Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation

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Publisher's Summary It's the trap that ensnares virtually every business. We focus on process: "how" we're doing the job. And we forget about the bigger issue: "what" we're doing and "why" we're doing it. That's why we're leaving so much value on the table. In Rethink , business architect Ric Merrifield exposes this problem with vivid examples and introduces breakthrough techniques for overcoming it. Merrifield shows how to rise above the clutter of your "hows" to expose what does and doesn't need attention in your organization. Customer information possessed by the finance department in Chicago, for instance, was also accessible to a salesperson in New York.

Early in the decade, a new wave of operational improvement theorists such as James Champy and Michael Hammer realized that this new capability allowed work to be reorganized across departments or functions. Thus, the cross-functional process became the unit of analysis for operational improvement. Champy and Hammer called their operations-improvement method reengineering, and it sparked a revolution in productivity.

Another revolution, this time in soft ware known as enterprise resource planning ERP , followed shortly thereafter. It fits hand-in-glove with the new technologies that are so essential to the future of business. The high-cost private telecommunications companies that previously kept businesses digitally connected have been supplanted by a low-cost public computer network. Yet another key technological advance has been the rapid growth in the number of business activities that are now soft ware-based, particularly those aimed at gathering, manipulating, and processing information.

Connecting telephone calls, for example, previously required thousands of telephone operators who diligently plugged their wires From the Library of Kerri Ross 36 r ethink into huge switchboards. A half-century later, that activity is totally automated by means of soft ware. In a similar manner, payroll-processing soft ware used by such companies as ADP and Paychex has replaced work that used to be performed by tens of thousands of payroll clerks.

Given these developments, achieving major productivity improvement now depends in part on reducing the cost of the new soft ware and the computers that run it—a bill that reaches into the billions of dollars at some companies.

Boosting Innovation

The Internet offers a solution. It allows corporate divisions to share the same soft ware inexpensively across great distances by using applications that reside on the Web—or to use a more current term, the cloud—and corporate networks rather than on individual computers. But for a sharing solution to work properly, the software must be based upon a common set of design principles, and those principles are still being developed using service-oriented architecture SOA and soft ware-as-a-service SaaS.

Still another requirement must be met for Webbased soft ware sharing to achieve its potential: The various and varied operating divisions within a company need to defi ne their business operations in a common way. If five divisions of a company are to plug into one accounts receivable soft ware application on a corporate intranet, each division must defi ne the work in the same way.

It succeeds because it gives company leaders a detailed, actionable view of the workings of their organizations—the activities that need to be streamlined, improved, outsourced, or dropped altogether. Value is what you get. Or even if its performance is nothing special, it might provide high value simply because it satisfies customers—and customer satisfaction helps keep costs constant.

You also need to determine their current performance levels and why they perform as they do. Witness the experience of Alcoa, the giant manufacturer of aluminum and aluminum products based in Pittsburgh, Pennsylvania. It was a choice that struck other business leaders as odd, to say the least. Two years later, he was wooed and won by Alcoa. Treasury Department. Out went a command-and-control structure with its rigidities and turf wars; in came a dedication to customers and business units.

The success story continues: In , He made sure that all managers at all levels were on board, of course, but he equally stressed the role of frontline employees as partners and facilitators on the plant floor. Employees themselves had to scope out hazards and solutions. He saw to it that Alcoa embraced the Internet early, using it to connect all parts of the company and to keep employees abreast of developments. Th is sharing of information was another way to make people feel more involved in the enterprise and committed to its overall performance.

A retired Alcoa director, Donald S. Over the last five years, my colleagues and I have talked with or gathered information from executives at more than companies. They knew the number of employee hours it took to produce their products and services, and they knew sales figures almost to the penny. The leaders of the companies I have worked with no longer see their organizations as collections of tasks so complex that it is impossible to identify the impact of any particular activity on business results. When they rethink, they can see what truly drives business performance.

