Come for the Politics, Stay for the Pathologies

Saturday, February 28, 2009

From Quality Circles to Mobius* Rings: A Consultants Journey

From the crypt of 2006:

From Quality Circles to Mobius* Rings: A Consultants Journey

*Mobius ring: a devilishly twisted device that can tangle your mind and lead you to peculiar places.”

Legal rackets abound in a free society: government work is near the top of the list, but the prize undoubtedly belongs to Consultants. The old joke about consultants “borrowing your watch, telling you the time, and pocketing the watch” has been around so long there’s probably a whole new generation that  hasn’t heard it yet. You can find whole websites dedicated to consultant jokes. So do we really need another rant on consultants? Sure. Because it’s easy to forget that we really can solve problems on our own.

To be fair, consultancy arose because corporate America has a bias toward the sexy, glitzy, and fun – mergers and acquisitions, new product launches, racecar sponsorships. The stuff of which dreams are made and bonuses earned. The risk/reward profile for tackling boring, mundane and hard business issues is not really what ambitious fast trackers are looking for. No, the intractable business problems are often relegated to the super heroes of business: the consultants.

If you have ever worked anywhere, you’ve most likely been witness to the consultants’ alchemy. Their arrival is greeted with the same dread as a flu epidemic. If you weren’t sick when they arrived, you would be infected shortly. If you were already sick when they showed up, odds are you’d have pneumonia before they left – if you survived at all.

Fredrick Winslow Taylor was the father of modern scientific management, bringing efficiency studies to the factory floor in the early 20th century. But by the end of the millennium, using the word “consultant” and “efficiency” in the same sentence guaranteed a good laugh. Many efficiency efforts involved little more than nailing Jell-O to the wall. And yet, consultants’ promise of a silver bullet proved seductive as businesses faced new and increased pressures. Automobile manufacturers were on the leading edge of consulting trends for obvious reasons: consultants targeted them because they were large and their fees lucrative, their cyclical nature ensured financial woes on a consistent basis, and, perhaps most importantly, they had demonstrated a willingness to throw big dollars at their problems. It was a perfect storm.

With their consultants’  assistance, the Autos have entertained every sexy management trend for the last 40 years. Vertical and horizontal integration, M&A frenzy, divestiture frenzy, quality circles, continuous improvement, culture change, reengineering, best practices, downsizing, right sizing, reinvention, 360 degree feedback, executive coaching: all beta-tested at the autos. As GM goes, so goes the nation, and every consulting company worth their hourly rate knew it.

Consulting engagements that began at one of the Big 3 soon rippled from the executive suite through the administration offices and onto the factory floor. From there, the management trend du jour sluiced off the assembly lines and was sold throughout America as an ersatz symbol of American ingenuity -- much like the flawed cars themselves. Consultants multiplied like, well, like consultants; and CEO’s of companies that didn’t even have a factory floor signed on for the consultants intervention in search of the “cure” – often before they had been infected. Better safe than sorry, and besides, who wanted to be the only the CEO in town not chasing “quality”? And who wanted to admit they weren’t achieving “quality” results after such an investment? Consultants’ fame spread like wild fire. Companies from auto parts suppliers to financial services caught the “continuous improvement” fever. Come to think of it, it was like a flu epidemic.

This tsunami began to gather real force following the 1970’s Oil Embargo. By the end of that decade consumers balked at buying the gas-guzzlers being churned out domestically, and the bloated Autos were in serious trouble. Customers turned to Japanese imports that got much better mileage, cost considerably less and -- could this be true? -- were built better. Like deer caught in the headlights (so to speak), the Auto execs turned to their consultants with the lament “The Japanese are eating our lunch! What are we to do?”

Happy to comply, consultants developed a solution by doing what the Autos might have done for themselves: they looked to see how the Japanese were accomplishing these inhuman feats. What they discovered was W. Edwards Deming -- an American mathematician and physicist from Sioux City Iowa who had been working with the Japanese automotive industry for decades. The B-school boys literally consumed his theories, books, philosophy and methodologies in order to regurgitate them to their clients in Detroit.

For the next two decades consultants trotted out every aspect of Japanese manufacturing culture and force-fed it to the Autos and nearly every other segment of American business. Deming’s philosophy was straightforward: Improve quality and you’ll decrease cost while simultaneously improving productivity and market share. (Hello! Management 101. Ever heard of it?) What Deming might have envisioned as a Zen and the Art of Corporate Maintenance devolved into the most protracted exercise in group navel gazing since the baby boomers first discovered theirs.

