Category Archives: Applied Management

The lessons from railway tracks

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The lessons from railway tracks

“Most managers were trained to be the thing they most despise – bureaucrats”

Alvin Toffler: author and futurist

The state of New South Wales (NSW) railways has a railway gauge (distance between the rails) called the standard gauge. It is 4 feet, 8.5 inches or 1.435 metres and is also the gauge used in Great Britain and USA. As an aside, there are 2 other railway gauges used in Australia. How they came about is a story for another blog.

The standard gauge is an exceedingly odd number.

Why was that gauge used?

Because that’s the railway gauge used in England, and NSW was formally a British colony.

Why did the British select this gauge?

Because the first railway lines were built by the same people who built the pre-rail tramways. This was the gauge they used.

Why was this gauge used?

Because the engineers who built the tramways used the same jigs that were used for building wagons using the same wheel spacing.

Why did the wagons have this wheel spacing?

Because the wagon wheels were the spacing of the old wheel ruts. Outside these spacing they would break through the old, long distance roads in England.

So who built the old rutted roads in England?

Imperial Rome over 2,000 years ago. Many of these old Roman roads have been used ever since.

And what formed the initial ruts in the roads?

Roman war chariots.

So the NSW standard railway gauge were derived from the original specifications of an Imperial Roman war chariot.

What a great example of the power and life of bureaucracy. Bureaucracies can live forever.

When you are handed a specification, procedure or process and fail to understand the ‘logic’ or ‘reason’ you can make the statement:

‘What horse’s arse came up with this?’

And you may be right. Imperial Roman army chariots were made wide enough to accommodate the rear ends of two war horses.

The moral of the story is to “aware of the power and intransigence of

bureaucracies”. This can be outside your organisation or within your organisation itself.

You need to keep asking the question ‘why’ to get the best outcome.

The importance of standard routines and procedures

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pioneer_cement_ford

The importance of standard routines and procedures

“Routine sets you free”
Verne Harnish – founder of Young Entrepreneurs’ Organization (YEO)

One of the biggest issues faced by businesses as they grow is managing the growth. This is because their management systems come under strain.
Many businesses begin when a ‘technician’, for example, a tradesman such as an electrician decides that they want to go into business as they have the technical expertise. The new entrepreneur thinks that because they understand the technical work they also understand how the business operates.

This is a myth according to author Michael Gerber. In his book published over 20 years ago called The E-Myth he introduces the concept that very successful businesses have very simple and robust business systems that do not require exceptional managers. The more automatic and simplified your management system the more effective is your business. What Gerber is explaining is a franchise system.

Very early in my corporate career I worked for a business called Pioneer Concrete Services Ltd. The company grew from a single pre-mixed concrete plant in Sydney in the early 1950s to a major industrial corporation operating in 11 countries within 30 years. The founder was an accountant called Sir Tristan Antico who was obviously not a concrete ‘technician’. The primary foundation of the pre-mixed concrete business was a concept called ‘cell management’, where the plant manager was responsible for marketing, production, human resources, sales, quality and profitability. As a young graduate it was an exciting and challenging work environment where you quickly learnt business management skills or left.

Antico designed a very simple management system. Remember this was before computers. Each fortnight the manager reported their profit and loss using standard forms, showing gross margins, sales and profits. Once again using standard forms materials purchases and usage were reconciled monthly. The company could tell very quickly, regionally, nationally and internationally how it was travelling using this standardised and disciplined system. What I learnt at Pioneer I carried on to other companies I worked for and then to our own business.

As Vern Harnish says “Routine sets you free”

This disciplined, routine and systematic management system allowed Pioneer to expand quickly into international markets well before other competitors. Their business system was scaleable without the administrative and management bottlenecks often encountered when companies grow. One of my former managers said a trained monkey could run the Pioneer Concrete system.

As Warren Buffett, the great American investor said:

‘Buy into a business that’s doing so well an idiot could run it, because sooner or later, one will,’”

This was one of the main keys to Pioneer’s success. Interestingly, a new CEO recruited from outside the organisation and therefore with no allegiance to the cell management system took over. The cell management system with its standardised and disciplined management system was abandoned. The business was subsequently acquired by a major international competitor and a major Australian industrial icon was lost.

The question for any business owner is:

“Are your business systems scaleable so that your company can manage its growth without losing control allowing you to work on the business rather in it?”

