Outsourcing: Best Practice Impact

Article Summary: This article explores the practice of outsourcing of critical parts, products, services and processes. There are a number of impacts on the “host” company’s ability to improve performance – achieve and sustain Best Practice status in key areas. The message in this article is that there is a Best Practice to the process of outsourcing – a best way to initiate it, select products or services for outsourcing, select the appropriate supplier, and to manage the resulting, altered ongoing business process. Key topics include:

• Outsourcing – goals and basics
• Impact on Best Practices essential factors
• Planning for Outsourcing Success

Outsourcing – Goals and Basics

Every company purchases various goods and services, from rent and utilities. Many also purchase items that are its life-blood. However, the term “outsourcing” doesn’t usually refer to the every-day, basic stuff, or even exotic materials and parts that have always been purchased. Most often, the goals of an outsourcing initiative are in these categories:

• Lower cost – it is believed that an outside supplier can perform the tasks at a lower cost, compared to internal costs. This will provide a strategic or competitive advantage.

• Higher quality – the supplier may often have capabilities that cannot be matched internally, due to engineering or production expertise or that is difficult to provide internally.

• Outside focus area – management wishes to intensify the team’s focus on certain key areas that are truly critical success factors, and to increase capability and performance in these areas. Off-loading non-critical activities is a good way to improve this focus.

It is generally when we decide to take something that has been, until now, performed internally, within the organization, and have an external supplier, a different company, do the work or make the item. This decision, increasingly popular has potentially profound effects on both the company’s operating performance, and its financial results. So, our view is that it should be done thoughtfully, with serious rigor, and not be undertaken lightly. Business literature and informal stories are filled with stories of companies that rushed into outsourcing, only to discover that important aspects were not even considered.

Let’s be clear up front – we believe outsourcing is a potentially very powerful tool, one that has the potential to transform a company’s operating and financial performance. We have performed major, extensive projects on both ends of this spectrum – companies whose entire strategy depended on successful outsourcing, as well as contract manufacturing and services companies providing this outsourcing capability. These experiences have made us quite aware of the many factors involved, and what success in this area involves. We even built an entire ERP system for a client, driven primarily by their outsourcing management needs.

The key aspect to this decision is to understand that the key difference between a “supplier” and an “outsource supplier” is that the outsource supplier is really much more of a partner in your company, compared to the arms-length transactions with typical vendors.

There are several major factors involved in outsourcing that are common threads that “run through” other areas. These include:

• Internal Communication and systems – transferring what is currently an internal function or operation to an external location changes how communication to/from/with it will work. Much informal communication may be involved, which must be replicated or formalized. We once built an entire ERP system for a client to help resolve this challenge.

• Cost impact – these include the obvious (unit costs, transportation, etc.), but more importantly, the not-so-obvious, such as additional communication, problem resolution challenges, and information and work flow dependencies. It is failure to identify, and manage the not-so-obvious cost impacts that typically causes the most trouble.

• External communication - Language – typically the outsourcing supplier is outside one’s home country – abroad. The people who run the supplier company, and who will be doing your work are not native English speakers, or writers, and more importantly, even if they are educated appropriately, their education is typically not in English.

• Having spoken, and written a couple of foreign languages ourselves at different points in life taught us the painful lesson that all of the knowledge and expertise one acquires resides in the vocabulary and understanding of the language in which it was learned. Translating this highly detailed, often subtle understanding into words that a native speaker, or writer, in another language would use, is difficult and challenging. It requires, really, to learn the additional vocabulary and usage subtleties. Technical language is called “jargon” for a reason – it is a form of local usage, like a dialect.

• During our recent project in China we were never far from the awareness of these facts. The written Chinese language is completely, ah... inscrutable to a foreigner. Even foreigners who speak good Mandarin readily admit to a difficulty with the written language. So, the opportunity for serious misunderstanding is ever-present.
  

• Key Documents - Engineering drawings, specifications, service or maintenance procedures, software design specifications, and other documents are critical to the success of an outsourcing initiative and must be considered in this context. Someone who can speak fluently, “do lunch” well, and is friendly, may have no clue whatsoever what is meant by various notations on these documents. People who have never wrestled with another language, especially writing it, have almost no effective way to grasp this particular challenge and its extent.

