Have the CEO Suspend the company cultue and politics (there's a process for this) for ten weeks, give the employees a risk free environment in which to communicate then have the CEO ask this question, "what are the truly stupid things we do here." and get prepared for monumental change. Then, sustain the process and execute it whenever there's a need.
Enterprise Management Group founded in 1992 and based in Seattle was originally an IT management consulting company focused on interim CIO and troubled project recovery. Unlike many firms providing interim CIO services, EMG was unique in that they would only perform the service as a legal AGENT of the client, which gave them the ability to hire and fire the clients employees where appropriate. Indeed, this aspect slowed down many a negotiation.
After several years of steady growth and superb client results EMG discovered that the processes they used to re engineer IT organizations applied to the enterprise as well. In 2000 EMG began offering the process as an enterprise wide earnings improvement program.
The competitive offering is that EMG will commit, with fees tied to success, to produce a sustainable 10 to 20% SG&A reduction in just ten weeks simultaneously improving morale.
Twelve years later EMG continues to offer its Sustained Earnings Improvement service to Fortune 500 companies in an extremely competitive market. EMG's unique offering is that the results are generated in ten weeks or less, fees are calculated by the client, and no client has taken more than a month to recover their investment. Because we are using a process to generate results, there's no need for lengthy studies that will be followed with recommendations and long implementation schedules. The best consultants a company will ever hire are their own employees if only they can get out of their way.
Fifteen years ago we stumbled on an idea while consulting with a client with a severely under performing IT organization. I was overwhelmed with the employees complaining. I began collecting and categorizing their complaints and then the horror set in, a large percentage was warranted. I began asking people at all levels why they had not raised these issues earlier. The singular answer was "a fear of the consequences of being negative."
I did some research and found relatively little to support the employees perception, there were several good to great leaders in the company, the foremost being the CEO. Still, employee’s perception is their reality.
I was looking at my first potential failure as a consultant and that just couldn’t happen. I found a few mature and trusting employees and managers and we discussed the situation. One offered this observation, the company had a suggestion boxes at every company location. The suggestions went to HR and were routed to the appropriate leader. This individual had submitted a suggestion which proved beyond any doubt that half of his boss’ organization produced no value; in fact they were a drag on value. When nothing happened, he approached a friend in HR and was told that his boss (the corporate bully type) had a fit and told HR that he would absolutely not take action on the suggestion.
It didn’t take long for the word to get around and the suggestion boxes started filling up, mostly with dust.
The client CEO was under severe pressure to improve earnings and had just sponsored a year long internal expense reduction /earnings improvement project. The results were underwhelming, a $24 million SG&A reduction, less than 8% of their goal.
Because we were already engaged through the interim CIO initiative, we asked to participate in the day long process of consulting companies each presenting to the Office of The Chair, their proposed solutions to the earnings problem. We were allowed to give our 8 slide presentation, answered questions from the offices for 45 minutes. We actually got called back from the airport to stay over and do the agreement.
What we presented was our process for getting employees engaged, coupled with the process of preventing political or cultural interference. The company, with 23,000 employees had an expense reduction target of $300 million dollars and had already announced layoffs estimated at 3000. EMG agreed to produce the results over a ten week period.
First a human nature level set.
Imagine you had the hypothetical ability to tape employee’s conversations about the company occurring at the water cooler, in the break room, at the employee’s favorite watering hole, the officers while they’re playing golf, or the professor’s lounge. In which direction do you suppose the comments lean; critical or supportive?
If you do a Google search on “management books” you get one billion thirty million results. I think we can agree that there’s no shortage of experts offering leadership advice, in fact with so much attention being paid to the subject, one wonders why the world isn’t better managed. I submit the answer is human nature. In all but the rarest of cases, where executives have created the “perfect” culture, people tend to follow their innate personal feelings about their work, their boss, company policies, co-workers and senior leadership, most leaning negative, rationality notwithstanding.
I‘ve read quite a few of these management books, probably all of .0000000001% of them. My observation is that the majority are trying to direct us away from our innate human approach to management in favor of the theory de jure.
