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There is a direct relationship between the growth of a company and the degree to which it implements values in its work. Hard work is the foundation of business. A small, local business, such as a machine shop or retail store managed and operated by the owner, can exist and grow primarily on the basis of physical energy and effort, i.e. hard work. But as soon as a business begins to expand beyond these narrow limits, physical energy and effort are not enough. In order to increase in size, the company finds it has to increase in quality too. It has to provide a product or service that is good enough to attract more customers. It has to be faster in producing goods or serving customers than its local competitors. The company must be able to attract and keep good employees, which means making their jobs more pleasant and satisfying and creating opportunities for their growth. As the company becomes larger and more complex, work has to be better coordinated to avoid confusion and duplication of effort. People must learn to work together smoothly as a team. The growth of a company beyond the minimum size necessitates the development of corporate values like quality, service, punctuality, employee satisfaction, coordination and teamwork. In other words, values propel growth. This is also true in the case of hospitals. Richard Kimball, Jr. pointed out that patient-centered approach and efficient system contribute to employee satisfaction and retention.
Take any company and add or increase its values and watch it grow. That is what happened to Robert Ross's company, Ross Incineration Services, fifty years after he founded it, when his children bought the business and added a value to it.
The elder Mr. Ross is a physically big and powerful man, with lots of energy, a self-made man like a great many other entrepreneurs, capable of hard work and untiring effort. When he built his first waste incinerator at Grafton, Ohio back in the late 1950s, there was very little public awareness or concern in the country about the dangers or consequences of environmental pollution. So there was relatively little demand for the services he offered. It took nearly thirty years for the company to reach $1 million in revenues. When environmental issues started to emerge as an important national issue in the late 1960s and throughout the 1970s, Ross was happy for the business it generated for his company. But when the Federal Government began strictly regulating the hazard waste industry, Ross felt stifled by the mass of new legislation and resented the burden of cumbersome, bureaucratic procedures, which the new laws imposed. By this time, his son, Gary Ross, and daughter, Maureen Cromling, had become very active in the business. Unlike their father, they were able to accept these changes and could fully appreciate the importance of the new regulations and recognize in them a great opportunity for the company. This prompted them to make two very crucial decisions. First, they bought the company from their father. Second, they made environmental compliance the number one value and priority in the company.
At a time when many generators and disposers of hazardous waste were using all their ingenuity to find ways around the regulations or to minimize their impact, they decided to implement every new regulation to the fullest extent possible and even go beyond the dictates of the law where public safety would justify it. In doing so, they raised necessity to the level of an ideal.
This effort was extremely laborious and expensive. It involved major investments to upgrade their physical plant. It also involved a complete revision of the systems for handling waste, training employees, tracking shipments, documentation and record-keeping.
At first neither their employees nor their customers could understand the need for these radical changes. Both complained of excessive documentation. But as more and more cases came to light of bad or irresponsible waste management by generators and disposers around the country, Congress pushed through more stringent regulations and the Environmental Protection Agency demanded stricter enforcement by industry. Generators were held responsible for any violations of the law by those who disposed of their waste materials.
Ross was well-prepared for these changes. Large chemical companies felt confident that Ross was a safe and reliable company that would comply with all regulations in disposing of their wastes. Ross's incineration facility was one of the first in the U.S. to be approved under the Environmental Protection Agency's rigorous licensing procedures. Ross is the only facility in the state that is not monitored by a full-time, on-site state official. During the first five years after they purchased the company from their father, revenues rose eight-fold.
By focusing on implementation of a psychological value, Ross was able to elevate the level of its work and the level of service to its customers. It no longer provides merely a physical mechanism for disposal of waste. It also provides legal and psychological security to its customers that their waste is in safe hands. The value raised both the quantity of energy (volume of work) and the quality of energy (from physical to mental) in the company. Adherence to a value enabled Ross to prosper in the new regulatory environment.
TRANSITION TO RAPID GROWTH
The relationship between values and growth can be seen in companies of every size and stage of development. Each time a company makes the transition to the next higher level in terms of the size, scale or complexity of business, it has to significantly increase its implementation of values in order to maintain high performance. Success on a larger scale and at a higher level of the business world is directly and proportionately related to the level and intensity of value implementation.
Most fast growing companies are companies in the process of transition. They have grown beyond the limits achievable on the basis of purely physical energy and work. They have discovered or at least begun to discover-sometimes almost too late-the importance of corporate values as a means to raise the quality and quantity of energy for continued high performance.
