Corporate Turnaround

High Trust Organizations, Innovation & Performance, Humour & Leadership

Trust Stage Dive.jpg

Maybe he’s floating

In most of the turnarounds / ramp ups I do one of the major cultural shifts that holds companies back is the blame environment they foster. Management has to replace their outdated toxic behaviour (& harassment lawsuit liability) to build an environment where all employees & staff are comfortable and encouraged to be open about problems and ideas. While to many this is common sense, executives do not always make the connection; here are some stats from a fast co. article (link below) quantifying performance results in firms with safe environments, and some of the psychology behind it:

  • There is a wealth of research that links high-trust organizations to innovation and performance. The 2016 HOW Report, a comprehensive study of organizational effectiveness, concluded that employees who work in high-trust environments are 32 times more likely to take risks that might benefit the company.

  • They’re also 11 times more likely to see more innovation relative to competition,

and 6 times more likely to outperform others in their industry.

 

  • managers perceived to have a sense of humor are rated by subordinates as 23% more respected and 25% more pleasant to work with.

  • In contrast, a 2018 Gallup study found that nearly 50% of Americans have left a job to “get away” from a manager. Employee turnover has increased 88% over the last decade, costing companies billions.

  • Reorienting towards humor is a fundamentally profitable enterprise that today’s leaders can’t afford to miss. One study found that adding a lighthearted line at the end of a sales pitch—like “my final offer is X, and I’ll throw in my pet frog”—increases customers’ willingness to pay by 18%. Another set of studies found that employees who rate their leaders as having a sense of humor—any sense of humor—are 15% more satisfied with their jobs and rate their leaders at 27% more motivating. A set of studies run by Brad Bitterly, Allison Wood Brooks, and Maurice Schweitzer demonstrate that when people use humor at work, they’re attributed 37% higher status, and seen as more competent and more confident.

  • We can chalk this up to the (brain) cocktail these teams are serving up. When people laugh, a neuro-chemical response is activated: their brains flood with dopamine (which increases happiness), endorphins (which increases resilience), and oxytocin (the same “trust hormone” released during sex and childbirth—plus a way to do it that’s more HR-friendly). These hormones make us feel calmer, more confident, and more resourceful—which lowers stress and unlocks more creative thinking.

Humor is such an important leadership trait we teach it at Stanford’s business school

As trust in authority figures erodes, teams want leaders who are inspiring and relatable.

https://www.fastcompany.com/90597762/humor-is-such-an-important-leadership-trait-we-teach-it-at-the-stanford-b-school

the Lego Turnaround

Lego-bricks.jpg

For those who enjoy turnarounds as much as I do,

How Lego Went From Nearly Bankrupt to the Most Powerful Brand in the World

https://www.successagency.com/growth/2018/02/27/lego-bankrupt-powerful-brand

How Lego Became The Apple Of Toys

01-08-15

After a decade-long slump, Lego has rebuilt itself into a global juggernaut. An exclusive look inside the company’s top-secret Future Lab.

https://www.fastcompany.com/3040223/when-it-clicks-it-clicks

Lego banner.jpg

Results:

Lego is so popular, it can’t keep up with demand

The company has worked to reduce sales

By Andrew Liptak

Sep 7, 2016

https://www.theverge.com/2016/9/7/12829974/lego-sales-2016-growth-demand-factory-strain

Lego Sales DKK Billions.jpg

“chart of the LEGO’s complete sales history from its founding in 1932 through its most recent year. LEGO faced bankruptcy in 2003, made some major internal changes, and in 2007 began a period of eight years of 21% annual sales growth and 36% annual profit growth. The streak slowed down in 2016”

https://theleadershipnetwork.com/article/lessons-from-lego-what-do-you-do-when-your-current-growth-phase-ends

Lego Sales 2003-2017 Billions.jpg

Rebuilding Lego, Brick by Brick

How a supply chain transformation helped put the beloved toymaker back together again.

Aug 29, 2007 

Issue 48 (originally published by Booz & Company)

these are my notes/key points, link below to full article, worth reading; also touches on how standardization drives creativity.

“The Lego Group had lost money four out of the seven years from 1998 through 2004. Sales dropped 30% in 2003 and 10% more in 2004, when profit margins stood at –30%. Lego Group executives estimated that the company was destroying €250,000 ($337,000) in value every day.

