Hunch Carpenters writes about Gary Hamel on Enterprise 2.0 and the Post-Establishment Age

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Last week at the first-ever Spigit Customer Summit, I had a chance to listen to Gary Hamel live. He delivered the keynote for the event, “Inventing Management 2.0.” If you’re a reader of Gary’s blog or his books, you know he’s a big proponent of empowering employees and changing management paradigms. See his 25 Stretch Goals for Management in the Harvard Business Review from last February for a great overview of his thinking.

In his speech last week, he did not disappoint. In fact, he provided a distinct rationale and call to action for companies to embrace the Enterprise 2.0 movement.

Driving the Autobahn in a Model T

In his presentation, there were two distinct graphs that really drove home the point that it’s time for new ways of managing companies. I’ve put them together below:

Gary Hamel - Why Innovation in Mgt Is Needed

On the left, a conceptual chart outlines something many of us instinctively feel. The pace of change in our world is increasing. As Gary Hamel noted, year-to-year volatility in company earnings have been increasing exponentially the last 40 years. Those changes are manifestations of what we all experience. I thought he put it well when he said:

What a company did in the past is now less predictive of its future.

Business Week in 2004 ran an article that nicely demonstrated the acceleration of change. It included these points:

  • The number of Fortune 300 CEOs with six years’ tenure in that role has decreased from 57 percent in 1980 to 38 percent in 2001.
  • In 1991, the number of new household, health, beauty, food, and beverage products totaled 15,400. In 2001, that number had more than doubled to a record 32,025.
  • From 1972 to 1987, the U.S. government deleted 50 industries from its standard industrial classification. From 1987 to 1997, it deleted 500. At the same time, the government added or redefined 200 industries from 1972 to 1987, and almost 1,000 from 1987 to 1997.
  • In 1978, about 10,000 firms were failing annually, and this number had been stable since 1950. By 1986, 60,000 firms were failing annually, and by 1998 that number had risen to roughly 73,000.
  • From 1950 to 2000, variability in S&P 500 stock prices increased more than tenfold. Through the decades of the 1950s, 1960s, and 1970s, days on which the market fluctuated by three percent or more were rare — it happened less than twice a year. For the past two years it happened almost twice a month.

On the right, the chart provides the major innovations in company management over the past 150 years. Current management systems reflect philosophies that were developed in an earlier era of greater stability. A quick primer on the different management ideas (note – cannot find information on McCollum):

Taylor: Frederick Winslow Taylor advocated: “It is only through enforced standardization of methods, enforced adoption of the best implements and working conditions, and enforced cooperation that this faster work can be assured. And the duty of enforcing the adoption of standards and enforcing this cooperation rests with management alone.”

Sloan: Former GM CEO Alfred P. Sloan revolutionized the management of corporations through numbers: “Sloan oversaw the use of rigorous financial and statistical tools to profitably manage GM’s far-flung empire.”

McGregor: MIT professor Douglas McGregor developed Theory X and Theory Y: “In Theory X, management assumes employees are inherently lazy and will avoid work if they can. In Theory Y, management assumes employees may be ambitious and self-motivated and exercise self-control.”

Deming: W. Edwards Deming was a professor and statistician credited with revolutionizing post-war Japan’s manufacturing: “Dr. W. Edwards Deming taught that by adopting appropriate principles of management, organizations can increase quality and simultaneously reduce costs (by reducing waste, rework, staff attrition and litigation while increasing customer loyalty). The key is to practice continual improvement and think of manufacturing as a system, not as bits and pieces.”

The point Gary Hamel drives home is that our business and economic environment has irrevocably shifted toward higher volatility and accelerated change. The sundering of companies from healthy industry positions to crisis mode in relatively short order demonstrates the need for updating management philosophies.

Need for Better Adaptability in the Post-Establishment Age

My own term for this is the “post-establishment age”.  In prior decades, change was slower, and companies could count on inherent advantages that helped them maintain their established positions. As Gary Hamel noted, protections came in the form of regulatory frameworks, monopolies (e.g distribution), capital access and other ways.

These protections continue to erode in our modern, WTO-governed society. The web and digitalization of content and processes are making it easier than ever for new ideas to be tested. Consumers have access to more information than ever. Social media ensures more people know about new companies and products more rapidly then ever.

Old protections are falling, while change and industry disruption is accelerating. What can modern companies do to manage in this new environment?

Gary Hamel prescribes two strategies for companies in the post-establishment age:

  • Increased organizational adaptability
  • Pushing innovation and decision-making out to employees

Adaptability is a critical strategy. It means that companies pivot as they learn new information about their markets, competitors and changes in customer behaviors. As noted in a recent Wall Street Journal article noted, companies can try more ideas faster and less expensively than ever:

Technology is transforming innovation at its core, allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago. They can stick features on Web sites and tell within hours how customers respond. They can see results from in-store promotions, or efforts to boost process productivity, almost as quickly.