The personal commitment of the founder or CEO may be enough to ensure high performance on values in the early days of a small business; but as the company grows personal example and enforcement are not enough. That is what Paul Maestri found out after he took his company public in late 1986.
P.A.M. is a company that shot past the entrepreneurial stage so quickly that it is hard to mark the transition point, growing from $5 million to $75.8 million in eight years. Until then the founders, Paul Maestri and Bob Weaver, had managed the company on their own. They personally dealt with the customers and handled every complaint. They kept in close contact with their drivers and were always available to discuss any problems that might arise. Customers were satisfied. Employee morale was excellent.
After the company went public, Weaver retired and Maestri decided to hand over management to a group of seasoned executives. He brought in a team of experienced, senior managers from one of his competitors and gave them complete freedom to manage day-to-day operations. Then followed "the most miserable, the most difficult time" of Maestri's life. The new management team put tremendous pressure on the organization to increase freight volume and expand the fleet. They shifted the focus from quality to quantity, selling price more than service. They distanced themselves from the drivers and took on an "I don't know you" attitude. Within six months service failure rates rose alarmingly, and customers were vocally complaining. Once satisfied employees were threatening to go on strike. Employee turnover increased dramatically. Suddenly profits started to fall.
In growing so rapidly, the company had abandoned some of the basic values, which had made it successful in the past. As Maestri put it: "We got away from the customer and the driver." To save the situation, Maestri replaced the entire senior management team and came back to manage the company full-time. He also hired a new president, John Karlberg, who understood the importance of people and service. Together they took steps to restore and institutionalize the values of people and service and put P.A.M. back on the path of growth. They brought down service failures to below 1%. They gave special training to the telephone dispatchers to teach them how to listen to the drivers and respond to their needs. Regarding service, "Now we are dealing more with the quality concept to develop long term relationships with our customers." says Karlberg. "The customer is willing to pay a premium price for high value service." Regarding people, Maestri explains, "We've gone back to our original values. The drivers know we care. We give them a fair shake. They all know they can come to me." Morale improved. The company began to grow rapidly again. Management's new goal is 30% annual growth until revenues reach $250 million. Today P.A.M. is $350 million company.
The difficulty encountered by P.A.M. in maintaining its values while it grew is quite typical of companies making the transition from an entrepreneurial to a professionally managed company. The way in which they handle this challenge very often determines whether they make that transition at all. P.A.M.'s problems were a direct result of its growth. When the company was smaller, the founders could personally instill and enforce the values they believed in. But like many founders, they had never created an institutional foundation to ensure that the values would continue in their absence. Therefore, Maestri had to return to re-establish the values. Management now realizes that this will not be enough to make the values permanent. "We need to articulate the culture of the company," Karlberg explained. "We have a way to go finding our culture and putting it together. We need to articulate our mission, so our employees know that we want to be perfect. "Culture and perfection are a matter of quality, i.e. values. Instilling those values and making them permanent is an essential condition for non-stop growth.
GROWTH THROUGH VALUES
When we went into Linear Technology in the late 1980s it was one of the few fast growing companies we studied where the process of institutionalizing values has been taken quite far. Linear has a number of pronounced values which it not only believes in, but also works very hard and systematically to implement. Quality of product, quality of service, reliability and punctuality (on-time delivery) top the list. "Even in starting the new company," founder-president Robert Swanson explains, "we had the ideas about quality and reliability. We started out a little idealistic-the best product, the best quality, the best reliability and on-time delivery. From the beginning we were and still are doing that. We have generated a quality and reliability image that is a reality." The company has developed specific quantifiable standards for product quality and service response time, as well as annual goals for raising those standards. It also has created an unusual structure to monitor and enhance performance on these values. There is a single department headed by a vice president responsible for both product quality and customer service and empowered to cross all departmental lines to ensure that these two values are enforced.
At a very early stage the company put in a quality assurance system designed to meet the most stringent requirements of major customers like Ford. The system is so good that Linear became the first company in its product category to get line certification from the U.S. military on the very first inspection. The company's quality assurance program is a self-sustaining fully documented system more commonly seen in companies ten or one hundred times its size. Linear tests all its products not only to ensure that they meet the product specifications, but to determine whether they will work in a very wide range of different applications for which customers may try to use them. The quality program works so well, because it is understood and supported by every department of the company. "Everyone here has bought into the QA program," says Paul Chantalat, QA manager.
