Management – Page 26 – artdiamondblog.com

“Strategy, as We Knew It, Is Dead”

(p. B7) During the recession, as business forecasts based on seemingly plausible swings in sales smacked up against reality, executives discovered that strategic planning doesn’t always work.

Some business leaders came away convinced that the new priority was to be able to shift course on the fly. Office Depot Inc., for example, began updating its annual budget every month, starting in early 2009. Other companies started to factor more extreme scenarios into their thinking. A few even set up “situation rooms,” where staffers glued to computer screens monitored developments affecting sales and finances.
Now, even though the economy is slowly picking up, those fresh habits aren’t fading. “This downturn has changed the way we will think about our business for many years to come,” says Steve Odland, Office Depot’s chairman and chief executive.
Walt Shill, head of the North American management consulting practice for Accenture Ltd., is even more blunt: “Strategy, as we knew it, is dead,” he contends. “Corporate clients decided that increased flexibility and accelerated decision making are much more important than simply predicting the future.”
Companies have long planned for changing circumstances. What’s new–and a switch from the distant calendars and rigid forecasts of the past–is the heavy dose of opportunism. Office Depot stuck with its three-year planning process after the recession hit, largely to make sure employees had a common plan to rally around, Mr. Odland says. But the CEO decided to review the budget every month rather than quarterly so the office-supply chain could react faster to changes in customers’ needs.

For the full story, see:
JOANN S. LUBLIN and DANA MATTIOLI. “Theory & Practice; Strategic Plans Lose Favor; Slump Showed Bosses Value of Flexibility, Quick Decisions.” The Wall Street Journal (Mon., January 22, 2010): B7.

Many of McDonald’s Best New Products, Started With Franchise Operators

(p. 163) Some of my detractors, and I’ve acquired a few over the years, say that my penchant for experimenting with new menu items is a foolish indulgence. They contend that it stems from my never having outgrown my drummer’s desire to have something new to sell. “McDonald’s is in the hamburger business,” they say. “How can Kroc even consider serving chicken?” Or, “Why change a winning combination?”

Of course, it’s not difficult to demonstrate how much our menu has changed over the years, and nobody could argue wish the success of additions such as the Filet-O-Fish, the Big Mac, Hot Apple Pie, and Egg McMuffin. The most interesting thing to me about these items is that each evolved from an idea of one of our operators. So the company has benefited from the ingenuity of its small businessmen while they were being helped by the system’s image and our cooperative advertising muscle. This, to my way of thinking, is the perfect example of capitalism in action. Competition was the catalyst for each of the new items. Lou Groen came up with Filet-O-Fish to help him in his battle against the Big Boy chain in the Catholic parishes of Cincinnati. The Big Mac resulted from our need for a larger sandwich to compete against Burger King and a variety of specialty shop concoctions. The idea (p. 164) for Big Mac was originated by Jim Delligatti in Pittsburgh.
Harold Rosen, our operator in Enfield Connecticut, invented our special St. Patrick’s Day drink, The Shamrock Shake. “It takes a guy with a name like Rosen to think up an Irish drink,” Harold told me. He wasn’t kidding. “You may be right,” I said. “It takes a guy with a name like Kroc to come up with a Hawaiian sandwich . . . Hulaburger.” He didn’t say anything. He didn’t know whether I was kidding or not. Operators aren’t the only ones who come up with creative ideas for our menu. My old friend Dave Wallerstein, who was head of the Balaban & Katz movie chain and has a great flair for merchandising–he’s the man who put the original snack bars in Disneyland for Walt Disney–is an outside director of McDonald’s, and he’s the one who came up with the idea for our large size order of french fries. He said he loved the fries, but the small bag wasn’t enough and he didn’t want to buy two. So we kicked it around and he finally talked us into testing the larger size in a store near his home in Chicago. They have a window in that store that they now call “The Wallerstein Window,” because every time the manager or a crew person would look up, there would be Dave peering in to see how the large size fries were selling. He needn’t have worried. The large order took off like a rocket, and it’s now one of our best-selling items. Dave really puts his heart into his job as a director, now that he’s retired and has plenty of time. There’s nothing he likes more than traveling with me to check out stores.
Our Hot Apple Pie came after a long search for a McDonald’s kind of dessert. I felt we had to have a dessert to round out our menu. But finding a dessert item that would fit readily into our production system and gain wide acceptance was a problem. I thought I had the answer in a strawberry shortcake. But it sold well for only a short time and then slowed to nothing. I had high hopes for pound cake, too, but it lacked glamor. We needed something we could romance in advertising. I was ready to give up when Litton Cochran suggested we try fried pie, which he said is an old southern favorite. The rest, of course, is fast-food history. Hot Apple Pie, and later Hot Cherry Pie, has that special quality, that classiness in a finger food, that made it perfect for McDonald’s. The pies added significantly to our sales and (p. 165) revenues. They also created a whole new industry for producing the filled, frozen shells and supplying them to our stores.
During the Christmas holidays in 1972, I happened to be visiting in Santa Barbara, and I got a call from Herb Peterson, our operator there, who said he had something to show me. He wouldn’t give me a clue as to what it was. He didn’t want me to reject it out of hand, which I might have done, because it was a crazy idea–a breakfast sandwich. It consisted of an egg that had been formed in a Teflon circle, with the yolk broken, and was dressed with a slice of cheese and a slice of grilled Canadian bacon. This was served open-face on a toasted and buttered English muffin. I boggled a bit at the presentation. But then I tasted it, and I was sold. Wow! I wanted to put this item into all of our stores immediately. Realistically, of course, that was impossible. It took us nearly three years to get the egg sandwich fully integrated into our system. Fred Turner’s wife, Patty, came up with the name that helped make it an immediate hit–Egg McMuffin.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.
(Note: ellipsis and italics in original.)