Only consultants charging by the hour could transmogrify Deming’s practical application of managerial basics into a perpetual feedback loop – and not in a good way. Consultants marketed the approach under various names: Total Quality Management, Reengineering, Re-inventing, Right-sizing, Quality Circles, Six Sigma, Continuous Improvement Cycles. They all had three things in common. First, they required employee “input”, and hence unbelievable hours of employee time doing little more than free-associating in large groups. Secondly, they would all require layoffs (when management realized that employees could spend hundreds of hours off the job playing consulting games with no apparent impact on the day-to-day business operations, layoffs were inevitable). And third, all would require the launching of a “corporate change effort” in order to align the remaining employees with the new “vision and values” statement drafted by the employees who have now been laid off. The first and second items required copious amounts of consultants’ time and attention. You were pretty much on your own for the layoffs – except for the lawyers, but that’s another story.

In spite of these efforts, things did improve for the Autos. The embargo ended, oil prices stabilized, the Big 3 laid off thousands of workers, closed dozens of plants, and outsourced the majority of components. This brilliant stroke of reverse vertical integration allowed them to get tough with their suppliers and demand that they provide higher quality components at lower costs. Meanwhile, Chrysler received a massive government bailout to stay afloat, while American Motors went gently into that goodnight. In short, the survivors downsized, accepted corporate welfare and pushed one of the industry’s inherent problems off onto their newly independent suppliers. How many McKenzie consultants does it take to come up with that strategy?

And since this strategy was working so well, consultants marketed the same cookie cutter approach to the non-automotive corporate world with the pitch “The competition is eating your lunch! (or will be shortly).” They could even help you figure out who your competition was for a few additional billable hours (utilities and other entrenched monopolies, like the post office, needed a little help with this step). There were so many employees, in so many businesses, assembled to provide crucial “input” to “problems” that companies had to construct new conference rooms to handle the demand for meeting places during work hours. And what “input” they provided! Facilitated by dozens of consultants they generated reams of post-its and paper chart pack notes, chucked full of good ideas on how to create “quality” and run the business better. (Excuse me? Isn’t that what the Board of Directors pays management to do? Or is that too“Old Paradigm”?)

Well, it was a great time. There were team building exercises (onsite and off-site), contests and prizes and dinners to celebrate –  just about anything. Marketing departments marketed the newfound “Quality”, or, absent that, the “image of quality.” Applications for “Quality Awards” were applied for, organizations were flattened, supervisors were replaced with self-directed teams, and cultures changed (for the better, one supposes). But, oddly, Americans continued to buy Japanese, German, Swedish and Korean cars. Clearly we missed something.

That something turned out to be: metrics! That’s right; Deming was a mathematician after all. He used statistical process analysis. Let’s measure how we’re doing so we’ll know whether any of this crap is working. Enter the nightmare of best practices and business metrics consulting. Now, instead of employees spending their normal business hours in conference rooms on site, they had to spend more time (and money) flying cross-country to meet with and view other companies’ best practices. If they were lucky, they got to visit a Baldrige Quality Award winner. Hard to say really if performance improved, but the quality of the applications for those prestigious awards was six sigma. Every company CEO craved one of those awards. Then other companies will visit you. That will be prestigious. that will prove that “Quality is Job 1.” And winning a prize became a popular bonus “benchmark”. You don’t even want to know how much time winning one of those rewards consumed. Trust me. You don’t. Just remember: you get what you incent.

The Autos were racking up Quality Awards left and right, as were their suppliers. And while Americans seemed to love the unique SUV’s and trucks made by the Big 3, their passenger car market continued a long sharp slide as customers continued to prefer foreign models.

This niggling little problem prompted the consultants to advise their clients that yes, while Quality is important, let’s not forget that Customer Satisfaction is job 1!

This launched the round of consultant engagements that required inordinate amounts of employee time (facilitated by consultants of course) designing and conducting customer focus groups and surveys: to find out what customers really wanted. There’s no point making something that they don’t want, is there? Apparently it still hadn’t occurred to anyone that what customers wanted was something that looked like a foreign car, performed like a foreign car, and cost approximately what a foreign car did. And oh yeah, the customer didn’t really care about your labor union issues (at least not outside of Detroit). Deal with it.