The company really specialized in on-time delivery. The normal lead-time for the production of one of their analog chips was only 14 weeks. To reduce this time, they developed a staggered inventory strategy. The company manufactured chips to various stages of completion where they await conversion into a wide variety of finished products. One of the key response times is the time it takes for their sample products to be tested and approved by the customer, which in some cases can be as long as one or two years. By introducing good systems for collecting data and monitoring the test performance of their chips, they have been able to provide key test information to their customers along with the samples. This system has enabled Linear to reduce product qualification time by 50%. Values had really been good to Linear. In 2006 the company had revenues of over $1 billion and a net income – are you ready? $429 million!
Most fast growing companies are still in the process of acquiring distinct corporate values and institutionalizing them in every activity. Their success in bringing these values down and making them real in their daily operations will be a critical determinant of how fast and how far they will grow in future.
In researching major corporations with a long history of rapid growth and high profitability-companies that consistently rank among the largest, most profitable and most-admired in their industries like American Express, Anheuser Busch, Coca-Cola, Delta Airlines, Dupont, General Mills, IBM, Merck, and Northwestern Mutual Life Insurance-we found that they were invariably companies with a very strong commitment to a wide range of high corporate values and that this commitment was put into practice in virtually every activity they perform.
Year after year Northwestern Mutual is the best performing and most-admired company in the life insurance industry. The company insists on top quality in just about everything it does. Two closely related values, teamwork and communication, occupy a special place. The company has interdepartmental committees whose primary purpose is to ensure effective communication and teamwork between different parts of the organization. When Northwestern recruits new people, the most important thing they look for is not intelligence, education or experience, but "Can this person work effectively as a member of a team?" Periodically the company conducts confidential surveys asking employees to evaluate the ability of their peers, subordinates, work groups, and even their supervisors to interact well with others and function effectively as members of a team. Based on the survey results, they formulate training needs for every individual and conduct training programs on a wide range of interpersonal and communication skills. Northwestern believes that its commitment to these values not only makes people feel the company is a wonderful place to work. It also goes a long way to explain why Northwestern leads the industry every year on a long list of performance and productivity measures.
Which values can be strengthened to accelerate its growth? Northwestern Mutual is a 150 year old company. But it need not take a century to raise your company's values to the level Northwestern has attained. It is possible for any company to dramatically increase the implementation of values by following a systematic process. Making values permanent is not an easy task, nor one that can be accomplished by hard work or constant proclamation alone. Values become permanent when they become an integral part and parcel of the way the company carries out all its operations. The process of institutionalizing values requires five essential steps: commitment, standards, structure, systems, and skills.
Making a firm and genuine decision to implement a value and then remaining committed to that decision through thick and thin is serious business. Its a funny thing, but as soon as companies make that commitment or say they have, life has a way of knocking on the door to test just how serious they really are. That is what Walt Stinson found out at Listen Up when he announced a new customer policy-satisfaction guaranteed or your money back. One customer came in and bought a $15,000 PA system for his car in Aspen, Colorado and brought it back saying he was not satisfied with the quality of the sound it produced-six months later! Walt gave the refund. Another customer, who had bought a $500 car stereo system and a car burglar alarm system, came back to report that the stereo had been stolen and demanded a free replacement, because the alarm system had not prevented the burglary. When asked if the alarm system had failed to operate properly, the customer replied: "No, it operated alright, but it did not stop the robber!" Walt replaced the stolen system. Think about the values of your company. Is senior management fully committed to those values? Middle management? Other employees? Think about values the company would like to implement better. Is the company really and fully committed to improving performance on them? If you are a divisional, department or branch manager, are you committed to improving value implementation in your area of responsibility?
Commitment is absolutely essential, but by itself it is not enough. Bob Cavalco learned at Bang & Olufsen that values are too vague and abstract to effectively direct people's actions. Many companies say they are committed to service, on-time delivery, good communication, employee satisfaction and a host of other high values. But what do they actually mean by these words? Probably each one means something different. Even within a company, these words mean different things to different people. Cleanliness is a key value behind the success of McDonald's in attracting middle class Americans to its restaurants. When the company tells its employees that cleanliness is a value that must be maintained at all costs, what does that mean? In order to answer that question, McDonald's has developed detailed written standards of cleanliness for its restaurants, which specify exactly when and how tables, floors, counters, sinks, skillets, closets, windows, utensils, yards, driveways, sidewalks and just about everything else should be cleaned.
When most airlines say their flight departed on time, they mean it took off within fifteen minutes of the scheduled departure time. Delta's standard is five minutes. American Express's standard for replacing lost cards is 24 hours, anywhere in the world. In order to ensure that everyone understands the same thing when we speak of a value and in order to give a very clear guideline against which to evaluate our performance, values should be defined in terms of simple, quantifiable standards of performance. Virtually any value can be measured against a standard of one type or another.
