Page 48 of the November 27th edition of Forbes has two short articles that have a definite relationship.  I doubt the editor realized it at the time.

The first, titled Why Detroit Can’t Compete, details the average vehicle price differences between GM, Ford, and Chrysler and the big 3 Japanese automakers of Toyota, Honda, and Nissan.  These factors include:

• U.S.-based automakers have a fundamental profit gap of about $250 – $450 per vehicle due to incentive deals, discounts, and rebates.
• $590 – $630 increased cost due to the exceptionally high pay and benefits GM and company give their workers.
• $50 – $350 per vehicle for "excess capacity," where GM and company pay their idle workers instead of sizing factories and workforce appropriately.
• $490 – $705 per vehicle for retiree healthcare, primarily due to short-sighted decisions the U.S. big three management made during their lucrative years a decade or more ago.

Poor capacity planning, paying idle workers, poor negotiation with unions on healthcare and other benefits, discounts and rebates… all management decisions, right?

The second article on that page is titled The Madness of Crowds, and describes how "business school students are terrific indicators of what sectors were hot – two years ago."  Examples such as how 17% of Wharton’s graduating class of 2000 went to work in Silicon Valley’s tech sector… only to see technology collapse the next year.  In 2001 over 20% of Wharton’s grads took investment banking jobs… and Wall Street laid off tens of thousands of bankers over the next two years.  As an aside, the hot job market now is private equity… and we’re just starting to hear of the scandals in that sector.

Guess where they went a decade or so ago… the big 3 auto companies.  Hmmm…

We’ve criticized MBA programs quite a bit over the past couple years.  Other blogs have done the same.  Putting a bunch of generally inexperienced grads into the real world, taught by professors often outside of the real world, and paying them rediculous salaries, is usually a formula for trouble.

Leave it to Forbes to ask a question and give us the answer… on the same page.

Straight from the Times of London is another story of American business schools teaching kids about everything except real business.  Apparently the latest fad is "karma capitalism, and newly-minted MBA’s with newfound "inner peace"… but no experience… will miraculously be able to turn around nosediving businesses.  Of course, as the article points out, this new fad is for "budding hedge fund managers, investment bankers, and venture capitalists"… and they often specialize in making businesses nosedive anyway.  Now I guess they’ll be able to whack thousands of knowledge workers and feel even more at peace with themselves.

Supposed bastions of business know-how, like Wharton, Harvard, Ross, and Kellogg, are adding the likes of Guru Parthasarathy, Ram Charan, CK Prahalad, and Vijay Govindarajan to their syllabi.  They lecture on Vendanta, Bhagavad Gita, and conversations between Krishna and Arjuna.   All great and interesting subjects, some of which even I have explored at various times in my life.  But not in business school, and especially not in that cold snowy engineering school I went to.

Those biz schools are moving even farther from delivering the basics of business management… the logic, the long-term view, and the execution.  Let alone teaching about newfangled areas of thought such as innovative accounting concepts that focus on value delivered and not inventory amassed.  Newfangled areas that many of us knuckle-dragging manufacturing types are already implementing in the real world.   

Earlier this year Bill wrote a great piece titled The Tao of Santa Claus, taking brutal aim at the growing plethora of so-called management experts and the silly books they write.  He puts it like no one else can…

To be a leader, a manager should master Accountability Leadership, Collaborative Leadership and Contagious Leadership. He should get his or her arms around the Tao of Leadership and learn how to Lead From the Front and know Leadership That Works. There is Zen Leadership, Spiritual, Ethical, Inspirational and Moral Leadership – all separate approaches. There is a 5th Wave of Leadership to master (no first through fourth, however), along with Thought Leadership, Facilitative Leadership, Systematic Leadership and, most important, I would imagine, Grown Up Leadership.

