the form of a jig or fixture that helps achieve 100-percent acceptable product by preventing the occurrence of defects.”[1]

I first saw and used a poka-yoke device more than four decades ago. Every few years, my dad, who was a steelworker, would get 13 weeks of vacation. He often took this block of time during the summer to tackle a household project. In 1973, the job was to apply aluminum siding to our house. His crew was me, my brother, and one of my sisters (my other sister, who was an adult, missed out on the fun).

My dad set the bottom row of siding in place using a level and other means, taking his time to get it just right. Then, with the bottom row attached, each of us would grab our poka-yoke device, which was a piece of wood, shaped like an L. The short, horizontal leg matched the width of the bottom of the siding, and the top of the upright length established the vertical distance for the next piece of siding. We would push our devices against the attached siding and upward, rest the next piece of siding on top of the wood, and my dad would nail the perfectly located piece in place.

Even with the clever mistake-proofing tool, it still took a very long time for one adult and three teenagers to side a house. Fortunately, it also was the summer of the Watergate hearings. When the network broadcasts began, my dad would call it quits to watch. I still associate the southern drawl of Senator Sam Ervin, who headed the Senate Watergate Committee, with much-needed relaxation.

Since that summer of siding, I’ve seen a lot of poka-yokes:

  • In manufacturing plants, where devices prevent employees from reaching into machines and harming themselves or stop workers from selecting the wrong part or attaching a part in the wrong location or manner.
  • In buildings, where elevator doors won’t close if someone is between the doors, won’t open if the elevator is moving, or the elevator won’t move if the weight of individuals within the elevator exceeds a safe limit.
  • At my house, where the washer won’t run unless the door is closed, the mower won’t cut unless the safety bar is engaged, and the garage door won’t lower if a sensor indicates an object is in its way.

I wish mistake-proofing methods could be used for other, bigger problems and put an end to catastrophic outcomes. Imagine if you could apply a poka-yoke to prevent the suffering and dying of people simply because they cannot afford healthcare. Or to stop an evil assassin from stockpiling automatic weapons and killing dozens of unarmed civilians.

Maybe we can. Of course, how and where to apply the poka-yokes would require open, honest, and civil discourse. Real problem solving demands nothing less. Are we willing to try?

[1] Shigeo Shingo, translated by Andrew P. Dillon, A Study of the Toyota Production System, Productivity Press, New York, 1989.

Honda by the numbers

Honda superbike world championship

(Courtesy of Guest Blogger Ned Hill, A One-Handed Economist and professor of public administration and city & regional planning at The Ohio State University’s John Glenn College of Public Ned HillAffairs, powered by The MPI Group)

Honda has always been known for its precise management style; in fact, you could say they literally do everything by the numbers:  The 3 Joys, the 3 Fundamental Beliefs, the 5 Management Policies, and the 5 Components of Racing Spirit, to mention just a few. Let’s see how Honda’s obsession with metrics is reflected in an effective mission statement and how superior performance is the result.

Honda’s official name is Honda Motor Car Company, which honors its roots and largest product group. But that moniker doesn’t really describe the company; Honda is a global manufacturing organization that produces and sells far more than automobiles:

  • The company’s motorcycles and scooters are globally competitive, with more than a quarter billion sold since 1948.
  • Honda Jet in North Carolina delivered its first plane in late 2015 using an engine developed with GE Aviation.
  • The power-equipment group produces general-purpose engines, generators, boat engines, lawnmowers, and yard equipment. This division also is moving into household natural-gas-powered cogeneration, and the company as a whole is a leader in fuel cells.
  • Honda also is developing a presence in industrial and mobility robotics.

All in all, it’s worth asking, as we consider mission and values: Is there something that ties this company together, or is it just another industrial conglomerate linked by shared financials?  More philosophically: How does Honda identify value propositions for customers and owners across its broad platform of products? What is the firm’s corporate connective tissue and source of competitive advantage?

I’d suggest that two competencies unite Honda:

  • The first competency is technical and product-oriented: Common to all of Honda’s products and divisions are engines and propulsion systems.  These are present in each of its product lines and serve as technical sources of competitive advantage.
  • The second competency and source of competitive advantage is the company’s culture.

The Seven Tests of Mission Relevance and Effectiveness

For any company, seven statements provide guiderails to its current operations and a path to its future:

  1. Statement of purpose explaining why a company exists.
  2. Statement of the company’s competitive advantage and core competencies.
  3. Value proposition for customers.
  4. Value proposition for owners.
  5. Vision statement that frames the company’s future direction.
  6. Values and ethics statement that defines the company’s culture, describes the organization as a place to work, and is directed at employees.
  7. Strategy proposition, founded upon the value propositions, which ties together the vision of the future with sources of competitive advantage and the values of the workplace.