Merck & Co. was voted the Most-Admired Corporation in America on three successive annual surveys by Fortune magazine. Merck is very strong on values such as product quality, service to customers, technological innovation, systematic functioning, coordination and development of people. But the company is really outstanding on one value, credibility with its customers, which means physicians and pharmacists. Every medical representative, as their sales people are called, is taught the principle of fair balance. In speaking with physicians about the drugs which they produce, Merck insists that their representatives accurately and objectively present both the positive and negative characteristics of each drug. Merck has clear standards for evaluating the credibility of its sales representatives. Periodically it conducts surveys asking physicians to rate the quality and accuracy of the information which the representatives provide them.
The top management of Northwestern has measured the clarity and effectivity of its communication with employees by conducting a survey asking employees how much confidence they have in information coming from above. Innovation can be assessed by the number of new ideas, strategies, programs, products or patents generated. The number of complaints received is an index of service quality.
We have witnessed groups of senior managers trying to formulate standards for very simple, mundane activities in their companies. It is not long before they discover that creating standards is hard work and quite time-consuming. Managers down the line and on the front lines can play a very constructive role in formulating standards. Those who participate in establishing standards for values are much more motivated to achieve the value in their work.
Then who should make standards? In our experience, the best results are obtained when senior management sets the broad, overall standards for the company-such as reducing product development time by 50% or completely eliminating safety-related accidents-and then allows operational managers or personnel to formulate the standards for individual tasks or activities that are needed to meet the overall corporate standard.
In order to be effective, standards should be simple, clear, quantifiable, measurable and achievable. The last adjective is quite important. Standards, which everyone knows cannot be achieved, will not release energy and motivate people. Even if your ultimate goal is to reach a very high level of perfection, it is better to set an interim goal which everyone can believe in, rather than shooting for the ultimate when it does not appear achievable. Once the interim standard has been reached, it can be revised upward toward your ultimate goal. Standards are most effective when everyone buys into them and feels a challenge to achieve them, not when they are used as a means of pointing out the inadequacies of people's present performance.
Every value applies to literally hundreds of activities in a company. Standards can be developed for assessing performance on every value for every activity. At least the most important ones should be covered. Are there quantifiable standards for measuring implementation of key values in your company on every important activity?
Who is responsible for implementing values in your company? Or rather, is the responsibility of each person for implementing key values clearly defined and understood? Structures define responsibility and authority. They tell us who is in charge of which department, which activity and which value. A structure can be a department, a committee or an individual job description.
Linear Technology has specific departments for quality assurance and customer service, each headed by a manager, and both presided over by a vice president of quality and service. But the task of implementing quality and service is certainly not left entirely to these three people. These values are far too important and require far too great an effort for a few key people to implement them on their own. Every department at Linear is partially responsible for achieving high quality and service. The product engineers have accepted as their responsibility to design chips that can be manufactured with relative ease and little rejection. The field service engineers are responsible for monitoring performance of the chips in the customers' products and reporting back quality problems that need correction. The production engineers have a responsibility not only for quality but for on-time delivery and quick response to customer enquiries regarding the status of their orders as well. And so on.
At SAS everybody assumes responsibility for getting flights off on-time, even the baggage handlers and maintenance crews. The same is true of every value. In order to really raise value implementation to a high level and keep it there, the responsibility of each person and department for the value should be clearly defined, preferably in writing.
Has your company clearly defined the responsibilities of each department and position for implementing key corporate values?
When Walt Stinson decided to commit Listen Up to the value of customer service, he really did not contemplate what was in store for him. His commitment was genuine. He established clear standards for service in key areas. He took personal responsibility on himself to monitor customer satisfaction and personally reply to every complaint. He assigned responsibilities to his managers and their subordinates for providing good service. But still something more was needed. He found he did not have the systems that were required to make his commitment a reality. For example, the service department set a standard of responding to customer enquiries about the status of a repair job within 30 seconds. That is pretty fast compared with the industry average of several hours and sometimes several days. But the systems Listen Up had in place were not adequate to provide that level of service. A new computerized tracking system had to be developed and introduced that could instantly generate a status report on any pending job. The new system brought down response time to less than one minute, probably a record in the industry.