Ray Kroc’s Account of How Filet-O-Fish Came to McDonald’s

One of the challenges of efficiently running a business is when to encourage experimentation and innovation among employees, and when to enforce standardization. Sam Walton seemed to have handled this well at Wal-Mart.
In the passage quoted below, Ray Kroc gives a glimpse of how he handled the issue at McDonald’s.

(p. 137) . . . , the quality of our french fries was a large part of McDonald’s success, and I certainly didn’t want to jeopardize our business with a frozen potato that was not up to our standard. So we made certain that the frozen product was thoroughly tested and that it met every condition of quality before we made it part of the system.

There was another product being tested at this time that would prove to have a tremendous effect on our business. This was the (p. 138) Filet-O-Fish sandwich. It had been born of desperation in the mind of Louis Groen in Cincinnati. He had that city as an exclusive territory as a result of some horse trading he’d done with Harry and me back in the days when we were using everything but butterfly nets to catch franchisees. Lou’s major competition was the Big Boy chain. They dominated the market. He managed to hold his own against them, however, on every day but Friday. Cincinnati has a large Catholic population and the Big Boys had a fish sandwich. So if you add those two together on a day the church had ordained should be meatless, you have to subtract most of the business from McDonald’s.

My reaction when Lou first broached the fish idea to me was, “Hell no! I don’t care if the Pope himself comes to Cincinnati. He can eat hamburgers like everybody else. We are not going to stink up our restaurants with any of your damned old fish!”

But Lou went to work on Fred Turner and Nick Karos. He convinced them that he was either going to have to sell fish or sell the store. So they went through a lot of research, and finally made a presentation that convinced me.

Al Bernardin, who was our food technologist at the time, worked with Lou on the type of fish to be used, halibut or cod, and they finally decided to go with the cod. I didn’t care for that; it brought back too many childhood memories of cod liver oil, so we investigated and found out it was perfectly legal to merchandise it as North Atlantic whitefish, which I like better. There were all kinds of fishhooks in developing this sandwich: how long to cook it, what type of breading to use, how thick it should be, what kind of tartar sauce to use, and so forth. One day I was down in our test kitchen and Al told me about a young crew member in Lou Groen’s store who had eaten a fish sandwich with a slice of cheese on it.
“Of course!” I exclaimed. “That’s exactly what this sandwich needs, a slice of cheese. No, make it half a slice.” So we tried it, and it was delicious. And that is how the slice of cheese got into the McDonald’s Filet-O-Fish.
We started selling it only on Fridays in limited areas, but we got so many requests for it that in 1965 we made it available in all our stores every day, advertising it as the “fish that catches people.” I (p. 139) told Fred Turner and Dick Boylan, both of whom happen to be Catholic, “You fellows just watch. Now that we’ve invested in all this equipment to handle fish, the Pope will change the rules.” A few years Later, damned if he didn’t. But it only made those big fish sales figures that much sweeter to read.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.

Business Decisions Often Need to Be Made Before You Have Much Data

Rita Gunther McGrath is a member of the faculty of the Columbia Business School. Source of photo: online version of the WSJ article quoted and cited below.

(p. R2) BUSINESS INSIGHT: You and Prof. Ian C. MacMillan of the Wharton School of the University of Pennsylvania wrote a book called “Discovery-Driven Growth.” What is discovery-driven growth?

