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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Best Practices Q & A - Part 8

Question: “I used the check list in your last news letter on Best Practices cultures and realized that our company came up quite short in a number of areas. Where should we begin to make improvements?”

Answer: “While to a degree it may depends on what, specifically is missing, we have found that the best way to start is by simply speaking and discussing openly the truth about the situation. However, it should be emphasized that it is very, very easy to fall into simply complaining, which does not work. Always, always place the discussion in a context of a clear intention, a clear vision of having the company perform better. This vision and intention has the effect of allowing others to skip the complaining and whining (if you prefer), and get on with the action steps that are needed.”
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Best Practice Cultures

This article continues the discussion of how to create high sustained levels of engagement by those that comprise an organization. Here we detail the concept of Best Practice Cultures, one of the 4 Essential Factors on the Path to Best Practices. Included are characteristics of the way people that comprise an organization are led, the way they interact with each other, and the inner, human, ‘from-the-heart’ motivations and inspirations that cause them to devote significant portions of their lives and energy to the organization for which they work.

• Essentiality of Leadership – Recap
• What a Best Practice Culture is.
• Where to start; moving forward now.

In previous PROACTION Best Practice Newsletters, we previously discussed three of the 4 Essential Factors, including:

• Effective systems and processes
• Effective continuous improvement programs
• Education and training

The fourth Essential Factor is Effective Leadership and Culture. In the previous Newsletter we focused on the Essentiality of Leadership, along with empirical research validating the idea that investing time and money in this “soft” area pays substantial returns in measurable performance – higher sales volume, better profitability, quality, customer satisfaction, lower turnover, and others.

Essentiality of Leadership – Recap

From this starting point, we will next explore what other characteristics must be present in an organization’s culture for a sustained, Best Practice Culture to emerge and endure over long periods of time. To recap, the key elements of leadership in this context are:

• Driven by leaders – effective leaders set difficult, almost “unreasonable” goals that require real striving by everyone.

• Vision driven – consistently articulate a compelling vision of the future.

• High performance-driven environment – highly focused, high-energy work environments – striving toward clear objectives.

• Simple structures and processes – effective leaders avoid complex organization setups; clear, simple accountability lines enable everyone to function well, knowing exactly what their role is.

• World-class skills – also called “operational excellence” – this is a striving for high performance in every area of the organization.

• Strong people systems – clear, strong focus on performance and motivation of and assigning the best people to critical jobs.

What a Best Practice Culture Is

With effective leadership driving and role-modeling these characteristics to others in the organization, the next question is to identify what the other, somewhat more detailed aspects of a Best Practice should one either look for, or strive to create in one’s current organization. As this is a potentially “large” topic, for brevity we will present this as a checklist, aspects or characteristics to look for, together with a very brief explanation that will help understand each.

These are:

• Employee commitment – related to high levels of engagement, for everyone, not just managers and supervisors. Individual, “front-line” employees are motivated, even inspired, to work for the company and its goals.

• Fully empowered employees – Authority for action has been sufficiently delegated so individual employees have enough authority to act on their own, without having to seek “supervisor approval” for a long list of activities that are an integral part of their normal work flow or job responsibilities. Another word for this is “autonomy” – independently responsible.

• High integrity workplace – The actions of leaders and people at all levels is such that everyone’s “word is their bond.” It is expected that promises made, will be kept. This enables all participants to avoid time-wasting, discouraging “CYA” actions, reports, memos, and approvals. If a leader, especially, has to “go back on his word” he/she understands that this will be regarded as a serious breach of trust by others, and so will go to great lengths to “make it right” with everyone.

• Strong trust relationships – Closely related to high integrity is strong trust relationships, up/down the structure of the organization and laterally. People at the same level in this context, view their co-workers as team-mates, whom they can count on to do their part, be straight shooters, honest, and to not leave their co-workers “hanging out to dry.”

• Highly effective leadership – Key part of the overall culture; repeated here to emphasize that this means leadership at all levels not just the C-level managers, but first line supervisors, mid-level managers, lead people, people in a supportive role such as Quality Assurance people with a “dotted-line” reporting relationship to others.

• Effective systems and processes – any problems with basic daily work flows are worked out, resolved, so that everyone may focus on getting the work done without a myriad of error-producing exception conditions, inaccurate/untimely information, and other factors that clog the work flows. This means a certain, basic level of effectiveness has been established, and is re-established quickly after any reorganizations or realignment of responsibilities, such as might occur with implementing a new enterprise software system. It is distinct from the continuous improvement process in that it assumes at least a certain, minimum standard of effectiveness has been establish for all processes, including minor ones.

• Performance-based compensation and reward programs – bonuses, profit-sharing, stock options, and the like, all keyed to revenue and profitability and/or other goals are in place, so that everyone who helps accomplish these goals has the opportunity to benefit personally from their achievement. Ideally, the reward/compensation system is designed to be responsive to work groups or units that an individual person can relate to, not just the company as a whole. o

• Customer-focused – everyone understands, and “gets” that the company, its performance, products, services are entirely driven by customer needs, desires, and that the purpose is to create “delighted” customers, beyond just “satisfaction” in a minimal sense. This is a feeling, pervasive in the way people act, both internally, between each other, and externally, to customers and suppliers.