Impact on Best Practices - The 4 Essential Factors

The impact of outsourcing will fall also on the company’s efforts to achieve Best Practice status in key areas. Briefly, the impact in each of what we call the “4 Essential Factors” includes:

• Effective Enterprise Systems & Processes – these are the communication and coordination functions of the company. If a key process is transferred to an external source, how will these essential systems/process flows continue to be effective? How will information that will now reside within the supplier’s infrastructure be integrated to internal sources that need it?

• Continuous Improvement Process – does the supplier have an effective continuous improvement process? How will it integrate, or support your own process? Will you have to educate, train and support the supplier’s staff to achieve continued improvements downstream?

• Attempts to “install” leading initiatives such as 6 Sigma often produces what we call “eyewash” charts. Walk around and you see nice looking charts and graphs, while your guide says the appropriate buzz-word phrases he learned from the consultant. Look closer and often you find that the dates on these charts are months old. Speak to people (difficult: remember, they don’t speak your language) and you’ll find that often they don’t really use any of it on a daily basis.

• Education & Training – Since you depend partly on your education and training program to both maintain capabilities of your team members, as well as advance them, what impact will transferring a key function to an outside firm have? Do they have an effective education and training program?

• Effective Leadership & Culture – will your Best Practice-focused culture mesh well with that of the supplier? The highly participative work environments typical to well-run companies in the west are normally not found in 3rd world countries, where the “command and control” style of management is standard. Improvements are something the boss decides in these companies. And they never forget who the boss is.

Planning for Outsourcing Success

In order to insure your best chances of real success in your outsourcing initiative, we suggest using the following as a starting but incomplete checklist:

• Plan carefully – make sure all important steps are covered. Especially critical is to plan in detail the transition, providing for pre- and post-support activities. Don’t expect instant benefits to appear unless what is being outsourced is really simple and plain. We suggest using proven project management methods and tools to perform these initiatives. Don’t just hand a list to a buyer and say “call me when it’s done.”

• Document everything – rigorously documented work flows, processes and parts are the exception. Often consistent high quality and repeatability depends on personal knowledge and expertise within your staff. Make sure you “capture” this information – after, of course, identifying what it is. Then – have them translated by someone YOU know and trust, generally not the supplier.

• Recognize the new competency – outsourcing important items (products or services) to an external supplier, and managing the ongoing result is a NEW skill for your team. Understand clearly that you most likely don’t have this skill now, but can and must, acquire it. High blood levels of testosterone are not a substitute for this skill.

• Select carefully; start simple – if you are new to outsourcing, we urge you to start with simpler items, those with a low-rate of change, that don’t challenge the supplier and your team’s ability to communicate about it. Use these as a learning device to gain the new management skill in managing outsourcing that your team must acquire. It’s harder than it looks. Other selection factors to consider:

• Don’t outsource your core competency items – these are products, component parts, assemblies, services that constitute your strategic and competitive advantage. Not sure what your core competency items are? Uh-oh!

• Strive for low rate of change – don’t start with an unstable process, or manufactured items that are highly engineered, in a constant state of change. Your supplier will never keep up with the changes, nor will your internal staff.

• Labor intensive – preferably, select items that do not involve a lot of skill or experience to do successfully, and consistently. In our experience, consistency is preferable to erratic, but sometimes high, sometimes low quality.

• Simple / standard inputs – your first outsourced production project is not the place to start if it is made of the proverbial “unobtainium” – material that is hard to get, harder still to work with, and involves subtle specifications that even your people have trouble understanding.

• Shorter lead time – the reason to select short-lead time items is so you will have time to recover from problems – which there most assuredly will be.

• Perform serious vendor due diligence – we suggest evaluating a vendor as though you were going to be a significant investor in the company. In a way you ARE becoming an investor; you ARE staking a part of your business success on their ability to perform well. Highlights of a good due diligence process from this point of view:

• Evaluate internal processes – production, work flows, factors like dual-controls.

