Is Your Company Managing You?

There just aren’t enough hours in the day!

Yes, I’ve said this many times myself. Sometimes it feels that you simply have no control over your schedule.

There is no doubt that Industrial Leadership is a serious challenge even in the best of times. There are so many diverse responsibilities to be attended to, challenges to deal with, crises to overcome, and opportunities to pursue.

Just look at the table of contents of this book. Clearly, Industrial Leadership isn’t a narrowly focused expertise or discipline. To survive, let alone achieving any measure of success, the Industrial Leader must diligently oversee all aspects of the company organization, from technical aspects of the manufacturing process, the safety of employees and contractors, product and/or service quality, environmental compliance, financial performance as well as strategic aspects of financial leadership, a broad range of HR tasks including protecting the organization from corruption and protecting employees from exploitation by loan sharks, supply chain strategy including cost strategy, sales and product development, and personal development. There is even a chapter about networking … how can one ever expect to devote time to networking and personal development while attending to all of the other leadership responsibilities?

Major facilities owned and operated by multinational conglomerates typically benefit from a global team of specialists, experienced professionals recruited from peer companies and competitors, and bright young specialists selected from the best domestic universities. However, the majority of industrial facilities are small to medium sized ventures managed by a very small team of professionals who each oversee multiple functions. For example, the Accounting Manager may also take care of Administration and HR. The Operations Manager is also the Maintenance Manager. The Safety Manager oversees the Quality function. The Supply Chain Manager also takes care of Finished Goods. The Managing Director also serves as the Plant Manager and Sales Manager.

In many ways, leading a small industrial facility can be significantly more challenging than running a major facility. However, regardless of the size and scope of the business, the modern competitive environment demands that each employee and each manager be fully utilized, with headcount strictly limited.

Delegate: To Who

My whole team is busy, everyone is working hard. I know I am doing tasks that should be delegated to others. I know that my key management responsibilities are not getting done because I’m working on non-core tasks. However, if I delegate these tasks, either they won’t get done properly, or they will get done at the expense of other important tasks.

You say I don’t delegate effectively. I say I am very willing to delegate, if only I had someone to whom I could responsibly delegate these tasks.

Delegation is a Process, not an Act

Delegation is not simply assigning a task to someone else, like kids passing the hot potato. If it was this easy, everyone could do it.

Your responsibility as a leader is to manage your entire organization to ensure that tasks are prioritized and accomplished in the most effective and efficient manner by the people most capable of doing so. This means managing your managers, managing your organization, and managing yourself.

Many managers, supervisors, and employees focus on tasks that they like, or tasks that get the most unwanted attention. Some tasks may lack priority, many tasks should be redefined, reassigned, or removed from the task list.

You will never be successful at managing your job responsibilities until you manage and mentor your subordinates to most effectively manage their job responsibilities.

Task Inventory

Each organization is unique. Your company has its own set of operational requirements that must be successfully fulfilled in order to meet your business and financial obligations. Each organization also has a unique set of human resources, skills, and other assets to accomplish these requirements.

If you intend to manage these responsibilities, you must first identify the discrete tasks that must be accomplished to do so. Take this seriously; many organizations find themselves spending large amounts of time on tasks which do not directly contribute to achieving the organizational goals. Other tasks that are required are often being performed by the wrong people, in the wrong way, lacking in efficiency, and wasting valuable time and resources.

Take the time to clearly identify the tasks, understand how the tasks are being performed, and evaluate which tasks can be eliminated, combined, streamlined, outsourced, or otherwise improved to make your organization more effective.

Do your Accountants rely on Excel spreadsheets to accomplish various tasks? With modern integrated Accounting software, there should almost never be any requirement to generate or maintain an Excel spreadsheet. Work with your Accounting package supplier to fully automate every function, including report generation and trend charting. A small investment in software configuration will deliver major reductions in labor, as well as minimize opportunities for mistakes (or the dreaded lost file / corrupted file).

You will never be successful in managing the workload in your company until you have clarity on the tasks that your organization is performing.

Process Mapping

Once you have identified the tasks that must be done, you must carefully evaluate how the tasks are being performed.

Process Mapping is a valuable technique to understand and define more complicated tasks. For example, the process of executing a Purchase Order is a great example of a task that should be evaluated using a Process Map.

Prepare to be surprised when you gain visibility on how key tasks are actually being performed. Tasks are typically allowed to evolve seemingly without any logic or reason, until they become convoluted, confused, inefficient wasters of time and talent.

Processes don’t naturally organize themselves into their most efficient form. Teams don’t instinctively understand or appreciate the most effective method of accomplishing a process. Process Mapping is a great tool to identify wasteful tasks, allowing the organization to achieve the most efficient, streamlined process.

A great resource for Process Mapping is “Improving Performance: How to Manage the White Space on the Organization Chart” by Geary A. Rummler and Alan P. Brache.

Task Scheduling and Workload Distribution

Procrastination is a very common human trait. We have all been guilty of procrastinating at one time or another. Some of us are champion procrastinators, never completing any task until the last minute.

After you have rationalized the various tasks performed by your organization, and have worked diligently and creatively to make each task and process as efficient and streamlined as possible, you must consider task scheduling. Determine firm dates for completing various tasks. Never allow or tolerate late or last minute task completion, especially when subsequent tasks such as month end closing depends on timely completion of precursor tasks.

Do not overlook opportunities to achieve a more balanced distribution of workload. Many tasks do not require highly specialized skills. Such tasks simply require a well-defined process and some training to efficiently and effectively follow the process to complete the task.

Do not allow physical or virtual walls to prevent a fair and prudent distribution of tasks. There is no reason why the Administration Officer can’t assist the HR department with time and attendance, or assist Accounting with some tasks. Remember, everyone is working for the same team.

Outsourcing

To achieve the full potential of your organization, your organization needs to focus on its core competencies. Anything that is not integral to your business should be evaluated for outsourcing.

In recent years, payroll outsourcing is becoming more common. This is a good example of using an outside specialist organization to most efficiently execute a very important but non-core task. Payroll is certainly very important; if your staff doesn’t get paid correctly and on time, you can be sure they won’t be your staff for long. They’ll be working for someone else. Yes, important, even vital tasks can be effectively outsourced.

Accounting Outsourcing is becoming increasingly common. Traditionally, accounting was a labor intensive, paperwork intensive function. The flow of paper documents was a fundamental, physical limitation preventing outsourcing.

Today, nearly all accounting functions are performed using third party accounting software packages. All data, whether sales transactions, purchasing and expense transactions, inventory movements, etc., are recorded entirely using integrated software tools. Even more importantly, modern software packages are fully integrated with the Internet, so a transaction entered in one physical location can immediately be processed by someone in the next room or halfway around the world. Physical proximity is no longer a practical limitation to accounting transactions.

Modern Accounting Outsourcing contractors can completely manage nearly all of your accounting transactions, including report generation and flagging potential troublesome trends or issues, from a completely remote location.

Today many companies are also outsourcing some or all of their Maintenance tasks, Warehousing / Logistics, IT, Security, Housekeeping, etc.

Due to scale efficiencies and expertise, outsourcing contractors can often do a better job than your staff, more efficiently, more reliably, and for lower total cost.

Manage Your Company, Don’t Let It Manage You

I often find Managers aren’t really managing anything. These managers could more accurately be called “Caretakers.” They just monitor the company activities, and keep things chugging along.

For some organizations, a Caretaker role is the appropriate leadership model. If your company produces and delivers a well-established product or service, has a stable and loyal customer base, has little opportunity or appetite for growth or product development, and does not face or risk strong competition or disruptive new technology, then the Caretaker role might be ideal.

However, I observe that there are fewer and fewer organizations that enjoy such entrenched and persistent stability that they have no need or incentive to pursue improvements. What I do see is Caretaker managers running companies that desperately need enlightened and inspired leadership to realize their full potential.

I also see managers who recognize that their organization needs to change, evolve, improve, and grow to survive in an increasingly competitive global market. However, they are so overwhelmed with the daily crises, challenges, workload, and both internal and external demands that they are virtually paralyzed. They work too many hours, suffer from stress, and despite best intentions never manage to gain control over their own workload or that of their team.

Do not allow yourself to be managed by the crisis of the day. Do not allow your team to struggle day in and day out, never achieving success in their positions and departments. Don’t succumb to the easy option of throwing more people at the problem. Without a well developed operating environment, more people merely creates more complexity and less transparency, increasing your costs, reducing your competitiveness, and makes it more likely that your organization will never achieve the efficiency that can and must be realized.

Congratulations, you are the Manager. It is time to start Managing. You have many tools in your toolbox. Use them skillfully, and you will become the Manager that your team, company, shareholders, and customers require you to be.

Frank T.

Human Resources: Vital Resources

Industrial leaders are typically focused on the daily priorities of running their manufacturing operation, ensuring that the supply chain functions smoothly, dealing with technical or quality issues, and responding to customer or sales inquiries, issues, opportunities, or complaints.

Unfortunately, too few managers recognize the importance of the Human Resource function, or simply choose to delegate all responsibility for HR to the HR manager.

Industrial Leadership is a team sport. Of course it is reasonable to expect the HR Manager to manage and lead the HR function. The same applies to quality, safety, supply chain, operations, etc.

However, there is a significant difference between delegating and disregarding. I find many managers delegate quality responsibility to the QC department, delegate procurement functions to the Purchasing Department, but completely disregard HR functions.