Since “Customer Satisfaction” was such a gratifying answer (for consultants anyway) to the lament that “competition is eating our lunch”, consultants decided to run it around the block again. When there were no more real customers willing to participate in the annoying customer focus group/survey game, the consultants helped identify internal “customers”. This allowed staff departments that had no direct contact with real customers to play the “customer survey” game. They identified or invented “customers” within their own company. Brilliant. Now they had someone they could “focus group” with. It sure beats working. And when they were done, the consultants would come back to interpret the results and help them establish matrices to see how well they were “continually improving” their “customer service” to their “internal customers.”  The fact is, all this internal pandering left the end-product and customer in the lurch. But by now everybody’s performance evaluation depended on what their “customers” thought of their “services.” So more time spent getting feedback from more captive “customers.” Can you believe this insanity was actually condoned by upper-management? Are you starting to understand the plight of the autos a bit better?

Unfortunately, no matter how “delighted” employees were becoming with each other, passenger car sales continued to lag. But good news: light trucks and SUV’s (and bonuses!) continued to produce decent results. This led consultants to conclude that the real problem was “The wrong customer is eating our lunch”. “Wrong” customer was defined as those who required disproportionate effort in relation to the revenue they generated. Also included in this group of undesirables were those that just stubbornly refused to be “delighted” no matter what you did for them. Let’s focus on the customers who like our trucks and SUVs. All that development time and production cost for customers that are only going to buy an Oldsmobile every 7 years? Get rid of them, and you’ll get your lunch back. You can’t unload  these parasites soon enough (the “wrong” customers that is, not the consultants.)

And then came the dotcom boom. The Autos couldn’t really figure out how they fit into this new business model. All they knew was “The new economy is eating our lunch!” This level of threat required the services of consultants. Always up for a challenge, the B-school guys convened to assess the situation and immediately advised the auto execs they did not possess the type of culture required to operate effectively in the New Economy. It looked like they were going to have to shed their old brick and mortar mentality, and if they didn’t want to lose everything to the new economy businesses, they would need to realign and launch a corporate change effort immediately.

Unfortunately, it looked like this corporate change effort would trip over the other corporate change effort still underway to prepare the Autos to deal with the fact that “The global economy is eating our lunch.” Fortunately, the two groups of consultants were persuaded to work together, to facilitate the emergence of a corporate culture to handle both brave new worlds. And they’d be willing to stick around to integrate all of it into the newly restructured financial model that the wizards of Wall Street were efforting up in Finance.

Going global is going to require a lot more leveraging. You’re going to need a fair amount of financial engineering to get all that debt off the balance sheet, and we might look at acquiring some finance companies to generate a little better cash flow. You’re not really selling many cars at a profit, you know. And you might want to initiate a separate change management effort for the Accounting and Finance group: they’re about to embark on the roller coaster ride of their life.

As fate would have it, the dotcom bust arrived before the Autos attempted to make cars online. Fortuitously for the consultants, the spectacular meltdown of Enron, Worldcom, et al, provided a once-in-a-lifetime opportunity in the form of the Sarbanes-Oxley Bill: the closest thing to guaranteed lifetime employment since the IRS was conceived. And an additional premium: the yet untapped opportunity to provide businesses with training in business ethics. Please, no snarky comments about using the words “consultants” and “ethics” in the same sentence. Corporate governance was an unplumbed void, and someone had to fill it. And since the current corporate culture obviously condoned lying, cheating and stealing, you really need to get a corporate culture change effort underway.

And here we are – nearly a decade into the 21st century. How are things going? Unfortunately many of the auto’s suppliers are in chapter 11, but they have won an impressive array of quality awards over the years. The Big 3 themselves, while not DOA, are on life support. Years of profit reliance on leasing and financial services arms, instead of the product itself, has left them scrambling to undo 10 years worth of financial engineering.  As these cash cows get spun off, the old balance sheets don’t look so good. (Oh yeah, and how’s that pension plan milking scheme working out for you guys?) The autos are still making gas-guzzlers, still marketing the image of quality, still right sizing, still trying to figure out how to make customers number one (except for the ones they don’t wish to be burdened with at all) and still trying to figure out who’s eating their lunch. Sadly, that’s not even the right question any more. No one’s eating their lunch. Everybody’s been so busy with the menu, they forgot to make lunch. They’re left with just a few stale snacks.

But if you’re an Auto exec, don’t despair. The solution is as close as your Blackberry or cell phone. Check your contact list for “super heroes”. Yes! Here they come to save the day! There they are, the reengineering gurus, organization gurus, quality gurus, customer service gurus and financial gurus. What’s that? The budget is pretty tight and you’re not sure you can afford to hire them? Go ahead. Give them an exploratory call. They’ll help you understand why you can’t afford not to hire them.