Yep, apparently you need a hefty Amazon account to become a leader.  His last paragraph sums it up neatly…

This is manufacturing, folks – a very logical endeavor.  And the companies we work with and for are all about dollars and cents – math. If we have to include leaps of faith and Gandhiesque "leadership" in the equation, we are missing something.  Far better, I believe, to demand that we and our leaders commit to deeper learning about lean.  Eliminating ignorance by wrestling with the lean body of knowledge until we have logical answers to all of the questions is a tougher, but far better and more honest approach than sending the big bosses down the path of ‘The 21 Principles of the Tao of Santa Claus’.

Bingo.  Welcome to the real world.  Luckily most of the new, inner-peaceful, MBA’s will never see a factory floor.  Unluckily many of them will soon be in positions to send the factory floor to the deserts of Mongolia in search of peaceful cheaper labor while being peacefully oblivious to their new supply chain costs… because those costs don’t show up on peaceful standard cost accounting P&L.

Last July we told you about a RSM McGladrey report on what is supposedly required for small and medium manufacturers to be successful.  62 pages of mumbo jumbo with fifteen "best practices" that range from the incredible insight of "devote time and energy to marketing" to the incredibly… uh… enlightening "look for a long-term relationship with a banker."  Lean?  Nope, no where to be found. 

We then created our own off-the-cuff list of real best practices, ranging from "a complete understanding of your real cost structure, regardless of how current reporting regulations compel you to think" to "a relentless focus on indentifying and destroying wasteful activities."  Other readers added some of their own.

These business schools, or "outsourcing centers of excellence" (OCE) as they should be called, would better serve their customers by analyzing and teaching the stories of success from Toyota, Danaher, Texas Nameplate, to name a few.  How a focus on real business management is leadership, and how a real understanding of how truly successful companies work… and not how they appear to work on  a traditional P&L… will create excellence. 

Maybe we need to get Bill a change of clothes so he’ll be invited into those ivory towers to teach about the real world.  Wharton, say hello to Guru Bill.

Today’s Wall Street Journal reported the results from the latest WSJ/Harris survey of recruiter opinions of MBA programs.  The University of Michigan’s Ross School of Business regained the top spot.  Being among the elite comes with some perks… such as $100k starting salaries for grads with no real experience, donations to build $150 million buildings, and the ability to charge $40k+ for tuition.

We’ve discussed at length the problems with inexperienced MBA’s, so I won’t belabor those points again.  However there are some bizarre contradictions in the article.  When asked what Michigan’s major shortcomings were, the top was "too much engineering focus."  But at the same time the top strength was "analytical and problem-solving skills."  I thought that was the primary benefit of engineering school was the resulting analytical mindset… which is why engineers are in such high demand in pretty much every industry. 

And another major shortcoming was "attached to a declining business center – Detroit."  But at the same time the recruiters liked that the MBA’s had prior experience with the auto business "because they bring more credibility as consultants" and "can speak intelligently on all sorts of issues facing the auto industry."  That experience is apparently valuable "as automotive clients move away from the generalist consulting model and seek specialists to assist them during this transformational period for the industry."

Transformational indeed.  If Detroit is going to hire those Michigan MBA’s because they value their experience acquired within their industry, then we might as well write off GM and Ford right now.  Bill wrote about this very problem over a year ago.  Nothing like a little inbreeding to create fresh ideas from a new perspective.  Maybe those auto execs are hoping that some magical knowledge infusion took place within the hallowed Ross halls. 

Nothing against Michigan MBA’s.  I’m very confident that the "too much engineering focus" gives them a leg up on the "strategy/M&A/traditional finance focus" of the likes of Harvard MBA’s… if you really want an inexperienced MBA in the first place.  But maybe that engineering focus will give some of them a desire to actually visit a factory floor every now and then.

But instead of hiring a bunch of inexperienced grads for $100k a pop to analyze their businesses, perhaps they should just peer into their backyard… at a very successful competitor’s plant in Georgetown.  Some simple lessons: value employee knowledge, collaborate with suppliers instead of bashing them into submission, figure out what your true costs are, and focus on internal waste reduction instead of trying to innovate your way out of a pit.  It’s really not that hard… it just takes leadership. 