I’ll rate each component of Honda’s culture-setting statements with a ranking from 1 (low) to 5 (high) of the company’s white coveralls (all associates wear them, for anti-utilitarian (dirt shows easily, emphasizing a clean work environment) and egalitarian (everybody looks equal) purposes).

Let’s go through them step by step.

Test One: The Statement of Purpose

The statement of purpose should explain the reason why a company exists. To find Honda’s statement of purpose, we have to draw from three of its cultural documents.

First of all, the foundation of Honda’s culture is its statement of philosophy:

“Driven by its dreams and reflecting its values, Honda will continue taking on challenges to share joys and excitement with customers and communities around the world to strive to become a company society wants to exist.”

Honda’s overarching philosophy recognizes that its survival depends on customers who value its products and communities that value its locations and associated jobs. The philosophy is not tactical, was not developed by marketing, and is timeless. As such, it is partially a statement of purpose.

The company’s mission statement is global, reflecting the realities of the company’s footprint, and focuses on providing value to its customers:

“Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at a reasonable price for worldwide customer satisfaction.”

APPLAUSE!  This mission statement is a value proposition for customers.

Last, the outward-facing messages of Honda’s philosophy and mission are implemented by The Three Joys. The Three Joys of buying, selling, and creating are corporate norms; all are part of the company’s value proposition to its customers.

  1. The joy of buying is “achieved through providing products and services that exceed the needs and expectations of each customer.”
  2. The joy of selling is the reward from selling and servicing products and from developing “relationships with a customer based on mutual trust.” In Honda’s vision, selling links the company’s employees, dealers, and distributors together with their shared customers.
  3. The joy of creating occurs when Honda’s associates and suppliers are involved in the design, development, engineering and manufacturing of Honda products that “exceed expectations [of the customer].” Then “we experience pride in a job well done.”

APPLAUSE again! The Three Joys provide a set of norms that implement Honda’s mission statement and recognize that the corporation’s future is rooted in business practices. No social workers or frustrated marketers were involved in the mission’s creation.

Honda’s philosophy — combined with its mission statement and operationalized by the Three Joys — satisfies the first and third of the seven statements of purpose and value propositions. Give them four pairs of Honda white coveralls for my first criterion on the purpose of the company.

Test Two: The Statement of Competitive Advantage

My second criterion is a statement of competitive advantage, and you cannot find an explicit statement. Perhaps making such a statement is too bold and boastful for the company. Instead, the company’s source of competitive advantage is evident in its product lines and dependence on applied research. Honda’s competitive advantage rests in its research expertise in engine and propulsion systems and the development of products around its research.

An example comes from one of the company’s newest product lines, Honda Aircraft Company. This business unit is the outcome of a 30-year effort to create a disruptive light passenger jet, and it demonstrates the connection between the company’s guiding philosophy and its product development. Michimasa Fujino, an engineer who was part of the original research team in the mid-1980s, is now the president and CEO of the business unit. He helped the investment survive technical and economic setbacks by tying the project to the company’s efforts to rekindle innovation, or to dream. The division exists because of the initiative and skill of Fujino, and it survives because of the strategic support of the company, especially through the Great Recession and the crash of the private aircraft market. “A company has to have longevity,” he says of his strategic mandate. “We look at 20 years or even 50 years of Honda’s growth in the long term. In order to have that kind of longevity, we have to invest [in] our future.”

Honda earns five coveralls for meeting the second criterion through its actions and investments, not through its words.

Test Three: The Value Proposition for Customers

Couple the mission statement with the Three Joys and a clear value proposition is made to customers:  Providing products and services that exceed the needs and expectations of each customer at reasonable prices that generate worldwide customer satisfaction.

Five white coveralls on Honda’s ability to present a value proposition to its customers, which is the third test.

Test Four: The Value Proposition for Owners

There is no explicit statement about the value proposition that Honda offers to its owners. This is left to its direct communications with shareholders. However, the awarding of coveralls comes later because Honda hints at that value proposition in its statements.

What is the company’s vision for its future? It is not a specific list of products, technologies or investments. Instead, it is timeless guidance for management and investors in its five Management Policies, which are a mix of Eastern and Western value statements:

  1. Proceed always with ambition and youthfulness.
  2. Respect sound theory, develop fresh ideas, and make the most effective use of time.
  3. Enjoy work and encourage open communications.
  4. Strive constantly for a harmonious flow of work.
  5. Be mindful of the value of research and endeavor.

The management policies are a mixture of guidance on how to perform today’s job by supporting open communications and promoting a harmonious flow of work, and of paying attention to tomorrow’s job. Tomorrow’s job is to be approached with “ambition and youthfulness” and based on research, development, and risk-taking: “Respect sound theory, develop fresh ideas” and “Be mindful of the value of research and endeavor.” The emphasis on tomorrow’s job is reinforced by the joy of creating.