Systems are essential both for achieving high performance on values and for monitoring that performance. When Jan Carlzon established the goal of 100% on time departures, a computer terminal was installed on his desk to enable him to monitor corporate performance on the value punctuality. A few years before the recent uproar about late airline departures, we sat in on a typical top management briefing at Delta Airlines, which starts at 9:30am and lasts all of five minutes. Every morning some thirty executives gather in a conference room to listen to reports coming in from stations around the country on the company's on-time departure rate and other key performance indicators for the previous day's operations. This simple system enables them to monitor value implementation and take immediate corrective action where necessary.
Merck has elaborate systems to support its commitment to credibility. All advertisements and product literature have to be reviewed and approved by a committee prior to being used. Virtually every piece of paper that goes from the company to the customer is monitored to ensure that the information given is correct.
Does your company have in place all the systems it needs to achieve high performance on key values and to monitor that performance on a regular basis? Do all those systems function as smoothly and swiftly as they should? If not, achieving and maintaining your standards may be very difficult. What practical steps can you take to improve your company's systems for value implementation?
You can have all the good intentions in the world, clear standards, responsible people and magnificent systems, but without the right skills it may all be for naught. At least that is how we felt recently when we visited Dallas to deliver an executive training program and checked into a palatial Dallas hotel for a more than princely price. Before retiring for the night, we ordered coffee for 6:30am. Due to the change in time, we were up an hour early and glad for the extra time to prepare for the meeting. So we called room service to advance our order. Sure enough the coffee arrived five minutes later-good system. At 6:30am there was another knock and another pot of coffee-bad system-which we politely refused. Five minutes later there was a call from room service-quick follow-up, we thought-to enquire why we had refused the second pot. After we explained the circumstances and expressed our understanding of the matter, we were taken aback by the callers response. "Next time, sir, please do not change your order!" Here was a truly magnificent building, with beautiful rooms and excellent systems to serve, and yet the staff had not been trained not to blame customers for the company's mistakes. Just one small skill was missing.
There are literally hundreds of skills needed to achieve high performance on even one value-physical skills, technical skills, organizational skills, interpersonal skills, managerial and psychological skills too. Northwestern Mutual analyzes the training needs of every manager and employee, because the company recognizes the importance of continuously improving the interpersonal skills of its people to support the value of teamwork.
Merck's sales people have the best reputation among physicians for the quality of service and accuracy of their presentations, because Merck has a training program that has become a model and standard for the pharmaceutical industry. New sales representatives spend ten weeks studying basic medical subjects and must score at least 90% on weekly exams. This is followed by three weeks of training in presentation skills. The next six months are spent accompanying experienced sale people on live sales calls. After nine or ten months, they actually get to go out on a call by themselves. But training is not over. They must still attend regular sessions to further improve their knowledge and skills. "Training is our obsession," says Jerry Keller, a vice president of Merck's U.S. drug division. "People who come to us from other companies can't believe we have this kind of program."
If your goal is to achieve high values and non-stop growth, you cannot afford to omit even one small skill. Sounds difficult? It is. That is why high performance and non-stop growth are not a lot more common than they are. It's difficult, but certainly not impossible or beyond the reach of those who really want it-and there are no short cuts to long term success.
Think about all the skills your company needs to achieve high performance on key corporate values. Does everyone have the skills they need to fulfill their responsibilities for the value? What additional training should be done to upgrade skills for value implementation?
GETTING THERE FAST
The process of value implementation outlined in this article is comprehensive. Any company can apply it to raise performance on any value to the highest level. But in practice we see that most companies that have achieved high performance on values are companies like American Express, Delta, Merck and Northwestern Mutual, which have been around for quite along time. Does high level value implementation have to take decades?
Fortunately, it does not. It is possible to vastly accelerate the normal process of value implementation through a systematic effort. Jan Carlzon and Ben Thompson-McCausland employed this process to suddenly and dramatically raise performance on values in two older companies. Fred Smith followed the same method to raise Federal Express from ground zero to the leader of a whole new industry in a little over a decade.
If you really want to see and feel the power of values to generate and release energy, you need only visit the Federal Express hub in Memphis on any weekday night. The place is overflowing with intensity. The company has many high values that contribute to this atmosphere-service, development of people, systematic functioning and others-but unquestionably the one that reigns supreme is being fast and on-time, i.e. punctuality.
Literally everything at Federal Express moves fast-parcels, planes, people, paper, even stairways, one of which had just been moved a few days before our arrival as part of the constant rearranging and redesigning that has continued non-stop for the past 16 years in order to keep up with the fast movement of the company itself.
