Less is More
How Great Companies Use Productivity as a Competitive Tool in Business
by Jason Jennings
from the back flap… Jason Jennings and his team of researchers traveled the globe, researching thousands of businesses, to find the world’s most productive companies. Then they went deep inside, uncovering the secrets that allow these companies to be dramatically more productive, often without reductions in head count. These productivity champions defy all the fixed rules and turn conventional wisdom upside down.
pg xv Here’s our list of criteria for selecting the companies included in this book:
– revenue per employee
– return on equity and return on assets
– operating income per employee (income from operations divided by the number of employees)
– has the company been overexposed?
– might this company pull an Enron?
(The companies selected: The Warehouse, Nucor, Yellow Freight, IKEA, Ryanair, SRC, World Savings and Lantech.)
pg 4 As I came to the end of my in-depth interviews with the CEOs of the companies covered in this book, I was struck by the fact that each shared this in common; the ownership of and fierce loyalty to a very simple big objective. The big objective was the strategy and it became the culture; everything else was tactics on how to achieve it.
pg 14 Stack made good on his promise to teach everyone business, with steps that include calling the whole company together weekly for a detailed update on the firm’s profit and loss statement and balance sheet. Today a visit to any SRC facility starts in the lunchroom where an entire wall details the company’s financial statement including how much money they have in the bank. As you walk the factory floor engaging people in conversation, you find workers who are as comfortable talking price-equity as pistons, cash flows as cylinders.
SRC Holding has become a widely diversified manufacturing holding company that grows 15 percent per year in good times and bad, whose twenty-two plants are involved in fifteen different manufacturing operations.
With revenues greater than $200 million annually, the company handily beats their competitors on all the productivity metrics – revenue per employee, operating income per employee and return on invested capital.
Stack’s simple BIG objective was to teach everyone the rules of business and then turn it into a game where everybody has a clear awareness of how his work impacts the numbers.
pg 39 I didn’t find any closed doors in the world’s most productive companies. (I even had trouble getting people to shut a door against intrusive noises when I wanted to tape an interview.) As a result of my research, I’ve concluded that the greater number of closed doors in a company, the less likely that truthfulness and openness will be found. (You want to wager there were more closed doors around Enron than you could count?)
pg 55 Imagine the giant strides in productivity that any department or business can achieve by doing nothing more than emulating the first two lessons we’ve covered in our study of highly productive enterprises: Install a BIG strategic objective that ultimately becomes the culture. And then create an open and truthful environment where everyone knows and understands the numbers and is compensated for specific contributions.
pg 65 Kamprad has institutionalized the destruction of complicated corporate hierarchies. Kent Nordin says, “We still have hats called “Anti-Bureaucracy Week,” a time when executives must leave the safe, secluded confines of their corporate offices and get down and dirty in an IKEA store for an entire week.
He continues, “For at least one week every year, everyone has to work in a store. And that can be anything from pushing carts to serving as a cashier, or in sales, whatever you can do.”
But there’s a caveat. Nordin adds, “All of the executives must be there on weekends, when the stores are busiest, teeming with shoppers of all kinds, crying babies and arguing couples. It’s not enough to check in on a Monday and out on a Thursday afternoon. You have to be there when the heat is on.” Their founder created the program, Nordin explains, “because he is dead scared of bureaucracy. He is very afraid about the people who make decisions becoming out of touch.”
Eight Steps for Driving a Stake Through the Heart of Bureaucracy
1. Change everything as fast as you can (which is always faster than you think you can).
2. Get the right people on the bus.
3. Blow up functional silos and construct cross functional teams.
4. Decentralize to create entrepreneurship.
5. Flatten the organization to increase responsiveness to customers and others within the company.
6. Create passion in the ranks: lead by visible example, show the troops you care – a lot!
7. Create and reinforce a high-performance culture.
8. View all decisions from the perspective of ‘Does it help the customer?’ and ‘Does it make us money?’ If it doesn’t, it’s bureaucracy. Shoot it!
pg 81 One trait shared by all these productive companies is that they are essentially businesses with a simple business proposition working tirelessly to whittle away the unnecessary costs and edges, constantly becoming better and more efficient. And in the process each has created a workforce that doesn’t spin its wheels on unnecessary projects, nonstrategic initiatives or flavour-of-the-month management philosophies. And none of them uses layoffs as a way to manage head count.
pg 93 When the workers in a business are cross-trained a company can often avoid layoffs through the use of attrition. Cross-training delivers another palpable advantage as well: a company with versatile employees and executives require fewer layers of bureaucracy because everyone knows the nuts and bolts of the place.