But if your career arc has taught you to be wary of stupid gurus, and you think culture is something best left to a petri dish, maybe you’re qualified to give it a go on your own. Unfortunately, W. Edwards Deming has passed on. But if he were here, this would probably be his advice: Improve quality and you’ll decrease cost while simultaneously improving productivity and market share.

So let’s get back to work. 

Update as of 10/28/09: GM and Chrysler have succumbed to the most virulent form of corporate welfare. The Car Czar and Pay Czar now determine who rules, and how much money they make. Chrysler is owned by Fiat - a brand once said to stand for “Fix it again, Tony.”  Nearly every legitimate stakeholder in both companies have been screwed with the exception of the UAW, who got a generous piece of the remaining pie even though they were as complicit as management in the companies’ demise.

Hard to imagine that either of them will ever emerge as an independent, healthy business again. Still, we hope.

Ford hangs in by a thread, escaping Chapter 11 by presciently amassing additional capital before the financial markets fell apart. Unfortunately this now leaves them significantly disadvantaged since bankruptcy has eliminated a great deal of the the other two Auto’s debt burden, (your welcome), allowed for streamlined dealerships, and made contract concessions from the UAW much easier to come by.

Word has it that the new Ford UAW contract, offering Ford’s union workers terms comparable to what GM and Chrysler employees have, is going to be rejected by the rank and file. And why not? If they can drive Ford to bankruptcy, Obama’s nationalized auto industry will give the UAW a nice piece of the Ford Motor Company to combine with their GM and Chrysler stake.

It’s a sad day in No Motown.

Tuesday, February 24, 2009

Barack’s Big Breakout

You’re kidding, right? Obama calls a federal government “fiscal responsibility summit?” What part of the $1 trillion was fiscally responsible? Seriously, is this a joke? Because if it is, I’m definitely not in the mood.

It’s my worst nightmare: America is taken over by the same genius consultants that helped financial institutions and other corporations “manage for change” (and we all know how well that turned out). Now as part of the consultants private stimulus package, they're back to suckle at the teat of government. (What, you think Obama’s team pulled this off themselves, without consultants? You are delusional.) Just like in corporate America, the CEO shows up with his clown posse of consultant-speak “facilitators” to help the clueless minions through the groupthink process in order to "solve" the problems that the CEO and consultants have already solved, but want your “buy-in” for.

The minions in this case include legislative representatives – although Harry Reid was apparently too busy – as well as other “stakeholders:” all the usual suspects from a plethora of special interest groups. If this doesn’t cause a deep primal scream to work its way out through every bodily orifice, perhaps you’ve never taken part in such a charade. Or you’re a liberal. Such games should be insulting to adults. Make no mistake; this is a patronizing ploy to ram predetermined outcomes down the throat of assembled stooges. Due to the amount of time – executive and otherwise – and the amount of consultant fees, it’s also a very expensive fraud. Great way to kick off a “fiscal responsibility” summit. There are probably a few things government could learn from corporate America, but how to waste time isn’t one of them.

If this is the transparency in government of which Barack spoke so fondly, I vote for lowering the veil again.

Tip to Barack and handlers: Top down management is making a comeback. Why? It’s more efficient, and in these tough times, efficiency matters. Give it a try. It also makes you look more authoritative.

Monday, February 23, 2009

An Immodest Proposal: Snatching Capitalism from the Jaws of Socialism


Our duly elected representatives have seen fit to pass a spending bill of $1 trillion without so much as the pretense of having read it. This is in addition to the authorization of a $700 billion Troubled Asset Recovery Program or TARP, which – as it turned out – contained no A, no R and no P: just plenty of T). TARP was established to bail out banks, financial institutions and, as it turns out, automotive companies. General Motors and Chrysler now indicate they will need another $35 billion within the next few months in order to stay afloat. And we aren’t done. The Obama administration said last week we may need another huge “stimulus” package as early as this summer.

Also swirling around Washington are rumors regarding the “temporary” nationalization of banks. The United States is fast tracking its way from a capitalist free market system to European Socialism.

I realize some of you are not alarmed by this phenomenon. If that’s the case, please move to Sweden or Venezuela. Or if you’re just confused about the differences between the two systems, the Cliff Notes summary below may be helpful. If you’re still undecided after reading the summary, well, there’s always Canada. For the rest of you, please advance to “An Immodest Proposal” to put the capital back into Capitalism.