Then, for a fee, it turns the operations over to franchisees. That approach carries very low risk as long as the company maintains enough basic operating volume overall. Two more unlikely facts about this upstart: It is a for-profit venture that turns every cent of its earnings over to charity; and it has only 19 people on its payroll. What Paul Newman and his buddy A. Hotchner were up to that December day was a simple holiday project. Newman had recently begun making his own salad dressing because he was unhappy with the taste of commercial brands—and even more unhappy about the chemical preservatives and other additives they contained.

He and Hotchner, a writer by trade, were mixing a big batch of the dressing that they planned to pour into wine bottles and hand out on Christmas Eve as they and their families went caroling. When the men fi nished stirring their concoction, they discovered they had made much too much. No problem, Newman decided. They would pour the excess into bott les and sell them to local food stores. The stores wanted more. Suddenly, the hobbyists were in business, though neither partner had the slightest need to make more money.

Newman was a multimillionaire from From the Library of Kerri Ross 50 r ethink movie acting and directing, and Hotchner had a lucrative publishing career. The fledgling entrepreneurs called a halt and began rethinking their enterprise. The only excuse for taking that low road would be if it led to a high road—say, if they gave all their profits to charity. Timing also helped. Devoted to products made with healthy and natural ingredients, it grew right along with Whole Foods Markets and other like-minded food purveyors.

Early on, for example, Newman and Hotchner sought advice from a prominent marketing fi rm about launching their product. No thanks, said the partners; they would do it themselves. Their big-picture outcomes revolved solely around making money just so they could give it away. Large bott lers were looking for products with runs of , units or more, and celebrity-backed items were frowned upon because they generally bombed. Hotchner fi nally convinced a bott ler outside Boston to turn the salad-dressing From the Library of Kerri Ross 52 r ethink formula over to his chemists only to encounter yet another problem: The formula lacked the chemicals needed to assure it a decent enough shelf life.

But there was a solution: Mixing the ingredients in the salad dressing would form a natural preservative gum. So the bott ler whipped up his fi rst batch of dressing—only to have the partners send it right back. Needs more work, they said, over and over again during the following six months until the bottler fi nally lost patience and quit. Disheartened, but not yet ready to put a cork in their dressing idea, Newman and Hotchner arranged for a competitive tasting to see if their dressing was really better than existing brands.

The event took place in the kitchen of a nearby caterer by the name of Martha Stewart yes, that Martha Stewart who was on her way up in the world. A chance encounter led to a meeting with Stew Leonard, the owner of a popular local supermarket. On Newmans. Most new products still have to pass a rigorous taste test before they reach supermarket shelves.

During the pet-food scare of , for example, when many products manufactured abroad were recalled, the Newman brand was worry-free because it is made in the United States. Remember the outbreak of E. Overnight, the company lost a third of its market value. Giving away money is gett ing both tougher and easier.

A major benefactor has been Hole in the Wall Camps, where children with cancer and other lifethreatening diseases can spend the summer free of charge. Paul Newman established the fi rst camp in , and a total of eight now serve 18, kids. The camps are named after a gang whose members included Butch Cassidy and the Sundance Kid, the Wild West outlaws played by Newman and Robert Redford in the movie of the same name.

I think they buy it because of the charity. I find it helpful to use a scale of 1 to 5, where 1 is low or no correlation, and 5 is high correlation; the numerical quantities come in handy when reviewing and prioritizing several areas of work. And many of us have experienced that attitude, to our chagrin.

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However, if the establishment decides to charge for it, it could be a revenue-generating service. There is no right or wrong decision in this case. Is it one of the reasons why customers feel comfortable with your brand or why your employees and partners might decide to work with you? Why is it performing at that level? How can you enhance its performance? Should you? Would automation or outsourcing do the job? These are some of the issues raised in the chapter that follows.

It is what I have done with where I have been that should be of interest. No argument.

