Ops #2 - The Power of Data to change minds

The Myth of Expander Nine


When I joined the Raychem Energy Division, we had to design and build the machines that made the product. The product was heat shrink tubing and one of the machines we needed to design was called an “expander”. I was hired as the Plant Engineer, which meant that I was responsible for the engineers who designed the machines, the machinists who made the components, the machine builders that assembled the machines and the maintenance crew that maintained the machines once in service. One of these expanders was very expensive to build. A fully loaded expander would cost about $1.5 million dollars to build. We had four expanders in use in the plant. The oldest of the expanders was called expander 9. The logic of the numbering system wasn’t obviously apparent because we were in the process of building expander 4. I have no idea where the numbers came from. These were very complex machines and broke down often. The maintenance crew was “old school” and mostly wandered the shop waiting for someone to call for their assistance and their favorite tools were a hammer and a screw driver. There was no formal maintenance program and no records for the machines existed.

The conventional wisdom in the plant was that expander 9 was on its last legs and needed to be replaced. There was actually an approved requisition for a replacement for expander 9 with a budget of $1.5 million. Being new to the plant and not having the experience and history with the machines, I asked that any work performed by the maintenance department be documented with a work order. This was easier said than done because the maintenance crew didn’t support the effort. They quickly figured out that I could not only track the work performed on the machines with work orders, but the work orders also showed how much work was done (or not done) by each maintenance mechanics. Over a period of several months the work order system became part of the routine and useful information was gleaned from the database that was being built. As we started to see recurring breakdowns we were able to strategize permanent fixes and order the right spare parts as the history told us what we needed to have on hand.

The most remarkable thing we learned was that expander 9 was not only more reliable than everyone thought, it was in fact the most reliable expander we owned. The old cliché about “perception is reality” comes to mind. When another machine, that was much less reliable, broke down it didn’t get much attention, but every time that expander 9 broke down, everybody knew about it. The myth was constantly being reinforced to the point where managers signed off on a $1.5mil replacement.

It is amazing how quickly perceptions can change with credible and enlightening data. After presenting the data on expander 9, its reputation was immediately restored, the plans to replace it went away, and everyone stopped talking about how bad it was.



Yes, this really happened.  Here is a picture of an expansion machine and some heat shrink products.

Image source: best-b2b.com
Image source: heatshrinkchina.com

Cliche #7 - Principles that hurt

Frank's management cliche #7

"A manager's principles are not shown when they hurt others, but when they hurt themselves"
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Explanation:

Most managers profess to not tolerating unprofessional or unethical behavior.  They will swiftly take disciplinary action on people they catch breaking the rules.  These decisions obviously impact the perpetrator and others adversely, but what happens when the adverse impact is on the manager themselves?  Will the manager still take the same swift and decisive action?  If it puts their own reputation, or income, in jeopardy, will the manager turn a blind eye or give second and third chances?  Here are a few examples:

1. The division "rainmaker" is caught submitting inflated expense reports.
2. The programmer that wrote the code for the company's best product is sexually harassing and making inappropriate advances to their direct reports.
3. The technical guru is repeatedly showing up for work hung over and sometimes still under the influence.
4. The account manager for the biggest customer, who love him, is discovered watching pornography in his cubicle on the company laptop.
5. The best technician, with by far the most product knowledge, initiates and takes part in a fight on the factory floor.

In all of the examples above, disciplinary action is probably needed.  In each case the employee involved is very important to the business and their removal will make the boss's job much more difficult.  Will the boss find a way to overlook the transgression, or address it but in a much severe way than they would for another employee? 

If the manager takes the pain and treats the star employee as any other employee, it will show that this really is a principle that they take seriously.  They believe the principle is more important than the next month's profit, or an uncomfortable conversation with their boss, or ultimately less money in their pocket.

What examples of this have you experienced in your career, or witnessed in other managers.  Have you seen a manager fall short in this area.  Leave a comment with your story.
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Ops #1 - Prisoner returns with a message

I was swapping management stories with a friend the other day and after about the fourth one she suggested I include them in my blog. She said "you have a hundred of these stories and other people would enjoy hearing them, especially if they illustrate a point you are making in another posting". So here is the first one. I don't think it illustrates any particular point, but it is kind of amusing. Yes, each story related actually happened and is accurate as best I can remember.