When I discuss quality with a Plant Manager, I find that the manager is deeply familiar with the quality process, and is well informed about the quality systems and standards to which the company operates. The manager frequently reviews the quality performance reports and charts, and seeks to address any quality issues that may be arising. When outstanding quality performance is achieved, the manager eagerly announces, recognizes, and rewards the team for the achievement. The manager also gets directly involved to mentor the team in overcoming any issue that might be impeding the quality performance.

Many Industrial Leaders do not feel confident or competent when dealing with the Finance or Accounting Department. However, this does not deter most leaders from recognizing the importance of financial performance. They sit with the Accounting Manager on a frequent basis, review the financial performance of the organization, seek to understand any issues, and work directly with the Accounting Manager to address any issues or opportunities. They also closely monitor the P&L if for no other reason than to anticipate the bonus that they are likely to earn, or to make changes to minimize any losses and protect their job and career.

Regretfully, I too frequently observe that the HR department rarely receives the same quality of engagement, oversight, and support from the Plant Manager that other departments enjoy. Too many Plant Managers treat the HR function as little more than an unwelcome distraction from their priority tasks of running a successful business. Discipline, turnover, annual reviews, time and attendance issues, salary actions; don’t bother me with the details, just deal with the issues so I can focus on the important tasks.

HR: Human Realities

HR should never be viewed as a distraction. The HR function is certainly not less important than quality, supply chain, accounting, or sales.

Your employees are truly vital company resources. You depend upon each individual, as well as each group, team, or function, to perform their responsibilities properly, professionally, reliably, and consistently. You expect, or at least hope for, loyalty and enthusiasm from your employees. As your business develops, you need each employee to improve, expand, and grow his or her skills and experience to best support the company to achieve its broadest organizational objectives.

You have undoubtedly taken VIP visitors on a tour of your facility. You proudly take your visitor to show them the heart of your operation; the most important piece of equipment or the vital process that fundamentally defines the success of your business. You proudly describe the process details, the developmental history of the process, the key process parameters, the performance statistics such as the high output yield or the very low loss or waste. You proudly introduce the supervisor to your visitor by first name, and you may even know the names of many of the operators and technicians involved with the process.

Your VIP visitor clearly understands that you are proud of this fundamental process, are deeply engaged with the process, and understand all technical and operational details of this process inside and out. As you conclude the plant tour, your VIP has total confidence that you are the captain of your vessel, and that you and your vessel are shipshape You are fully prepared, competent, and qualified to navigate through the most difficult water and dangerous weather to deliver your passengers and cargo to your destination safely and on schedule.

Now, imagine that your VIP visitor doesn’t want to tour your facility. Instead, you are asked to take the VIP visitor on a tour of your HR department.

Are you capable of giving the same quality of introduction to the HR department? Are you confident to discuss the details of the HR department, the fundamentals of your HR policy, the developmental history of your HR process, the vital HR statistics such as turnover, sickness, employee training and development, disciplinary actions and the intervention steps to promote responsible behaviors and avoid incidents that lead to disciplinary violations. Can you explain to the VIP the aspects of your HR function that you are most proud of, and describe the current initiatives that you are pursuing to take your HR function to the next level of achievement?

At the end of your HR department tour, would your VIP visitor have the same level of confidence in you? Most likely, the VIP would leave the tour concerned that you’re obviously not familiar with the charts, can’t plot a course, and if the HR manager depends upon your guidance and leadership, your vessel will most likely end up on the rocks or sunk far beneath the waves, with all hands lost.

No Second Chances

Being an Industrial Leader is a very serious business. Mistakes can have very serious consequences. Out on the factory floor, a single major mistake can result in serious disruption of your production process, serious damage to expensive equipment, massive warranty claims for defective products that could threaten the financial health of the business, and could even lead to the death or serious injury of facility employees, contractors, or to consumers of your defective product.

Fortunately, most factory mistakes don’t result in such serious consequences. Our modern industrial processes have safeguards to protect against most if not all foreseeable mistakes.

The most common mistakes involve small changes that just don’t work as well as we might have hoped. We try a new machine or component; if it works we keep it, if it doesn’t we discard it or upgrade it and try again.

If we install a new motor on a machine, and the motor vibrates, runs hot, makes too much noise, or otherwise fails to meet our expectations, we can replace it. The machine doesn’t get angry that we installed a bad motor on it. The machine doesn’t hold a grudge. The machine doesn’t tell other machines that we are thoughtless and incompetent. The machine doesn’t quit and go work for a competitor.

Regretfully, most humans are far less tolerant when they are subject to mistakes, whether real or imagined. If you hire or transfer an employee into a position where their salary is significantly more or less than their peers in the same job, you can be sure that someone will perceive this as a mistake and will not be happy. Are you going to raise everyone’s salary to match the highest salary? Are you going to cut the high salary to match the average for the position? Are you going to terminate or relocate the new employee to solve the problem, even if the employee has performed well in the position and prefers to stay? Is everyone or anyone going to understand and accept your solution to the problem? Will you or your management team ever be forgiven for making the mistake?

Most HR mistakes do not lead to loss of life, though workplace violence is a modern reality. Disgruntled employees can cause great trauma and disruption to a workplace. Nearly all HR mistakes carry serious consequences, and most mistakes can be very difficult to satisfactorily address and resolve.

HR issues involve real people, and mistakes or issues can directly and seriously impact both the employee and the employee’s family. Terminations are especially disruptive and damaging to an employee and family. Hiring too many people, with the intention of keeping the best and terminating the poor performers, can have devastating consequences on those individuals who are terminated. Did they fail to perform adequately, or did you fail to recruit them responsibly?

If you are an Industrial Leader who thinks you can delegate and disregard HR issues, secure in the knowledge that you are devoting your time to the more important priorities of your company, you are seriously mistaken.

VR Department

You are not the Accounting expert, but you diligently monitor the Accounting Department, ask responsible questions, seek to provide support and encouragement, and strive to improve your personal accounting and finance skills.

You are not the Quality expert, but you have carefully read and considered your Quality Manual, you have studied the ISO 9000 process, you have participated in surveillance audits, quality reviews, and supplier audits. You routinely review the quality performance statistics and reports. You promote and support the quality process and the quality department, and you work to expand and enhance your knowledge of quality management.

You are not the Process Engineer, and you might not have an engineering degree, or have a degree in an unrelated engineering discipline. However, you recognize the importance of process integrity, you have worked diligently to understand the process fundamentals, and you understand the risks and hazards associated with the process. You engage with the process experts, and you seek responsible opportunities to continuously improve the process to maximize the operational and financial performance of the business to best serve your shareholders, stakeholders, and customers.

Just because you are not an HR expert either, do not make the mistake of failing to give equal attention to the HR department. I don’t recommend that you rename your HR department, because it might cause confusion both internally and externally. However, I strongly recommend that you think of your HR function as being the Vital Resources Department.

You have a lot of diverse responsibilities. You have daily challenges that are competing for your time and attention. It is too easy to relegate HR issues to the bottom of your priority list, where they will languish until the issues grow into crises.

Manage your HR Department just as you do any other vital organizational function or department. Even though you are not an HR expert, you must accept and internalize the vital importance of the HR function.

You must carefully read and understand the Employee Manual and all other HR Policies and Procedures. You are the leader of the company; you have the big picture. You understand how all the pieces of your corporate puzzle fit together. Does your Employee Manual and HR Policies and Procedures integrate properly into your vision of your organization?

I find that there are typically small issues, and sometimes major issues, where HR documentation is not properly optimized to achieve the best performance for the organization. Does this mean the HR manager failed? Almost certainly not. What it does mean is that the HR Manager doesn’t have access to the same “big picture” or “helicopter view” that the Plant Manager or Managing Director has. It is always the responsibility of the leader to ensure that each piece of the management puzzle fits properly and optimally into the overall organizational puzzle.

You must be a partner and mentor to the HR Manager. Provide your best support and encouragement to the HR function. Ensure that the HR department has the resources they require to most effectively and efficiently discharge their responsibilities.

Seek every opportunity to improve your HR skills and competencies.

When you take care of your Vital Resources with the same diligence and intensity as you devote to your other business functions and departments, you will achieve the maximum performance and efficiency from each of your individual employees, groups, teams, and departments. Your organization will never achieve its full potential unless your Vital Resources Department receives the support, supervision, and recognition that it deserves.

Frank T.

Conquering Corruption

“Trust, but verify.”

— Ronald Reagan

 

When the word “corruption” is mentioned, the thoughts of many people run to politics and politicians. However, the dark world of corruption is far deeper and broader, encompassing much more than just political corruption.

In Industry, there are many opportunities for corruption to rear its villainous visage. If we think in terms of industrial economics, there are incentives to engage in corrupt acts in both procurement (input) and sales (output) functions.

Most industrial managers are well aware of the US Foreign Corrupt Practices Act (FCPA) and the UK “Bribery Act 2010.” These laws cast broad nets to ensnare wrongful actors primarily involving bribery or kickbacks in favor of sales or supply contracts, especially involving foreign government officials.

The FCPA and Bribery Act are very serious laws, and managers must fully respect and diligently comply with the provisions of these laws. If you as a manager have any doubts or questions concerning the coverage or details of these laws, you should do some urgent research and if necessary seek professional advice.

