"Out of the Crisis"

When Edward Deming went to Japan to help them become more efficient and produce excellent, high quality products, he did not have a magic wand. Instead he proposed hard, tedious, painstaking work.

I’m sorry to disappoint you now but there is no panacea; quick fix, one size fits all solution for getting out of any business crisis. Getting out of the crisis is one hell of an achievement. It requires a strategic approach, resourceful mind, diligence, persistence, stamina, patience, complex thinking, good organizational, and top leadership skills. Unfortunately, all too often, modern CEOs relinquish their leadership and managerial role and choose the path of least resistance. Sometimes they follow an orthodox way of doing things until it is too late. Sometimes they are scared of changing the processes because of the uncertainty created by change. The most vivid example of that fossilized approach is handing thousands of jobs to countries where the labour cost is cheaper. In pursuit of cheap labour they deprive their country men and women of an earning. If I can humbly offer any suggestions on how to get out of the crises it would be, at this stage, only inspiration. Here are four examples of leaders who were not afraid to get out of their comfort zone, step into the unknown, go against traditional approach or challenge the existing system in order to do better (look for common denominator(s):

Nicolas Hayek – Swatch Group

“We can build watches cheaper than Japan, even if they don’t pay salaries” – Nicolas Hayek

Nicolas Hayek was named one of the most notable figures in Swiss history, alongside Albert Einstein and Henry Dunant (Red Cross). Why, because he engineered one of the most spectacular comebacks in business history? He reinvented of the watch industry that was earmarked for loss.

After World War II, the Swiss built 80 percent of the world’s watches. By 1970, with the rise of foreign competition, the Swiss share of the global watch market was down to 42 percent. In 1983, just before Hayek took charge, the industry was on its last legs. The Swatch Group had been formed from two financially troubled predecessor companies, SSIH and ASUAG and made private in 1985 with Nicolas Hayek as CEO. When this happened, they had sales of $1 billion, losses of $124 million, and a nervous workforce of 15,000 people. Ten years later, the company was back on its feet, with sales of $2 billion, profits of $286 million, and, with Swatch, the best-selling new brand in history. In 2008, the company stood as the undisputed leader in its field — the leading watchmaker on the planet, with 19 brands, 26,000 people, and profits of more than $720 million.

The business was in a shambles when Hayek took over: “a chaotic jungle, an absolute mess. But buried inside the mess, was a treasure trove of skills and centuries of savvy just waiting to be unleashed. We have hundreds of years of experience in the technologies and techniques of watchmaking. Families have spent generations in our factories. They have a feel for this business, a special touch.”

One of his most simple (and transformational) demands was that whenever his engineers designed a new product, direct labour had to account for less than 10 percent of total costs. CEOs must say to their people: “We will build this product in our country at a lower cost and with higher quality than anywhere else in the world” he argues. “Then they have to figure out how to do it.”

Peter Ueberroth - Olympic Games in Los Angeles

“If elected, I would impose stiff spending caps to rein in the out-of-control spending” – Peter Ueberroth

While the stunning cost of hosting the Olympics throws many nations into debt the 1984 Summer Olympics are considered the most financially successful Olympics Games in modern times. The Olympic Committee, led by Peter Ueberroth, strictly controlled expenses by using existing facilities except a swim stadium and a velodrome that were paid for by corporate sponsors. Peter Ueberroth in his cover story for TIME in 1983 said: “They (Games) must be kept more purely athletic, more dignified, more discreet and more in accordance with the classic artistic requirements. The Games must be more intimate and, above all, the Games must be less expensive.” Venues were refurbished or repurposed – the Memorial Coliseum was the hub of activity, and the usual Olympic Village was spread across the university campuses scattered around Los Angeles. Anything that needed to be built was advertiser-funded. The Olympics in Los Angeles project was closed with surplus of $250 million. Peter Ueberroth was named TIME’s Man of the Year in 1984

Ricardo Semler - Semco Group – Brasil

“The best way to invest corporate profits is to give them to the employees.” – Ricardo Semler

Semco is an active portfolio manager, adding value to foreign companies, leveraging their business in Brazil and consolidating foreign investment.