Information moves fast at Federal Express too. Fred Smith was not only quick to recognize the latent demand for faster parcel delivery. He realized also that customers are almost as concerned with getting fast and accurate information about their packages as they are about getting the packages themselves very quickly. At FedEx people really believe in the direct relationship between values and profits. Time and quality = money, i.e. the less time and fewer errors, the more profit. All five stages of value implementation discussed earlier in this article are clearly evident at Federal Express.
There are visible signs everywhere of Federal Express's commitment to speed. Every night more than 100 planes fly into Memphis from all over the country between 10pm and 2am to unload some 800,000 packages for transshipment, wait for them to be sorted, and then fly back to where they came from with a fresh load of packages to be delivered. The last scheduled arrival is a DC 10 from Los Angeles carrying 15,000 packages. Should a plane be more than 30 minutes late, it could miss the sort. That means 30,000 unhappy customers-15,000 who sent the parcels and 15,000 who wait to receive them.
As part of its commitment to on-time delivery, the company will go to virtually any length to get those 15,000 parcels to their destinations. The company has rented up to 30 Lear jets to fly the packages, which missed the Memphis sort, out on time. Another expression of the company's commitment: it maintains five extra planes fueled and on runways around the country ready for use in an emergency, though they are called into use less than 1% of the time.
Smith's standard for punctuality is clear and unambiguous-100% on time. "We're not far off from that now for a transportation company. We're at an unbelievable level. But I think that through the application of technology we can reach a point where, we probably will never get to 100% in my life time, but we can get to 99.9%." In 1988 Federal Express achieved an on-time rate of 96%. "Today with one million packages a day, we feel that a 92% service level would put us out of business-that's a lot of failures" says Ted Weise, senior vice president of Ground Operations. "Even though our service level is now between 96 and 98%, the competition is up to between 88 and 90%. That is how important the 100% goal is." For 1989 it revised its standard upward to 98%, and you know what happens when the company achieves that.
On-time parcel delivery is only one of the company's many standards for punctuality. In the customer service department, there is a standard that phones must be answered within 20 seconds. The actual answering time is tracked by computer and is posted on the bulletin board every day. The day we visited the department, the actual average time was 11 seconds. There are strict, very strict, standards for departure and arrival of flights too-within three to five minutes of scheduled time. "Our job in aircraft maintenance is to get every plane off on-time. Our standard is 100%," says Paul Benbrook, senior manager of Aircraft Maintenance.
Who is responsible for punctuality at Federal Express? You guessed it-"Everybody is responsible," says Benbrook. That starts right from the top of the company and goes all the way down. Last fall the company announced to its employees that unless Federal Express achieves the 98% on-time delivery standard in 1989, the management of the company, including the CEO, will not take bonuses. That demonstrates both management's commitment and responsibility. But accountability does not stop at the top. Benbrook adds, "Every manager is accountable. Even the line mechanics come out to watch the aircraft take off on time." If a plane is five minutes late it has major a impact on service. Pilot Everett Hicks explains how he and his fellow pilots are responsible for achieving the company's values. "We have to explain every minute of delay-delays due to fueling, paperwork, crews, maintenance. We run the most on-time airline in the world." What is true for the pilots is equally true for every station and branch sorting operation. Accountability goes all the way down the line-to the end. If a parcel destined for New Jersey mistakenly lands in Atlanta instead, the error can be traced back to the individual container checker at the hub who was responsible for ensuring it got on the right plane.
Systems are a very big part of the reason for Federal Express' phenomenal growth. Working systematically and through systems is itself a core value of this company. Performance against the company's standards is tracked constantly and broadcast over in-house TV monitors located throughout the company on a continuous basis. A sorter in the hub can read on the screen how many packages were sorted the previous day and how many were delivered on-time. A Service Quality Indicator Report is published weekly. The report monitors a wide range of performance indicators-damaged parcels, missed pick-ups, invoicing errors, everything. "It records the absolute number of failures, not percentages, Roger Podwoski, managing director of Service Systems Administration, explained. "It's a subtle but important difference. The customer doesn't care about percentages. He only cares about his package. Our corporate objective is to improve the absolute level of service while growing at 30% per year. Otherwise, no management bonuses this year. That's our commitment!"
These systems involve plenty of hardware and software. They all center around six of IBM's largest mainframes which constitute the information hub of the company. These computers are linked with an incredible number and variety of computer terminals for customer service, maintenance, sorting, parcel tracking and scheduling. "Information systems hold many companies back," says Jim Barksdale, the firm's Chief Operating Officer. "We have been able to grow our systems with the growth of the business. We recognized early that good information is just as much a part of the product as the package."