The good news is that output side corruption or bribery requires resources. Anyone seeking to engage in output side corruption needs to have some resources at their disposal to realistically execute these corrupt acts. You as manager, assuming of course that you are not corrupt and reject corruption as a business tactic, can effectively protect against most forms of FCPA or UK Bribery offenses by maintaining strict control over budgets, and absolutely refusing to fund or authorize any spending that might directly or indirectly be used to sponsor corrupt acts.

At the risk of oversimplification, management holds the purse strings, and therefore a responsible manager can realistically protect against most if not all forms of output corruption and bribery.

Congratulations, this means that you as a responsible and engaged manager have a very good tools and opportunities to prevent corrupt output acts involving your organization, and hence can realistically protect yourself from prosecution and incarceration.

Unfortunately, this does not mean that you get a free pass on corruption and bribery.

Many industrial organizations have been seriously damaged, and in some cases completely destroyed and bankrupted, due to what I call input corruption.

Input Corruption

Competition for most products and services is fierce, and growingly increasingly intense. Competitors are continuously improving the quality of their products, and are simultaneously driving costs out of their supply chain and internal processes to maximize their competitive strength.

Some competitors, realizing that they are unable or unwilling to compete on a fair and level plane, seek to tilt the competitive odds in their favor.

The dark and secretive world of corruption is, by its nature, difficult to comprehend and understand. The economic incentives of corruption can be significant for the successful participants. This leads to a very creative environment and an incredibly diverse range of corrupt practices designed to benefit the corrupt sponsors and their conspirators in crime.

Industrial Corruption 101

OK, let’s learn about being corrupt.

Virtually every department, position, and activity can be corrupted. However, one of the most common targets for corruption is in the procurement activity.

Suppliers are desperate to sell their products and services. Competition is fierce, and the stakes can be very high. Failure to win an order can mean the failure of the company and ultimately bankruptcy. Even if a supplier is not facing bankruptcy, the pressure and incentives to win an order can be very high.

Procurement corruption can therefore be very lucrative for the participants, and can be initiated by either the purchasing officer or by the supplier. In either case, a kickback incentive is negotiated in favor of a successful purchase order.

Make no mistake, regardless of whether procurement corruption is initiated by the purchasing or supplying organization, the cost of corruption is paid in full by the purchaser, i.e. your organization.

Maintenance or services are another common area for input corruption. Even if the service supplier is competitively selected by a non-corrupt procurement process, ample opportunities exist for corrupt actors to benefit from corrupt practices.

A very common corrupt service scheme is invoicing for excessive or unnecessary services. An inside conspirator, such as a maintenance engineer, agrees to validate invoices and documentation for services in excess of those actually provided, and possibly authorizing unnecessary replacement parts, in favor of a kickback on a portion of the incremental profit earned by the corrupt service supplier.

I find that most honorable managers are quite clueless when it comes to the incredible diversity of input corruption opportunities. I don’t claim to be an expert either. Perhaps only those that have worn black hats in their past can fully appreciate the power and creativity of dark influences.

Believing in Ghosts

You can’t seek a cure unless you are ready to acknowledge the problem.

Many managers have expressed concerns to me that they think they have a corruption problem in their organization. However, they lack evidence, and don’t know what to do.

How can you act when you have no evidence of wrongdoing?

In many cases, acknowledging that corruption possibly or even likely exists within an organization is akin to acknowledging a belief in ghosts. You worry about its existence despite a lack of hard evidence.

Corruption is Corrosive! 

You might not have hard evidence of input corruption in your organization. However, rest assured that your staff is aware of its spectral presence. They might not know the details, because dark influences shun the light and leave precious little evidence.

However, the staff quickly recognizes that some people have more disposable income than they should have. They notice secret conversations, when certain individuals frequently go outside to have private mobile phone conversations. They observe favoritism, when it seems like someone is especially friendly with a particular vendor, or becomes very defensive when a vendor change is suggested.

It is also common for staff to wonder why Management doesn’t recognize these same signs. Surely the boss has noticed this same curious behavior. Is the boss incompetent, or is he / she part of the corrupt conspiracy?

Do not allow corruption to corrode your team loyalty, cohesion, trust, and morale.

Anti-Corruption Inoculation

You are the leader of an Industrial Organization. You must protect your organization from Corruption. Don’t wait until you have solid evidence of a crime; you may never be lucky enough to get such evidence.

Your integrity is also on the line. You may not be involved in corruption, you may not support corrupt acts of your staff, your motives may be entirely noble and your heart pure. Unfortunately, your staff has no way of knowing that. Your staff will simply witness the circumstantial evidence of Input Corruption, and you will be blamed for being either complicit or incompetent.

Don’t waste another day. You must implement a pro-active program to eliminate and prevent corruption.

Create an Anti-Corruption Policy: Prepare a clear, concise, written policy. Your policy should:

  • Affirm your commitment to operate your business ethically and with integrity.
  • Strive to compete on a level playing field and to provide a level playing field for your suppliers to compete to serve the company.
  • Prohibit and prevent all forms of corruption and bribery, and to implement programs to promote integrity, honesty, and accountability in the exercise of all responsibilities and duties.
  • Implement and maintain internal systems and controls to prevent unethical conduct by employees, ensure good governance, and instill the values of integrity and accountability.
  • Provide communication channels for employees and stakeholders to confidentially report suspicious circumstances without risk of reprisal.

Communicate Your Anti-Corruption Policy: You are the boss. You are the leader. You are the moral compass for your organization. You must clearly and strongly communicate that your organization absolutely has no tolerance for any form of corruption.

Do not trust your deputy managers to communicate your policy. Do not take any risk that your policy or your message is diluted during dissemination. Accept this as your responsibility, and discharge it with resolute enthusiasm and sincerity.

Engage Directly with Suppliers: Input corruption cannot occur without the cooperation and complicity of suppliers. Again, do not allow your message the opportunity to be diluted during dissemination.

Be clear, be strict, be honest. State in the most clear terms that your organization values its relationship with its product and service suppliers, and that your success is built upon the success of your relationships with your supply chain. Indicate that your organization places its highest emphasis on honest, honorable, and mutually valuable relationships. Indicate that corrupt acts, no matter how small, have no place in your supplier relationships. Gifts or other forms of incentives, esteem, or gratitude exceeding a token or nominal value are not welcome. Emphasize that any corrupt acts, regardless of form or method, are completely unacceptable and will be dealt with in the most strict and severe manner.

Most importantly, include the anti-corruption statement and Whistleblower Contact Information to allow suppliers to report any corrupt action or inquiry.

I recommend that you establish a multi-tiered communication strategy to ensure that your message reaches each supplier, and that the receipt is validated.

But I have 1,000 suppliers, and even more prospective suppliers … how can I possibly communicate to all of them?

Welcome to the 21st Century. With our diverse digital infrastructure, there is never any excuse for not being able to communicate with one or one million people.

Bidders: With every bid, require your prospective bidders to submit a signed acknowledgement accepting your company’s anti-corruption policy. This should be signed by an authorized director, and I suggest that you also collect signed copies from the manager(s) of the relevant supplier departments. You need to be sure that your anti-corruption message has been received and understood by the people who are in a position to engage in, prevent, or witness corrupt acts.

Suppliers: Each supplier should be required to sign and return your company’s anti-corruption policy at least annually. If a single supplier provides multiple products from different divisions or locations, be sure that each division / location has signed and returned an acknowledgement form.

I also recommend that your anti-corruption policy be clearly referenced on your standard Purchase Order and Purchase Requisition forms. Most importantly, ensure that the whistleblower hotline contact information is provided. You must maximize the risk that a corrupt act or inquiry will be reported and acted upon, to have the best hope of preventing a corrupt act from even being considered.

Quality: Be sure to build your anti-corruption program to eliminate opportunities for evasion.

Most likely your organization has a Quality Department, and follows a quality policy manual that includes supplier qualifications and validation.

I think you can agree that anti-corruption is a quality that you wish to encourage and enforce among your supply chain.

I suggest that you directly involve the Quality Department in receiving, recording, and validating the anti-corruption acknowledgements from suppliers. By diversifying the responsibility for anti-corruption among multiple departments, you significantly increase the likelihood that your system cannot be compromised.

Localized Standards

Today most Industrial facilities are located overseas. Our parent companies insist that we comply with the USA standard “FCPA” or the UK “Anti-Bribery Act”. However, our employees may wonder why they should be seriously concerned with compliance to foreign standards.

We are a sovereign nation, we have our own culture, laws, and standards. Why should we subjugate ourselves to foreign laws and standards?

The simple answer is that your company exists in a globalized business community, and that FCPA and other laws and standards are relevant to your business regardless of where it is located.

However, why limit yourself to compliance only to these important but “foreign” laws.

Most countries and jurisdictions have their own very good anti-corruption initiatives. If you are serious about anti-corruption, I recommend that you seriously look for local initiatives to compliment your FCPA and Anti-Bribery compliance programs.

Here in Thailand, for example, the Thai Collective Action Council against Corruption (Thai CAC) is taking a high profile public leadership position against corruption. The Thai CAC offers membership and certification programs for companies to declare and demonstrate their intent to eliminate all forms of corruption.

By getting your company directly involved with respected local anti-corruption initiatives, you are clearly indicating through both words and deeds your determination to eliminate corruption from your organization.

Risks and Rewards

Ok, perhaps you agree that input corruption is a dark problem that needs to be addressed. You think you may have a problem, and you would like to take some prudent steps to minimize your exposure.

