High Innovation, the elegance of simplicity:

Colgate Palmolive in Brazil had a quality control problem in their toothpaste factory.  Tubes of toothpaste are inserted into individual boxes, and these individual boxes are then packaged together into a larger carton.  Unfortunately, every so often something would happen and an individual box would get sealed without its companion tube of toothpaste.  The problem wouldn’t be discovered until a

store clerk went to stock the shelves.

Solving the problem at the point of insertion proved to be extremely costly and management asked engineering to find an alternate solution.  One idea was to put an Xray detector on the line that would enable them to see an empty box and grab it before it got packed.  Another idea discussed was to but an inline scale into the process and weigh the boxes to identify the lighter box.  There was a lot of discussion around how you would calculate the box-weight when the product is moving vs standing still.

While all this was taking place in the management and engineering offices, an older worker on the factory floor solved the problem by placing a fan next to the line.

Thank you Pat C. for this story.

In the 'war for talent'...who's the enemy?

Yesterday U.S. Secretary of Commerce Penny Pritzker said, “To start, we must always tap into our greatest resource: our people. Winning the war for talent is imperative if our country is to out-compete and lead the rest of the world.”*

The phrase ‘war for talent’ is provocative.  If there is a talent in the workforce that matters most it is leadership.  Time and time again, what determines if you have the right people, is the leadership that makes the people you have into the right people.

When an executive steps into a new job, he or she generally must take the team that’s already in place and make that team successful.  When David Marquet took over as captain of the nuclear submarine Santa Fe, it was the worst performing sub in the US Navy.   Unusual for the navy, but because the boat had such a wretched performance record, Captain Marquet had been given license to change out as much of this poorly performing crew as he wanted.  

He changed nobody.  Marquet knew the difference between a ‘manager’ and a ‘leader’.  Many submarine commanders are more managers than leaders.  In part, that may be because what’s of paramount importance aboard a submarine is control. Marquet knew it was possible that the crew performed badly as a result of being managed badly.  Perhaps, all the Santa Fe needed was leadership and control.

A year later, the Santa Fe was the best performing submarine in the navy.  What was remarkable about this turnaround was where you found the leadership and control.  On the Santa Fe, leadership and control could be found in abundance in every job and at every rank.  And it was intelligent control, not dogmatic control.  This worst crew in the navy, even in the isolation of a submarine, innovated many changes that ultimately were adopted by the entire fleet. 

If there’s a ‘war for talent’, it’s the talent of leadership. 

* "U.S. Secretary of Commerce Penny Pritzker Lays Out a Path Forward for American Competitiveness in Remarks to Minnesota Business Partnership." U.S. Department of Commerce. N.p., n.d. Web. 12 Sept. 2015. <http://content.govdelivery.com/accounts/USDOC/bulletins/1195cb2>.

Good news, things were once even worse!

Modern Survey just released their Spring 2015 employee engagement survey results: ”Modern Survey’s latest engagement numbers are out and the good news is that engagement is still high. The percentage of engaged employees hit a seven-year high in the fall of 2014.”

Here are the numbers:

Positively Engaged	Percent of Total	Negatively Engaged	Percent of Total
Fully Engaged	14%	Disengaged	23%
Moderately Engaged	29%	Under Engaged	35%

The only good news here is that it’s been worse. When you recognize that a fully engaged employee is 240% more productive, more innovative and delivers highest quality work as compared to all other employees, having only 14% of your workforce doing that is appalling.

This isn't good news, it's a continuation of terrible news.

We know of organizations where the workforce is at, or near 100% fully engaged. There’s a difference in how these organizations operate. They typically do not have an engagement program or engagement initiatives. Those programs and initiatives are typically top-down activities delivered under a command-and-control environment.

 One of the best examples of a 100% engagement environment was in what you’d normally believe is a natural command-and-control organization - a US Navy nuclear fast attack submarine. Captain David Marquet took over command of the Santa Fe when it was the worst submarine in the fleet. In less than a year, using the existing crew, he turned it into the best. Actually, it would be much more correct to say the entire crew turned it into the best submarine in the fleet. Captain Marquet allowed his crew to be fully engaged.   He said, "Those who take orders usually run at half speed, underutilizing their imagination and initiative."  His approach is perhaps revealed in this quote about empowerment from his book:

 “The problem with empowerment programs is that they contain an inherent contradiction between the message and the method. While the message is ‘empowerment’ the method--it takes me to empower you--fundamentally disempowers employees. .. I didn’t understand why empowerment was needed. It seemed to me that humans are born in a state of action and natural empowerment...Empowerment programs appeared to be a reaction to the fact that we had actively disempowered people....I felt my power cam from within, and attempts to empower me felt like manipulation.”1

1 Marquet, L. David. Turn the Ship Around!: How to Create Leadership at Every Level. Austin, TX: Greenleaf Book Group, 2012. Print.

What was Michelangelo trying to communicate?

In 1990 an American physician published an article "An Interpretation of Michelangelo's Creation of Adam Based on Neuroanatomy"  in which he suggest that the Creator portion of the painting represents the human brain.   Since then other experts have pointed to other possible anatomical depictions in Michelangelo's paintings.  Why did he do this?