I offer this challenge on the above concept; in your personal experience, would you say your own comments about your current or former company and the comments of your peers tend to be more negative or more supportive. If the answer is “more positive”, you should stop reading right here, what follows will make little sense.
With the organization mentioned previously that was struggling with IT management, we tried an experiment, we asked the IT employees to tell use, anonymously, what they thought were the dumbest things the company did. I was then reporting to the CEO and had his support for this experiment. We were both curious so see what would arrive when we gave the employees both permission and encouragement to tell management, through a consultant with no political risk, what the company was doing WRONG!. The results were staggering, and although there were plenty of “fire all the managers, they got us in this mess” there were also some shockers. The value of the input was beyond all expectations, and yet, middle management fought the process at every turn.
Based on the results of the OT experiment, the CEO agreed to try our approach at the enterprise level. Together with legal and marketing, we scripted a six minute video of the CEO explaining the project, smiling as he used the words "stupid" and "dumb" things the company did. He acknowledged there would likely be layoffs and reiterated the company's liberal separation policies. He explained management's role and responsibility together with what was expected of the employees and the schedule. At this point, project Sustained Earnings Improvement was underway.
Here’s an example of what happens when you give the employees a risk free environment to complain, coupled with a set of guidelines explaining that they had to justify their complaint or suggestion. Then the consultants would be the ones pushing their ideas through the approval process. The first major event occurred in the third week with the arrival of several suggestions stating that, “in view of the company’s current earnings and a public announcement of pending layoffs, just before Christmas”, several employees felt that the “fleet of private jets made the suggestion program a joke”! the best comment ending with "GET REAL". They were right!
The CEO set the direction by acknowledging that the company had too many planes. All but one were immediately placed for sale. At that point, three weeks into the project, 800 employee suggestions were received from 23,000 employees. Seven days after the CEO announced the sale of the planes and acknowledged the employee’s input, an additional 7000 suggestions were received over the following seven days. It’s noteworthy that nearly 10,000 employees responded with absolutely no financial incentive.
In order to convey a sense of urgency, the project was scheduled to last for an initial ten weeks. Disregarding all the management books, we gave employees permission to complain, we actually invited input using words like “stupid” and “dumb”. There were no teams formed, no facilitated brain storming sessions, no financial incentives offered, we simply asked the most knowledgeable people in the world, the employees, what the company was doing wrong. In no small way, the fact that the consultants became the employee’s agents, eliminating the political and cultural risks, was a major reason for the success.
AS you would imagine, there were several career casualties along the way, people simply could not endure being told to make major structural changes to their organizations fought battles that could not be won. One executive fought all the way to the Office of The Chair to keep a group of people he thought were critical to keeping and growing his staff, even after the project exposed the fact that the employees hated both his process and the people he used to support it. This resulted in a termination which at the time we thought was unfortunate, However, with several projects behind us, there's always at least one manager or executive that can't resit fighting a "dumb" battle, a trait I will never understand.
At the end of the ten weeks the results were beyond all expectations. Recall that the previous year long project, where the officers were told they each had to come up with a 10% reduction resulted in a .08 result.
The ten week "Sustained Earnings Improvement (SEI)" initiative generated a sustainable SG&A reduction of $300 million, a reduction to the already approved capital plan of $200 million and an inventory savings of $45 million. Having complied with the federal WARN act, the company (ill-advised by their lawyers and HR) had already announced layoffs estimated at 3000. The above results were achieved with a 60% reduction in actual layoffs.
In terms of percentages, this SEI approach has achieved similar results for each client over a fifteen year period. Given a CEO with the fortitude to make hard decisions and a process the employees like, “tell us the truly stupid things the company is doing” and politically immune consultants selling employee’s suggestions, the results leave no doubt. Giving human nature a freehand, unencumbered by risk, produces far greater innovation faster than trying to change human nature, the approach I believe many of those billion management books advocate.