A Visit from the Big House
Image source:lookingglassfancydress.co.uk

It is not unusual in this particular town in the south for many family members to be working at the same factory. The factory where I was working, recruited from San Francisco to be the GM, was no different. We had several father/son combination employees. In one case there were three generations represented. The family at the heart of this incident had the father and two sons working at the plant. Although good people, they were big and rough. Mountain men comes to mind and not to be trifled with, if you wanted to stay healthy. The younger brother, let’s call him Buck (not his real name), was about 6’-5” and about 200 lbs. Pretty lanky, but strong. His older brother was a little taller and weighed about 300 lbs. Buck was quiet and hard working and living with a young woman who also worked in the plant. She was about 5 feet tall and weighed about 90 lbs. They were raising her young daughter from a previous relationship.

It turns out that the previous relationship of the woman ended because her man was sent to prison. I never learned the offense, but he was there at least two years. On the day he got out of prison, he showed up at the plant and gave the receptionist a box about the size of a shoe box and asked her to give it to Buck. Then he simply left. The receptionist dutifully walked out to the shop floor on her break and gave the box to Buck.

Inside the box was a single sheet of paper and what looked to be a couple hundred letters in envelopes. The single piece of paper said “I don’t want this bitch. Keep her away from me, she’s yours”. Buck then started to read a few of the letters and quickly realized that his girlfriend had been writing her ex-boyfriend in prison on an almost daily basis. The gist of the letters was that she couldn’t wait for him to come home and the only reason she was with Buck was to have somewhere for she and her daughter to live.

Buck saw red. He walked over to her work station and picked her up over his head and slammed her to the ground like a rag doll. Before anyone knew what was going on, he had picked her up again and threw her against the wall. By then about four guys jumped on him to stop him. The plant superintendent, who was also very big and very well respected by everyone in the plant was able to separate the two of them and calm Buck down, at least for the time being.

The Superintendent came to me to relate the story. He was incredulous when I told him that Buck would have to be terminated immediately. It was an education about the culture of this small southern town and what happens when a man’s honor is at stake. Although they respected my authority in the situation, I had a parade of lead men and others in the plant making a plea for leniency. The basic message was that "she had it coming” and was lucky it happened at work where there were people around to step in. My message to them did resonate though. I told them that there are two places people should be safe and their loved ones could relax knowing that their family members were safe. One place is school and the other is at work. I was responsible for safety at the plant and took that responsibility seriously. The bottom line was that the woman was entirely the victim in this incident, regardless of what one might think about what she had done at home.

Yes, this really happened.

How would you have handled this real life incident? What factors would you consider in making a decision? Think about it before reading below what actually happened.

Buck was terminated and the woman remained working at the plant for several more months and then left for another job.  About a year later, Buck came to the plant and asked the Superintendent if there was a chance he could get his job back.  Since the woman was no longer in the plant and Buck had paid for his offense with a year away from work, we gave him another chance.  He was re-hired with the understanding that he would basically be on permanent probation.  We never had another problem with him.

Get Your Priorities Straight!

One of the most important things that managers do is set the priorities for their group.  As much as we would like to get everything done today, choices need to be made.  The effective manager will be very clear about how they want the choice to be made when an employee has to decide what to work on and what to set aside.  Without clear direction, employees will diligently do this:
Image Source:vintek.net


There are Strategic Priorities and Tactical Priorities. 

What are Strategic priorities?

Strategic priorities are the guiding principles of a company that tell employees the relative importance of competing principles. These give the values of a company and the general direction, but they don't tell a person specifically what to do on any given day.  The tactical priorities should be in alignment with the strategic priorities, but are much more specific and do tell an employee what to work on.

Typically strategic priorities are not what a worker thinks about when they are planning their activities for any given day, but they need to know what they are so that their daily activities support those priorities, or don't specifically contradict them.