But back in , he made a serious mistake. He assumed he could be one of the best at another sport as well. Jordan was a natural athlete who could roll a bowling strike backward from between his legs, score well in pro-amateur golf tournaments, and smash batt ing-practice baseballs out of the park.

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When he announced that he was going to try his hand at professional baseball, few skeptics were bold enough to suggest that this career turn would be anything but another Jordanesque dazzler. Olympic team to a gold medal in , and led the Chicago Bulls to three straight national championships before deciding he had enough and was ready to retire from basketball. He told sportswriters that his late father had actually wanted him to be a major league baseball player.

Now, at 31, Jordan was no kid, and he faced a steep learning curve. That summer he batted a modest. His average rose to. The following year, he entered an egorestoration program by rejoining the Bulls and leading them to three more NBA championships. In this chapter, the focus is on their performance. From the start, Target sought to distance itself from Wal-Mart and other discount stores whose claim to customer loyalty is low prices.

Everything about the brand was calculated to pull in younger, better-educated, and more affluent customers—and it worked. In , Target extended its charm to Dayton Commercial Interiors, which specializes in the design and furnishing of corporate offices, hotels, hospitals, and sports venues. That meant providing extraordinary corporate design services at less-than-ordinary prices. TCI did not disappoint on either front. From the Library of Kerri Ross 66 r ethink Having a famous parent is a head start in life, but it only carries you so far.

You peruse a menu that includes a Tillamook cheeseburger, made of ranchraised beef from nearby Antelope, Oregon, and topped with a famously tasty sharp cheese made just down the road at the farmer-owned Tillamook Creamery Association. Both the meat and the cheese are hormone- and antibiotic-free. The bun is made by local bakers, too, without any preservatives. Want some sides?

Bookshelf: RETHINK: A Business Manifesto for Cutting Costs and Boosting Innovation

How about a seasonal special like Walla Walla sweet onion rings or sweet potato fries, or a Rogue River smoky blue cheese salad with cranberries, tomatoes, and apples? And for dessert, try a milkshake, the old-fashioned kind made with real ice cream churned with milk from Oregon cows. Superior performance in the former allows Burgerville to maintain its unusual menu of fresh local foods, and mastering waste disposal lets it reduce, reuse, and recycle 85 percent of its restaurant-generated garbage, saving significant money in the process.

What is more, its restaurants run on wind power. Customer counts and gross sales are two key measures—they were up 4 percent and 11 percent, respectively, in , for example. In fact, sales of the privately held company have risen no less than 4 percent every single year since But as chain restaurants began to proliferate, George Propstra, the founder, realized that Burgerville could never compete on price. All of it comes from Oregon and Washington. How does Burgerville do it? In addition to the money saved on food transportation, there is the sizable sum not spent transporting its garbage to landfi lls.

The organic waste is then turned into a From the Library of Kerri Ross 70 r ethink nutrient-rich compost that can be sold to businesses and homeowners to enrich and enhance their soil. Right now, the arrangement saves Burgerville the cost of hauling the greasy stuff away. But, eventually, as a competitive market in renewable fuels develops, that waste oil is likely to turn into a source of revenue. So their leaders have to be careful when measuring performance against industry benchmarks or when dropping in new information technology.

The company started out in as a supplier of plastics. From that beachhead, Gou has seized every opportunity to extend vertically into other electronic products as sales of older ones begin to wane. The place is so big that it has its own soccer complex, chicken farm, and police force. Sites in China, Mexico, and Eastern Europe thriftily mass produce high-volume, labor-intensive products at lower cost, while U.

All the Hon Hai manufacturing facilities are linked by efficient enterprise resource planning ERP software systems. And in the opinion of equity analysts at Credit Suisse and Yuanta Research, the future holds more of the same.

If You're a Student

As with many other Taiwanese-based manufacturers, Hon Hai has honed its ability to keep costs low, turn out goods rapidly, and nimbly adjust its operations to accommodate new products. In an industry where the supply chain is constantly under pressure in terms of pricing and consolidation—much of it initiated by Hon Hai itself—the company presents a portrait of a manufacturing business at the top of its game.