Congratulations, acknowledging the problem is a major step towards solving it.

However, you were looking for a silver bullet, and all I have given you is a new level of bureaucracy to further complicate your business systems.

Thanks a lot!

If you and your team view this as another level of bureaucracy, this program will fail. Frankly, if you allow your team to view any of your internal initiatives  and policies as just another level of mindless bureaucracy, your programs are doomed for failure.

Is Safety just another level of mindless bureaucracy? Is Quality and ISO 9000 mind numbing bureaucracy. Do you allow your team or yourself to be seen to be just going through the motions to comply with Corporate edicts without enthusiasm?

You are the boss, and your integrity is always on the line. If you allow your team to think that any program or policy is just a bureaucratic waste of time, you compromise both the program and your personal integrity. You must either defend the policy and ensure that it is implemented in the most efficient, effective manner, or you must fight to eliminate the program. Industry today is too competitive to allow wasteful programs to be perpetuated.

However, if you are an enlightened manager, if you have experienced or witnessed the destructive impact of Input Corruption, you will quickly value the importance of an effective Anti-Corruption program.

Do spoken and written words really make a difference? Absolutely!

The vast majority of your staff want to work for a high quality, honorable, safe company. They will be proud to serve a company that does not allow a few rogue individuals to leverage their positions to generate personal profit at the expense of the organization.

By creating a highly visible, well documented, and rigorously enforced anti-corruption policy, you significantly increase the risk inherent in any corrupt activities. If the risk is too high, potentially corrupt individuals will not seek the rewards to be gained from corrupt acts.

Eliminating the scourge of corruption from your organization is hard, but far from impossible and eminently well worth the effort. Take prudent, pro-active steps to create, communicate, implement, and execute a strong anti-corruption policy.

You can and must inoculate your business to protect it from any and all forms of corruption and corrupt influences.

Frank T.

Loan Sharks Circling

Is there no end to the number and types of issues that an Industrial Leader must deal with?

Loan Sharks are prevalent here in Thailand and throughout most of Asia, but predatory loans of various types are a global phenomenon.

In the USA, many employees get trapped into Payday Loans, which are small loans with high interest rates and fees of up to 400% on an annualized basis.

Unlike Payday Loans in the USA, which are legal, loans from Loan Sharks are illegal in most jurisdictions. Unfortunately, they remain prevalent, widespread, and highly destructive to those unfortunate individuals who become trapped by predatory loan agents.

Many company work rules forbid employees to loan money to each other for profit. Here is an example of language that is common in many Thailand based work rules:

An Employee shall not acquire any advantage by money lending among Employees, play illegal lottery, be a collector or a member of a money pool, or perform any activity for profit. 

In nearly every company that I have managed here in Thailand, I have run into issues concerning Loan Sharks. From my many discussions and relationships with companies and business leaders in other countries, Loan Sharks and predatory loans are a scourge that impacts employees everywhere.

Not the Company’s Business

Okay, I understand that Loan Sharks are scum, and that predatory loans are a terrible trap that ensnares many victims. However, why do I need to worry about this problem. I already have enough problems to manage in my factory.

Life is always going to be a challenge, and my employees and their families will sometimes suffer minor or major crises. Do I need to be personally involved every time someone’s puppy dog gets run over by a car?

Employee Retention and Loyalty Is Your Business

Yes, it is true that even with the best of intentions, an Industrial Leader cannot take responsibility for solving every problem that an employee might encounter. We can and always should be compassionate, but there are genuine limits on what issues we can and should seek to address.

The financial security and personal safety of your employees must be a priority. Predatory loans and loan sharks can and often do sink your employees deep into debt with almost no hope of salvation. When an employee is paying nearly all of his salary directly to a loan shark, the employee loses the capacity to be a loyal and responsible employee. Escaping the clutches of the loan shark is frequently the single highest priority of an ensnared victim.

It is not uncommon for a loan shark victim to simply disappear, individually or as an entire family. You lose a valued employee, and the employee loses a job, perhaps a career, and certainly his or her reputation as a loyal employee.

Shark Warning: No Swimming

I will suggest that the worst Loan Shark is the one who is working for your company, ensnaring your valued employees.

In my personal experience, employee Loan Sharks are extremely common, and extremely damaging. These in-house Loan Sharks are frequently in positions of authority, such as foremen, supervisors, or department managers. They loan money to employees, including subordinates in their own departments, then use their position of authority to enforce repayment of the loan.

I have personally encountered several instances of Loan Sharks operating inside my companies. Each shark was in a supervisory position, and had ensnared a number of victims. Some victims managed to pay back the loans, others sunk deeper into debt and despair as egregious interest charges mounted.

One revelation common to each case was that the staff in general was well aware of the Loan Sharking activities. Most of the employees were well aware of the rumors concerning who was Loan Sharking, and who were victims. People are generally poor at keeping secrets, and desperate people share their despair with their friends and colleagues.

Unfortunately, rumors about rules violations (and indeed law violations) such as Loan Sharking typically only reach the ears of Sr. Management when the problem becomes severe. By that time, employees may assume that Management must also know of the problems and the rules violations, and wonder why Management takes no action to address the problem. Management integrity can be seriously impacted even though the manager is truly unaware of the problem and would be sympathetic if aware.

Shark Repellant

Don’t assume or hope that your company doesn’t have problems with Loan Sharks. Most likely you already have at least one active Loan Shark on your staff, or you soon will. Without a proactive policy, eventually (likely sooner rather than later) someone on your team will take advantage of another employee and ensnare them with a predatory loan.

Check the law in your jurisdiction. Be sure you understand what the law says about predatory loans, non-bank loans, and loan sharks.

Check your work rules. If your work rules don’t clearly and strictly prohibit money lending among employees, revise them accordingly. Naturally, you should always consult with a lawyer or other legal authority to ensure that your rules are properly written and are enforceable.

Most importantly, you as leader must very clearly, loudly, and publicly announce that lending money among employees is strictly prohibited, and anyone taking advantage of another employee by lending money will be strictly punished. This message must be repeated periodically, probably every six months, certainly not less than annually. Your organization must clearly understand that your company culture of care and respect for fellow employees means that predatory loan sharking is completely unacceptable and will not be tolerated.

Teaching Financial Responsibility

Eliminating predatory loan sharking within the organization is very important, and must be taken seriously by management.

However, management should also seek to provide employees with basic financial skills and advice to enable them to effectively manage their money and protect their families.

I encourage companies to include Personal Financial Skills training for all employees. Training can be provided in the form of a seminar, a take-home pamphlet, a series of 5 minute “tool box talks”, and/or other forms of engagement and outreach. It takes some effort to assemble a financial responsibility program, but it is well worth the effort.

Actively promote employee loyalty and tenure as a source of financial stability. Employees who are employed for several years can often qualify for bank loans, whereas “job jumpers” have difficulty gaining bank credit.

Don’t neglect discussing employee health and personal safety practices. Many people fall into debt and get ensnared by loan sharks due to unexpected medical expenses. A healthy and responsible lifestyle, especially avoiding accidents and injuries from contact sports, intoxicated driving, irresponsible motorcycle riding, or unsafe home repairs, can eliminate many if not most unexpected major medical expenses.

Do not wait until loan sharks ensnare and devour your employees and destroy your team loyalty and motivation. Protect your staff and organization today.

Frank T.

New Car Smell: Preserving the Pride

Do you ever sit down and talk with your industrial employees? Do you really get to know them? Do you learn about their troubles and triumphs?

For many factory employees, one of the most proud events in their life is when they buy their first new car. Buying a new car, or even a nice used car, is a major accomplishment and financial commitment. A new car also represents a significant emotional event, announcing to the world that through hard work and dedication, the employee has achieved a very visible symbol of personal success.

I have watched my employees beam with pride as they park their new car in the parking lot. They choose a safe spot where their precious vehicle is unlikely to be bumped by a carelessly opened door. They wash and wax the car to protect the paint from damage. They drive carefully, and don’t follow too closely to other cars or especially trucks to ensure that their car doesn’t get chipped by debris. They don’t let anyone smoke, eat, or drink in their new car; they want to enjoy the new car smell as long as possible.

They also take their car in for routine maintenance, strictly following the recommendations of the owner’s handbook. Oil changes, tire rotations, filters; nothing but the best of care for the beloved new car.

Alas, the new car smell fades over time, and with it fades the pride of ownership. Parking at the back of the lot is too inconvenient; better to take the closest spot available and risk having a door bumped. Washing and vacuuming the car takes time and effort, and the car is surely going to get dirty again the next time it rains.

Fortunately, the car doesn’t seem to mind if an oil change is delayed or skipped entirely. The car owner saves a bit of money, and there is no immediate evidence that the car has suffered due to a skipped maintenance task. The car still (usually) starts every morning, and despite the fact that it is no longer shiny, smells like an old gym locker, and makes strange knocking and squeaking noises, it still manages to carry its owner from one place to another.

Any modern car, even an economy model, can deliver several decades and hundreds of thousands of kilometers of safe transportation if responsibly cared for. The reliability and durability of a modern car is truly amazing.

However, it also seems most true that those individuals who can least afford to replace an aging car are most likely to neglect the care and preventative maintenance of the car. Once the new car smell is gone, neglect replaces pride, complacency takes the place of care, and the reliability of the car rapidly degrades along with its appearance and value.