Where can an employee find the company's priorities?
If a company structures their priorites correctly, and they are in fact part of the fabric of the company and not just lip service, they will be apparent in many places.  There are several places where a company tells an employee what they want them to do.  This is the company's "Priority System".  A person should be able to enter this system at any point and get the same direction for how they should handle competing priorities.  Here are a few:

1. Mission Statement - This is usually not very specific, but creates the umbrella that other, more specific priorities come under.  Creating a good mission statement is easy.  Creating a company culture that reflects that statement is very hard.                                                                                                                     Image Source: getentrepreneurial.com
2. Business Strategy - The company starts to give direction here.  What markets the company intends to pursue, where investments will be made, how the company will differentiate itself from the competition, etc.  The business strategy should be in alignment with the Mission Statement.
3.  Published Quarterly and/or Monthly Priorities - This is where the manager actually spells what is important for the group to work on, or achieve in the current period.  Each employee can use this direction to decide where to spend time on a daily basis.  This is what I am calling "Tactical Priorities".
4. Performance Reviews - There are only three things to discuss in a performance review.  They are:
1. What the employee did well.
2. Where the employee needs to improve.
3. The objectives for the next period - This is where the priorities are spelled out for the individual employee.  These priorities should be in alignment with the buisiness strategy.

What does a Priorities Document look like?
It is easy to make a list of priorities, but it takes a lot of thought to put these priorities in order of importance.  It is, however, important for a manager to do this if the priorities document is intended to be used as a tool for employees to make decisions.  Since there are many things a manager wants to accomplish, they must decide which ones are really important and which ones are not quite as important, or which should be moved forward incrementally.

Here is an example of the wording of an effective Priorities document:

From:  Manager
To:  Team
Subject:  Third Quarter Priorities

There are many challenges that each of you must address every day and it is important that I convey to each manager the priorities for the short-term future. Please share this memo and its content with your staffs. These projects are of the highest importance to the company, even if only a few people are actually working on them. Anyone who can influence the success of these projects should be working on them.

1.  
2.  
3.  
4.  

We must be careful not to over load our resources, which is the reason the above list is short. There are obviously many other items that must be done well for our company to be successful, so here is a prioritized list of items that are important, but do not rise to the level of the top five. 

2.  
3.  
4.  
5.  
6.  
7.  
8.  

_______________________
Notice that there are only a few high priorities, but many less important ones.  I would recommend keeping the high priority list to five and the lesser priority list to no more than fifteen.  Once this document is published, it should be reviewed frequently to make sure that everyone knows the manager is serious about the relative priorities and they are actually being followed..  It is also a good idea to have a formal review when the next set of priorities is published to review/celebrate accomplishment of the previous set of priority objectives.
                        Image Source:littlevic.wordpress.com                Image Source:hollandhub.com

Financial Reports for Managers - The 10 minute MBA

All managers should have a basic understanding of how the finances of a company work.  Accountants have a way of making the financial reports complicated, but if a manager sticks to the basics, they can understand how a company uses these reports to stay healthy.  I know there are a million sources for this information, but it should be in every manager's toolbox so I am including it as a post.
What are the most important financial reports for a manager to understand? 
There are many reports that a company uses to understand their finances, but there are three main reports that will tell whether a company is healthy.  They are:

1. The Profit and Loss statement, also called the Income Statement - This is basically a list of all the expenses of a company in any defined period subtracted from the revenue for that period.  A positive number means a profit and a negative number is a loss.
2. The Balance Sheet - This is a list of assets, which is what the company owns and a list of liabilities, which is what the company owes.  The difference between these two things is the value of the company, or the equity of the owners.  This doesn't mean you can buy a company for this amount, but gives a basis for what is called "book value".  The amount needed to buy a company (another way to "value" it) is either determined by the amount someone will pay for a private company, or is represented by the market capitalization (total value of all outstanding stock) of a public company.
3. The Cash Flow Statement - A company can make a profit and have lots of assets, and still go out of business if they don't manage their cash carefully.  It is like a house.  Let's say a person purchased the house for $500,000 and after 5 years it would sell for $1million.  That means the person who owns the house has made $500,000 profit.  The problem is that if the person can't make the monthly mortgage payments, the bank will force the person to sell the house.  That's great if the objective is to get the money out of the house - it is bad if the objective was to live in the house.