You don’t need an MBA, even a Michigan MBA with too much engineering focus, to tell you that.

Today while doing some mindless Googling I learned about the passing of one of my college roommates.  Having lost contact with him twenty years ago, it took some additional searches to fill in the blanks.  I hope you’ll bear with me as I briefly summarize his story.

Bill Rodgers was a small fellow, and you could immediately tell he was a man of the earth… with some of those characteristics leading to his nickname of "Wild Bill."  An exceptionally kind and gentle person, he befriended everyone.  The students on our dorm floor spent many late nights listening to his stories of nature, and Bill and I had many long conversations… a few of them while actually sober.  Several people have since written about how they could literally feel his power and presence, and I know exactly what they mean… which is why I feel compelled to tell his story.

I lost contact with Bill when I graduated and started my manufacturing career, but I had heard that he had moved to Prescott, Arizona.  This is where today’s research picks up the story.  In Prescott he became a key member of the radical environmental activist and anarchist community, affiliated with groups such as Earth First! and the Earth Liberation Front (ELF), where he assumed the name "Avalon".  He allegedly was involved with several "eco-terrorist" (or "eco-liberation" depending on your viewpoint) operations for the next several years.  After a while he started a small business in Prescott selling books and other materials on environmental activism, called the Catalyst Infoshop. 

In 1998 he was the leader of the ELF group that set fire to several buildings at the Vail ski resort in Colorado, causing over $12 million in damage.  After a long hunt he was arrested by the FBI on December 7th, 2005 as part of Operation Backfire.  Later that month he committed suicide in his jail cell.  He has since become something of a martyr for the environmental activist community, with a large number of memoriams and actions in his honor.  And he has his own page on Wikipedia and a story in Rolling Stone.

My old roommate was responsible for the costliest act of eco-terrorism in U.S. history.

I am not going to debate the politics and ethics of his actions.  I may disagree with a lot of what he believed in, I may find his methods an affront to civil society, but I can’t help but admire the passion and conviction he had in what he believed.

I have one more story to tell before I make my point.  A story of a different college roommate, Sean O’Sullivan.  He was an eclectic type, one of those quiet geniuses that infuriated the rest of us that had to pound the books hard to just barely make it.  We shared a common bond of being so cash-poor one week that we ate nothing but spoonfuls of peanut butter from a huge "value tub".  Unlike Bill, Sean and I have kept in touch, albeit rarely and only every few years.

After graduating Sean co-founded MapInfo, which became a very successful intelligence mapping software company.  He served as chairman for seven years before leaving in 1993 to start a rock band called Janet Speaks French. The band released two CDs, and Sean branched out to co-found Sonic Recording Studios in Philadelphia, which has been used by major recording artists including Sheryl Crow, Bon Jovi, and Boyz II Men.

In 1995, Sean started NetCentric, which developed software for more efficient Web communications.  After growing rapidly, it eventually became a “dot-bomb,” so he decided to enter the film school at University of Southern California to focus on documentary filmmaking. He received his masters of fine arts, and his first documentary project took him to Iraq in the early days of the war.

Making a documentary while the Saddam Hussein regime was still in power proved difficult, but Sean found work as a freelance journalist in the country. While there he conceived the idea that helping people become self-sufficient is the long-term solution to global political and economic instability, and he was convinced he could rebuild Iraq more efficiently than the U.S. government or military.  He founded Jumpstart International, which now employs several thousand Iraqis who are demolishing and cleaning up bombed-out buildings.  It hasn’t been easy… his partner, who was to be best man at his upcoming wedding, was assassinated.  Sean has returned, and recently created the "Change the World Challenge" at Rensselaer with $1 million in seed money.

Once again, passion and conviction.  To the point of putting his life in danger many times. 