• Effective 360-degree communications – the review process includes one’s subordinates and peers, as well as just “keeping the boss happy.” In many job situations, it may be appropriate to seek in put from those outside the company, such as customers or key suppliers with whom the person regularly interfaces. The benefit of this is not only expanded understanding of how a person is functioning so managers can make better assessments, but for the person’s benefit as well, to support and drive personal and professional improvements as well.

• Commitment to learning and skill development – This characteristic is integral to one of the Four Essential Factors – an ongoing, effective education and training program for everyone. For a fully effective Best Practice culture, it is vital that those doing the jobs, and the improvement process, themselves continue to improve over time – to “improve the improvers,” so to speak.

• Emphasis on recruiting and retaining outstanding employees – realizing that highly effective people are critical, Best Practice cultures pay close attention to who is doing which jobs, so that each job can be performed as well as possible. The key to this is careful, effective recruiting, and then working hard to retain the best people possible. Significant turnover is a sure sign of culture difficulties.

• High degree of adaptability – Like the US Marine slogan, “improvise, adapt” – the effective Best Practice culture participants do not cling to established work structures, job assignments, etc., but embraces the truth that change is desirable and required for the kind of success everyone is seeking. So, it is expected that learning new skills, technologies, ways of interacting and working together are all part of this steady march forward to success in today’s arenas, and tomorrows which may not have even been innovated yet.

• High accountability standards – key to integrity and trust is the notion that people are responsible for delivering on what they commit to doing. The organization’s work flow, and social process depends upon this high standard of personal, work team, organization, and business unit accountability. If extraordinary efforts are required, it is assumed that these will be taken if necessary. It is a ‘no-excuses” environment.

• Demonstrated support for innovation – An essential aspect of a Best Practice culture is a pervasive thought-process of always developing, trying out, experimenting with new, potentially better ways of doing things, for both products and services, as well as “purely internal” functions as well. So, in addition to obvious things such as new, exciting products, a Best Practice culture will experiment with internal functions such as self-service employee benefits intranet web sites.

Where to Start – Moving Forward Now

In order to make an “get started” action list, we suggest that you take this list in hand, or at least in mind, and compare it with the working environments, the cultures, of companies and organizations you have work with, worked for, or served in a leadership role.

Think about each one, comparing it to what you perceive, and the result will be a “gap” list – a list of where to start. Bear in mind that very few organizations exhibit all of these characteristics at a high level.

The key insight is that the more of them, and the more completely they are evident, the stronger the culture will be, the more resilient, adaptable, and “count-on-able” it will be to produce high performance results, in quality, revenue/sales growth, and above industry-standard profitability.

Finally, remember that even small improvements will bear fruit, will show results you can measure.

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A Proaction Approach to Best Practices

Companies and organizations can be grouped into three basic categories:

· Innovators – those who are literally at the leading edge of process development; often have failures associated with risk taking, but the "wins" are big enough to offset these.

· Best Practice seekers – those who work to achieve high performance with minimum risk; by adopting practices and methods already demonstrated to work well, typically in another company and/or industry.

· Strivers – below average performing companies that are working to "keep up with the pack."

Where is your company? Unless you are an innovator, operating at the leading edge in a number of areas, your company is vulnerable to someone else who is or becomes one.

A given company may be to some degree, in all three categories. To create an example, a company could be highly innovative in its go-to-market strategy and execution. At the same time, in its R&D and product development area, it could be utilizing known, proven best practices. In its manufacturing area, for a variety of reasons, this area could be characterized as a "striver" with significant areas that are well below known best practices.

Competition is increasingly global as most company leaders are all to aware. Consequently, those with foresight seek to achieve quantum improvements in their company’s performance.

The most powerful way is to seek out Best Practices and adopt them as quickly as possible. Those who follow this path often have been able to achieve substantial performance improvements.

PROACTION provides comprehensive assistance to bring proven Best Practices into use in a wide variety of areas. The Path to Best Practices is part process, part content. Simply knowing what a best practice is for a given area is just a starting point, of course. It must be implemented correctly to gain the expected operational and financial results.

We urge you to bookmark the PROACTION web site and return regularly, or better still, subscribe to our RSS feed. Valuable information available either at no cost in the Free White Paper section or our web site, or at very moderate cost in the PROACTION Best Practices e-Store is continually being expanded and updated. The next update could contain an item that proved very valuable for you and your team. Quick links:

· Free White Papers
· PROACTION Best Practice e-Store
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Best Practices Q & A - Part 7

Question: “What do you think of the “kick a__, take names” approach? Doesn’t this serve as a strong reminder of who is in charge, that work is serious, not just a game?”

Answer: “These myths seem to persist for a variety of reasons. However, close examination of the cultures of the most consistently high performing organizations over time, will consistently reveal that these practices are a sign of immature managers. Even in the military this practice is not deemed acceptable any more, but is a sign of weak leadership.

The basic reasons are that it forces those being “managed” this way to pay more attention to “keeping their noses clean,” to covering their actions with memos, reports, and political alliances than to the actual value added by their work. All of the CYA activity is essentially organizational waste – it is not value adding work, but only serves to deflect criticism, potential punishment, or worse.
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