Let's look at each of these reports in more detail.

Profit and Loss Statement
 Image source: tutorsonnet.com
Costs - There are two basic ways that costs are categorized, fixed and variable.  Added together they are called Total Costs.

1. Fixed costs - expenses that are needed to keep the business running whether or not anything is produced.
1. Salaries
2. Rent/Mortgage
3. Depreciation
4. Equipment Leases
5. Property Taxes
6. Debt Payments
7. Insurance
2. Variable costs  - expenses that vary with the amount of goods or services produced.  Theoretically, if nothing is produced, there will be no variable costs incurred.
1. Labor Wages
2. Overtime
3. Materials
4. Utilities
5. Commissions
6. Freight In/Out
7. Packaging Supplies
8. Sales Taxes
9. Scrap
10. Tooling and repairs
3. Total cost  - the sum of all fixed and variable costs, TC=FC+VC, and can be represented in the following way:

Image source: Syncpal.net

Revenue - The amount of money a company brings in through sales.  There are other ways companies can bring in money, but let's just stick with sales for this illustration.

Now let's add two more important concepts, Contribution Margin and Break Even Point.

Contribution Margin - the amount of money left over after the variable costs have been covered for a product or service.  Basically this amount "contributes" to paying for the fixed costs.
Break Even Point - The point at which enough goods have been sold to pay for all of the fixed costs. 


Image source: fao.org

The concept of Contribution Margin is especially important because after the break even point has been reached, the contribution margin represents the profit that will be realized with each additional sale.  Let's use an example to illustrate why this is important.
Contribution Margin ExampleLet's say the break even point for a product that sells for $100, with a contribution margin of $25, is 900 units.  If the monthly sales are 1,000 units, the revenue will be $100,000 and the profit will be $2,500 (all the CM after BE).  If an additional 100 units could be sold, the Revenue would be $110,000, but the profit will now be $5,000.  This shows how a 10% increase in sales can produce a 50% increase in profit.  That's why it is important to understand the connection between Break Even and Contribution Margin.


Balance Sheet

Image source: unchained-entrepreneur.com

Assets - Here is a very simplified list of asset accounts

1. Cash
2. Investments
3. Accounts Receivable
4. Inventory
5. Prepaid Expenses
6. Property, Plants, Equipment (PP&E)
7. Goodwill - The amount paid for a company purchased above that company's book value

Liabilities - Here is a very simplified list of liability accounts

1. Accounts Payable
2. Reserves
1. Unpaid Benefits
2. Unpaid Taxes
3. Notes
1. Loans
2. Line of Credit
3. Notes for equipment

Equity

1. Paid in capital - Money that the owners put into the company.
2. Retained Earnings - All the earnings not distributed to owners from previous years.
3. YTD Income - This year's earnings

Cash Flow Statement
Image source: dailymarkets.com
From Operations

1. Sales (+)
2. Materials (-)
3. Labor (-)
4. Expenses (-)

From Financing

1. Loan Service (-)
2. Dividends from investments (+)
3. Dividends paid to shareholders (-)
4. Taxes (-)

From Investments

1. Capital equipment (-)

How are the Balance Sheet and the Profit and Loss Statement (Income Statement) connected?

Any change to the balance sheet that is not balanced by another account on the balance sheet must "flow through the income statement". For instance, if a loan is paid off, the liability can be cleared by reducing the cash assets, which means the accounts remain in balance and would not have an impact to the Profit and Loss Statement. However, if it is determined that a valuable piece of equipment was stolen, this can not be balanced through a liability adjustment, so it must be reflected as a loss on the income statement.

That's what I think.  Tell me what you think.