While the Management Policies’ language is not familiar to a North American, its intent is pitch-perfect. It addresses the accomplishment of today’s job in the third and fourth precepts—encouraging a harmonious workplace based on open communications. This is part of a values and ethics promise to Honda’s employees.

The other management policies are about tomorrow’s job: Be ambitious and develop new ideas that rest on research and risk-taking. Honda expects itself to be an innovation company.  I award three coveralls on the fourth criterion of making a value proposition to ownership because Honda only hints that it is a company built for the long run; it is not solely focused on next quarter’s return.

Test Five: The Vision Statement

The fifth test is explicitly about the future orientation of a company. In Honda’s case, the foundation comes from three of the Management Policies and the tactics come from a set of principles closely associated what the company’s founder, Mr. Soichiro Honda, called The Racing Spirit.

The Racing Spirit is directly connected to Mr. Honda’s early experience in motorcycle racing. He observed that passion is part of every competitive racing team, and he wanted that same passion to be at the heart of his company. There are five components to the Racing Spirit:

  1. Seek the challenge: Seeking competition improves the performance of both individuals and the company.
  2. Be ready on time: All races have a starting time—be ready before the gun goes off.
  3. Teamwork: Races are won by teams, not just the driver. Honda defines this as togetherness: the driver, staff, and machine are all vitally important.
  4. Quick response: Be ready to solve unpredictable problems at all times.
  5. Winner takes all: The only goal is winning.

The future orientation of the company begins with seeking the Racing Spirit’s challenge, followed by the Management Policies of ambition, respecting sound theory and fresh ideas, coupled with respect for research. All of this is powered by the dreams that are mentioned in the company’s overarching philosophy.  Five overalls for the fifth criterion.

Test Six: The Values and Ethics Statement

The sixth test focuses on the company’s workplace values and business ethics. Honda’s Fundamental Beliefs add to the company’s Management Policies that relate to its workforce. The Beliefs are a trinity of statements about the company’s relationships with its employees. Honda states that these three norms sum to respect for individuals:

  • Initiative to act is encouraged, along with taking responsibility for the results of those actions.
  • Equality is defined as recognizing and respecting individual differences and rights to opportunity.
  • Trust is action-based: “helping out where others are deficient, accepting help where we are deficient, sharing our knowledge, and making a sincere effort to fulfill our responsibilities.”

Honda values initiative, ambition, equality, and trust in a harmonious workplace built around open communications. Five coveralls awarded for meeting the sixth criterion on values and ethics.

Test Seven: The Strategy Proposition

A cornerstone of Honda’s corporate culture is a commitment to continuous improvement and lean operations. Yet, this is not directly reflected in the company’s philosophical statements.  The Management Policy supports a “harmonious flow of work,” making effective use of time, along with a fundamental belief in each associate taking responsibility for their actions. These are all elements of lean production.

How well does Honda do in building a useful strategy proposition that is supported by a strong set of management values? Honda’s Philosophy, The Three Joys, the Fundamental Beliefs and The Racing Spirit are guiding principles that are closely associated with Mr. Honda. They are critical components of what could be called the company’s origin story or foundation myth and have been used when the company appeared to have lost its way. Mr. Honda built his company around an enduring strategy proposition—the racing spirit. It is only fitting to drape this criterion with four and a half pairs of Honda’s enduring white coveralls. After all, there is always room for improvement.

OK, But Why the White Coveralls?

Why the white coveralls? They are part of the company’s culture and derive from its fundamental beliefs about equality. Honda does not have reserved parking, its employees are called associates, and all workers — even its CEO, research and development associates, and its accountants — wear white coveralls with covered buttons. This was a shock to U.S. workers when Honda Americas Manufacturing started production.

Honda offers three explanations for the tradition:

  • White jumpsuits make physical statements about the work environment, modern manufacturing, and the quality of the finished product. White uniforms stain and easily show dirt. They serve as a check on Honda’s belief that “good products come from clean workplaces.”
  • They are symbols about the manufacturing work environment at Honda. The covered buttons prevent scratches on the finish of the products — and highlight the importance of detail in quality.
  • Finally, the uniform is a statement about equality and team. Honda states that the white outfit symbolizes the equality of all at Honda in pursuit of the company’s goals.

When Honda opened its U.S. manufacturing operations in Marysville, Ohio, in the 1980s, the jumpsuit and lack of managerial perks made one other statement to potential workers: Honda was not the same as a U.S.-headquartered car company. At the time, this was a very good thing — though others have since learned from Honda’s example.