Constant renewal – lessons from the farm

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Bathurst-Burr-2

Constant renewal – lessons from the farm

I grew up on a farm in north western New South Wales, Australia. In my opinion it was one of the best groundings in life you can have. Many things observed and experienced as a child growing up on the farm can be related to business.

One experience that comes to mind is the problem of weeds.  This can be related to continuing to improve both your management performance and your business.

On our farm, weeds, specifically burrs and thistles were a major problem. In particular there was a burr called a Bathurst burr. Bathurst burr is amongst the most common and economically serious weeds in Australian agriculture. It readily adheres to the wool of sheep. Wool contaminated by Bathurst burrs is a substantial cost to the wool grower as additional processing is required to separate the burrs from the wool. The burr was first introduced to the city of Bathurst, Australia’s first settled inland city in about 1850. It was trapped in the tails of horses imported from Valparaiso in Chile. Perhaps it should have been called Chile burr!

As my father was a woolgrower, Bathurst burr was a major issue.  As children we were often sent out with a hoe to chip Bathurst Burr along the outside of the cultivation paddocks and roadside. Call it character building. However, compared to other properties in the district our farm had relatively small amounts of this burr.

Why was this so?

It was not from our childhood efforts chipping weeds along the roadside!

It was due to my Dad, who was constantly on the lookout for burrs. When horse riding whenever he saw a Bathurst burr, he would dismount from his horse and pull it out. As children we were fascinated by this obsession of eradicating Bathurst burrs and would often point them out to him if he missed one (this was very rare as being an Aussie bushman he had excellent eye sight).

By comparison, my school friend Graham who also lived on a farm had a different experience. I can remember his father’s place having far more burrs than ours. Like my father, his father would often send him out chipping burrs. However, his father became ill, involving hospitalisation and was unable to walk around his farm and keep burrs under control.

What was the difference?

It was because of the constant attention to keeping the burrs under control – often on a daily basis.

And this is the lesson for managers and business owners. Managing is not about platitudes, big schemes and projects. It is about constant attention to detail, continuing seeking ways to improve……… everyday.

As a manager are you keeping the burrs in your organisation under control?

Exit Strategy…

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Kerry Packer

Exit Strategy…

“Always have your business ready for sale. You might not get more than one chance. Not everybody gets an Alan Bond in their life.”

Kerry Packer (late media owner and billionaire)

The late Kerry Packer sold his TV business to corporate raider Alan Bond for over $1billion in 1987 (far more than it was worth) then bought it back 3 years later for $250million. He was not expecting the sale but sold because it was too good an offer to refuse.

“Begin with the end in mind”. This is habit 2 in the late Steve Covey’s Seven Habits of Highly Effective People and it is important when you start or buy into a business.

What is your end game?

What do you want to achieve and where do you want to be in ‘X’ years’ time?

I bought into a business over 15 years ago with 3 other partners. In purchasing the business, the seller who was our former employer advised us to have an exit strategy with a time limit. This was noted and promptly forgotten.

As the business grew there were the usual tragedies and triumphs.  After 10 years I suggested we needed to get the business in a ‘sale ready’ condition. However with business partners with differing priorities this did not eventuate. It’s not that we needed or wanted to sell the business, just that it was because, like the late Kerry Packer said “You never know when a buyer will come along”.

Without warning a potential buyer did come along and we were not ready. It was a disaster. The potential purchaser viewed a somewhat disorganised and business and quickly lost interest.  An underlying issue was the lack of a shared vision in the management team and unclear agendas.

Did we learn anything from our first approach by a potential buyer?

A little bit, but not enough………..

Less than 2 years later we were approached by a large multi-national company wanting to buy the business. This time were a little better prepared. The negotiations dragged on for over 9 months and eventually it failed for a number reasons. These reasons included legal complexities to do with selling the business versus selling the company (this had significant financial implications), the final offer and performance guarantees.

I was disappointed that we had missed another opportunity.  At our debriefing meeting, I identified what I believed were the reasons for the sale falling through:

  • no professional assistance from a corporate advisor (the potential purchaser had an entire M&A department),
  • no legal or tax advice
  • no timeline.  

There were however, some positives that came out of this experience. The business had now been ‘tidied up’ and was in a more saleable position. After considerable discussion, it was then agreed to engage an advisor, seek financial and tax advice and agree on a timeline should a buyer emerge.

The engagement of the corporate advisor was critical. They helped take the emotion out of the process, kept to the plan, prepared professional sale documentation, co-ordinated the various parties including the accountant and lawyers and sought out potential buyers. The business was sold successfully to an offshore company with conditions and a price that far exceeded our expectations.