Essentially, there are four combinations to work through. From the Library of Kerri Ross 74 r ethink They are listed here, with a thumbnail suggestion as to your reaction: 1. As to the actual process of judging performance, I favor using a scale of 1 to 5, with 1 being the lowest level. First ask how it is currently performing. Pull on one thread and many others might move. The clerk in accounting is related to the chief dispatcher who went to school with the director of advertising.

A glitch in production or a spurt in sales can send shock waves from one end of the company to the other, from design to delivery, and it might well affect the bottom line. Dell Inc. Dell was launched in by a young entrepreneur with a brilliant strategy. He would sell made-toorder computers directly to customers, primarily businesses, without benefit of retail outlets.

The brick-and-mortar middlemen were charging too much, Michael Dell concluded, and giving customers ridiculously inadequate technical support to boot. He intended to sidestep both pitfalls. In From the Library of Kerri Ross Make and Br eak Connections 79 particular, his company was going to provide outstanding tech support.

Costs fell all right, but so did customer satisfaction. Dell awoke from its slumber in and tried to repair the damage caused by the broken connection. The company announced that support calls for two of its key models, a desktop computer and a notebook, would now be routed not to India but to an existing call center in the United States. Other computer models would still be served by a call center in Bangalore, but the tech-support staff there would be increased and taught new approaches.

From the Library of Kerri Ross 80 r ethink Some Dell agents received special training in handling complex problems, thus allowing customers to deal with only one tech representative per call. Consumer Reports kept downgrading its scores. It claimed the average wait time to reach a senior technical person had been cut from nine minutes to three. In January , Michael Dell finally took back hands-on control of the company, returning as CEO, a position he had ceded for a few years.

Dell was generally perceived as being in comeback mode. But how, you may ask, could a company that built its reputation on superlative customer service make such a mistake? In fact, in my experience, the failure to recognize key connections is commonplace. Companies are immensely complex organisms, intrinsically difficult to comprehend in their entirety.

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It was an impressive array, ranging from penicillin and measles and mumps vaccines to Zocor, which lowers cholesterol. The company is acquiring some research fi rms and aggressively pursuing alliances with dozens of others. For Merck and for other members of Big Pharma that have followed the same path, this radical change has led to some heavy-duty soul-searching about their relationships to new outside partners and suppliers.

Suddenly, instead of running the show, they have to share control. Th at means learning a new set of cooperation and communication skills. And with a generation of top-selling medications going off patent, the companies have been desperate for new blockbusters to take their place. When their own labs fail to do the job, pharmas look for promising formulations outside their walls. Merck has 12 drug scouts working in seven countries. According to Fast Company magazine, they From the Library of Kerri Ross 84 r ethink checked out 5, biotech companies and medical schools in alone.

Their work paid off in 53 licensing deals. An unsurprising result of rethinking.

Although the drug eased the pain of arthritis without any of the digestive problems that bedeviled its rivals, it had a much more serious negative side effect: Vioxx had been found to increase the risk of heart attack and stroke. The company pulled it from the market in after being accused of knowingly ignoring the dangers. By year-end , Gilmartin had pulled out as well. Patents on two of its best-selling medications were set to expire— Zocor in and Fosamax, used to treat osteoporosis, in What Merck did have was cash, and it spent lavishly to catch up.

In , for example, the company reached an agreement with Boston-based Paratek Pharmaceuticals to develop and market MK, a new class of antibiotic that shows promise of coping with the rash of drug-resistant infections. Thomas J. They then defi ned their goals and established the price they are willing to pay to achieve them. For any organization, yours included, that balance between goals and price needs to be clear and fi rm. A survey found that pharmas are sometimes inconsistent when contracting with outside interests—a previous emphasis on innovation, for example, might yield to dollar concerns.