DR. MCGRATH: Discovery-driven growth is a way of planning to grow that doesn’t require a lot of analytical information at the outset. It recognizes that many of the data that you need to make decisions don’t exist at the time that you have to make the decisions. It’s a plan to learn.
I think we all live with a conceptual overhang from an industrial era when things were more predictable. You had big production runs. At least if you were an American company, you had a lot of markets with very little competition, and what competition there was was more or less predictable. In many businesses you could use the past as an adequate guide to what the future held for you.
In more and more industries, those conditions no longer apply. You’re seeing temporary advantages, very rapid swings in who’s on top competitively, new technologies that make older ones irrelevant at an ever-faster clip–the usual litany of things people moan about today. But I think one of the things that has not yet quite been fully recognized is that these have an impact on our management processes–or should.

For the full interview, see:
Martha E. Mangelsdorf. “Executive Briefing; Learning From Corporate Flops; When starting new ventures, companies should revisit their assumptions early and often.” The Wall Street Jounal (Mon., OCTOBER 26, 2009): R2.
(Note: italics in original.)

Source of book image: http://events.roundtable.com/iguru/DiscoveryDrivenGrowth.gif.

Entrepreneurial Judgment Can Be Right Even When It Is Hard to Articulate

Entrepreneurs may develop a good sense of people, even though they cannot articulate their judgment. Yet their firms, and our economy, might be more efficient and productive if they were allowed to follow their judgments, rather than follow Human Resource Department credentialism and paper trails.
The entrepreneurs might make mistakes, but in an open economy they would pay a price for their mistakes in profits foregone, and hence would have an incentive to correct the mistakes. And there would be plenty of alternative jobs for anyone mistakenly fired.

(p. 91) I’ve been wrong in my judgments about men, I suppose, but not very often. Bob Frost, one of our key executives on the West Coast, will remember the time he and I were checking out stores, and I got a very unfavorable impression of one of his young managers. As we drove away from the store I said to Bob, “I think you’d better fire that man.”
“Oh, Ray, come on!” he exclaimed. “Give the kid a break. He’s young, he has a good attitude, and I think he will come along.”

“You could be right, Bob,” I said, “but I don’t think so. He has no potential.”
Later in the day, as we were driving back to Los Angeles, that conversation was still bugging me. Finally I turned to Bob and yelled, “Listen goddammit I want you to fire that man!”
One thing that makes Bob Frost a good executive is that he has the courage of his convictions. He also sticks up for his people. He’s a retired Navy man, and he knows how to keep his head under fire. He simply pursed his lips and nodded solemnly and said, “If you are ordering me to do it, Ray, I will. But I would like to give him another six months and see how he works out.”
I agreed, reluctantly. What happened after that was the kind of (p. 92) personnel hocus-pocus that government is famous for but should never be permitted in business, least of all in McDonald’s. The man hung on. He was on the verge of being fired several times in the following years, but he was transferred or got a new supervisor each time. He was a decent guy, so each new boss would struggle to reform him. Many years later he was fired. The assessment of the executive who finally swung the ax was that “this man has no potential.”
Bob Frost now admits he was wrong. I had the guy pegged accurately from the outset. But that’s not the point. Our expenditure of time and effort on that fellow was wasted and, worst of all, he spent several years of his life in what turned out to be a blind alley. It would have been far better for his career if he’d been severed early and forced to find work more suited to his talents. It was an unfortunate episode for both parties, but it serves to show that an astute judgment can seem arbitrary to everyone but the man who makes it.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.

Another Boeing BHAG Takes Flight

“Members of the public watched the first test flight of the Boeing 787 on Tuesday in Everett, Wash.” Source of caption and photo: online version of the NYT article quoted and cited below.

In their stimulating business best-seller Built to Last Collins and Porrus have a chapter in which they argue that one way to attract and retain the best employees is to give them a difficult but important project to work on. They call such projects “BHAGs,” which stands for Big Hairy Audacious Goals. Among their main examples (e.g., p. 104) of BHAGs were Boeing’s development of the 707 and 747.
Boeing’s latest BHAG is the 787 Dreamliner.

(p. A25) EVERETT, Wash. — The new Boeing 787 Dreamliner lifted into the gray skies here for the first time on Tuesday morning, more than two years behind schedule and burdened with restoring Boeing’s pre-eminence in global commercial aviation.