Cliff Note version of the basic differences between a Capitalist Democracy and a Socialist Democracy:

Under a Capitalist Democracy, economic decisions essentially reside in the hands of a free market, i.e. private control. Individuals and entities are free to acquire, hold and dispose of property: they can invest capital in order to produce a product or service (e.g. build cars, computers or toys) or to acquire skills such as a medical or law degree in order to practice medicine or law, or to buy products for resale (retail). The “invisible hand” of supply and demand guides the allocation of resources into products and services. People are incented by the profit motive to develop skills in order to provide a product or service to the public or an employer.

With a Socialist Democracy, not so much. Instead of being guided by the “invisible hand”, the all too visible governmental fist guides the economy. The state, not the market is the primary source of economic decisions and control through central administration and/or planning. While socialist economies that stop short of Marxism might not exert ironclad control over the market, there is such a high degree of market manipulation and interference that the free market is inoperable. One could argue that the Community Reinvestment Act passed by Congress in 1977 that required banks to provide mortgages to low income, i.e. unqualified, borrowers is an example of this type of market interference. “Sub-prime” loans, initially bundled and sold off through Fannie Mae and Freddie Mac – quasi-governmental financial institutions –soon spread irresponsible lending throughout the entire banking system creating artificial demand and ultimately the housing bubble.

With socialism the allocation of scarce resources and services is determined by state policy, e.g. health care: pray to the deity of your choice that you don’t need open heart surgery anytime soon. Likewise the state can deny citizens the right to acquire, hold and dispose of property (closer to home we have the Kelo decision, already heading us in that direction.)

Despite anything else you might think of this system, it is a demonstrated incentive killer (why should I work if I can’t keep a reasonable share of my profits?) and categorically less efficient than a free market.

It’s that simple: free market economies create greater innovation and

and achievement. Motivation to achieve and produce things of value is a good thing. Profits that allow a business to employ thousands of people are a good thing; if you don’t think so ask a laid-off GM, Ford or Chrysler employee. Free market economics aided and abetted the creation of Microsoft, Apple and Google. You might think the world would be a better place without Microsoft and iPhones, but life without Google Earth? Come on! Reason enough to resist the march to the abyss of European socialism. In order to reverse some of the harm done by Congress’ recent pork products stimulus bill, and in the interest of re-capitalizing capitalism please consider:

An Immodest Proposal

Each bank, financial institution, automotive company, or any other corporate entity that has accepted government funds, as well as any state or local government entity that has accepted funds in the form of programs, handouts, or “stimulus” initiatives (hereafter referred to as pork products) will be required to fund these loans or programs in the same fashion that they would have prior to the “drying up” of the credit markets. That is, corporations will be required to issue a special class of callable corporate bonds, state and local governments will be required to issue special interest callable bonds at an interest rate commensurate with their financial health and maturity dates. Interest payments may be deferred until such time as the bonds mature, but bonds may be redeemed early by the borrowing entities at prorated rates.

The entities have been spared the hassle and expense of selling these high-risk instruments, as the government has done that for them by borrowing on the full faith and credit of we the people. However, these corporate and governmental entities shall be required to issue bonds that shall be held in a “Stimulus Taxpayer Debt” mutual fund (STD-MF). Shares in this STD-MF shall be distributed to each taxpayer based of the total amount of individual income taxes they have paid over a 5-year average period commencing in 2008 and culminating in 2012. This 5 year average tax payment will be used to determine the individual’s share of the aggregate individual income tax bill. Shares of the STD-MF will be issued based on this proportionate share. Said shares will be actual shares of the STD-MF, and will be available for trade after an initial 5 year holding period at which point taxpayer-holders will be allowed to sell, trade or hold till maturity. At maturity they are free to cash out or roll the shares over into a new mutual fund established with the proceeds of the fund (assuming some of these corporations and government entities will pay back their debt with the interest determined by their bond agreements.) The new mutual fund will be established and used for supplemental funding of Social Security and Medicare. Original shareholders will be free to pass these shares on to their heirs free of estate tax, as said heirs are going to continue to pay taxes for this folly for generations to come.

Because the last thing we need is another governmental bureaucracy, the administration of the STD-MF will be required to be privatized and funded by a portion of the interest and fees paid by corporate and governmental agencies benefiting from the taxpayers funding of their pork products. Since there is a surfeit of qualified bond managers and administers on the market now, staffing should not be an issue.

A stimulus a capitalist can believe in.