Neither Bill or Sean had to go this far… Bill could have lived comfortably in Prescott and after selling MapInfo Sean could have lived comfortably anywhere.  But they were driven to make a difference and to put it all on the line.

Like many of us, I am driven by a passion for manufacturing and a conviction that there are ways to create hypercompetitive enterprises in North America without following the outsourcing lemmings.  But the effort I put behind my passion and conviction pales when compared to that of Bill and Sean.  Blogging?  Creating a resource website?  Some consulting and company turnaround activities?  I still come home each night to a glass of wine and a comfortable bed. 

Bill and Sean, I may not agree with all you’ve done, but your passion and conviction continue to inspire me to set my goals higher and to work harder.

There is more lean nonsense floating around, this under the heading "Aviation Company Soars With ‘Lean’ HR".  The gist of the article is how a ‘lean’ company called Pemco Aviation Group has become lean in their HR management through the deployment of Oracle software.  As tempting as it is to go on a rant about Pemco claiming to be lean – they can barely survive let alone be lean – or to go on another ERP tear, I promise to restrain myself.  It is not easy, however.  The Oracle – Pemco story is so pathetic they cite as an example of their lean HR success the fact that Oracle enables them to fire people with efficiencies they never before imagined.

No, the bigger point the article raises is the notion that process re-engineering – using value stream mapping and the like – in management functions somehow makes a company lean.  This is the same trap that GE led the world into with their Six Sigma crusade.  The problem is that the management functions are supporting the wrong objectives.  Taking the waste out of them only drives the company in the wrong direction more effectively.

The problem with HR functions in non-lean companies is not the waste in how they operate.  It is that they hire and compensate people based on the wrong criteria, and they do not support continuous knowledge and skills development necessary for continuous improvement.  Figuring out more efficient ways to calculate production volume based incentive schemes only helps to build more inventory faster; and figuring out how to lay people off based on seniority does not make HR lean – it only reinforces the notion that age counts for more than skill and contribution.  HR departments need to drive companies toward development and deployment of multi-skilled operators and compensation schemes based on contributions to improvements in value stream quality, delivery and cash flow.  Even a wasteful process that supports lean objectives is valuable.  On the other hand, a waste free process in support of non-lean objectives is a disaster.  What Pemco and Oracle call ‘Lean HR’ is simply streamlining activities that should not be done in the first place.

The same nonsense is more often seen in accounting.  Most companies that profess to be pursuing lean accounting are actually doing nothing more than re-engineering the processes that they have always used to generate data that undermines manufacturing excellence.  What they call lean accounting makes a real lean transformation impossible. 

Failure to recognize that lean requires pursuit of different management objectives, rather than a simple streamlining of the old practices in pursuit of the old objectives, is the fuel behind the thriving BPO field – ‘Business Process Outsourcing’.

There is no trick to managing HR like it has aways been managed.  Old school HR management is a commodity – you can hire just about any HR person from any background and get the same old results.  That being the case, the six sigma and kaizen event crowd often come to the conclusion that the best way to improve it is to automate it, or contract it out to the lowest bidder.  Lean companies, however, gain a competitive advantage over others by deploying HR management in a manner that enables them to truly optimize their human resources.  No one can outsource or Oraclize a function and have it become such a competitive weapon.

The same is true with accounting.  A company out-manages its competition by providing its managers with better information for planning and control of the business.  That is the heart of lean accounting.  The alternative is to use the same foggy data as the rest of the industry, and try to find software or a third party to do those foggy calculations cheaper.

The point is that management processes aimed at non-lean, non-competitive objectives cannot be re-engineered because they are all waste – 100% waste.  You cannot improve something that is harmful to be doing in the first place.  The only improvement is to eliminate it.  Lean management means, first and foremost, refocusing management functions on lean objectives.  Only when that is complete can it make sense to vale stream map and attempt to improve the management processes.