Reality check: what have we learned from thousands of employee “complaints “:
In compiling and categorizing the input there is definitely a pattern. The greatest savings occurred as a result of simply stopping things. We called this category the “it was a good idea then, generated a life of its own, grew, became integrated with the culture and thus no one ever looked back”. In many cases the employees mentioned that consultants, including us, were hired to fix things, call it process redesign or re-engineering, when in fact the thing that was being fixed didn’t need to exist.
Another interesting observation from the data is that employees frequently think it’s stupid to NOT be doing something. Several clients experienced truly innovative suggestions affecting product design, revenue enhancements and customer service..
I don’t mean to suggest what was discovered here is as simple as it appears. Many rules for dealing with difficult executive and management behaviors were generated during the evolution of the process. Yes, some things came through which dealt with difficult moral and legal issues, there were procedures for handling these. And yes, there have been executive terminations, although I would classify most as natural selection.
An interesting human nature observation has occurred at several clients, on one occasion an officer requested that we write up a suggestion because he was so concerned with it being anonymous. The senior officer was challenging the CFO’s sponsorship of a PR investment. I was surprised at how difficult the discussion was for him and out of total ignorance I asked him what would happen if he just mentioned it at officer staff. His reply was interesting, he said that “she would have to give in because the investment was so stupid, but if it took five years she would get even”. Too often we ignore these human nature phenomena, assuming professionals get beyond their personal interests. Well they don’t and in many cases I’m convinced they actually don’t recognize what they’re doing, but the employees sure recognize it for what it is. There are no lower of upward limits to people’s perception that it’s risky to criticize.
The subject here is encouraging innovation; we believe innovation is a bidirectional exercise, looking both forward and backward. What we have proven over fifteen years is that professionally led companies can flourish when they are willing to ask the tough question, “what are the truly stupid things we do” and then do something about them. There’s always time to be positive, the good things are already good and don’t need attention, find out where the dumb things are and irrespective of who is offended, take action.
At the initial implementation we struggled with ensuring employees that their input would remain anonymous. Since all the input came directly to our(the consultants) inbox we assumed that would take care of the security issue, no one but us would actually see the original document. Back to an earlier observation that human nature trumps professional standing. We nearly lost the project momentum when it was discovered that an officer was so upset by a suggestion affecting him that he demanded the CIO research the email files and tell him who submitted the suggestion. The suggestion by the way was completely ligament.
As a result we immediately switched to paper documents, although quite cumbersome, the project continued.
There were legal challenges as well. the company had a large union base and we had to be mindful of how a suggestion might affect the contracts. An interesting thing occurred with some union employees, they became the most aggressive players in the company, even criticizing union work rules. Luckily, the relationship between the company and the union was a positive one and things were changed when warranted
When you turn an employee population lose with the encouragement that they cut lose with all the dumb stuff you're going to receive some strange input. While we went to great lengths to discourage personnel attacks several found their way to our desks. The problem was that some were, or at least seemed legitimate. What to do? We had to establish a process with HR and Legal to rout anything that seemed like a legitimate risk. Every subsequent client project has received input which had little to do directly with cost cutting, but represented risks which needed to be addressed. Again, if you ask for complaints, you better expect to get them.
There have been additional benefits beyond the immediate savings which will be outlined in the section "Benefits and Metrics."
The Sustained Earnings Improvement approach is a way for companies to generate rapid cost reductions and while avoiding the "slash and burn" label frequently associated with rapid change.
Measuring the results has never been much of a challenge. The client has always know what the run rate was for a particular department or group so when the approved reductions are applied, the budget run rate is lowered. In the case of capital, there has never been any ambiguity concerning the elimination of capital projects.
Since earnings are the target, it has been difficult measuring the impact of revenue focused suggestions and there are quite a few. In our final report we make a best effort case for measuring revenue and customer service, but since there are no fees attached to those results, we leave it up to the customer to asses these benefits.