Why Export? Six great reasons, the last two are surprising…here is the second surprise!

HIGHER VALUATION

By selling into multiple economies exporters reduce their market risk. With lower market risk and stronger margins they tend to enjoy higher valuation multiples.


EXAMPLE:

Consider two similar companies with identical revenues, however, one exports while the other doesn’t. The exporter enjoys higher margins that yield a higher EBITDA. When the higher multiple is applied to the higher EBITDA, then the relative valuation of the company goes up significantly, by 50% in our example.  For the same revenue sized company, the exporter is much more valuable.

Why Export? Six great reasons, the last two are surprising…here is the fifth of the six and the first surprise!

EXPORTING SPURS INNOVATION

Many companies become more competitive after they begin

exporting.  Within two years of exporting, companies file seven times the number of patents and deliver four times the number of new products as compared to peers who do not export. As employees travel, they are exposed to more new knowledge, which the employees then turn into new ideas and products

Source: Salomon, R. M. and Shaver, J. M. (2005), Learning by Exporting: New Insights from Examining Firm Innovation. Journal of Economics & Management Strategy, 14: 431–460. 

Why Export? Six great reasons, the last two are surprising…here is the fourth of the six.

STRONGER LABOR POOL

In addition to higher revenues per employee, exporters also tend to enjoy higher margins on exported goods. This  allows exporters to pay their workers better than non-exporters, which, in turn, enables them to hire from a stronger labor pool.

Why Export? Six great reasons, the last two are surprising…here is the third of the six.

Exporters are better able to leverage their production than non-exporters.  In the Milwaukee 7 region this is influence by manufacturing dominating our exports.  Nationally, over the past several decades, manufacturing has been growing, while manufacturing productivity has been growing even faster.  That's meant fewer jobs in manufacturing.  Exports tend to compound this productivity.  Thus, for M7 the export strategy is not a direct jobs strategy.

4 Small and Medium-Sized Enterprises: Characteristics and Performance,  United States International Trade Commission, Publication 4189, November 2010, Washington, DC,xii
 (Data for manufacturing SMEs are from the Commission’s questionnaire; data on services SMEs are from Census.)

Exporting over the OCEAN BLUE

In the March 2015 Harvard Business Review, the authors of The Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne suggest that competitiveness and market expansion are the keys to long term success.  In the Milwaukee 7 Global Cities

Export Initiative, overcoming a shortfall in competitiveness is identified as key to economic success. The Blue Ocean authors say, “But long-term success will not be achieved through competitiveness alone.  Increasingly, it will depend on the ability to generate new demand and create and capture new markets.”1

Exporting is the capturing of new markets and is at the heart of the M7’s strategy.  Exports have been the primary source of economic growth in each of the seven counties in the region over the past decade.  Between 2009 and 2012 exports accounted for over 100% of growth.2

  

This past week Paul A. Laudicina, partner, chairman emeritus of ATKearney spoke to the M7 Regional Economic Development Advisory Council and said that nationally we can expect a “3.3% base-case average annual real growth between 2015 and 2020.”

When you apply that 3.3% growth rate to the regional economy, then at the end of 2019 the economy would have grown by seventeen billion dollars.  Doubling exports only requires the region increases exports by $15.3 billion. Given that exports are the primary source of growth in the region, the goal of doubling exports appears necessary and realistic.  To do that, many company leaders need to change direction and start to export strategically.

In the March HBR article the Blue Ocean authors also identify the one key factor that undermines efforts to change direction.  In their conversations with managers about their efforts to execute these market expanding strategies the authors noted, “we identified a common factor that seemed to consistently undermine their efforts: their mental models--ingrained assumptions and theories about the way the world works.  Though mental models lie below people’s cognitive awareness, they’re so powerful a determinant of choices and behaviors that many neuroscientists think of them almost as automated algorithms that dictate how people respond...”

In the M7 strategy this is exactly the cognitive obstacles that Strategy #1 is designed to address.3  When it comes to getting companies to start exporting strategically, get the CEO/President/owner over this hump and get out of the way.

¹ Kim, W. Chan, and Renee Mauborgne. "Red Ocean Traps." Harvard Business Review Mar. 2015: 68-73. 

² Data based on Brookings ExportNation 2013

³ See the executive summary of the M7 export strategy at http://bit.ly/1DLifxa

Photo copyright 2004 by Bill Burnett, East coast of Siberia

Why Export? Six great reasons, the last two are surprising…here is the second of the six.

Exporters are better able to weather shifts in the economy and during the recent deep recession they were able to continue to grow while non-exporters who survived, shrank.

2  Small and Medium-Sized Enterprises: Characteristics and Performance,  United States International Trade Commission, Publication 4189, November 2010, Washington, DC,xii

Why Export? Six great reasons, the last two are surprising…here is the first of the six.

 You can point to six great reasons to become an exporting company.  The first has to do with comparing otherwise similar companies. 