Somewhere along the way I learned the basic principle that you can always determine someone’s priorities in life by looking at how they spend their time.  You can pretty well size up the man who has ten hours a week to play golf or go fishing with his buddies, but can’t squeeze an hour into his demanding schedule to see his daughter in the school play.  It doesn’t take much in digging to figure out why your teenager is unemployed when he spends a half hour a day filling out a job application somewhere, then spends the rest of the day ‘hanging out’ with his friends.  For the same reasons, it doesn’t take a lot of thinking to understand why most manufacturers are not lean.  All you have to do is take a quick look at the head guy’s calendar.

One of the basic principles of writing for manufacturing management – whether it is this blog or the occasional article is that it has to be brief and simple if I want the execs to read it.  350 words or so is about all they have the time and attention to absorb.  Five minutes available to learn in schedules packed with hours of meetings to pore over the numbers.  I find that to be truly amazing, but it is very true.  Quick, simple reads like "The Leadership Principles of Captain Kangaroo" are huge best sellers among the execs, while people lower down the pay scale are reading serious books – you know – books with numbers and other complicated things in them.  Dr. Seuss went after the wrong market – he could have been a management guru.

This particular rant was brought about by a company president who recently gave me fifteen minutes to explain lean to him.  I forwarded an article to someone in his organization describing a significant breakthrough a lean company had made, and the lean company was in similar circumstances to this one.  The article bubbled up through the organization to the CEO, who called me and asked me to meet with him.  The agenda he proposed was that we get together for a half hour.  He would take the first fifteen minutes explaining the company’s situation to me, and I could have the last fifteen minutes to explain to him what lean was and how it can help.  I turned down his generous offer to devote 3% of his workday to learning about lean.  It would have been a colossal waste of fifteen minutes of my time.

(Book mark here – we have passed the exec time and attention limit.  Managers curious to see how the story ends can resume reading tomorrow at this point)

Lean leadership is lacking in most companies because the senior people are woefully ignorant of lean.  In the overwhelming majority of the companies I look into, the top people’s knowledge of lean is limited to a theory book or two, two page executive summaries of a couple of articles, and anecdotes from other execs heard at the bar of some resort following some executive conference somewhere – most often about how lean didn’t work for their company.

For that matter, many manufacturing company leaders are woefully ignorant of manufacturing. If anyone wants to know why so many companies are struggling all they have to do is tally up the number of hours senior management spent in meetings poring over and discussing financial data, and compare that to how many hours they spent in the factory.  Looking back at last month, a lot of these people spent more time speaking at Kiwanis Club luncheons than they spent in their factories.

If transforming a company from traditional manufacturing management to lean were easy, everyone would have done it by now.  If slashing inventories in half and costs by 20% or more could be had  for as little as throwing a few bucks at a consultant and sending the front line folks off for a few days of training, GM and Ford would be just as lean as Toyota.  If getting stunning quantum leap operating improvements could be delegated, why didn’t everyone simply delegate to someone long ago?

The key to becoming a competitive, lean manufacturer does not lie in leadership, vision statements, cultural transformations, ERP systems, paying for kaizen events, hiring Six Sigma black belts, or hiring me or any other consultant to go into the factory to make changes.  The vital key to lean transformation is knowledge, and knowledge requires time and effort.  "One Minute Managers" don’t become lean.

My advice to an executive who asks me how to begin the effort of becoming lean is pretty simple.  Start by looking at your schedule and deciding what is really important to you.  If you can’t free up as much time to work on manufacturing as you spend poring over the details of accounting and sales, then forget it.  You will never become lean.  On the other hand, if you are prepared to change your priorities and devote the time and attention needed to actually change your company, then start learning.  Don’t launch any projects, don’t hire anyone – especially any consultants.   Just start learning. 

Take six months to read every lean book you can get your hands on – and not just the fluffy ones.  Call the authors and ask hard questions.  Go to conferences and seminars and be the irritating guy in the front row that won’t let a weak presenter off the hook.  In short, put the time and mental effort into becoming the most knowledgeable lean person in the company.  Once that happens, you’ll know what to do next.