Okay, I understand that this short story is not surprising. You tell me that this is simply human nature. Love fades. Familiarity breeds contempt. What does this have to do with Industrial Leadership anyway?

Our facility is filled with equipment and systems that are vital to the success of our business. In many cases, the condition of our equipment is not just a matter of performance and efficiency, but human safety and environmental protection can also be compromised by poorly maintained equipment.

Joint Ownership

As a manager, you can observe how an employee takes care of his or her car, but you don’t have any input or control over whether the employee is a responsible car owner or not.

However, you are responsible and accountable for the equipment and systems in your facility.

If you expect your facility to operate safely and reliably as it was designed, and to deliver the maximum operational performance and efficiency with the minimum environmental impact, you need to ensure that your equipment and systems stay “like new”.

Many managers say that they want their employees to “take ownership” of their various tasks. Nothing wrong with this concept. However, the manager must remember that ultimate accountability remains with the manager. Therefore, this is fundamentally a policy of joint-ownership.

Preserving the New Car Smell

Yes, complacency is part of human nature. That does not make it inevitable or desirable. A responsible manager must work to conquer complacency.

I can’t tell you how many times I’ve toured industrial facilities, and seen important equipment that was dirty, scratched, dented, obviously abused, and clearly unloved. A six month old machine that looked like it had already suffered six years of extreme abuse. When the machine then fails prematurely, the manager and team insist that the machine was defective or inadequate. It is the supplier’s fault for supplying an inadequate machine.

Complacency can be conquered. The antidote of complacency is pride. Pride of ownership. Pride of performance. Pride of accomplishment.

An enlightened, responsible manager always insists that each employee or team maintain their equipment and systems in “as new” condition. Not merely clean, but shiny and bright. It is not adequate to merely operate the equipment as it was designed to be operated, it must also be cared for lovingly.

Equally importantly, the manager must recognize and reward employees and teams for their success in maintaining the new car smell. This must be an engrained, continuous activity, a habit, a deeply imbedded aspect of company culture.

But We Have a Janitor

Pride cannot be outsourced. A janitor can sweep floors and empty the garbage cans, but never allow the vital care and cleaning of equipment to be delegated to a janitorial or contractor team.

The manager should always insist that the employee or team responsible for a machine or system also be responsible for the care and cleaning of the system. Allow the employees the opportunity to develop pride in their equipment, just like the pride they show for their first new car.

Care and cleaning is an investment in the long term reliability, efficiency, and effectiveness of the equipment. As manager, you must ensure that you are allocating your employees enough time, along with the tools and other resources, required for them to complete these vital tasks. Don’t expect to preserve the new car smell if you refuse to allocate adequate time and resources, and/or fail to recognize and reward performance.

Be a responsible co-owner of the equipment, and insist that the equipment is preserved every day and every hour of every day to ensure that the new car smell, the shine, and the brand new performance and reliability lasts for the full life of the equipment.

Be Consistent

Don’t expect to be successful if you only implement the new car smell operating philosophy for selected special pieces of equipment and/or only for new equipment. There is no unimportant equipment in your facility, nor are there any unimportant processes or people.

As managers, we don’t always have the luxury to start with a new facility, new equipment, enthusiastic and well trained new employees, and eager new customers. The new car smell philosophy can and should be applied to all equipment and systems, regardless of age or condition.

Don’t expect an employee to have pride of ownership and operation until the employee can also feel pride in his / her equipment. If the equipment is old and dingy, clean it, paint it, restore it. Absolutely fix or remove any broken or unnecessary accessories.

Do not tolerate chips, dents, and scratches that are past evidence of abuse. Tolerance of past abuse is an invitation for ongoing and future abuse.

It may not be practical to restore the machine to “as-new” condition, like an antique car in a museum. However, it is always practical and in fact it is essential that equipment be restored to a condition that affirms that the machine is still vital and valuable.

Rental Equipment

Don’t allow any exceptions for leased or rented equipment, or for equipment provided by contractors or partner organizations.

Care for your leased forklift trucks, your leased office equipment, your leased company car or truck, exactly the same way as you treat the equipment you own.

Remember, your team is totally committed to Safety First as the path to achieving Operational Excellence. Insist that your team always strive to achieve and demonstrate Operational Excellence regardless of the task involved or equipment utilized.

When Outside Help is Required

When significant PM or major maintenance is required, insist that the employee stay with the machine to supervise the care and maintenance. If the employee doesn’t have the necessary training or skill to perform the maintenance, naturally it is very important that the employee leave these tasks to the skilled specialist technicians. However, they should still remain engaged in the maintenance process, watching and learning from the technicians, and ensuring that the technicians treat the equipment with the same care and pride as the employee owner / operator.

Always insist that proper tools are used and proper procedures are followed. If you only provide your team with crappy adjustable wrenches and home made hammers, don’t be surprised to find your valuable equipment stripped and beaten.

Good tools are expensive.

However, bad tools are twice as expensive!

And even worse, poor tools, and/or the wrong tools, are frequently unsafe. Don’t tolerate unsafe or unprofessional performance from your production employees, your maintenance staff, or your third party service technicians.

“New Car Smell” is Addictive

Habits take time to form, and once established, can be just as hard to break. However, addictive substances can quickly capture a person and be very difficult to overcome.

Both legal and illegal addictive substances are a terrible scourge on our society. By making reference to “new car smell” being an addictive substance, I do not mean to demean, diminish, or disparage the genuine problem of substance abuse and addiction.

The direct personal pride that arises when a team and company seeks to maintain the new car smell is very powerful and persistent. And in many ways it is shares many attributes with a true addiction.

You will find that your team is eager to come to work every morning to get a new “fix” of new car smell. They will actively seek opportunities to increase the dose of new car smell they can get every day. Their behavior will be modified by this addiction.

Employee retention and loyalty will be enhanced, because employees won’t want to suffer the withdraw symptoms if they can’t get their daily dose of new car smell.

Recruiting new employees is also enhanced, as existing employees will be eager to share their addiction with their trusted friends, allowing them to also experience the high that comes from pride in a job well done.

Be a champion for new car smell in your workplace. Get your team addicted. Put the “high” in High Performance.

Frank T.

Leaders are Readers

Our modern capitalist economy is a highly competitive environment. This is especially true for Industrial Manufacturing and Industrial Services. Globalization has recently drawn dozens of under-developed and emerging countries into the global capitalist economy. The global supply of productive resources, commodities, and labor has thereby grown significantly and rapidly. However, the global demand for products and services has seriously lagged behind the growth of supply. Welcome to the new world of hyper-competition, where only the fittest organizations will survive.

Survival of the Fittest

As the leader of an Industrial organization, you need to manage, motivate, mentor, and monitor your company to survive and excel in this competitive environment. Good intentions and hard work are important and noble attributes, but alone they are not sufficient to lead your organization to realize its full potential.

The successful leader of a high performance organization needs to develop a diverse repertoire of relevant skills and experience, and constantly refresh, update, and expand this knowledge, in order to provide the high quality guidance and direction an organization requires to achieve and maintain success.

The Technological S Curve

Technological development and innovation is not a new phenomenon. Humanity has been innovating and constantly pushing the envelope of knowledge and technology since man first learned to harness fire and developed the wheel.

Technological development is not, and has never been, a linear process. Knowledge and technology develops exponentially. This was true for the Gutenberg printing technology, the steam engine, electricity, aviation, and our various digital technologies. Moore’s law is not unique to the computer chip. The exponential development theory underpinning Moore’s law was equally valid for each of the aforementioned technological innovations.

The difference between the printing press and the computer chip is that the time scale for technological development has been compressed. This is also a feature of technological S curves. As new technologies build upon previous discoveries and innovations, the pace of development and distribution of technology increases. An S curve is much more noticeable to mortal humans when the development takes place over a period of a decade or less. It has historically been much more difficult for us to recognize the exponential nature of technological development when the development timescale was on the order of one or more centuries.

S Curves don’t merely describe the pace of technological innovation. Nearly everything in our professional environment is undergoing exponential change. This includes government regulations, domestic and international taxation, social change, economic change, geopolitical change. The whole world is becoming a fast moving blur.

You Can’t Get There From Here

With the constantly accelerating exponential changes that our world is experiencing, a manager must work diligently to keep pace with the changes. You may manage to navigate the way to your destination using an out of date map, but you will certainly encounter serious delays and detours along the way. If your competition is using an up to date map, or more likely, using Google Maps with real-time traffic advisories, you have no hope of beating your competition to the destination.

Lifelong Learning

If you want to keep pace with our rapidly evolving world, and ensure that your skills and experience remain up to date, you need to seriously commit to lifelong learning.

Reading the local newspaper, watching CNN or the BBC, and following updates on Facebook and Linked-In is OK for keeping up to date on basic current events, but sorry, this does not constitute lifelong learning.

Despite the proliferation of digital technology over the past decade, the best sources of knowledge remains old fashioned books. Well respected authors and experts continue to pour their knowledge and wisdom into new books each year. The competition for book sales and royalties continues to improve both the quality and quantity of books available.

The good news is that it is no longer even necessary to go to a bookstore to buy your books (good news unless you happen to own a bricks and mortar bookstore). If you still prefer traditionally printed books, Amazon is a great source. If you are like me and have made the transition to eBooks, you already know that Apple iBooks and Amazon Kindle offer digital versions of virtually all current fiction and non-fiction books, as well as the classics.