The Lego Group’s supply chain was at least 10 years out of date.  Poor customer service and spotty availability of products were eroding the com­pany’s franchise in key markets.

it took many years of underperformance before the company realized that the supply chain was a major source of its difficulties.

What made those problems especially hard to identify was that they grew out of the company’s core strengths: its capacity for innovation and its commitment to quality. Those were the very advantages that the company’s leaders had relied on.

Three-quarters of the Lego Group’s sales every year were from new, mostly nonelectronic products. “I believe that the focus on electronic competition was really a blame game,”

the “Kitchen,” the company’s product development lab

disregard for the costs of innovation. The company designers were dreaming up new toys without factoring in the price of materials or the costs of production. That kind of carefree creativity is unsustainable
where cost pressures are a constant concern.

did not align its supply chain with that business strategy.

teams placed their orders haphazardly and changed them frequently, preventing operations from piecing together a reliable picture of demand needs, supply capabilities, and inventory levels. This murkiness led to overall capacity utilization of just 70%.

such a fragmented system
Day-to-day operations were often chaotic. Operators routinely responded to last-minute demands, readily implementing costly changeovers.

rationalizing the cost of the company’s materials would be one of the easier parts of the transformation and would yield savings immediately.

Constraints don’t destroy creativity or product excellence, and they can even enhance them.

the perceived mandate had evolved into a crutch. “This idea had become an emotional concept and an excuse to oppose new cost-saving initiatives,” he says. “Anytime there was something someone didn’t want to do, they would say, ‘You cannot do that because of quality.’”

the Lego Group cut its resin costs in half and shrink its supplier roster by 80%.

the operational team put a process in place to help designers make more cost-effective choices. 

Cost transparency gave developers a new way to define their achievement. “The best cooks are not the ones who have all the ingredients in front of them. They’re the ones who go into whatever kitchen and work with whatever they have,”

a new set of constraints could in fact enable them to become even more creative.”

also needed to move its distribution channels closer to the customer — and to lower its bloated distribution costs.

First, the number of its logistics providers was cut from 26 to three or four — enough to ensure resilience and gain greater economies of scale while still encouraging competition among the suppliers. This step alone saved more than 10% in transportation costs.

leapfrog the competition by redesigning its entire distribution system.

Although many companies have taken manufacturing to lower-cost markets and to contract providers, surprisingly few have done the same with distribution, although identical advantages exist. The Lego Group phased out five centers in Denmark, Germany, and France and created a single new center in the Czech Republic

- saved approximately €50 million ($67 million) since 2004, and forecasts savings in excess of €100 million ($135 million) over the next two years.
The tremendous gains in efficiency meant that despite the impact of rising oil prices on materials and transportation, stock turnover increased by 12 percent in 2005, and the same year, the Lego Group recorded its first profits — €61 million ($72 million) — since 2002. This positive trend further continued in 2006, with the Lego Group turnover up by 11 percent over 2005, and profits up by a staggering 240%

Addressing operations (streamlined product development, sourcing, manufacturing, and distribution) has allowed us to again focus on developing the business, on innovation, and on developing our organization to become a much more creative place to work”

https://www.strategy-business.com/article/07306?gko=813c3

The LEGO Group spells its trademarked brand name and its company name in uppercase letters.

(If you want to know the Lego co.’s origins: https://www.history.com/news/the-disastrous-backstory-behind-the-invention-of-lego-bricks)

CEMEX’s Strategic Mix Business Turnaround:

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Example how a commodity seller can become a solution provider growing market share.

CEMEX is one of the rare firms executing lean business strategy beyond the merger & acquisition stage.

Article here: https://www.strategy-business.com/article/00325

These are my unedited notes, however I HIGHLY recommended reading the article. Twice.

  • Also leveraged mergers & acquisitions including entering new businesses in ready-mix concrete and aggregates

Strategy

long track record in lean operations (“ruthless operating efficiency”) evolved to become one of the most successful companies from an emerging market, and developed a high level of customer responsiveness. It delivers cement within 20 minutes of receiving an order in many locales. Its international business strategy enabled CEMEX to grow rapidly during the 1990s and early 2000s, when it became one of the biggest cement companies in the world.