• Quality – built into the processes, or by inspection-&-reject / supervision?

• Information systems – effective, or antiquated? Capable of supporting integration with your system?

• Skill and expertise – these should be at least equal, if not greater, to your internal capabilities. If they are not, they MUST be capable of being improved by training or you WILL have problems.

• Stability – how long as the company been in this business? Financial strength? Who are the (real) owners?

• 3rd world country factors – in general, companies in the 3rd world have less in the way of management capabilities, non-participative culture with authoritarian management, and less advanced information systems. Conversely, they often have excellent work habits, and are very intent on “getting it right” with their customers. And, of course, the cost structure is what opened the door in the first place, which can often be dramatic.

• Political factors? – no due diligence checklist for outsourcing would be complete without at least mentioning the political hot-button factors you should consider. Is the vendor really operating what many call a sweatshop? Are there environmental concerns? Is a revolution about to happen, or just did?

We have long learned that the optimum meshing of internal and external partners (i.e., careful outsourcing) can really strengthen a company’s performance – but with some caveats. Careful planning, real thought, discussion, and collaboration are essential threads through the points and factors that we’ve discussed above. Here, we have endeavored to “hit the high spots” of the many factors involved in this decision and process and trust that the reader will regard these as a good start in side-stepping the potential pitfalls and create lasting success in your outsourcing initiatives.

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Best Practices Q & A - Part 10

Question: “Our company is considering outsourcing some of our production items to China. We have heard about the low cost structure, of course, but have also heard about some of the difficulties others have experienced. What would you suggest as a starting point for this process?

Answer: “First, consider getting some assistance. Remember that it is not like domestic sourcing, where you just put out an RFQ and wait for some responses. And it is not just about the unit cost. Companies that succeed with China outsourcing either engage long-term support, have the ability to provide in-country support themselves, or add indirect staff (read: higher overhead costs) to provide “liaison” with Chinese vendors. There are, as we have indicated above, ongoing translation and other issues. Don’t just assume that the vendor will be fully English and western business practices oriented. The ideal is someone who works for your company, or is a 3rd party who works for your company, and also has permanent in-country resources fluent in Chinese language, culture, business practices, your technology and the government.”

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Who Owns the Work

Article Summary - This article discusses the common thread of ownership of work activity, or process ownership – a Best Practice common thread that runs through all of the 4 Essential Factors on the Path to Best Practices. Here, we discuss how this powerful concept acts as a catalyst and powerful leverage of excellence in each of the 4 Essential Factors.

Topics include:

• Work Ownership – the continuum.
• How Ownership Supports the 4 Essential Factors
• Alternatives
• Powerful Results

Work Ownership – the continuum.

One of the most fundamental issues in understanding how organizations work is the question of who owns the work – i.e., who has felt or perceived responsibility for the work itself and the results it engenders. In a full-fledged, many-layered bureaucracy, there may be thousands doing work, being busy, creating documents, etc., but actual approval for actions, signatures, and therefore the “real” authority and responsibility is highly centralized. By contrast, in a highly decentralized company, people either doing the actual work of the company, or those very close to it, have final decision authority, and may bind the company in various ways.

These contrasting ways of organizational functioning can be said to comprise a continuum, with bureaucracy at one end, and a high-performance, highly decentralized, highly delegated organization at the other. Of course, most organizations are somewhere along this continuum. Let’s explore the ends of this continuum a bit further with examples.

Bureaucracy style - In a traditional military bureaucracy, historically everything was done “in the name of the King.” This translates in more modern settings to everything being done in the name of the commander. People who are essentially clerks prepare documents, but have no real authority, and so no real responsibility. These documents are sent, often through a series of reviewers, to a final “approver” who has the actual authority, and therefore the responsibility for the action. Each reviewer will “endorse” the action (or sometimes not), and then forward it to the next person in the chain.

Consequences of this method include:

• Diffused actual responsibility – since many prepare and review a document, they are to a degree “involved” in it. However, since there are others “downstream”, the perceived or felt ownership is minimal.