A Diversified Portfolio

As a business leader, you face a diverse range of professional challenges and opportunities. You need to pursue a diverse range of professional knowledge if you wish to lead your organization to achieve its full potential.

Certainly, if you are a manager, you should read books on management and leadership. If your primary responsibility is sales, there are many great books on selling, marketing, customer relationship management, etc.

However, don’t make the mistake of focusing too narrowly on your core competency or primary area of responsibility. Don’t limit yourself to becoming a “one trick pony.”

Work diligently to expand your knowledge. Exercise your mental faculties. Expand your academic and intellectual horizons. Broaden your mind. Enrich your intellect. Seek interesting new cliches to use in your future essays.

In the past few years I have read quite a few economics books. I don’t expect to start a new career as an economist. However, by studying both current and historical economics, I am much better able to understand, evaluate, and utilize economic trend and forecast data that is an important factor in our business strategy development.

I also read books on geopolitics. Geopolitics involves elements of economics, leadership, strategy, tactics, intelligence, positioning, signaling, and history. The goals may differ, but business leadership and political leadership utilize many of the same skills and tools as does industrial leadership.

Corporate Governance, Science, History, Management, Sales, Philosophy. There is a nearly endless range of non-fiction topics that can directly or indirectly enrich your skills as a business leader and your overall success and satisfaction in life.

I spend most of my personal development time reading non-fiction books. However, probably around 25% of the books I read are fiction. I usually choose classics for my fiction diet, such as Mark Twain, H.G. Wells, Edgar Rice Burroughs, Arthur Conan Doyle, Jules Verne, and Charles Dickens. I occasionally also read modern fiction. Fiction of course provides enjoyment and relaxation, and represents an important break from intellectual pursuits.

However, don’t underestimate the value of fiction as a source of leadership and strategic advice and inspiration. Fiction also helps expand your social and empathic skills, which are vital to your role as a leader.

Readers are not necessarily good leaders. However, true leaders are always readers.

Frank T.

Networking or “NotWorking”

Management gurus typically recommend that Sr. Managers and Executives spend at least 30% of their time engaged in professional networking.

If this advice is to be believed and followed, we should on average allocate 12 hours per standard 40 hour work week to networking.

There is little doubt that a prudent, rational professional networking strategy can greatly benefit a manager. A strong professional network ensures that the manager enjoys a diverse array of skilled and experienced professional resources to draw upon, in addition to knowledge derived from professional seminars and conferences, to support the manager in delivering superior management performance and direction to the organization.

If you are self-employed or enjoy a great deal of autonomy, congratulations. You have a great deal of flexibility in determining how much or how little networking you wish to do, assuming you are effectively managing your affairs and not allowing your affairs to manage you.

However, if you, like most of us, have a direct supervisor, such as the CEO, who is not an enlightened and effective networker, you may have quite a challenge justifying time spent away from the office.

“NotWorking”

If your networking activities are not generating actionable, easily observable results, then perhaps you are NotWorking instead of Networking.

A lot of useful networking is done on the golf course. Evening cocktails with the local networking group or chamber of commerce can also be productive. However, though these “social” networking events can be productive and useful, individual social networking events can also prove to be a waste of time and resources.

I enjoy attending various social networking functions, and I believe that they are an important resource for the professional manager, especially if the social function is carefully selected. However, I typically consider these to be my low-priority networking activities.

Interestingly, most of the managers I know seem to feel that social networking is the only type of networking event. I promise not to judge executives for whom networking is a necessary exercise to relieve the stress of a fast-paced, high pressure job, and to enjoy a few hours of liquid therapy with professional peers.

However, let’s also agree that this is not the most effective way to achieve the benefits of a proper networking program. This is professional “NotWorking”, not Networking.

Putting the “Work” in Networking

Managing an Industrial Manufacturing or Service company is a significant professional challenge. The manager is faced with a wide range of both challenges and opportunities, distributed across a broad spectrum of disciplines. Even a highly experienced manager won’t have the necessary skills,  expertise, and or resources required to provide leadership the team requires to execute all these tasks independently.

Facing an unfamiliar task or challenge is highly stressful for even the most cool or most highly medicated manager. Your company and team doesn’t expect you to instantly have the answer to each and every challenge. However, it is quite reasonable to expect an experienced and competent manager to be able to rise to a challenge and promptly find a prudent and viable solution.

A professional network is a diverse collection of friends, peers, associates, and acquaintances having knowledge, skills, and experiences that are complimentary and useful. If you are a plant manager, the lady who sells fruit down at the market probably doesn’t qualify as a resource for your professional network. However, don’t think that cultivating relationships exclusively with peers having jobs and experiences most similar to yours constitutes a satisfactory and effective professional network. You face a diverse portfolio of challenges, you need a diverse portfolio of professional friends and resources.

Networking in Action

In my professional community, I have some favorite networking venues and resources that I am confident provides me with strong and diverse professional resources, and also directly contributes to my quest for continuous education, improvement, and lifelong learning.

Here in Bangkok, we have a number of excellent Chambers of Commerce, including the American Chamber of Commerce of which I am a member. I routinely attend meetings of the Business and Economics Committee, the Customs and Excise Tax Committee, the Legal Committee, the Aerospace Committee, and the Energy and Environment Committee. I also routinely attend the AMCHAM Monthly Luncheon.

It has not escaped my notice that I am one of the few industrial managers attending most of these meetings. Does that make me a contrarian? Perhaps. However, it also means that I keep myself well informed and abreast of current issues and developments in the areas of corporate tax, customs; the domestic, regional, and global economic environment; best practices in environmental management, and the status and forecast for the vitally important energy industry. The knowledge I acquire makes me a better manager and leader. And the relationships I develop ensure that I can promptly access highly qualified professional support whenever I need it. Naturally, I am also a humble resource for members of my professional network who might seek my advice or insights.

I also maintain memberships in a few other professional organizations and societies, and carefully budget my time to attend events that are most likely to deliver the maximum amount of benefit for the investment of time required.

Who You Gonna Call?

Social media and a wide variety of digital resources, including professional resources such as Linked-in, are rapidly changing the landscape for establishing and maintaining a professional network. However, the business card has not yet gone out of style.

I always seek to exchange business cards with new professional contacts. At least once per week I go through my business cards and enter names, titles, and brief details into my Contacts List. I also search each contact name in Linked-in, and make contact requests for those professionals who are Linked-in members.

I do of course exercise some judgment concerning whom I enter into my contacts list and connect with on Linked-In. However, I try not to be too selective, because when a crisis erupts, you never know what resources you might need urgently. Ten years ago I had a shooting in my factory. Two of my employees were seriously wounded by a fellow employee, who then fled and avoided capture by the police for several days. Immediately following the shooting, I urgently needed a professional security company to secure and protect my plant site while the police conducted their investigation and tracked down the gunman. The shooting happened at 3:00 am, and thanks to my contacts list I had the mobile phone number of a highly respected security professional. I woke him up at 6:30 am, and we had armed guards at the site by mid-morning.

To provide the best leadership and service to an Industrial Manufacturing or Service company, a manager must diligently cultivate a diverse portfolio of professional contacts, and should routinely attend conferences and seminars to expand and update the knowledge and skills required to manage, monitor, and mentor the team. This is a demanding and challenging chore, which justifies the Work in NetWorking.

Frank T.

Is Teamwork Killing Your Company?

Management experts always emphasize the benefits of teamwork for creating and maintaining a strong organization. It is clear that an effective team can accomplish more than a individual or a collection of individuals working independently. Members of teams also typically demonstrate improved morale, work more efficiently, and develop and execute better solutions to problems.

Industrial Teams

Industrial products and services companies typically have a number of teams operating simultaneously to achieve overall organizational objectives. The most common teams in organizations are the various departments, such as Accounting, Purchasing, Maintenance, Production, Human Resources, Administration, and Sales. These teams are effectively permanent; they are established at the birth of the company, and persist as long as the company does.

Teams may also be established on the manufacturing floor, such as an assembly team, a painting team, an electrical PM team.

Most companies also develop one or more cross-functional teams, consisting of members selected from various departments or other teams. These cross-functional teams are more likely to be temporary in nature, and are formed to address complex tasks such as major projects, quality or efficiency initiatives, or organizing the annual New Year party.

Teams are truly an essential feature of modern businesses.

The Trouble with Teamwork

Most managers fail to recognize that even a great tool such as Teamwork needs to be carefully monitored and managed. Without responsible oversight and management, teamwork can evolve into a destructive force that can reek havoc within the organization.

You’re Not on My Team

Most cultures encourage and value cooperation and teamwork. Asian cultures, and the cultures of agrarian or recently-industrialized economies, tend to emphasize cooperation and conformity over individuality, and are therefore more likely to be team-oriented.

However, in most organizations that I have had the privilege of closely observing, teamwork quickly degenerates into a “members-only” club. The Accounting Team develops a strong shared identity and mutual trust and respect, but don’t like or accept the Maintenance Team. The Purchasing Team enthusiastically cooperates and shares information with each other, but don’t like the Production Team. The Sales Team maintains an outward focus and primarily interacts with customers, rarely interacting with any of the other teams. Each team thinks they are the most important team, and yearns for the respect that they deserve.

Without careful management, strong effective teams frequently erect virtual walls to isolate and protect their team from unwanted outside influences or interference. Just as an effective team can greatly enhance the efficiency and performance of its members, a team can also create very powerful barriers that inhibit cross-functional performance and can cripple an organization.

