Monthly Archives: July 2011

Master of Business Annihilation

After reading a number of recent articles on the decline of American Industry and the rise in MBAs, including this recent article in Time on “why a rise in MBAs coincided with the fall of American Industry”, I’ve decided that what MBAs were really being trained for was Annihilation of the economy.

I have to agree with Bob Lutz, who, in his new book on Car Guys vs. Bean Counters: The Battle for the Soul of American Business, says that we need to fire the MBAs and let engineers run the show. After all, who else would insist that a Cadillac ashtray be designed to function at -40F (which means that it won’t function at normal temperatures and will stay closed unless you’re in North Dakota, Northern Maine, or Canada in the middle of winter).

Just “imagine Apple with an MBA on top”, like Brooke Crothers did. There’d be no iPad and no iPhone — just netbooks and Motorola Rokr clones to take their place. After all, if you’re a MBA, all products have to be low risk, devoid of inspiration, and easy on the balance sheet. And if you’re an engineering pitching a MacBook Air to an Executive MBA for the first time, you know you’re going to hear “What? You’re saying you want to build a unibody laptop out of one piece of aluminum with only a few connectors? Do you know how much that will cost to build? I don’t see anyone else doing it? HP? Sony? And who’s going to buy it? Are you brain-dead?. And then when you try to pitch the iPad, you’re likely to get a “Hold it. Stop. I’ve heard enough. 10 inches but no physical keyboard? What would anyone use it for? Just buy a laptop. And we already make those. And I suppose you’d want to make that out of aluminum too with almost no ports. What rock did you crawl out from under? Where’s your cost argument? Didn’t you get the memo?“.

In other words, MBAs are increasingly trending toward the short-term, myopically balance-sheet-driven management that has infected American business. And while I’m all for mathematical modelling, game theory, and complex statistical analysis, they have their place. And their place is to reduce sourcing cost, not to restrict product innovation. Before the MBAs took over in the late 70s, the leading companies spent most of their time and money on new technologies to create the best possible products or service on the if you build it better, the customers will come philosophy. Which, if you look back, worked great for almost a century. Then came the MBAs. And now entire industries, like the automotive sector, are in decline.

And it’s all because of MBAs and their balance-sheet-driven management that is focussed on the quarterly numbers. As the TIME article notes, this just results in planning that’s reactive rather than smart: force the highest-paid engineers to retire, even if they are the best, and reduce payroll costs across all divisions rather than invest in the ones that are pushing the New New Thing through the pipeline. And when your brightest engineer, like your top coder, is many times more productive than an average engineer, as she is the one coming up with great new product designs, lean process reductions, and sustainable designs (that your marketing department can go goo-goo ga-ga over), this is just stupid.

Moreover, it’s ultimately their focus on the quarterly numbers that is responsible for the extended jobless recovery that we are undergoing right now. After all, as Jeffrey Immelt told a jobs summit at the U.S. Chamber of Commerce, responsibility for hiring lays with business. Business have to take action — like taking some risks, and thinking about bringing back jobs that had been moved overseas.

And this, of course, is precisely what the MBAs are advising against. Taking risks means risking the quarterly numbers, moving jobs back means, at least initially, increasing payroll cost (even though, with good ol’ American ingenuity, productivity might more than make up for it over the long term), and going first means breaking with the pack that is now blaming debt ceiling uncertainty for the jobless recovery instead of their own incompetence.

And while a change in government policies, such as new free trade agreements, a reform of visa rules, and an overhaul of procedures for permitting new projects will help, they are not hindering the average business. There’s often an alternative source for raw materials, products, and services where a free trade agreement is in place. The visa limits are high enough at the present time, considering no one is hiring anyway. Plus, if more American firms would follow Blum Inc’s example and build their own Apprenticeship program, they would have more than enough talent at home to choose from. And given the current administration’s need to create jobs, there is a real interest to make sure projects are permitted by any organization that follows all the rules. (This means you will need an expert in red-tape, but that will always be the case. Government is not ever going to regulate themselves out of the way.)