Gary Hamel then notes that senior executives continue to have a monopoly on strategy. This essentially makes companies dependent on a handful of executives’ ability to adapt to change.

Yet employees are probably the earliest to know when something is changing. They also are faced with situations where they must come up with solutions. It is in this environment where companies will find their sources of adaptation. In an article for the Harvard Business Review, 25 Stretch Goals for Management, Gary Hamel included these two goals:

12. Share the work of setting direction. To engender commitment, the responsibility for goal setting must be distributed through a process where share of voice is a function of insight, not power.

17. Expand the scope of employee autonomy. Management systems must be redesigned to facilitate grassroots initiatives and local experimentation.

In the post-establishment age, these strategies are what distinguish leaders from those that will go through another disruption.

This Is Enterprise 2.0 Evolved

The cornerstones of Enterprise 2.0 include greater information visibility, tapping the emergent knowledge of employees and increased collaboration. Those are the foundational elements. Use them to create a company of higher adaptability and distributed innovation and decision-making.

As Gary Hamel concluded in his keynote:

“You can’t build a company that’s fit for the future unless it’s one that’s fit for human beings.”

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Lean and Starbucks: reflections on service

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Yesterday’s WSJ front page headline caught my eye, as a frequent Starbucks customer and obvious Lean zealot:

Latest Starbucks Buzzword: ‘Lean’ Japanese Techniques

That above link should go to a free article for non-subscribers (or Yahoo Finance version of the same text here).

The headline is full bodied and complex brew that gives us a lot to chew on before we even get to the frothy body of the article itself (not to mention the lingering aftertaste of internet reaction).

“Buzzword” — Uh oh. Is Lean just a buzzword at Starbucks or is the WSJ just portraying it that way? Digging into the details, John Shook (formerly of Toyota and now with the Lean Enterprise Institute) is advising them. I haven’t talked to John about Starbucks, but I seriously doubt he would be involved with something that was just buzzwords. “Buzzword” makes Lean sound like just another program of the month. I hope not.

The WSJ typically gets it wrong about Lean-related topics, as I’ve blogged about and complained about before in four previous posts. So, I’m willing to assume Starbucks might be on the wrong track and the WSJ is portraying it wrong (starting in the headline!)

“Japanese” — For Pete’s sake, can we quit calling Lean a Japanese system??? Is the Wall Street Journal still stuck in 1981 when people in Detroit (and DC) smashed Toyotas? Lean has spread successfully around the world and has been embraced not just by Toyota in the U.S. (and France, even!), but pretty much every industry, including healthcare providers around the world. Lean is associated with Toyota, of course, but Lean has its roots in Dr. W. Edwards Deming and Henry Ford among others.

Calling Lean “Japanese” is sort of like calling pizza “Italian food.”

So I tried not judging an article by its headline. What’s the meat of the WSJ piece? First paragraph:

Starbucks Corp. built its business as the anti-fast-food joint. Now, the recession and growing competition are forcing the coffeehouse giant to see the virtues of behaving more like its streamlined competitors.

Excuse me, has anyone ever unearthed McDonald’s using Lean methods or thinking Lean? Which unnamed competitors exactly?

Taylorism or Lean (Toyota-ism)?

This is off to a bad start. True Lean thinkers think of it as being a method for engaging the entire workforce in continuous improvement. Far too often, though, the general public might associate Lean with Taylorist tomfoolery, such as “efficiency experts” from corporate lording over worker bees with stopwatches and top-down improvements. Fast food has more of an association with top-down Taylorism, not real Lean, don’t you think? When the WSJ wrote about Starbucks and their efficiency experts in 2005, it didn’t sound like Lean to me. It sounded like “leave your brain at the door” Taylorism.

Still, some baristas fear the drive will turn them into coffee-making automatons and take away some of the things that made the chain different.

At my currently-local Starbucks store in Boston, the employees already look, mostly, like disgruntled automatons. There aren’t many smiles. When your drink is ready, they pretty much slam it on the counter without making eye contact with anyone. It’s not the usual Starbucks experience.

These are not happy, engaged employees focused on customers. Or so it appears.

And this is the state of things, without Lean, we should ask “why?” Really, the store managers and Starbucks leadership chain should ask “why?” Are they not listened to? Is there too much waste, so employees are overworked and they don’t have the time to really take care of customers?

Engagement or Automaton-ization?

If Starbucks is truly embracing Lean, employees really shouldn’t fear becoming an automaton. The idea comes up again later in the article:

Starbucks has faced some resistance to the program. “They’re trying to turn workers into robots,” says Erik Forman, a barista in Minneapolis. “It’s going to essentially turn the cafe into a factory. They want to control our every move in order to pinch every possible penny.”