“Engines, engines, engines, engines!” shouted April Seixeiro, 37, when the glossy twin-engine plane began warming up across from where spectators had informally gathered at Paine Field. Ms. Seixeiro was among scores of local residents and self-described “aviation geeks” who came to watch the first flight.
Moments after the plane took off at 10:27 a.m., Mrs. Seixeiro was wiping tears from her eyes. A friend, Katie Bailey, 34, cried, too.
“That was so beautiful,” Ms. Bailey said.

For the full story, see:
WILLIAM YARDLEY. “As 787 Takes Flight, Seattle Wonders About Boeing’s Future.” The New York Times (Weds., December 16, 2009): A25.
(Note: the online version of the article has the title “A Takeoff, and Hope, for Boeing Dreamliner” and is dated December 15, 2009.)

The reference for the Collins and Porras book is:
Collins, James C., and Jerry I. Porras. Built to Last: Successful Habits of Visionary Companies. New York: HarperBusiness, 1994.

Bert Sutherland Was the “Hero of Xerox PARC”

The failure of Xerox to take advantage of the innovations developed at Xerox PARC, is a legendary example of management failure. A couple of books have been written on the subject that I hope to read sometime.

(p. 194) Beyond his efforts in VLSI design, Bert Sutherland had supported the work at Xerox PARC that led to the “windows” and the “mouse” on nearly every workstation and many personal computers, from Apple and Atari to Apollo and Sun. He formed the research department that made Ethernet the dominant small computer network and that conceived the “notebook” lap computer. Xerox’s lead in IC design gave the company the tools–if the firm had only understood them–to lend new special features to every copier and printer and even to create the kind of electronic “personal copiers” later pioneered by Canon.

Bert Sutherland was the hero of Xerox PARC: that is history. But that was not life. In real life, Xerox fired him in 1979. While he worked day and night on the novel projects in Palo Alto that were to give Xerox an indelible role in the history of computer technology, jealous rivals conspired against him at headquarters. They said that his research, which would fuel the industry for a decade, was irrelevant to the needs of the company. In corning years, the research leadership that replaced him would make the company nearly irrelevant to the needs of the world.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

Microsoft Hired Good People and Gave Them the Space and Privacy to Think

Not Microsoft. “Mark Clemente, a Steinreich Communications vice president, in the firm’s smaller Hackensack, N.J., office.” Source of caption and photo: online version of the WSJ article quoted and cited below.

The article quoted below documents the trend in business toward small, and more open offices. I believe that this trend is largely a mistake.
Another trend in business (see Levy and Murnane 2004) is for more jobs to involve thinking and creativity. Thinking and creativity are harder in an environment of noise and frequent and unpredictable interruptions.
David Thielen’s book on the secrets of Microsoft’s success that said that Microsoft emphasized hiring really good people, and then respected them enough to give them an office with a door, so they could have the space and privacy to think and create (e.g., pp. 17-35 & 147-150).
Microsoft had the right idea.

(p. B7) The office cubicle is shrinking, along with workers’ sense of privacy.

Many employers are trimming the space allotted for each worker. The trend has accelerated during the recession as employers seek to cut costs and boost productivity.
. . .

Tighter quarters and open floor plans also can present challenges. David Lewis, president of OperationsInc LLC, a Stamford, Conn., provider of human-resources services to more than 300 U.S. companies, says open floor plans and low cubicle walls can create discord and lead to increased turnover.
“Now everybody knows everybody else’s business,” he says. “It actually starts to create a level of tension in an office that never existed before. People can’t focus on work because they’re on top of each other.”

For the full story, see:
SARAH E. NEEDLEMAN. “THEORY & PRACTICE; Office Personal Space Is Crowded Out; Workstations Become Smaller to Save Costs, Taking a Toll on Employee Privacy.” The Wall Street Journal (Mon., DECEMBER 7, 2009): B7.
(Note: ellipsis added.)

The Levy and Murnane book mentioned above, is:
Levy, Frank, and Richard J. Murnane. The New Division of Labor: How Computers Are Creating the Next Job Market. Princeton, NJ: Princeton University Press, 2004.
The Thielen book is:
Thielen, David. The 12 Simple Secrets of Microsoft Management: How to Think and Act Like a Microsoft Manager and Take Your Company to the Top. New York: McGraw-Hill, 1999.

“If I Listened to Logical People I Would Never Have Succeeded”

We may never know if Gilder’s optimism about Takahashi’s DRAM initiative was prescient or misguided. Takahashi died of pneumonia at age 60 in 1989, the same year that Gilder’s Mircocosm book was published. (Takahashi’s successor abandoned the DRAM initiative.)