There’s just no evidence to the contrary. MBAs are the Masters of Business Annihilation.

Should You Move Your Production Back to the US?

In the outsourcing craze, there was a mad rush to move manufacturing to China and services to India. In the latter case, with the rising costs in the big, mature, outsourcing centers, it’s now cheaper to open call centers and back-office shops on home soil in the US and UK than to move them to India, where they are so desperate for talent that they are now hiring Americans in America to fulfill American outsourcing agreements. In the former, the price of production, especially with logistics costs and a weakening American dollar, is rising monthly. For some industries, it may soon be cheaper to produce at home, if it isn’t already. Especially when the total lifetime cost of ownership is taken into account.

Consider this recent article in Fortune which notes how some American businesses, fed up with the poor quality of having their products made in China, are moving production back to the US. In “why we left our factories in China”, we find out that Sleek Audio, a small business that makes in-ear headphones for iPods and other audio devices, fed up with low quality, too much travel, communications problems, shipping delays, rising costs, and — worst of all — a ruined shipment of 10,000 sets of earphones that cost millions and nearly brought the company to its knees, decided to quit China and move manufacturing back to the US. Their up-front costs are about 15% to 20% higher on-shore, but since they are now able to produce a higher-end product (that can command a higher price), they can justify the cost.

Now it’s true that some companies get great prices and great quality from Chinese factories, but the reality is that these are usually the large multi-nationals that can afford to have someone on the ground full-time to oversee production. If you can afford to oversee production and insure your production runs get the appropriate timing, priority, and quality checks that you need, you can get good quality. But if you don’t have someone on the ground full time, then you may not even realize there is a problem until the next day as most small operations don’t have a phone manned at 2 AM. And since your production run is usually squeezed between bigger ones, there may not be much attention paid to quality or other issues important to you.

In other words, if you’re a Global 3000 multi-national, then it’s likely that production in China still makes sense for the organization for the time being, but if you’re a small or mid-sized manufacturer, it might be time to pull production back home — especially with the economic incentives being offered by many states to revitalize the economy.

Mulally’s Turnaround Strategies Are Good Fodder for Supply Management

A recent article in Industry Week on “management lessons you can learn from Alan Mulally” presented six pieces of advice that should be taken to heart by any Supply Management organization looking to turnaround its operations and take its performance to the next level. Simply put, they are:

  • One Vision
    Just like Mullally created a “One Ford” plan, which charted a course for product development, manufacturing strategy, and financial rehabilitation, your Supply Management organization needs to help the business construct its own “One Company” vision that defines what products and services its going to focus on, the manufacturing strategies it is going to employ, and the market goals. Then Supply Management needs to create the “Single Supply Management Operation” plan that describes how Supply Management is going to operate to support the “One Company” vision.
  • Act with Urgency
    Why put off until tomorrow what can be done today? That being said, there is a difference between acting with urgency and rushing things out the door. Never put anything off, but take the time that is needed to get it right.
  • Develop the Guiding Coalition
    Be sure to involved all of the affected stakeholders, internal and external. This will significantly increase buy-in and support for Supply Management.
  • Communicate the Vision
    Everyone inside and outside of Supply Management needs to be on the same page. Savings only materialize if contracts are adhered to, best practices only provide value if followed, and efficiency is only obtained when operations are in sync.
  • Generate Short Term Wins
    Go for the low-hanging fruit, get some success stories, and then communicate them up the wazoo.
  • Make Change Stick
    Instill a disciplined sourcing review process and make sure it is followed at all times. Support will be easier to obtain after the organization sees some short-term wins.

In addition, it will help if you are a charismatic, creative, and decisive collaborator. You need to work with your stakeholders, but when an impasse is reached, you have to clear the way.

And now the UK is a low-cost country too.

Well, not really. But you can now run call centers at parity in the UK when compared to the costs associated with running a third party call center in India. As per this recent article over in Global Services on how a “UK company reverts outsourced work from costly India”, New Call Telecom is opening a new call center in Burnley, England (a borough of Lancashire) because operational costs are on par with what they’d pay in Mumbai and New Delhi. Furthermore, since the average handling time of a call in the UK is 25% less, they will cut headcount costs as well. And the headcount they do hire will be “sticky”, unlike the Indian employees who leave for lunch and don’t come back when the call center across the street makes them a better offer.