Of course, the Starbucks VP of Lean, Scott Heydon (who knew they had one), discounts that idea, as does John Shook, pointing out that Lean is about getting ideas from those who do the work. Those of you who visited here with an anti-Lean bias, please read those quotes (if you’re even still reading this). And see this quote about how Toyota engages people.

Robots…. turning us into a factory…. this sounds A LOT like what we always hear in healthcare. That’s not the case when Lean is successful in hospitals and it shouldn’t be the case at Starbucks either. We’re not trying to turn anyone into a factory – Lean isn’t all about moving assembly lines and “andon cords.” Everyone likes to say “we’re different,” as I recently wrote about here.

One of my classic stories from healthcare was being told by a medical laboratory technologist “I feel like a robot.” This was BEFORE anything Lean had been done. She complained that her work had gotten very automated over the last 25 years and she was like a robot because nobody (management) never asked her what she thought — about anything.

Lean, of course, takes things in the opposite direction. Start thinking, identify waste, implement your ideas to make things better.

Lean makes you LESS like a robot, if management has the right mindset and they are able to give up top-down control of every little detail. If your organization has a tradition of command and control behavior, any change is going to make employees fear more top-down B.S.

But, the actions have to match the language.

Now, baristas are required to grind beans for each batch and timers buzz every eight minutes to signal when it’s time to make new coffee.

Required? Is there any room for variation in this process? The WSJ wrote about this new coffee brewing method back in June. The goal is a good one — making sure customers always get what they want (meet demand) while having minimal wasted excess coffee (keeping cost low).

The WSJ described it as:

Currently, baristas decide when to brew fresh batches “based on multiple signals ranging from demand (quantity), to expiration and timing,” the new documents say, explaining that the revamped process “reduces this complexity by eliminating many of these signals.”

Now, depending on how busy a store is at a particular time, baristas will use 24-, 12- or eight-minute “cadences” to brew coffee so that no variety runs out.

Now I can’t say which process is better, not being a barista. There was A LOT of complaining about the new method on the “Starbucks Gossip” blog where disgruntled baristas tend to hang out online.

There could be one of two problems here:

  1. The new method is NOT really better (and it’s being forced on Starbucks “partners”)
  2. The new method IS better and it’s just not being explained well to the partners

Either way, if something is clearly better and people have been trained properly — they’ll adopt it. What’s the problem behind the problem with the new method?

The way Starbucks handles this will speak volumes about their approach. Is it top-down Taylorism (“we figured this out, it’s right, you MUST brew every 8 minutes!!”) or Lean with employee participation (“8 minutes is probably right, but you can use your judgment within these boundaries… or come up with a better way”). I was taught that, in the Toyota mindset, if you MUST give a directive, it’s the leader’s job to explain “why” and make sure the employees understand. You must very rarely rely on your “because I’m the boss” formal authority.

Cost Cutting or Total System Improvement?

Back to the barista, quoted above. He also sounds afraid that Lean is just another cost-cutting program. I hear that in hospitals all the time. Lean is about improving processes, identifying customer value and providing it more effectively — better quality and lower cost. The two pillars of the Toyota “house” are basically flow and quality. They go hand in hand.

When costs go down at Toyota or a hospital that’s implementing Lean, it’s the END RESULT of improved quality and better flow. This is not cost-cutting in a traditional sense.

Waste of Motion

There are plenty of examples of waste in the article — focused on wasted motion for employees. You can see this type of waste in your local Starbucks any morning.

Syrups aren’t stored in a good location — too far from where the espresso drinks are made. Partners have to bend down to get beans from underneath a cabinet. People are running back and forth too much when putting supplies away.

This wasted motion doesn’t serve the customer effectively. It increases costs because it increases required labor time. It harms customer service because a minute spent running around to get soy milk from an inconvenient place is a minute not spent interacting with a customer in a friendly way. Plus, labor cost is a big proportion of Starbucks’ total cost, so it’s the right “top down” direction to try to help reduce that. Top down direction is appropriate in a Lean model, but the ideas for how to execute and reach the goals need to come from the people who do the work.

Parallels to Healthcare

Believe it or not, this reminds me of the Lean focus with nurses in hospitals. If a nurse is only able to spend 33% of their time with patients (a number that comes up very consistently in different studies around the world and in my own Lean work), that’s bad for patient satisfaction and quality of healthcare outcomes.

Organizations like Virgina Mason have nearly DOUBLED the amount of time that nurses can devote to patient care. This is done by making sure supplies, equipment, medication, and information are never missing — making sure the processes and systems SUPPORT the nurses so they can take care of patients.