Early in my management career, I struggled with the destructive aspects of teams working in isolation. Even in a small office, a small workshop, or a modest sized industrial site, it is amazing that a virtual wall can be more effective than a physical wall or a great physical distance in isolating teams from each other and disrupting cooperation. A manager can easily deal with a physical wall or barrier, or reorganize the office layout to reduce the distance between teams. However, virtual walls can be very persistent and pervasive.

Shared Identity

Yes, we want and need to encourage and develop strong, effective teams. However, we must diligently guard against “members-only” teams. Once a team builds barriers, the power of teamwork makes it very difficult to remove the barriers to restore cross-functional cooperation and to maximize overall organizational performance.

In my experience, the most effective way to prevent team isolation is to create a strong shared organizational identity. Management must strongly promote an organizational identity, and ensure that every employee believes that their status as a member of the organization overrides their membership in any subordinate teams or departments.

Each organization should carefully consider and decide on an appropriate shared organizational identity. This shared identity should then be consistently promoted to all employees. Most people value being a member of a group, want to be proud of their membership in the group, and seek to be a good member and support of the group.

All In The Family

I personally like to promote the concept of Family as the shared identity for my organization. I explain to my team that a family consists of a diverse group of individuals, young and old, male and female (and any of the gender classifications recently proposed by our friends in the USA), having different education, skills, jobs, experiences, and preferences. The members of a family typically work independently of each other, but they always share a common bond and respect for each other. Members of a family eagerly work to achieve common goals.

Most of us spend more of our waking hours together with our fellow employees than we do with our biological families. It is therefore quite important for both harmony and performance that we treat our fellow employees as family members, and place the interests of our industrial family higher than those of our department, team, or other sub-grouping.

Teamwork will always remain a vital tool and skill for achieving maximum task performance. However, without a strong, inclusive, shared organizational identity, teamwork can and most likely will become a divisive and destructive force which will diminish overall organizational performance.

Consistently cultivate a shared organizational identity to ensure that the organization can derive maximum benefit from teamwork while maintaining harmony and cooperation throughout the organization.

Frank T.

 

Low Cost Strategy Paradox

Nearly every manager I know emphasizes the importance of minimizing costs. I think it is fair to say that the Low Cost Strategy has become virtually the Universal Strategy for most organizations.

It’s All About Profit

If we expect to stay in business (and keep our jobs), we need to deliver profit to our shareholders. Profit is most simply defined as revenue minus costs. Increasing our profit is therefore a simple matter of either increasing our revenue or decreasing our costs.

Unfortunately, actually increasing profit is not as simple as just boosting revenue or cutting costs. Obviously sales volume and manufacturing costs are directly related, and even if we have the capacity to produce more product, the market may not have adequate demand to profitably absorb our incremental output. Boosting our selling price may increase our sales margin, but may destroy demand for our product and destroy our profitability.

Most managers quickly realize that they have little control over the revenue side of the profit equation, but they have significantly more control over the cost side. Costs represent a “target rich environment” for managers seeking to boost profits for the benefit of shareholders, and to boost their personal bonuses and advance their careers.

Delegate to Celebrate

In order to be successful, a manager must be able to effectively delegate tasks to subordinates, and inspire the team to diligently and enthusiastically carry out assigned tasks to achieve defined objectives. Delegation can be quite a challenge for a manager, because no subordinate can successfully carry out a delegated task until he/she clearly understands the tasks.

Fortunately for our cost-cutting managers, virtually all subordinates quickly and easily understand the cost cutting task assignment.

Cheaper is Better?

One of the great advantages of doing business in Asia is that virtually no matter what product or service you need for your business, there is always someone ready to supply you with a cheaper alternative. If your factory isn’t located in Asia, don’t worry. Global logistics and a wide variety of Free Trade Agreements make it convenient for managers located anyplace in the world to source the lowest cost raw materials, equipment, and supplies to minimize their costs and maximize their business profits. We are living in low cost heaven.

Unfortunately, low cost heaven quickly evolves to low quality hell. It takes a brilliant and highly innovative organization to produce a high quality product from low quality, low reliability, and highly inconsistent inputs.

Agency Theory

One of the classical economic fundamentals is called Agency Theory. Basically, we operate by empowering people to execute tasks on our behalf. These people are technically known as Agents. We ensure that they faithfully follow our instructions through the use of incentives. Incentives can be as simple as a “thank you” and a pat on the back for finding a lower cost supplier, or more commonly it involves economic policy incentives such as bonuses and promotions for achieving measurable targets.

No need to get too technical here, but measuring cost savings is very easy, so it is almost child’s play to assign a cost cutting task and measure the resulting savings. This is great news for the cost cutting manager, because what is the fun of delegating if you need to do a lot of work to manage, mentor, motivate, and monitor your delegated task.

You Get What You Pay For

Monitoring costs is easy. Unfortunately, monitoring quality is not quite as easy. Congratulations on saving 15% on your widget. Are you now smart enough to define and monitor all of the ways your innovative low-cost supplier can find to extract at least 15% out of the cost out of your widget, and will any of these cost compromises adversely impact the quality of your final product?

You Can’t Delegate Accountability

With the best of intentions, you assigned your subordinates the vital task of cutting costs to maximize profits and ensure the competitive viability of your business. What will you do when (not if) your customers start making warranty claims for poor quality product, your sales volume declines precipitously, and your company’s hard-earned reputation is being rapidly destroyed and disparaged on social media?

If a manager accepts the easy path of cost cutting, the manager must also accept the hard truth that customers and markets aggressively and relentlessly punish failure. Don’t expect a second chance. Just be sure that your CV is up to date, and hope that your subordinates are also able to find new jobs after you have succeeded in destroying their company.

Maximizing Value

An enlightened manager reacts strongly and aggressively against any suggestion of “cost cutting” in the organization. Low Cost is the path to the Dark Side, and it is a one way trip.

Always reject “low cost” arguments. Emphasize to your team that our business success is built on Maximizing Value. Always reject any lower cost sourcing proposals unless and until it can be clearly demonstrated that the minimum quality and performance requirements will be reliably achieved.

Of course this suggestion is obvious. Were you expecting truly spectacular and amazing advice? Truth is often both simple and obvious.

Unfortunately, unless you consistently, diligently, and vociferously reject the Low Cost strategy in favor of the Maximizing Value strategy, your staff won’t understand that you are an enlightened manager. They will dutifully assume that you are like every other Industrial Manager and Leader who worships at the alter of Low Cost, and they will proactively seek to make you happy. Your quality and reputation will both evaporate and you won’t know what is happening until it may be too late to reverse.

But the Competition …

Yes, the competition is also competing for your customer’s business. Yes, they are putting cost pressure on your market. Yes, you can’t compete by being the high cost supplier, regardless of whether you have the high quality product. You are not Gucci or Ferrari, at least not yet.

So explain to me, how does producing a crappy product help you win in your market?

A Maximizing Value strategy is not the opposite of a low cost strategy. Mistakes are expensive. Defects are expensive. Warranty claims are expensive. Reputation damage is expensive.

I am not suggesting you purchase a Rolls-Royce when a Toyota would be adequate. However, ensure that if your product requires “Toyota quality”, don’t settle for a Yugo, Reliant Robin, or a Trabant (yes, they are all famous crappy cars).

Pay a fair price for the appropriate quality and performance, and your product will be competitive in your marketplace. Your sales team will be confident and inspired to represent your product, and your customers will recognize and appreciate your product value proposition.

Operational Excellence

I last mentioned Operational Excellence when discussing a Safety First operating philosophy. Maximizing Value is just another facet in the quest to avoid mistakes to achieve Operational Excellence.

Most companies have separate managers for Safety, Quality, Purchasing, Operations, etc. This doesn’t mean that each manager and each department gets to run their department and discharge their responsibilities without regard to what is happening in the rest of the organization.

Be a principal driven manager. All operational philosophies and strategies eventually tie back into a common organizational culture. Operational Excellence is driven by a Safety First mentality of always executing every activity as close to perfection as possible, diligently avoiding mistakes. Maximizing Value is just another arrow in the Operational Excellence quiver, ensuring that sourcing mistakes are always avoided so product quality and reliability are ensured, and customer satisfaction and company brand reputation are maximized.

Frank T.

 

Financial Decision-Making Tools for Industry

“The ability to learn faster than your competitors may be the only sustainable competitive advantage”

— Arie DeGeus, Royal Dutch Shell

 

Financial Engineering

When we install a new pump, we wouldn’t think of guessing about what size pump is required, what pressure is desired, what size suction and discharge pipes are required to deliver the fluid to its destination.  We wouldn’t let the electrician use just any old electrical cable for the motor.  We would carefully calculate the size of overload  protection required, and make sure that the pipe was properly specified and supported.

However, when we make financial decisions for our plants, too often we resort to guesswork.  How much does Downtime cost? How much should we invest to reduce downtime? Should we outsource and pay overtime to get the job done in 24 hours, or save the overtime and finish the job in three 8 hour days? If we buy a new machine, will it pay for itself?

Management is almost always focused on reducing costs. How can you convince your boss (and yourself) that spending more money is the best way to generate value for the company?

In the following sections, I will present a few simple tools that I find very useful for making good plant management decisions.  For all of these examples, data for your calculations is best obtained from your operating budget or from your actual accounting statistics.