Ricardo Semler went to work for his father's company, originally called Semler & Company. He clashed with his father, Antonio, who supported a traditional autocratic style of management whereas young Semler favoured a decentralised, participatory style. Antonio Semler resigned as CEO and vested majority ownership in his son in 1980 when Ricardo was 21 years old. On his first day as CEO, Ricardo Semler fired sixty percent of all top managers. He began work on a diversification program to rescue the company. \

Attempts to introduce a matrix organisational structure in 1986 failed to achieve desired improvements. In the late 1980s, three engineers at Semco proposed setting up a Nucleus of Technological Innovation (NTI). NTI had identified 18 such opportunities.By the late 1980s, these satellite units accounted for two-thirds of its new products and two-thirds of its employees.

After dramatic restrictions instituted by Brazilian president to combat hyperinflation in 1990, the Brazilian economy went into a severe downturn, forcing many companies to declare bankruptcy. Workers at Semco agreed to wage cuts, providing their share of profits was increased to 39%, management salaries were cut by 40% and employees were given the right to approve every item of expenditure. Performing multiple roles during the crisis gave workers greater knowledge of the operations and more suggestions on how to improve the business. Reforms implemented during that time led to 65% reduction in inventories, a marked reduction in product delivery times and a product defects rate that fell to less than 1%. As the business climate improved, Semco's revenues and profitability improved dramatically.

As of 2003, Semco had an annual revenue of $212 million, up from $4 million in 1982 and $35 million in 1994, with an annual growth rate of up to 40 per cent a year. It employed 3,000 workers in 2003, as opposed to 90 in 1982.

Ricardo Semler was named Brazilian businessman of the year in 1990 and in 1992, and the World Economic Forum named him as one of the Global Leaders of Tomorrow. Semco has been selected by CIO Magazine as one of the most successfully re-engineered companies in the world. The BBC included Semco in its series on Re-Engineering the Business for creating one of the most successful management structures in business.

Billy Beane - of Oakland A’s

"If you would expect that in one year that it's a panacea, ... Well, that's unrealistic." – Billy Beane

How did one of the poorest teams in baseball, the Oakland Athletics, win so many games?

Billy Beane is considered one of the most progressive and talented baseball executives in the game today, He has moulded the Athletics into one of baseball's most respected teams since assuming the general manager's duties shortly following the 1997 season.

Billy Beane retired as an active player in the spring of 1990. He joined the A's front office staff in 1990 as the club's major league advance scout. In 1993, former A's President and General Manager Sandy Alderson promoted him to the assistant general manager's position when Walt Jocketty left the organization to accept the assistant general manager's job in Colorado. Alderson handed over his general manager's duties to Beane on Oct. 17, 1997. He approached his duties with an unconventional strategy. Before the 2002 season opened he exchanged three most prominent and expensive players for a small group of undervalued professional baseball players and executives, many of whom had been rejected as unfit for the big leagues, who had turned themselves into one of the most successful franchises in Major League Baseball. Over the years, his ability to acquire pivotal players through trades has proved instrumental in keying several playoff runs.

Beane's executive talents and the organization's baseball philosophy were the subject of Michael Lewis' best-selling book "Moneyball: The Art of Winning an Unfair Game," which opened the eyes of many of the top sports executives and business CEOs. The story is simple: “how did one of the poorest teams in baseball, the Oakland Athletics, win so many games?" This book is for anybody who has ever dreamed of taking on the system. Billy Beane is in great demand on the national speaking circuit, where he regularly addresses top companies and politicians on his management approach of identifying and using undervalued assets to create and sustain a competitive edge. He has been recognized with many industry awards.

Conclusion

By now, you probably noticed a common denominator in those four examples. At the beginning I said, I can only offer inspiration. Not only. Japan, before the Second World War had at the top of military command, a so called “Japan - BIG Three”: The Ministry of War, The Chief of the Army General Staff , The Inspector General of Military Training. And, this leads us to the next post.

Now, if you run a business, big or small please share your thoughts on how you steer towards success.

Please leave a comment below. If you prefer to keep it private, write to me an e-mail: tomek@tegassociates.co.nz