(p. 154) Many experts said it could not be done. DRAMs represent the most demanding feat of mass production in all world commerce. None of the complex procedures is easy to automate. Automation itself, moreover, is no final solution to the problems of dust and contamination. Machines collect and shed particles and toxic wastes nearly as much as people do. Chip experts derided the view that these ten-layered and multiply patterned electronic devices, requiring hundreds of process steps, resembled ball bearings in any significant way.

Takahashi knew all that. But experts had derided almost every decision he had made throughout his career. “Successful people,” he says, “surprise the world by doing things that ordinary logical people (p. 155) think are stupid.” The experts told him he could not compete in America with New Hampshire Ball Bearing. He ended up buying it. The experts and bankers had told him not to build his biggest ball-bearing plants in Singapore and Thailand. Those plants are now the world’s most productive. The experts told him not to buy two major facilities in the United States, full of obsolescent equipment and manned by high-priced workers. But those facilities now dominate the American market for precision ball bearings. Now the experts told him he couldn’t make DRAMs. He knew he could. “If I listened to logical people,” he says, “I would never have succeeded.”

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

Did Fairchild Fail Due to Bad Management or Disruptive Technology?

Clayton Christensen has shown how good management, following respected practices, can fail in the face of disruptive technologies. It would be interesting to investigate whether Fairchild was an example of what Christensen is talking about, or whether it just did not have good management.

(p. 89) Andrew Grove . . . had played a central role in bringing Fairchild to the threshold of a new era. But Fairchild would not enjoy the fruits of his work. Following the path of venture capital pioneer Peter Sprague were scores of other venture capitalists seeking to exploit the new opportunities he had shown them. Collectively, they accelerated the pace of entrepreneurial change–splits and spinoffs, startups and staff shifts–to a level that might be termed California Business Time (“What do you mean, I left Motorola quickly?” asked Gordon Campbell with sincere indignation. “I was there eight months!”).

The venture capitalist focused on Fairchild: that extraordinary pool of electronic talent assembled by Noyce and Moore, but left essentially unattended, undervalued, and little understood by the executives of the company back in Syosset, New York. Fairchild leaders John Carter and Sherman Fairchild commanded the microcosm: the most important technology in the history of the human race. Noyce, Moore, Hoerni, Grove, Sporck, design genius Robert Widlar, and marketeer Jerry Sanders represented possibly the most potent management and technical team ever assembled in the history of world business. But, hey, you guys, don’t forget to report back to Syosset. Don’t forget who’s boss. Don’t give out any bonuses without clearing them through the folks at Camera and Instrument. You might upset some light-meter manager in Philadelphia.
They even made Charles Sporck, the manufacturing titan, feel like “a little kid pissing in his pants.” Good work, Sherman, don’t let the big lug put on airs, don’t let him feel important. He only controls 80 percent of the company’s growth. Widlar is leaving? Great, he never fit in with the corporate culture anyway. Sporck has gone off with Peter Sprague? There are plenty more where he came from.
“It was weird,” said Grove, “they had no idea about what the company or the industry was like, nor did they seem to care. . . . Fairchild was just crumbling. If you wish, the semiconductor division management consisted of twenty significant players: eight went to National, eight went into Intel, and four of them went to Alcoholics Anonymous or something.” Actually there were more than twenty and they went into startups all over the Valley; some twenty-six new semiconductor firms sprouted up between 1967 and 1970. “It got to the point,” recalled one man quoted in Dirk Hanson’s The New Alchemists, “where people were practically driving trucks over to Fairchild and loading up with employees.”

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.
(Note: the first ellipsis was added; the others were in the original. The italics were also in the original.)

Videos of Routines Are Better than Focus Groups and Surveys

Source of book image: http://bobsutton.typepad.com/.a/6a00d83451b75569e20120a5fa1e26970c-800wi.

(p. W8) Mr. Brown argues . . . emphatically for the close observation of users in their natural habitats. Traditional market-research tools–focus groups, surveys–rarely produce breakthrough findings, he claims. IDEO and others follow users around–making video recordings of them as they go about their routines, recording conversations with them–to build an understanding of what they really need. An IDEO employee in the health-care area, for instance, pretended to have a foot injury and checked himself into an emergency room with a hidden video camera to get a better view of the patient experience. This anthropological form of market research, Mr. Brown notes, has been adopted by companies such as Intel and Nokia.

For the full review, see:
DAVID A. PRICE. “The Shape of Things to Come; Design is more than aesthetics and ease of use. It’s a way of doing business.” The Wall Street Journal (Fri., OCTOBER 9, 2009): W8.
(Note: ellipsis added.)

Reference the book being reviewed:
Brown, Tim. Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation. New York: HarperBusiness Publishers, 2009.