Lacking an agreed-upon framework, tempers tend to overheat and mountains rise from molehills. Clear benchmarks of progress and dispute-resolution procedures should be set forth in the original agreement. In the case of the pharmaceuticals, it should spell out, for example, the circumstances under which a scientific quarrel between pharma and lab personnel would be referred to upper management. Yet, the survey discovered that six out of ten respondents with outsourcing responsibilities had only on-the-job experience and no formal training.

For pharmaceutical companies, in From the Library of Kerri Ross Make and Br eak Connections 87 particular, connectivity management touches on delicate emotional issues that need to be considered. The failure of the company research labs to live up to the we-can-do-it-all mantra of the past is one element; the reduction in research jobs due to outsourcing is another. And where is it written that technical people are necessarily adept at communication and collaboration? At a conference in , Richard T.

They can literally determine the success or failure of any project. All those human and mechanical connections need to be factored into the improvement or automation equation. Will the change you have in mind increase costs for a supplier of raw materials or require a major revision of your product warranty? Will it rupture your relationship with a longtime partner? In other words, will the change be worth all the attendant hassle? And you are going to think twice about any improvement plan that would negatively affect a supplier whose CEO is best friends with your major customer.

Note that the many caveats I have included in this chapter are not intended to disparage the ties that bind a company together. Interconnectedness is a powerful and necessary aspect of a successful organization. Often, though, these relationships are ignored when companies set about making operational improvements. From the Library of Kerri Ross 90 r ethink As I wrote this book, I thought of myself as a kind of optometrist working to fi nd just the right combination of lenses that would give your company a clear, well-focused view of the world.

In each chapter, I tried to add another lens. I try to prevent it. The next step is to train the lens of predictability on your stakeholders— customers, suppliers, and partners—to anticipate their responses to the plug-and-play changes you want to make. The valve was manufactured by Eaton, which, in turn, contracted with a neighboring factory to provide unfinished metal castings. That factory, it turned out, relied on yet another supplier for the special clay used in making the castings. When the Chrysler team contacted the owner of the clay company, he dropped a bad-news bombshell.

Selling clay to the castings maker was a losing proposition, he told them, so he was switching into a new business—kitt y litter. Uh, no. A case in point: the Boeing Dreamliner. Back in , Boeing made a momentous decision. Boeing would save billions of dollars. Fly forward five years to July 8, The fi rst production model of the Dreamliner was unveiled at Everett. Some 15, invited guests, the cream of the aerospace industry, listened respectfully as former NBC news anchor Tom Brokaw emceed the ceremony and broadcasters relayed it via satellite to 45 countries in nine languages.

So much jubilation for so litt le reality. Under its shiny coat, the was, in fact, a Potemkin jetliner. Because of an industrywide shortage of the fasteners needed to assemble its parts, it had been juryrigged with temporary ones that had to be popped out and replaced after the ceremony. Large sections From the Library of Kerri Ross 94 r ethink of the plane arrived without proper documentation from the subcontractors. Much of its wiring had yet to be installed, and its fl ight control soft ware, with more than 6 million lines of code, had not been delivered by Honeywell.

Teams of Boeing troubleshooters had been on the road for a year, visiting subcontractors. Even so, unexpected problems cropped up everywhere. The new carbon composite skin was a nightmare. For the wing sections and huge fuselage barrels, 19 feet in diameter and 22 feet long, enormous ribbons of carbon fiber soaked in a mixture of polymers had to be plastered into molds or carefully wound onto cylinders and baked in a giant oven, maintaining uniform thickness and avoiding blistering problems that could endanger the airplane.

The Japanese supplier of the composite materials, Toray Industries, had no experience with large-scale production. The contractors in Italy, Japan, and South Carolina that were charged with fabricating the stuff into wings and fuselage barrels had no experience working with the materials, either. Predictability is one of the most treasured business qualities.