To understand the magnitude of the company's achievement, consider that in 1988 the volume of packages it handled increased by 51 million in a single year. That is more than the total volume of packages handled by the company in 1983, i.e. equal to the entire growth of the company during its first decade in business.
The heart of the computer operation is COSMOS, which consists of 100,000 computers in offices and vans around the world. Info Week selected this system as one of the top ten strategic information systems in the country. Every pick-up is entered into the system and automatically relayed to a Federal Express courier, who receives direct instructions on DADS, a digitally assisted dispatching system. A terminal unit is housed in every truck. When the courier enters a customer's premises for a pick-up, he or she enters the parcel into a hand-held super tracker terminal, which is used to scan the air bill number and then slides back into a slot in the truck and immediately transmits the information back to COSMOS. From that moment, through delivery of the parcel to its recipient by another courier, the location of the parcel is tracked continuously by the central system. The DADS unit saves the couriers a lot of time by eliminating the necessity of having them call into dispatchers for instructions. "This system has really energized people," according to courier Greg Cooper. "Now we have more time to spend with our customers. It has increased the quality of service."
The zip code sorter is a system used in the hub, which provides immediate feedback to parcel sorters regarding their productivity. Even though compensation is not linked in any way with data generated by the system, the feedback has had a significant impact on individual sorting rates.
COSMOS also provides direct information to the customer. When a customer calls Federal Express for a pick-up, the customer service representative has access to 72 different computer screens of information to answer any questions that may be raised. A caller asking for a parcel to be delivered to a major city may be informed that a parade is scheduled in the destination city the next day, which may prevent delivery of the parcel.
To support punctuality and reliability in the aircraft service division, a computerized maintenance system has been installed. The system informs each airport service station around the country of the repair and maintenance operations to be carried out on each company plane the next day, so that work can be planned well in advance and completed on time. Mcidas, is the acronym for the company's computerized weather system, which is similar to the one used by NASA for space flights. Federal Express uses the system to reroute its planes to avoid delays due to bad weather. Its 92% accuracy is significantly better than that of the U.S. Weather Bureau.
However impressive the company's systems may be, no company can achieve 96% or 98% reliability without a tremendous commitment to training. Such high on-time performance depends on people in dozens of departments who must have literally hundreds of different skills for decision-making, planning, forecasting, scheduling, coordinating, communicating, and executing work at all levels of the company. "We have always recognized the significance and importance of training," says Chief Personnel Officer Jim Perkins.
The company has many programs to support the value of punctuality. New couriers undergo a three-week program including two weeks of classroom training and one week riding with an experienced courier. Customer service representatives receive a total of four weeks initial training to master the complex computer information system. Their training also includes role-playing, enunciation, phraseology, handling irate customers, and stress management. After completing the course, they are monitored regularly and retested twice a year. All senior managers in Customer Service must take the same program and spend a minimum of four hours taking live calls twice a year in order to stay in touch with customers.
There are many other elements that contribute to the company's high performance on values like punctuality and service. They are all part and parcel of the Federal Express system. "We have institutionalized the idea of 100% service through communications, awards, discipline, systems, everything," says Stephen Rutherford, managing director of Human Resources Analysis. The company is constantly being energized by its commitment to high corporate values-or as Ted Weise described it, "by a fanatical urge to do it better." According to Weise, "To achieve the last 5% in terms of quality of performance requires as much effort as achieving the first 95%." That commitment and that effort continuously release fresh energies in this company and continuously propel its growth.
EVERY VALUE IS AN OPPORTUNITY
Federal Express institutionalized the process of value implementation during the first decade of its existence. Its ability to achieve such high performance on a range of values has enabled it to keep growing rapidly long after most fast growing companies have levelled off or slowed to a crawl.
Remember, 25 years ago Federal Express was only a $160 million company, described as "the fledgling venture that everyone said would never get off the ground." Six years before that it did not even exist. Five years later it crossed $1 billion. Ten years later it was described by Barron's as ‘’a triumph of free enterprise.’’ We would prefer to call it ‘’’a triumph of values.’’’ Today FedEx is a $32 billion company with 275,000 employees worldwide.
The process Federal Express followed is essentially the same as that which C & J Industries, Waltz Brothers, SAS and London Life employed to energize themselves for rapid growth. It is a process, which any company of any size can employ to double its rate of growth or profitability in a relatively short period of time.