• Time-delay – it takes a while to “process” an action through multiple steps. This aspect also reduces flexibility, since actions are tied to the organization structure.

• Paperwork intensive – since all communication is via written document, the document is THE thing, adding to the preparation time. Reviewers, endorsers and approvers must have all the information they need for their actions, so it has to be in the document, or attached to it. There are no informal, or oral communications with this method.

• Approval authority remote from action point – the initiator of the action is always in the best position to know the most about the situation, what action is needed, and why. However, since all of this must be written down, then forwarded “up” the chain of command, subtle aspects are lost, and there is a CYA aspect to the whole process. Finally, the approver simply cannot know enough to insure the best possible action in every case.

• Senior level approval – this is a highly desirable method for accomplishing actions that have a major impact on the organization as a whole, bind it in a major way via a contract, or are strategic in nature. These are the kinds of actions that should NOT be delegated down to the front line levels of a sizeable organization.

Highly Decentralized / Empowered style – this method is often referred to as an “empowerment” model for an organization. This means that the authority and responsibility to act are in close alignment, and as close to the “front line” workers as possible. In many cases, those on the production line, for example, will have authority to initiate what are considered capital projects in other companies, responsible for the return on investment it involves. Or, for customer-facing workers, the person may have what is essentially a blank check to do what is needed to take appropriate care of the customer.

Southwest Airlines became the most profitable airline in the US, earning more total profits than all of the other airlines combined. They buy their aircraft, parts, fuel and airport gates at the same places as all of the others, so what are they doing differently? In a word – employee empowerment – focusing on their people, what they need to do well, giving them authority and responsibility, plus the room to try and fail.

One of the most remarkable success stories with empowerment is Harley Davidson, which made business history by transforming its failing, over priced, bottom-level quality motorcycles of the 1970’s and early-mid 1980’s into the business power-house we know today. Here is a link to an excellent article describing why the company won the Catalyst Award in 2004. (PDF)

The highly decentralized / empowered style involves pushing authority and responsibility as far down the organization as possible. Leadership, rather than management control, is emphasized. The result is that individuals “doing the work of the company” feel personally responsible for its success, for the achievement of its vision and mission. In a word, they “own” their jobs and the activities it involves, regardless of where in the organization they function. Other examples of these companies include Whole Foods Market, the Container Store, and SAS Institute.

How Ownership Supports the 4 Essential Factors

We view the issue of work activity ownership as the common thread running through each of the 4 Essential Factors on the Path to Best Practices. When the level is high, there is the opportunity for true excellence in each of these areas, and for gaining the maximum benefit and synergy with the other Essential Factors. With a low level of ownership, it is quite difficult to achieve anything like excellence in the 4 Essential Factors. Here’s how each is “powered up” by high work activity ownership:

• Effective Enterprise Systems & Processes – in the bureaucratic model, system implementation is experienced as something people are doing for the “higher ups” in the company. Often, they have no notion that the system is there to help them in their jobs at all. Conversely, with high levels of ownership, implementation is not even considered until everyone at the “lowest” levels of the organization fully understands and has enrolled in the benefit the system will bring the company, and sees how their work results will fit into the overall structure. Then, even the most challenging implementation will go well.

• Continuous Improvement Process – this area is, in truth, very difficult without high levels of work activity ownership throughout the company. If people at the line level have little authority, responsibility or involvement, improvements must be generated by “experts” – i.e., staff-level people such as industrial or manufacturing engineers, consultants, business process engineers, or teams of managers. Companies attempting to achieve improved performance this way seem to never quite make it. Witness the current situation in the US with the auto industry. Those that have mastered the empowerment culture, and with it, have generated powerful continuous improvement processes, are literally slaughtering companies that have not – the “Big 3” of Detroit, still stuck in the command & control culture of decades ago.

• Education & Training – if individual workers are just carrying out instructions, narrowly defined guides for what and how they do their jobs, they feel like uninvolved cogs in a machine. As one such worker told us years ago, “You are confusing me with someone who gives a s___.” Adding education and training into this non-fertile field is typically a waste of money, as the worker has little he/she can do with the new knowledge. Conversely, in a highly empowered culture, education and training is like adding oxygen to an already hot fire – leverages the fuel already present to intensify and speed up the combustion rate.