Variable and Fixed Costs

Fixed costs, also known as Period Costs, are expenses that are relatively constant over a period of time and do not significantly change with changes in throughput. Factory rental / lease costs, equipment depreciation, and insurance are examples of fixed costs.

Variable Cost, also known as Direct Cost, is the value of expenses directly identified with your product, such as raw materials, packaging materials, production utilities, etc.

For the purposes of valuing incremental changes in plant throughput (such as increased or reduced plant downtime), I do not include Direct Labor as a Variable Cost. Accountants generally do treat Direct Labor as a Variable Cost, and rightly so, because they are looking at overall company averages, and considering long term trends. An Accountant might observe that if Production increases by 20% next year, we will need to increase the number of employees accordingly. However, at the operational level, we must recognize that if we have 2 hours of downtime today, we cannot cut staff compensation by 2 hours, thus for operational planning purposes Direct Labor is effectively a fixed cost.

Most accountants are very cooperative, and would be pleased to provide you with a breakdown of Variable and Fixed costs, adjusted to be meaningful at the operational level, once they understand your requirements. Alternatively, these costs can often be extracted from the plant operating budget workbooks.

Marginal Cost per Unit

If you gain or lose a few units of production, how much do those units cost? Probably all organizations know very well the manufacturing cost of their products, but there is a big difference between the average manufacturing cost of product and the incremental (also know as marginal) cost of product.

If you normally produce 1,000 units of product per month, the cost of these 1,000 units is the value of all fixed and variable costs during that month incurred to produce those units. A simple and logical concept. Now, perhaps you have a machine failure and lose 1 unit of production, or alternately, you avoid a failure and prevent the loss of 1 unit of production. How does this loss, or loss avoidance, impact your operating costs? Your factory rent doesn’t change, employee salaries stay the same, and depreciation costs are unchanged. Hence, for valuation purposes the lost unit has no fixed cost, only variable costs such as raw materials and packaging. For small changes in production, Marginal Cost = Variable Cost (with variable cost as defined previously).

Contribution Margin

So, we had a machine failure and lost a few units of production. What is the value of that lost production? The value of the lost production is the value that the lost units would have contributed to the business had they not been lost. This is known as Contribution Margin. In general, Contribution Margin is the amount of money available to cover Fixed Costs and generate income.

When we sell a unit of production, we generate Revenue, which is the money we receive from the customer.  Often there are some selling expenses, so I prefer to use Netback Revenue which is the money we receive from the customer after selling expenses are deducted. This is the money available to pay for producing our product.

Hopefully by this point we agree that the incremental (or marginal) cost of a unit of production is its variable cost, not including labor, because labor is fixed for incremental changes.

Thus, we can calculate the Contribution Margin as the Netback Revenue minus the Variable Cost.

Contribution Margin = Netback Revenue – Variable Cost

Prepare to be surprised. For most companies, Contribution Margin is much larger than managers might otherwise expect. Imagine that each unit of production generates revenue of $1000, and has a fixed cost of $400 and a variable cost of $400. Many organizations would thus calculate that each unit costs $800 to produce, so if we produce 1 extra unit, or fail to produce 1 unit due to a problem, we gain or lose $200 of income. This is typically called Gross Margin. However, this calculation would only be true if we are talking about the value of all of the units produced during the period. In reality, the incremental value of a single unit of production is $600 (60% of sales price compared with 20%). Thus, if we spend less than $600 to achieve this incremental production increase, we generate value for the business.

Cost of Downtime

Continuing with our example, we normally produce 1,000 units per month, or approx. 6 units per hour. A machine fails, and you suffer 1 hour of downtime. What is the value of this downtime?

If you have excess capacity and lots of inventory, this downtime incident probably didn’t cost you any money, other than the cost to fix the machine. You didn’t lose any sales. However, if your sales demand is equal or greater than your production capacity, or if you are reluctant to accept additional sales orders because your plant reliability isn’t good, then this downtime incident cost the company money. How much money?

We know the Contribution Margin for each unit is $600, and at 6 units per hour we lost 6 units of production. Thus, we lost $3,600. Had we not suffered our downtime, we would have produced and sold 6 additional units of production. Fixed costs for the year wouldn’t change, employee salaries wouldn’t change, only the amount of raw materials and other variable costs would have increased. Thus, our 1 hour of downtime cost us $3,600 of income, not including the cost to repair the machine.

On average, each unit of production generates $200 of income (i.e. Gross Margin), when fixed and variable costs are included. Had we used this value, instead of Contribution Margin, we would have mistakenly calculated the value of our downtime event at only $1,200. The truth is that downtime is much more costly than we usually realize, and the value of plant improvements is therefore much higher. Managers often fail to make improvements because they underestimate the value of such improvements.

Downtime Decision Example

Our plant is operating at maximum capacity. We are planning an outage to clean and inspect a machine. We have the option of doing the work using our in-house staff, or outsourcing to a skilled and experienced contractor. We are confident that both options will provide good quality work. If we use our own staff, the work will require 8 hours of plant downtime, but we won’t have any significant costs, because all of our staff is already available in house. If we outsource, we will need to pay $7,000, but since they have specialized equipment and abundant manpower, they can complete the work in only 4 hours.

From our previous examples, we know that actual downtime costs us $600 / unit. At 6 units per hour, our downtime causes lost contribution margin of $3,600 / hour.

For the inexpensive in-house option, we incur virtually no expense, but lose contribution margin of $3,600 / hour, for a total downtime cost of $28,800. For the outsource option, we lose 4 hours of contribution margin, or $14,400, plus incur contractor expense of $7,000, for a total of $21,400. By using the “expensive” outsource option, we will be able to reduce the cost of the downtime event from $28,800 to $21,400, a savings of $7,400. Thus, the cheaper option actually costs the company $7,400 in incremental income.

CM Case Table

Note also what happens if we mistakenly value our downtime using Gross Margin, which we have calculated as $200 / unit, or $1,200 / hour. In this case, we think our in-house option costs us $9,600 in lost margin. The outsource option costs us 4 hours of lost production, or $4,800 in lost margin, plus $7,000 in expense, for a total of $11,800. In this case, we will choose to do the work in house, because we think we will save $2,200.

GM Case Table

Reality Check: At the end of the year, if we had selected the oursource option, we would have had only 4 hours of downtime, instead of 8. Thus, we would have produced (and sold) 24 additional units of product. In both cases, total payments for employee salaries, plant depreciation, other fixed costs such as plant maintenance and spare parts, would have been identical. The only cost differences for these two options is $7,000 expense for the outsource contractor, and the cost of the raw materials (our definition of variable cost) to produce the 24 additional units. The outsource option therefore generates $24,000 in incremental revenue ($1,000 / unit), at a cost of $9,600 ($400 / unit), plus $7,000 of expense. Again, we recognize that this has produced additional income (i.e. margin) of $7,400.

Reality Check Table

Breakeven Point

Not all companies operate at full capacity. Some companies have too much capacity. In such cases, it is important to understand how many units must be sold to allow the plant to breakeven.

From our Contribution Margin calculation, we know how much each unit of product contributes towards fixed costs and income. If our monthly fixed costs are $400,000, and our Contribution Margin is $600 / unit, we can divide fixed cost by contribution margin to determine that we must sell 667 units to cover our fixed cost. This is our Breakeven Point. We start earning income when we sell unit 668.

Important Note: When doing Breakeven Point calculations, you need to again consider the proper treatment of Direct Labor. The Breakeven Calculation assumes a longer time horizon than our Downtime calculations. You are looking to the future to determine the minimum output required to cover all costs. Whereas over a short time horizon all labor is essentially fixed cost, over a longer time horizon some labor may be truly variable cost.

If your production is labor intensive, and your labor force is flexible (you can add and subtract labor as production demand changes), then you should value Direct Labor as a Variable Cost for Breakeven calculations. Be careful – even in this case, not all labor is variable. Whether you produce 1 product or 1000, you will still need a Plant Manager, Accountant, Supervisor(s), etc. These people are fixed costs. However, at least some of your factory labor may be truly variable, and their cost would increase / decrease as your plant output changes.

To be most accurate (since even Direct Labor rarely varies in a linear relationship with output), you might consider holding all labor as fixed cost to calculate an initial breakeven point, then manually adjust your labor costs to match that output level and repeat the calculation. This iterative method will allow you to properly match labor to output, giving a most accurate estimate of the true Breakeven Point.

Gross Income / Loss

We can also estimate Gross Income or Loss by using Breakeven. If we sell 700 units, our Gross Income will be the number of units sold above Breakeven multiplied by Contribution Margin. (700 – 668) x $600 = $19,200. If we only sell 650 units, (650 – 668) x $600 = —$10,800.

What to do if our sales are uncomfortably close to Breakeven? One option is to do some “what-if” calculations to see if operating performance can be improved. Can we reduce our fixed costs? Sell the MD’s BMW to reduce depreciation expense? Reduce staff to lower labor costs? Reduce sales price (reduced contribution margin) to capture significantly greater sales volume? We can calculate the Breakeven point for different cost scenarios, and estimate the effect on income.

When considering different cost scenarios, be careful to include all cost changes. For example, by using these simple tools to value downtime, calculate breakeven point, and evaluate different operating scenarios, you are sure to earn a much larger salary and bonus. Don’t forget to include your higher fixed salary costs in your future cost scenarios.

Frank T.