What are the values of your company? It sounds like an innocent enough question. Individuals have different values, why shouldn't companies? But when we refer to corporate values, we are talking about the fundamental elements of successful organizations. The emphasis and relative importance may change, but the values themselves are universals. Review the list of values listed in the Power of values. Which company can say that it does not believe in or does not want to attain high performance on them all? Every corporate value represents an untapped potential for every company. Each of them is capable of an almost infinite development. How can quality or service, innovation or teamwork be too good, so long as it remains in relative balance with all the other values? There is no company that cannot grow by implementing the values on this list. There is no company that can say it has discovered all the treasures and utilized all the opportunities, which even one of these values offer.
Then where should we start? Which values should we raise first? Is it more effective to concentrate all your efforts on improving one value or to work on all of them simultaneously? In our experience there are several effective strategies that can be employed to utilize values as a springboard for rapid growth and doubling profitability. Three different approaches are outlined below. Any company can double its profits in 12 to 24 months using one of these three approaches.
Raise performance on every corporate value by 5 to 10%
The most powerful way to grow a company is to develop each component and element in a balanced manner. Focusing on the development of many values simultaneously ensures the greatest balance and harmony and generates the maximum results. However, it is also the most difficult strategy to execute, because it requires concentration on many things at once. Incremental progress on many values does not seem as dramatic or significant as sizable progress in one or a few areas, but this strategy generates the maximum results.
Implement one value to the highest possible level that it can go
This approach has the advantage of being very clearly focused on a single goal. Focussing on one value is easier and more dramatic. But raising performance on any value throughout the company requires improving performance on many others as well, so the focus is not as narrow as it may seem. The power of this strategy comes from applying the one chosen value comprehensively in every major and minor activity and raising it to the highest conceivable level in all these areas. If you are working on only one value, it is best to choose one that is centrally related to your business and which is rated weakest of the important values.
Implement three values to double their present level
This strategy is our favorite. It has some of the advantages of both of the others. It is more balanced than focusing on one value and easier to execute than focusing on 30. We recommend selecting three values which are relatively weak and, therefore, possess the greatest potential for improvement. Preferably, one value should be chosen from each of the three categories-physical, organizational and psychological. When we say double the level of their implementation, we are speaking figuratively. Doubling refers to something mid-way between a 10% increase referred to in the first strategy and the highest possible level referred to in the second. For example, if you have scored the company 60% on a value across the boards, doubling would be raising it to 80%. In order to facilitate implementation of this strategy, we recommend that the initial effort to improve each of the three values be started three months apart, i.e. start on one value now, another three months later and the third six months later. But once you have started improving a value, it is important to maintain and continue making improvements during successive periods when you are also working on the other values.
ACTION PLAN FOR VALUE IMPLEMENTATION
- Rate your company on all 30 corporate values.
- Ask other executives, managers and employees to rate the company (division/office/department) on these values and compare their perceptions with your own.
- Conduct discussion groups to examine these differences in perception and arrive at a consensus as to where the company really stands on each value.
- Identify specific areas or issues on which implementation of each value should be improved. The issues should cover all five components of the business, all departments, all levels of the company and all activities. If you have chosen strategy 1, then you should identify major issues for each of the 30 values. If you have chosen strategy 2, then you should identify every major and minor issue related to the one value you are working on and pursue each in full detail. For strategy 3, focus on all major and some minor issues related to all three values.
- Set clear overall targets for raising the value on each of the issues identified within a specific time-frame.
- Assign responsibility for working on each issue to a group and specify the level of authority the groups will have for action.
- Each group should analyze their issue and identify specific actions required to improve performance on the value through the five stages outlined in this article --commitment, standards, structure, systems, skills.
- Each group should act where authorized or make recommendations for approval at a higher level on how to implement the value through the five steps.
- Regularly monitor performance of the groups and the company as a whole on implementation of the values on all issues.
- Administer the value questionnaire after 6, 12 and 18 months to measure overall progress.
- Write a detailed action plan listing the actual steps you propose to take to raise value implementation in your company/ division/departments.
- Estimate the impact on your revenues and profits of carrying out the actions listed above.
- The real power of values comes from implementing them in every corporate activity.
- The implementation of values can be institutionalized in a company by a five step process: making a real commitment to the values, setting clear quantifiable standards, assigning responsibility for achieving the values, creating the right systems for achieving and monitoring performance on them, and training for all the necessary skills and attitudes.
This article contains excerpts from The Vital Corporation: How American Companies Double Profits in Two Years or Less by Garry Jacobs and Robert Macfarlane, Prentice Hall, 1990. http://www.mirainternational.com/books/corporation/CHAP08.htm
- ↑ "Sky the Limit? Federal Express Corp. Is a Triumph of Free Enterprise," Barron's, February 8, 1988.