• Effective Leadership & Culture – When a person with otherwise good leadership ability assumes leadership of an otherwise bureaucratic organization, most of what he/she has to offer ends up being wasted or so completely diffused as to accomplish little. Exciting visions of the future for the organization are filtered “down” through layer after layer of entrenched bureaucracy before ever reaching the line level. This is why putting a new Cabinet-level official in a government agency typically has so little effect, or why a new leader in a big-city school system seems to accomplish little. In the private sector, we have seen truly exciting leaders step into CEO roles at large corporations only to accomplish little, due to their inability to change the ponderous, change resistant non-empowered organization culture. By contrast, if the new leader is able to substantially alter the culture towards a highly empowered work environment, then the vision for the company’s future, its possibilities and potential, and mission, can all serve to inspire and motivate the empowered, now-capable individual workers in the company to become individually high-performing, collaborating team oriented contributors towards that success.

Alternatives

Since leaders of organizations are faced with the reality that their company is somewhere along the bureaucracy – empowerment continuum we outlined above, the alternatives facing them are simple on the surface, while involving some difficulty at the detailed level. Having engineered several of these organization culture changes ourselves, plus our research, we can offer some suggestions:

• Move now – delay, extensive consideration, deliberating, all convey a not-too-subtle message of fear, lack of confidence in both yourself and in your coworkers. Success seems to go to those who act boldly, expeditiously, and with courage.

• It’s not as hard as you think – much of the details of how to operate effectively in a newly empowered culture can and will be effectively worked out by those who do the work. You do not have to resolve every issue a team of left-brained thinkers comes up with.

• Act from the heart – inspiration, courage, and confidence do not come from the logical, left-brained parts of our beings. People have an inherent desire to make something of value with their lives – leadership’s job is to give them the chance to do this. When one actually takes in an inspirational vision articulated by a good leader, something powerful within them shifts. Remember that there are tears of inspiration, joy and meaning – altogether different from the tears of sadness, grief and loss. Do not confuse them – allow the former to occur.

• Ask for help – an effective leader, who “gets” the servant leadership concept, confesses his limitations frankly and openly, asking for those he is leading for their involvement, caring about results and performance, and their knowledge and effort to achieve the vision for the organization. This is where each person’s inherent desire to be useful, valuable, if not blocked by cynicism and resignation, comes into effective play.

Powerful Results

Increasingly we are seeing a global world where companies that have mastered the principle of work activity ownership – of empowerment cultures, are leading the way into the future in their industries. It is vital in seeing this to not be distracted by short-term successes, of companies who are, for the moment, leading in their industries because they went to China first (or to Bangladesh), have a ring of patents around their processes, or other such historical or strategic advantage.

The fundamental fact is that, even in these situations, there is an untapped advantage, potential that is not being put to use, in making the most of each person in their organization. Moving to a low-cost country, such as China, will give a temporary advantage – very temporary, however. When high levels of empowerment and work activity ownership are added, the advantage is the same as in a higher cost environment – better performance, higher profitability, growing market share, more secure, predictable performance.

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Best Practices Q & A - Part 9

Question: “In working with people from other cultures, such as Mexico or China, how can one overcome the decades of often counter-productive cultural conditioning? People have been taught to simply follow the bosses direction for centuries. What actions can be taken to create a more involved, less passive mentality among workers in these kinds of cultures?”

Answer: “First, it is important to be patient – but not TOO patient. People can and will change, given the right reward system. They are the way they are because of the reward, and too often, the punishment system they have lived and worked in. Under the old-style Communist system in China, for example, people taking initiative and responsibility sometimes just disappeared in the night – not exactly an incentive for taking more responsibility. Japanese companies such as Toyota started with these cultures, then gradually evolved over the years into the highly participative, highly empowered cultures of today.