Byproducts: The primary focus of the SEI approach is to gain rapid and sustainable expense reductions which occur primarily from stopping things that are identified as no longer needed. However, in addition to the immediate opportunities come the longer term suggestions. When complete, the SEI approach leaves the customer with many opportunities harvest additional benefits from in depth analysis, frequently with outside consulting expertise, the benefits of which are not within the scope of SEI. The phrase "skeletons in the closet" comes to mind, because when you ask the employees to tell you the dumb stuff the company is doing, you're going to get what you asked for. Fortunately, the benefits have far outweighed the discomfort of hearing something you'd rather not hear.
So far, every execution of SEI had exceeded the target, usually in the range of a sustainable 10 to 15& of SG&A. As mentioned earlier, SEI generates benefits beyond those which directly affect immediate earnings. Employees really don't care whether the dumb idea affects SG&A, capital of one-time savings, it's just money.
The SEI approach can be implemented on an ongoing basis, all the rules and guidelines are available. The only thing that requires outside help is when input is being stonewalled by someone.
The lesson we've learned with this approach is that human nature trumps invented approaches to managing people. While this approach seems to make a lot of sense, and the results have been consistently outstanding, there are some leaders who will never embrace the concept of encouraging employees to talk about the dumb things the company is doing. In a recent sales call the VP of HR he said that the CEO would never go for this approach and none of the officers would recommend the SEI approach either. He went on to say that if SEI got the typical results and it took only ten weeks, then the CEO would go on the war path with the officers because they should have figured this out and solved the problem on their own. Sad, but I suspect there are more than a few CEO's with a similar view.
The single biggest lesson to learn here is that employees are without a doubt the best consultants you'll ever hire. To benefit from this however, you have to acknowledge that human nature knows no hierarchical boundaries. Whether the managers and executives are actually jerks or perceived to be by the employees. the perception will win over the facts.
For this approach to even be considered, one must accept that a company's politics and culture are made up of human beings possessing all the shortcomings that go along with being human. The thing that makes the SEI approach work is little in the way on actual intimidation or arguing, when you ask people for the truth and eliminate the risks of answering, becomes a compelling incentive for employees to engage. Especially when they see the leader do something they had little confidence he would do. The kill the sacred cow idea. There's no rocket science here. If you are in doubt, here's a simple test: look at your own work history, have you never encountered a really dumb activity or policy, or under performing asset, but had no risk free way of identifying the problem and had practically no confidence given the political environment that something would be done.
Now imagine, you have an opportunity to identify that problem with absolutely no risk and you also know that the input is going to a consultant who has a financial incentive to get your idea recognized and if warranted, implemented. Would you jump in?
Oddly enough the HR executives are usually the ones most critical of this approach. You have to wonder how we got to a point where criticism and negative input, even when absolutely accurate, is frowned upon.
If you want to fix what's wrong, you first have to know what's wrong. Give the employees the right environment and they'll shock you.
The individual most responsible for the SEI approach is unfortunately long forgotten. It took a relatively young and somewhat inexperienced IT guy to point out to me that the SEI process which we had heretofore limited to fixing IT organizations didn't actually have anything to do with IT. As it's inventor I wasn't too happy with that assessment until I looked at it again and realized he was right. In 2000 we were working on an IT project and were given the opportunity to implement SEI enterprise wide and as is documented here and continues, it works whenever there are people involved.
As you read this and look, with skepticism I suspect, at the results the question may arise as to why such a tool that works this well and in such a short time period isn't universally offered. Until this writing we've tried to protect the approach as out IP. Two leading consulting companies who were on site doing other work and witnessed the results approached us with the idea of acquiring the process. In both cases after limited due diligence they concluded that, the results notwithstanding, the business model was too brief and generated too few billable hours. Wow!
So now, you can try this exact approach or something similar, give your employees not only the opportunity, but the encouragement to tell you all the dumb stuff your company is doing. If you provide a risk free approach and act quickly to kill a scared cow or two (remember, scared is their perception, not yours) you'll be surprised.
There is one caveat, whoever you chose to receive, process and sell through thick and thin, the employees will respond corresponding to their belief that politics and culture will not superseded the merits of their input. This is a critical decision as there have been some real battles when key players are confronted with changing their ways.