So, now that it’s cheaper to open new call centers in the US and the UK, and now that Indian companies are hiring American citizens on American soil to fulfill the outsourcing contracts granted to them by American companies, is there really any reason to go to India? Maybe. But it is still getting more expensive by the day and will never offer home-soil advantages, especially in services.

Now, there is the problem that, because many companies outsourced all of their services, they no longer know how to even run a call center, but there is a solution for that. Insource some Indian experts to do it for you. And if you insource to Arkansas and set up some cameras, you can have the next great reality series. While NBC airs Outsourced, about ex-pat Americans shipped off to India to run call centers, FX will be airing Insourced about the life of an Indian call-center manager, who never left the country, who is shipped off to live with some hillbillies in the Ozarks.

Is Your Supply Management Organization Being Held Back?

A recent article over on the CPO Agenda on “Fresh Thinking”, which noted that Procurement must be bolder in bringing about wholesale change that delivers effective results for the business, highlighted a number of areas that could be ripe for change. These areas need to be looked at carefully because their current state could actually be holding the Supply Management organization back. In order to advance, Supply Management cannot accept the status quo when the status quo is an outdated, ineffective, and or costly way of running the business.

The following five areas are ripe starting grounds for a Supply Management organization that wants to take its operations to the next level.

  • Organizational Rules
    Are organizational rules limiting opportunities for efficiency and effectiveness? There are a number of ways organizational rules could be impacting the Supply Management organization, including, but not limited to:

    • Diversity/Buy American Mandates
      While it’s often a good idea to diversify spend and buy at least some products or services at home (to address offshoring risks), excessive diversity or buy american mandates can severely limit options and have a dramatic impact on efficiency and effectiveness.
    • Payment Terms
      If finance is imposing egregious payment times on suppliers (of 90 days or more), this will limit the supply base that is available to the organization as some suppliers won’t stand for such BS.
    • Approval Chains
      If Procurement has to get a sign-off from each affected organization before every buy, and executives for buys over a certain dollar limit, they will be spending more time trying to get signatures than doing their job. Sign-offs should only be required for critical buys or very high dollar buys, not for office supplies or temp services.
  • Specifications
    The specifications could be outdated, non-standardized, or overly specific and all of these can add cost and drain efficiency.

    • Overly Specific
      If the specifications call for specific components from specific suppliers that are essentially commodities, they are overly specific and limiting competitiveness.
    • Non-Standardized
      If each department has their own specification for a workstation with a different configuration, this can limit leverage — especially since it’s very easy to standardize on an office workstation configuration for business people and one for technical people.
    • Outdated
      If the specs are calling for components that are now only being manufactured by a 10th of the total supply base or using materials that are no longer in common use, then the specs are outdated and should be refreshed.
  • Marketplace
    The marketplace could be holding Procurement back by holding on to outdated products or insisting on a wide-diversity of products when only a few should be required. For example, customers may love the old, regular un-concentrated laundry detergent which costs more to package and transport and is less environmentally friendly than the new concentrated formula or may be split between six scented varieties of your dish detergent. In the first scenario, Procurement will need to work with Marketing to push the new, environmentally-friendly, product while phasing out the old product and in the second, Procurement may have to work with engineering to find a way to mass produce the base detergent and mix the scent in later to avoid six low-volume, high-cost production runs.
  • Perception
    If the rest of the organization thinks of Procurement as the back-room, paper-pushing organization where careers go just before they are put out to pasture, it is going to be challenging for Procurement to gain respect, exert influence, and get a majority of spend under management. Procurement will have to work on its image first, get some quick successes, and leave major organizational change to later.
  • The Ideal Solution
    If the concept for the “ideal solution” is outdated, then Procurement’s efforts will be outdated. Before effecting significant change, Procurement has to know what the optimal state is and why.