If you’ve been in a CEO or general manager position for a while, it may be appropriate to take a step-back and gain a step-change in performance via creating and implementing a Northwest Strategy. If you have just arrived at a new CEO or general manager post, it is imperative to create a step-change Northwest Strategy. How do you create this Northwest, or “good-enough” strategy, and get major and rapid results? The first step, rather than doing market studies, competitive analysis, or strategic planning exercises, is to carefully define the critical problems. The second step is to fix them. Easy; right?? Let’s review every word of the title as they are important (except the “the”).
“Carefully Define” means just that, thinking beyond the obvious so you attack the cause not the effect. High admin expenses may not be simply due to a bloated staff, but rather too many sku’s. High manufacturing costs may not be a design or operational problem, but rather caused by marketing promises such as lead times that are inefficiently short or catering to customers’ every possible whim. An example of both is the 2007 Dodge Nitro, available in 167,000 different combinations (color, trim, etc.) while selling about 37,000 units! Oh that automotive industry.
“Critical Problems” also means just that. Any business will face a laundry list, such as product costs, expense levels, product line proliferation, too many facilities, inadequate management, estranged customers, or employee morale. You can’t fix everything at once. Do the tough work of determining those several that are critical, testing against these three factors: (a) “do or die”, gotta fix this one, (b) fixability, don’t tilt at windmills, and (c) impact—including solving multiple problems with one action. Those problems can be multidimensional, and usually are. They can be somewhat complicated, and usually are. If not, they would’ve likely been fixed by now.
Next week I’ll convey two real-life personally experienced stories how a Northwest Strategy helped create billions of value out of, essentially, nothing. This week another of the same, AMI Semiconductor in 2000.
AMI Corporation needed a direction and rapid action. Revenues were dropping rapidly, operating profit was shifting from black to red practically overnight (the same with cash), it was headquartered in two locations, and it had inadequate business procedures. AMI’s NorthWest strategy was created within two weeks, implementation started in the third, and a giant improvement in results became obvious within several months. The following specifics are rather boring to read (there’s no one line zinger) but this new constructive climate made for an exciting environment during their execution:
1. New owners, new CEO (me) and new directors faced a sea of distractions, issues that were not in the mainstream but inundated everyone’s agenda. Determining and eliminating distractions (frequently a prior manager's pet projects) is always a top priority:
• Sold a European engineering organization that, while containing lots of talent, was difficult to manage and did not contain a compatible skill set.
• Sold a recent acquisition that didn’t fit with the core, settling for a lesser price for a quick sale rather than a potentially enhanced price through a protracted process.
• Shut down one of the dual headquarters locations, putting all management in one place.
2. Operating expenses were out of line with a semi-worst case revenue forecast, and years of personnel neglect had created a lethargic environment. This approach resulted in a two-for.
• The easy way to do cut expenses—the chicken way as is typically practiced—is to remove lower level people, count unfilled jobs and future attrition, honor longevity regardless of performance, and cut across the board; practices which are “safe” for the CEO and which can generate some short term operating metrics apparent improvement but result in deterioration of organizational capacity and an inevitable hiring binge later. Instead, by rebuilding the organization from the bottom up, person by person, layer by layer, department by department, and retaining those that were a good fit with our overall direction, the 20% reduction in personnel and expense was achieved and the organization’s performance capability was simultaneously improved. Good performers were excited to see non-performers leave; intra-organizational communications were enhanced as layers were reduced; total performance was enhanced with a better fit of departmental requirements and capabilities.
• Every capital project for the year, regardless of whether already initiated with sunk costs, was assailed for criticality. All the “nice-to-have” pet projects, even in one case with 40% already expended, were cut.
3. Everyone knew that the company could not survive being primarily via in-house manufacturing, but actions were never taken to create sub-contract business relationships due to the required change and concerns for what employees would think:
• We just did it.
4. The major business processes, e.g. determination of revenue forecasts, determining manufacturing loading and priorities, determining quality step-by-step through the production processes, managing WIP-Work in Process- inventories, were semi seat-of-the-pants and semi structured. The company had no “eyes” as the inputs and outputs of each of these were maneuvered by individuals operating through their personal filters.
• Every other week one of these critical business visibility and decision making processes was converted to a data-based procedure.
AMI Semiconductor had been a low performing, stodgy, disjointed company. Within two years my successor CEO, Christine King, led the company to a successful IPO.
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Posted by: kittu | June 20, 2007 at 12:17 AM