Our Alan Bond moment.

The corporate advisor uncovered and highlighted the Value Drivers of the business. For further insights into exiting a business I recommend reading a blog by exit expert Kerry Boulton.

In hindsight, perhaps the failed sales helped us……….you can be lucky and learn from your mistakes.

So is your business ready for sale (and are you?) just in case an ‘Alan Bond’ comes along with an offer too good to refuse?

What is your plan?

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boer maak ‘n plan

In Afrikaans, the language spoken by the mainly Dutch immigrant descendants living in South Africa ‘boer maak ‘n plan’ means a ‘farmer makes a plan’.  The deprivations and harshness of farming in a foreign land brought resolve and the need to plan to get around or solve these problems.  Having travelled recently in Southern Africa I came across another similar saying in Zimbabwe where people often spoke about ‘making a plan’.

What does the saying really mean?

Not as it appears literally. The ‘hidden’ meaning is that you have an alternative plan (a plan B) when your first plan fails or is impossible to implement. In other words, you need to be flexible and adaptable to solve a problem.

How does this equate to being a manager or managing a business?

As business owners or managers, we need to plan in the first instance. As the saying goes, ‘if you fail to plan, you plan to fail’. 

However, having a rigid plan may not work if circumstances change. Let me give you an example?

Many years ago in our third party logistics business we were having difficulty in getting our trucks unloaded on time at a retailer’s distribution centre despite meeting their strict time slots. It was OK for the distribution centre to run late unloading you, however if you failed to arrive at the designated time slot you were ‘fined’. What made the situation even worse was that to make the early morning delivery time slots, trucks had to battle peak hour traffic to and from the distribution centre as well as the loading delays. This became an expensive experience – instead of 3 hours it was taking 6 hours to deliver and unload. It was further compounded by our fixed price delivery charge.

We had many meetings with distribution centre management and despite their assurances that the situation would improve, it did not.

What would solve our problem and be a ‘win’ for the distribution centre? Our Plan B.

Making some observations and talking to the receiving team at the distribution centre a plan emerged. All loads were hand unloaded (rather than on pallets) onto a conveyor with the individual cartons being scanned as they travelled up the belt. The distribution centre had a prime mover that was used for moving trailers around the receiving area.

We asked distribution centre management whether we could trial loading a 40’ container instead of an ordinary tautliner semi-trailer. We would bring the loaded container in early in the morning before peak hour, leave it in the receiving area for the distribution centre prime mover to move onto the unloading conveyor when it suited the receiving team. The empty container would then be picked up on the next early morning delivery. After a short trial, it was found that it was a win/win for both us and the distribution centre. Delivery time halved with a massive increase in margin for us and the distribution centre was able to utilise their receiving area far more efficiently.  

The success of the trial enabled us to purchase two second hand and obsolete hand semi-trailers for 10% of their replacement value and establish a unique closed loop delivery system that was extremely profitable.

We solved the waiting time problem and the peak hour travel problem which initially appeared to be unresolvable. We significantly increased our profits by having a Plan B.

Remember in any situation, you should always have a Plan B like the farmer faced with the unpredictability of the harsh African environment…….

Doing Your Homework

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Doing Your Homework

“All of us, at certain moments of our lives, need to take advice and to receive help from other people”
Alexis Carrel

How often in your work or business life have you not done your homework and put yourself under unnecessary pressure?

I can remember an incident very clearly where I thought I could prepare a capital expenditure application for an environmental washing plant at a concrete plant located in regional Victoria, whilst sitting in my office in Melbourne. There had been great reluctance from head office to fix the environmental problem of disposing of concrete waste as it was costly. Nothing surprising about that! I gathered ‘letters of protest’ from neighbours, one of whom was an employee who lived behind the plant. Upon touring the area with my General Manager several weeks later, he brought out the application and stood near where I had said the washing plant was to be located and started asking questions. This was a very trying time as the document explained where the waste water was running – and it was up hill! Obviously not immediately obvious from my office in Melbourne!

I learnt two valuable lessons:

• do your homework
and
• there is no substitute for physically being on site

However, even the largest companies fail to do their homework. Several years ago Rio Tinto, a major international mining company was forced to write down $3B because their plan to barge coal down the Zambezi River was not physically possible and required government approval to dredge the river. Perhaps they could have learnt from history – David Livingston the famous African missionary and explorer was unable to navigate up the Zambezi in a small craft due to the Cahora Bassa rapids which he had not investigated previously. The Rio Tinto Managing Director lost his job primarily over this debacle.