Beyond that, there is enormous value in knowing what you cannot predict. So the manufacture of a jetliner encompasses the worst of both worlds; it is hugely complicated and takes years to complete. It was also, however, a necessity. As the new century began, Boeing was in a tailspin. Struggling to digest three major acquisitions, the company had allowed its European rival, Airbus, to take the lead in total jetliner sales and to continue to build its market share. Instead, the company opted to build a supersonic plane that could bypass hub airports by flying longer distances nonstop.

But the airlines were lukewarm. More airspeed would still leave passengers fighting slow ground traffic in airports and on highways. Eventually, Boeing recognized that what the airlines really wanted was more efficiency, meaning a comfortable jetliner that pleased passengers and cost far less to operate. Th is engineering feat made it possible to reap substantial savings on fuel and increased efficiency. At fi rst, events favored Boeing.

Airbus ran into repeated problems with its A, which fell two years behind schedule. Meanwhile, airlines were att racted to the lightweight, efficient Dreamliner— From the Library of Kerri Ross 98 r ethink and all the more so when the price of jet fuel began to soar. By mid, some 47 customers had placed orders for a total of Dreamliners. Undaunted, Boeing insisted that the fi rst delivery would still be made to All Nippon Airways as promised in May of The schedule allowed only 5 months for fl ight testing and certification, compared to the 11 months it took for the to pass muster.

In mid-October, Boeing fi nally admitted that the fi rst delivery would not occur until late November or early December of Boeing stock dropped; airline customers seethed. Chinese airline executives, who had been counting on the Dreamliner to fly visitors to the Olympic Games starting in August, were especially incensed. By way of example, they explained how subcontractors Alenia Aeronautica of Italy and Vought Aircraft of Dallas, which built a factory in Charleston, South Carolina, to fabricate some of the fuselage barrels, had hired inexperienced local workers to build the most technically advanced commercial airplane in history.

Those predictions should help you decide whether to pursue the changes or, if you do go ahead, how to prepare for any negative impact. Kennedy Airport, holding them on runways ready to take off as soon as the expected break in the weather arrived. The break never came. Meanwhile, From the Library of Kerri Ross r ethink other planes were waiting at the gates, and new ones were arriving all the time.

The result was gridlock. Passengers were trapped on planes for up to eight hours as food and water gave out and toilets overflowed. Would-be passengers spent days waiting for a chance to fly home, sleeping on floors and subsisting on snack foods and airport fare. Over the next three days, Mees cleaned aircraft, worked the baggage claim area, manned the ticket counters and gates, and desperately tried to bring order out of chaos—all this on only an hour or two of sleep each night. But his heroics did not shield Mees from passenger wrath. On the evening of February 16, for instance, he had to tell thousands of people waiting in the airport lobby that JetBlue was shutt ing down for the night.

It was a total systems meltdown. How was it possible, you might ask, that a company as smart and successful as JetBlue could fall apart so completely while its competitors were weathering the storm? They delivered, too. Passenger miles and new destinations skyrocketed, so that, by the fall of , JetBlue was handling more than fl ights a day to 53 cities. The media pegged it as a man-bites-dog news story—a high-flying enterprise brought down. The From the Library of Kerri Ross r ethink ubiquity of cell phones helped to keep the story on the front page for days, as all sorts of fi rst-person accounts and graphic photographs of enraged passengers, stranded aircraft, and mountains of lost luggage poured out onto the hour news channels and the blogosphere.

The blunders also deflated outsized opinions about JetBlue. Low fares will always be a draw, but for many who had deeply admired JetBlue, the honeymoon was over. Rapid growth had begun to take its toll on operational efficiency back in , when the airline posted the fi rst of what would be back-to-back annual net losses. Instead, risks were ignored or overlooked. It was part of the company culture and strongly supported by Neeleman. As a start-up, the airline got away with occasionally holding passengers on aircraft for long periods of time.

Having learned its lesson, JetBlue now cancels many more flights when the weather is, or is about to become, foul. Because FAA rules limit the number of hours crew members can work, those on duty had to be replaced as airport delays mounted. When the test came, they flunked.

Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation
Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation

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