  • while maintaining consistently high profitability levels. (In 2014, the company reported US$2.7 billion EBITDA on revenues of $15.7 billion.)

 

developed a capability for environmental sustainability:

  • decreasing the company’s own fuel use

  • removing or mitigating pollutants in materials

  • and looking for ways its products and services could lead to sustainable practices for all the industries CEMEX serves.

 

get good at postmerger integration, and extract more value out of those assets than the former owners.

 

“Enforcing is really the right word. A good example is the emphasis we put on closing the books on the 1st or 2nd day of every month. A lot of managers initially wondered why it was so important to do this. They thought nothing would be lost if they did their closings on the seventh or eighth day. But we believed that having that information readily available would increase the likelihood that managers would make the right decisions. And the practice had a very high-level overseer: Mr. Zambrano himself, into whose email inbox all of these reports flowed. This was not subject to negotiation.”

accounting management

 

[any] product has a disadvantage in that a customer can find a substitute for it. A solution, by contrast, cannot be that easily replaced. So we started to develop offerings that more closely resembled solutions.

 

“For CEMEX to play that kind of role, the company needed new capabilities. We needed a new kind of executive, connected with the environment, who understood the real needs of any given locality. We changed old habits; for instance, in the past our people were not prepared to interact with our communities or with the media. We had become an efficient company with an inward-looking culture. But our operational guys realized that they needed to be able to talk to the media, and to local communities and their leaders. The operational guys had to recognize that it wasn’t enough to lower costs; they also had to connect with local people and address their concerns — for example, about the dust generated by trucks picking up materials.”

“The sales guys had to learn not to wait for people to come in with orders; if markets were soft, they had to go out and propose solutions to problems that had not yet been brought to public attention. “We don’t just mend holes in your street — we can prevent those holes from recurring for the next 30 years.” selling concrete

Partly it’s a matter of how we talk about these things with customers. We’re not just selling cement or ready-mix; we’re helping you build a street. We’re helping you build a home. We aren’t selling a product to you; we’re working with you on a solution.”

each business must recapture transport dollars. We won’t dictate how you do it, but we require that you recapture all your freight somehow.

Left to their own devices, big companies will continue to act big. They’ll put in more rules, procedures, and standardization. When you’re running a hyperlocal business like ready-mix concrete and aggregates, you can’t allow that to happen. You have to fight all the time to be small

about 40% of the direct cost of cement is wrapped up in [energy use], you need to watch the expense of fuel and electricity carefully.

Barilla Pasta’s Turnaround From Homophobia to National Pride

Reputational corporate turnaround

Barillo pasta reputational turnaround 1200x.jpg

“After chairman Guido Barilla rebuked gay families on national radio, his CEO spent five years cleaning up the company’s reputation.”

my notes:

“Because the bigger preoccupation for consumer brands tends to be cachet—an abstraction valued in the tens of billions of dollars on their balance sheets as “intangible assets”—
irrelevance can have worse financial consequences than brief buffers in a company’s revenue streams.”

“Colzani said that during his six years at the helm, he’s never had a conversation with the Barillas about boosting profit. Instead, discussions have revolved around environmental efforts, such as hiking the company’s costs by about €40 million ($45 million) a year to rid its supply chain of palm oil, which it did in 2017.

“Barilla is also working with the farmers who supply the durum wheat for its pasta to end their use of glyphosate-based herbicides, which the World Health Organization classifies as probably carcinogenic to humans.”

“We were simply trying to be a good citizen. Now, we’re trying to be a role model.”

“I got a lot of grief from the LGBT community when I agreed to help him out,” Mixner said. “But I told them that the purpose of a movement is to change minds.”

Full article link:

https://www.bloomberg.com/news/features/2019-05-07/barilla-pasta-s-turnaround-from-homophobia-to-national-pride

Optional change doesn’t deliver.

How 'They' Undermine Change

“Optional change doesn’t deliver. It takes longer, costs more and doesn’t provide the return on investment.”

industryweek how they undermine change.jpg

As a senior manager you need to let that sink in. Read it again. Audit whether you are up to task. Your job & company depend on it.

*also falls into my required reading list for management

full article:

How 'They' Undermine Change

https://www.industryweek.com/leadership/article/22027259/how-they-undermine-change