They did this by carefully altering the reward system, so people who took initiative and responsibility were rewarded in a way that made sense to them and others around them. Also, by explicitly talking about the culture change you want to engender, people are aided in making the transition. Finally, it helps to hire carefully, to screen people for deeply entrenched attitudes that are simply never going to change. Toyota was successful with the Fremont, California plant, starting with a serious labor union problem, by hiring carefully, then training thoroughly to get the culture the rest of the company had, even with a UAW union.”
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Best Practices - China & Elsewhere

Article Summary - This article recaps material from our previous newsletters on leadership, best practice cultures, and the 4 Essential Factors that constitute the Best Practice Path. Here, we discuss these in the context of the rapidly emerging, highly dynamic, complex business and government environment that is business in China today. Topics include:

• Background and Contest - China today

• 4 Essential Factors - brief recap

• Best Practice Path Challenges - Not Unique to China

• Changing organization culture

Background and Context – China Today

To “get a feel” for how things are in China at this point in time consider that only 25 or 30 years ago, China was essentially like North Korea is today – run by iron-fisted Communist dictators that controlled and regulated every aspect of life. The effect of this kind of government is a little like putting one’s foot on a garden hose – pressure builds up, but nothing comes out, nothing much is produced. Government only restricts people’s natural efforts to create better lives and more prosperity.

What has happened here since the death of Mao, has been a gradual loosening of the iron fist of control, allowing more and more of what is essentially capitalist free enterprise to take root and flourish. The result is the fastest growing economy in the world, averaging nearly 10% per year in overall growth.

While the emphasis has been on growing companies that export products, generating a USD$ Trillion trade surplus balance (China Daily, November 2, 2006) much prosperity has resulted in the populace, with huge traffic problems, construction everywhere, and an inability to keep up with the demand for electric power. China builds new power generation capabilities roughly equivalent to that of Australia’s total capacity every year, and it’s not enough.

A Chinese friend said it is forecasted that approximately 400 million rural Chinese will migrate to cities over the next 20 years, necessitating the construction of urban growth equivalent to 100 Los Angeles-sized cities and associated infrastructure.

Traditional Chinese private business practices have been oriented around a single person keeping control. Only one person has signature authority, called the “chop” here. The “chop” refers to a rubber stamp, similar to a corporate seal, used to authenticate checks, purchase orders, contracts and other official documents. Everything is brought to the head man, who briefly reviews each document (emphasis on briefly), then “chops” it with his official seal. In the West, the person’s handwritten signature (or a rubber stamp of it) is used to do the same thing.

One explanation of this practice is because of the endemic corruption that has been here for centuries. To this we would add that China did not originate corruption – the potential for it is present everywhere. There is also a similarity to traditional government and military practice for everything to be done “in the name” of the senior official – commanding officer, department secretary or minister, etc.

Because of the decades of Communist government dominance, there is a heavy layer of bureaucratic habit and practices, which has also affected older worker’s attitudes and work habits. However, younger people have little knowledge or experience of the old heavy-handed, fear-driven Communist days where the last guy that took some initiative to make things work better disappeared.

4 Essential Factors - Recap

To place our discussion in the Best Practices context, these are the 4 Essential Factors that we identify as being the PROACTION Best Practice Path:

1. Effective enterprise systems and processes – the combination of people-based actions (procedures) and software performed functions to form an overall work flow or “business process.”
2. Continuous improvement process - formal, organized, and systematic activities by almost everyone in an organization to examine every aspect of work flows / processes to improve their quality, productivity and reduce cost and problems.
3. Education and training – an ongoing, formal program, a curriculum of classes, courses and practical training, separate from “on-the-job” training to improve the conceptual understanding and build proficiency of everyone – a primary input to the continuous improvement process.
4. Effective leadership and culture – leadership by vision and example, empowering of individual workers, delegating of as much authority and responsibility as possible.

As the work and related experience here in China has repeatedly, consistently validated, these four factors are not culturally specific. As elsewhere, when one or several, but not all, of these factors are present, the business may perform adequately, even successfully for a time.

But, when they are all present, there is a synergistic effect that multiplies the effects of the others to transform the business from a so-so performer that may be dependent on competitors simply being worse than they are for success, into a globally competitive, high quality, high performing, hard-to-catch organization.