That could be a part of the Starbucks formula, even if the stakes are lower.

Better Processes = Less Waste = Lower Cost and Better Service

In my hospital Lean work, there are two areas of focus — staff observation AND patient flow observation. Starbucks seems to be focusing on the staff side, which is OK. But, they should make sure they are also focusing on the customer value side of things, not just waste reduction.

Another issue left uncovered in the WSJ article — what happens when Starbucks improves efficiency? Will *all* of the time go to better service? Taking care of more customers? Will Starbucks make a “no layoffs as a result of Lean” pledge as many hospitals have done (like Theda Care, Virginia Mason, and Avera McKennan)? If partners are fearful for their jobs, they are unlikely to participate in waste reduction and process improvement. I’m sure Starbucks turnover is relatively high. It’s more acceptable to not replace or backfill partners who naturally leave, IF the process is truly more efficient as the result of Lean.

What about Customer Needs and Value?

Another question that the article beds: Is Starbucks meeting customer needs in terms of product and waiting time? How is product quality and service quality? Quality can improve because of Lean operations (more consistent drink prep and more time for customer service), but you can’t come up with the whole picture by just following the staff with stopwatches. Lean should start with the customer, not just the worker. Maybe the article didn’t cover that part of the equation, or Starbucks is being completely employee focused.

Final Thoughts

One final thought on the staff observation — I wouldn’t have the Lean person from corporate holding the stopwatch. No matter how nice you are and how much you’re asking partners for input, this is intimidating. When I worked with hospitals, I teach the nurses (or medical technologists) to do the observation and time study themselves. This way, it’s more peer to peer. Starbucks could maybe adopt this same approach. Just an idea.

I’m raising some issues and maybe being critical, but again, to summarize, I’d guess that Starbucks has the right idea and is headed in the right direction if John Shook is involved. It may take time, but I’d guess Starbucks is on the right track if they can influence enough people fast enough.

That’s enough for today… over the weekend, I’ll write another blog post focusing on the “interwebs” reaction to the story and how much misinformation or misperception there is about what Lean and TPS are really about… and we can discuss why that’s the case. When people fear Lean, it’s often because they have only been around “L.A.M.E.” For now, you can check out the reader comments on the WSJ article. That’s one of the things I’ll comment on in my upcoming post.

What were your reactions to the Starbucks story?

Jon Miller (from the Pacific Northwest) also blogged about this today.

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As Business Process Productivity Hits A Wall: resolutions for 2010

It is a text with a commercial intention but it contributed to my action plans for the year 2010

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Business Process Productivity Has Hit A Wall

News as reported by the company:

Business Process Productivity Has Hit A Wall
By: David Mitchell, President and Chief Executive Officer, Global 360

Despite best efforts to improve worker productivity, people still account for more than 60 percent of operational costs in organizations today and growth in payroll has outpaced productivity gains by 3x in the last five years.

In fact, in an average 8 and a half hour workday, workers spend an astonishing 1.7 hours doing absolutely nothing that adds value to their organizations.

In an era when doing more with less is the mantra -– and with an increasing number of organizations adopting Business Process Management (BPM) to improve business productivity -– it’s fair to ask: what are we doing wrong?

As the CEO of a company that provides BPM solutions, here is my answer: after initial productivity gains extracted through business process automation, most process improvement initiatives have hit a wall and are now stuck in a state not unlike where manufacturing was in the 1950s.

Think about it. In 1950, W. Edwards Deming was just introducing the idea of continuous improvement in manufacturing to Japanese industry. Deming taught Japanese companies how to improve design -– and thus service -– product quality, testing, and sales in various ways, including through the application of statistical methods.

In fact, Deming trained hundreds of engineers, managers, and scholars in statistical process control and other quality techniques. He also conducted sessions for top management with the following message: focusing primarily on costs in the manufacturing process will cause costs to go up and quality to decline over time while focusing on quality will reduce costs while increasing productivity and market share over time.

Every Step Matters

The key, according to Deming, was to view manufacturing as an end-to-end process -– from the raw material at the beginning of the process, to the finished product at the end of the line. He taught that manufacturing is not a set of isolated functions, or departments, producing a part and handing it off to the next department. Instead, each step in the process is dependent on the one that preceded it, and a misstep in any step of a process causes quality problems in each subsequent step.

Another important element of what Deming taught is that every individual in a manufacturing process must be given a role to play in the quality initiative –- even to the point of being able to “stop the line” when problems arise.

The term Total Quality Management (TQM) for Deming’s teachings and other approaches to quality such as ISO 9000 and Six Sigma did not emerge until the 1980s. And Lean -– a manufacturing management philosophy derived from the much-admired Toyota Production System that emphasizes creating more value with less work -– did not surface until the 1990s. (continued…)

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