1  Small and Medium-Sized Enterprises: Characteristics and Performance,  United States International Trade Commission, Publication 4189, November 2010, Washington, DC,xii

America’s Mittelstand

“Mittelstand” is a German word used to designate small and medium sized manufacturers who employ 70% of Germany’s workforce¹.  These firms are “achieving unprecedented efficiencies by designing a business model with a razor-thin focus and learning to do the one thing really well....To compensate for their razor-thin focus ... they diversify internationally and enjoy great economies of scale...these characteristics make these companies perfect examples of focused business models, which seem to thrive even in harshest economic conditions²."

  

When you read about the characteristics of these German companies it sounds like you are reading about southeast Wisconsin.  The German companies are concentrated in the mechanical equipment, automotive, electrical equipment, chemical and precision manufacturing sectors.  They often cluster themselves around big manufacturers.  They have two primary strategic focal points.  First, they focus on innovation to create competitive advantage and emphasize long-term profitability versus the short-term results.   Where they differ from us is their second equally important strategy - exports!  These German companies have exporting and innovation as their key strategic objectives. 

These two objectives are the key objectives of the Milwaukee 7's Global Cities Export Initiative.

We know from research that companies that sell into multiple countries tend to become much more innovative as a result of this international exposure, thus for German Mittelstand companies, their international transactions play double strategic duty meeting their two strategic goals to innovate and to expand exports.

Are the seven counties of south eastern Wisconsin home to America’s Mittelstand?  The region, called “Milwaukee 7”, is home to thousands of small and medium sized manufacturers.  The region was settled by German immigrants and much of that European influence can still be found in the manufacturing sector.  Many of the region’s small and medium sized firms cluster around larger companies to whom they provide components and parts.   Manufacturing accounts for 82% of exports in the region³.  However, few Wisconsin SME manufacturer make exports a key strategic initiative and almost none approach the levels of exports that the Germans achieve.

For the region to become the American Mittelstand, our companies need to make exporting a key component of their growth strategy.  This is a marvelous opportunity for the region.  Exports have been the primary source of economic growth in each of the seven counties around Milwaukee for the past ten years.  Currently, we do not do nearly enough exporting.  The good new about exporting is that it will also  address our apparent shortfall in innovation and competitiveness in the region as a whole.

¹Kajeepeta, Sreedhar. "Finding Hidden Gems in the German Mittelstand By Sreedhar Kajeepeta - Oct 2011." Finding Hidden Gems in the German Mittelstand By Sreedhar Kajeepeta - Oct 2011. CIOInsight.com, n.d. Web. 28 Jan. 2015. <http://archive.today/P1r6W>.

² Girotra, Karan, and Serguei Netessine. "Extreme Focus and the Success of Germany's Mittelstand." Harvard Business Review. N.p., 12 Feb. 2013. Web. 28 Jan. 2015. <https://hbr.org/2013/02/good-old-focused-strategy>.

³   "Export Nation 2013." The Brookings Institution. N.p., n.d. Web. 28 Jan. 2015. <http://www.brookings.edu/research/interactives/export-nation>.

Success - What's the big secret?

Success - It's always people!

Inc. economist-in-residence and consultant Gary Kunkle launched a research study of more than 100,000 U.S.-based midsize businesses (those with 85 to 999 employees). Conducted throughout 2013.  What the study showed:

• 1% of companies produced 75% of job growth in a region.
• These 1% evidenced sustained incredmental growth all the time, vs sporatic growth.

"What do these companies have in common? Well, let's first take a look at what they don't. First off, these companies don't look much alike. They don't cluster in predictable industries or geographic locations. They don't serve the same customer segments. And they're no more likely to be long-established organizations than to trace their roots back only as far as the dot-com bust."

"The bottom line: There are two big themes to come out of the first Build 100 survey. First, the leaders of these companies repeatedly indicated that growth owed more to cultural factors such as how well employees work together, how they interact with customers, and how they collaborate on problem solving than to, say, financing or product attributes." Second, "The survey also showed that how you treatyour employees really does matter. For example, there's a direct connection between the sharing of financial success with employees and higher revenue growth and productivity."

See the full article at: 

http://www.inc.com/magazine/201403/scott-leibs/sustained-growth-predicts-business-success.html

Who's better off, US consumer or European consumer?

Which consumer is better off due to the drop in oil prices, a person in the USA or a person in Europe?

Since the start of the summer oil prices have dropped from $105 to under $50.

At the same time, the US Dollar has strengthened significantly against the Euro.

The price of oil is expressed in US Dollar terms.  Thus from a European perspective, the strengthening dollar has reduced the degree of drop in oil prices from the Euro perspective.  For the US consumer the price of oil has dropped 53%, while for the European consumer it’s dropped just 46%.  If you’re a US consumer thinking about a trip to Europe, with a little more spare change in your pocket and the US Dollar stronger than it's been in seven years, now might be a great time to go.

Oil prices chart from www.macrotrends.net/1369/crude-oil-price-history-chart

Dollar chart from www.oanda.com/currency/historical-rates/