Cliche #6 - The Truth

Frank's Management Cliche #6                                

"There can be only one source of the truth"

Explanation:

If there is only one source of the truth, then everyone can rely on it.  If there is more than one source of what is believed to be the truth, then if they all don't say the exact same thing, the organization will not know which to believe.  The best source of the truth is something that everyone can access.  If it is company information, then that source should be the company database in the computer.  Here is a good example: 

Bob, the production supervisor, walks into the manager's office and says "I have twenty parts short on the Alpha machine.  Here is the list I made".  The manager says "OK, let's go over to Production Control and make sure they are chasing those parts."  The manager and supervisor walk over to the planner for the Alpha product and ask her what parts she is chasing.  Jill says "right, I made a list of the missing parts yesterday and here it is". The manager compares the two lists and sees that there are parts on the supervisor's list that are not on the planner's list, and vice versa.  The manager takes the supervisor and planner in tow and walks over to the buyer's desk.  The manager says "It appears there are parts short on the Alpha machine and I want to make sure you are ordering them as an emergency with our vendors".  The buyer, Tim, says "I know, Jack called me the other day and told me to order some parts, and I called and put the parts on order. The parts will be here today."  The manager breathes a sigh of relief until he looks at Tim's list.  It is different than both Bob's and Jill's lists.  The manager notices that all the lists are hand written and muses "I wonder what the computer thinks."  Tim makes a few key strokes and produces a list of parts the computer shows as missing from the Alpha machine.  It is different than all three hand written lists, and probably just as wrong. 

The above example is just one of many that would illustrate the same thing.  Other examples include the group travel schedule, customer contact list, project task list, personnel roster, etc. Basically anything that changes dynamically. 

The manager should insist that there be only one source of the truth.  That way as soon as someone learns of a change, or additional piece of information, the single source can be updated with this new information.  To train people to do this, the manager should only rely on the single source.  If someone brings information from some other source, the manager should send them away to get the single source.  If new information is different from the what the single source shows, a reconciliation must take place to make sure the single source is accurate.

Mentoring

Mentoring was originally part of Employee Development, but it is different enough to deserve its own post.  Besides, many people have told me that my posts are too long to absorb in one read.  This is my attempt to break it up a little.  Interestingly, my longest posts get the most views.

What is the difference between Employee Development and Mentoring?

Employee Development is what a manager does with several employees under their charge.  This is actually part of the job description, or at least the expectation of good management.  Mentoring, on the other hand, is a 1on1 relationship between a "Mentor", and a "Protege" that can, and usually does, last a long time and transcend jobs and companies.  It is common for the mentor/protege relationship to begin when both people working for the same company with the mentor being senior to the protege.  The protege often reports to the mentor, but sometimes they are in different areas of a company.  The relationship can be a long lasting one that stays in tact after both people have left the company and sometimes the mentor may be retired while the protege maintains the relationship while still progressing in their career.  This relationship is usually the foundation for a long lasting bond that is not only professional, but a strong friendship.

How does a manager foster a mentoring relationship?
The basic elements of a mentoring relationship is the mentor believes they have something to offer the protege and the desire to guide them and the protege values the wisdom and experience of the mentor.

1. Mutual trust and respect - For the relationship to work, both parties must trust each other.  This means keeping the conversations confidential.  The mentor must truly believe in the protege's potential and each must respect the judgement of the other.   
2. Be available - If a junior manager or employee seeks the manager's guidance, they must be available to help.  This doesn't mean just physically available, but able to give the protege undivided attention and thoughtful advice.
3. Maintain credibility - The mentor must have more than just good common sense.  They should know the industry, the culture of companies, and the potential political pitfalls of the corporate world, etc.
4. Listen - The protege should make their own decisions and sometimes may just need a sounding board before taking a career step.  Asking questions that will help the protege talk, and think, through all of the factors in making a decision may be the best way to help them.
5. Have empathy - The protege may be struggling with decisions that may seem obvious to the mentor because of their experience, but the mentor must put themselves in the shoes of an inexperienced person, or at least recognize how difficult the decision may be for the protege.
6. Be honest - A protege may want to go in a direction that the mentor does not think will be successful, or that the protege is not yet ready to tackle. It is the protege's decision to make, but if they are not ready the mentor must let them know and have specific, concrete reasons why.
7. Develop good coaching skills - The interesting thing about coaching is that it is about knowing how to perform as opposed to doing the actual performing.  The best coach gets satisfaction from watching, from a distance, while the athlete performs.  The coach knows that their contribution was essential, but may not be readily apparent to either the athlete or the spectators.  The mentor must learn to provide a guiding hand without needing to be in the spotlight.

That's what I think.  Tell me what you think.