Also, on a scale from truly mediocre through adequate but less than true best practice (where most companies are), each of these four factors has a major impact in and of itself. We have really seen the truth of this here in China. Several brief observations in this regard:

• The majority of China’s export business is from foreign owned firms with their superior management, business processes, and improvement-driven cultures. Many are Japanese, as well as North American and European. The computer this article is being written on was built at a Toshiba plant in Shanghai, shipped via FedEx to me in Los Angeles.

• State owned enterprises often lose lots of money. The government is trying to make them more like private enterprises, by listing their stock and other measures, but in many areas things have a long way to go, a fact that is publicly admitted even in the state-controlled press.

• In personal interviews and work experience here we have been struck by the clarity of people’s response to good leadership vision and lead-by-example, their strong desire for things to work well, be done professionally, with high quality and make a profit.

• Many of the business processes we have reviewed, when set up by a Western-trained Chinese professional, are as good as, or better than many companies in the US. Efficient, good controls, and other elements are clear, even through the Chinese language and “flavor.”

• Go-forward plans are all based on improving or implementing more in the way of what we call Best Practices – there is little difficulty in having people here see that these are the way to make a company work better, be more successful and thrive. There is no national bias.

Best Practice Path Challenges – Not Unique to China

There is no question that many of the attitudes and practices in China, as elsewhere, are contrary, or are in opposition to Best Practices. Were this not so, the work of teaching and implementing Best Practices would be quite easy. Instead, it is often a challenge – where one faces misunderstanding, ignorance, or paradigms that may blind a person to a degree as to what is actually going on.

Our forthcoming book, Understanding and Generating Best Practices has a whole chapter devoted to these challenges, and they are more numerous than one might think. Origins of these challenges stem from accounting practices, beliefs about human nature, laziness, fear of losing control, and dozens of others.

Throughout our career we have consistently come into conflict with the belief, for example, that inventory is a good thing, resulting from the accounting practice of calling it an “asset.” When a business is viewed from a cash flow perspective, it becomes immediately clear that inventory causes one to spend cash now, with an uncertain cash inflow date and amount – hardly a good idea. But this fact is completely obscured by accrual accounting that recognizes a record profit while simultaneously holding massive finished goods inventory balances that will eventually have to be marked down to sell.

Also, centralization of decision making and approvals – summarized above in the Chinese “chop” practice – is, as we pointed out, hardly a Chinese only practice. Intelligent, clear delegation of authority increases a vital Best Practice characteristic – ownership by those who perform a business process or work flow.

Also, delegation of authority without appropriate dual controls, periodic audits and other controls that enable the delegation to work without exposing the company to risk of theft (“corruption”) is also contrary to Best Practices. The two work together. Again, this is not unique to China, the US, or anywhere in particular.

Changing Organization Culture

Those who are faced with a business situation where the culture must be changed to bring Best Practices into daily use have the same challenge. To change them involves the same process, regardless of whether the culture present comes from local traditions thousands of years old, from other sources such as habits that never changed, a hostile union/management relationship that has festered for decades, or other source.

They key steps we have identified in this process involve:

• Leadership by example - those in charge must “walk the talk.”

• “Servant” leadership – appears to be the most effective style in bringing about change in people. This is the orientation by managers that it is their primary job to find out what their people need to be successful and then get it for them – to enable them to be successful.

• Explanation – in often personal terms, candid and frank about how a new practice affects personal security, social standings and status, and other seldom-talked about “sacred cows.”

• Benefit – how the company will benefit, and how the individual will benefit from the change.

• Assurance – support, via actions, more than words, that the person who accepts and adopts the requested change / practice will not be “left out in the cold” or abandoned.

In conclusion, we suggest that you undertake, as additional reading, W. Edwards Deming’s 14 Points. These were articulated by him in the 1950’s and 60’s during his work with Japanese companies, which had, at the time, a highly autocratic culture. This changed, slowly, but dramatically. Deming became a national hero in Japan as a result.

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