… Now, I might say, ‘Hey, you know a lot about sales marketing systems but I’m going to have you work in operations for a while.’ The net result is that we’re able to leverage our investment in people and use that knowledge to come up with better solutions for our customers.”
pg 96 Most people in the workforce are able to understand the need for a one-time major reorganization. But nobody worth their salt wants to work in an unenlightened environment where each time the top dog confronts a problem, the only response offered is “Let’s reduce head count.”
Highly productive companies prove the proposition that Less is More by hiring carefully and having a policy of no layoffs, which creates a workforce that feels safe and secure and committed to achieving the goals and ambitions of the enterprise.
pg 99 World Savings is a case study in productivity. The Sandlers run the company with little more than half the employees of their closest competitor. The average World Savings employee generates an astounding $752,000 in revenue each year. That is 40 percent more than industry average. Each employee contributes $145,000 in profit annually, which represents nearly double the industry average.
pg 102 “At one point,” he says, “Marion called the person in charge of marketing with a question about something and I promptly got a call from the CEO telling me that’s not the way things work. He told me that Marion should have called him and he would have relayed the request to the head of marketing, who would talk to the right employee, who would get back to the supervisor, who’d get back to the head of marketing, who’d relay the information to the CEO, who would then call me.”
Herb Sandler’s blunt observation: “That type of bureaucracy is common in many companies. We won’t have that crap around here. It reminds me,” he says, “of the old story about Merrill Lynch. You go into a Merrill Lynch office and ask, ‘Who’s in charge here?’ and all fifteen hands going up in the air. Then you ask, ‘Who’s responsible? And all fifteen hands come down.”
pg 105 “Marion has a question that we ask all the time whenever we’re required to make any decision” He warns that it’s an astute question and therefore sometimes very complicated to answer… “The question,” she says, “the one we ask before we make any decision is, ‘What’s the good business reason for doing this?”
pg 108 Today most of the World portfolio comprises loans on single family homes up to four-unit buildings, though it does occasionally write multiple residential mortgages, and 95 percent of its mortgages are at adjustable rates – mortgages with interest rates that go up and down with the market.
pg 122 A highly productive company doesn’t use a financial statement as a basis for leading and managing the business. It uses carefully selected Drivers to keep it moving forward and constantly becoming more productive.
Notwithstanding their size, the companies we studied almost exclusively focus on a small number of important tasks and then work relentlessly to improve them, knowing that if they’re successful the financial statement will ultimately reflect their success.
pg 124 The big Drivers and Lantech include new orders, shipments and variable margin. “Our mantra around here,” says Cunningham, “is if you don’t ship it, you don’t have income and you don’t make a profit. All our shipments show gross profitability and you just can’t do that with regular accounting.” … Fiume follows up with some advice that seems hard to beat: “What you need are real numbers and lower levels of the organization that are actionable by people who have real jobs and do the real work.”
The Drivers companies share in common are each quantity-based and delivered on either a real time, daily or weekly basis. None of the companies we studied relied on month-old data, interpreted by accountants who make decisions about the business proposition. When a company finally creates a process where the things that truly drive a business, generate revenues and improve productivity are regularly measured, the financial statements become secondary. It is secondary in the sense that the other measurements being used give control of the business; the financial statements just confirm what you already know. When that happens, productivity will flourish.
pg 129 “A system”, Brent (Hendrix) says, “is work in which the sequence of job elements has been efficiently organized and is repeatedly followed by a team member. The work sequence that is followed represents the ‘best practices’ involved in completing the job. The aim of a system is to reduce the variation introduced, thus eliminating waste and achieving high productivity. It’s also the baseline of the continuous improvement philosophy in which the involvement of the team member is vital.” …Highly productive companies turn virtually all aspects of their business into systems.
pg 147 All highly productive companies employ the same principles for continuous improvement… To the certain protest of many kaizen practitioners who would have you believe there’s either something complex or magical about kaizen, our study and research led us to conclude there are seven readily identifiable steps involved in continuous improvement. Here is the way all the companies we studied continually improve what they do – even if they’ve never heard of kaizen.
• Leadership must be involved in continuous improvement. (Go, see, be involved.)
• There’s agreement on the objectives. (set specific productivity objectives)
• You need to know what the real product or service is. (Ask the question ‘What’s our real product or service?’ completely from the perspective of the customer.)
• Start by mapping the current process.
• The people performing the work must be involved in the (creation of the) new process.
• The improved process is implemented immediately.• Continuous improvement becomes the ethos of the company.
pg 157 Dr. Jeffery Pfeffer, author of many business books and currently the Thomas D. Dee II Professor of Organizational Behaviour at the Stanford University Graduate School of Business, says, “It’s easier for people to tinker with compensation than it is to address the real issues, the need to build a culture based on respect and trust.”
pg 191 When the research team finally connected the dots, we realized that highly productive enterprises don’t rely on traditional motivational methods to become and stay productive. … If highly productive companies don’t employ the same motivational tactics and programs as most companies, how do they motivate their workers? The simple answer is, “They don’t have to.”
pg 192 To cut to the chase in explaining the big difference between highly productive and humdrum companies, you may want to read these next words over a few times. We think the following idea from Dr. Quick is among the most important concepts in this book: “The challenge is to spend less time trying to design motivational programs and more time figuring how to get out of the way of people trying to do good things.”
pg 199 (Frederick Taylor, in testimony before the U.S. Congress in 1912)… “The danger is when the financial objectives of an organization are placed in front of its mission or purpose.” Taylor’s conclusion was that financial performance is the consequence of business and must never become the driving force.
pg 200 Alfie Kohn, author of Punished by Rewards, advises that people must be able to see a connection between what they’re doing and the overall goals of the organization. “If you’re giving people deadly, dull, pointless tasks to do, then don’t be surprised if there may be a few members of our species who would not be intrinsically motivated to do what you’re asking them to do.”
Some consider Kohn a radical thinker but he does make a sharp point. Who wants to show up every day to do a job where you don’t feel as if you’re contributing to some greater good? It’s up to the supervisor, leader or manager to help workers make that connection every single day.
pg 230 Each of these leaders used essentially the same steps in creating a highly successful organization. As we’ve seen, each in his or her own way –
– Began with a BIG objective
– Got everyone onboard and then proceeded to streamline everything by ruthlessly fighting to keep the business proposition simple
– Communicated truthfully with everyone
– Cleaned out the management ranks of those unable, unprepared or unwilling to go where the enterprise was headed
– Demonstrated the way they value people by policies of no layoffs
– Institutionalized What’s the good business reason for doing this?
– Measured and shared the real Drivers with everyone
– Turned every business process into a best-practices system designed to eliminate waste
– Committed to a program of continual improvement
– Paid people for productivity in ways that drive the culture, and
– Employed the right technology to gain a productive edge.
pg 234 Twelve Rules for Doing More with Less
– Start with a simple proposition.
Don’t let anyone – even you – muck it up by making it too complicated. If it’s already complicated, simplify it.
– Spend your time building a culture, not a business model – one based on truth, honesty and respect. Be authentic and live the values.
– Make certain that every manger and executive believes and practices everything on this list or get rid of him or her immediately. He isn’t necessarily a bad person, but he is the wrong person.
– Ask WTGBRFDT – “What’s the good business reason for doing this? – of every decision you’re called on to make. Don’t delude yourself.
– Get rid of special perks for executives. They earn enough to pay for their own indulgences. Class distinctions make people jealous.
– Enter into a covenant that layoffs and head-count reduction won’t be used as a tool to cover up management’s bad decisions, poor judgement calls and mistakes.
– Teach everyone business and have everyone understand the direct relationship between their work and the financial well-being of the enterprise. If a direct connection can’t be made, keep the worker but eliminate the position.
– Put everyone on a team and pay the teams for what they create, produce, sell or service. Let peer pressure drive out the dead-beats.
– Turn every function into a system and map it out. Then constantly ask the people who do the work how to eliminate waste and make the system better.
– Implement your new process quickly and perform them over and over again, working each time to eliminate waste.
– Be competitive and keep score. It keeps things fun.
– Embrace technology, but don’t count on it for a competitive advantage. Everyone else can have the same technology.
…Finally, you’re invited to visit Jennings-solutions.com, where you’ll find an entire section devoted to the subject of Less is More and the opportunity to take part in one of our weekly live interactive sessions on the subject.