Years later in our logistics business we had to convert a casual warehouse lease to a more formal non-casual lease. We were nervous that our landlord would want both a long term commitment and an increase in rent. The previous week our warehouse manager advised us that the owner had been on site several times over the past month with ‘unknown’ persons in suits and that there had been some cosmetic tidying up and painting on external parts of the building.

I did some more homework and discovered that the landlord was seeking to sell the property and he needed a permanent lease to interest a possible purchaser. This information changed the dynamics of the negotiations and we were able to negotiate a less than market rent, shorter fixed terms and lower annual increases and the owner was delighted – a real win/win.

Remember there is no substitute for doing your homework thoroughly……..

Management by Walking Around

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Management by Walking Around

“The simple act of paying positive attention to people has a great deal to do with productivity”

Tom Peters

I was recently discussing how the first 6 months of a new job was going with an associate who I had known for many years. This was a senior role which required both senior management experience and technical expertise which was critical to the organisation and its members. The associate was quite happy with their new role, had autonomy and was able to work on projects unhindered. However, they were puzzled that in the head office of about 60 people where they worked they had never seen the Chief Executive Officer (CEO). That’s right, not even physically sighted the CEO, let alone met them.

This seems an extraordinary situation, but it’s true. It would hardly come as a surprise that in the previous 12 month period over 30 new people were employed to replace those who had left. It can be safely assumed that there was something seriously wrong with this organisation, and the statement ‘a fish goes rotten at the head first’ explaining organisational failure would appear true in this case.

Staff look for leadership, not aloofness.  Evidence clearly indicates that successful organisations have management teams that are engaged with their customers and staff.  One demonstration of this, is the concept ‘management by walking around’. This is not a ‘royal tour’ as experienced in one of my first jobs as a fresh faced junior.  At that time I worked for a large multi-national in the steel industry and whenever senior executives were about to ‘tour’ there was a frenzy of painting and clean up, much to the bemusement of staff. The tour was generally a 5 minute walk through accompanied by the plant manager before the entourage moved on to the next plant. Little wonder that the business had to merge later and divest its manufacturing to remain in business.   Early on in my career, I developed the practice of ‘walking the floor’ within an hour of arriving at work to talk to staff. It was amazing what an effect it had on morale, as problems were aired and often solved; giving staff a sense of satisfaction in their jobs.  It was also another way of providing feedback on performance and hearing about issues with customers and the suppliers. People like nothing better than being asked for their opinions in a considered and professional manner.

My suggestion is that if you are not managing by walking around then plan to start this as soon as you can.  It will work wonders, make your job easier and help with workforce engagement and increase profits! However, ensure that you are genuine in your approach. Your workforce will pick up  fake concern and self-serving behaviour immediately.  I can recall another CEO in a much smaller organisation who would stroll through the workplace, stopping and asking a plant operator the name of the person who they to next visit, then walking up to that person and saying ‘hello Mary’ as if they were some long lost friend, but not engaging in any meaningful dialogue before rushing off to the next person. You can imagine how he was viewed by staff and it later became a game to give him the wrong name and see what the reaction was!

Management by walking around makes great sense and makes for a better workplace providing it is done sincerely, in a considered and professional manner. So if you are not doing this, the best time to start is now…………………………

What is the cost of safety to a business?

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What is the cost of safety to a business?

“The purpose is clear. It is safety with solvency. The country is entitled to both”

Dwight D Eisenhower, US President

Industrial safety, Occupational Health and Safety (OHS) and now Work Health and Safety (WHS) is becoming increasingly more prominent in the media and especially in state of Victoria where the government safety agency WorkSafe runs high profile media campaigns that tug at your emotions.

Many business owners see safety as an overhead cost that should be avoided where possible.

Is this good business practice?

Can poor safety be detrimental financially to your business?

Many business owners would see it as a risk worth taking. Is it?

Just recently a major transport company lost nearly $100m of business primarily due to their poor safety record, highlighted by a fatal accident that caused the death of two people in 2013.

A major multi-national company would not allow them to tender on a major contract because of their substandard safety. Poor safety is often a symptom of poor systems and management. If safety is poor it is likely that there are other major issues with the business. The ramifications go further. The holding company in the past month has had $239m wiped off its value and now 540 jobs will be axed. Clearly poor safety does not pay!

By way of example, I managed a major interstate transport division for a public company where the managing director was passionate about safety. The evidence was clear; vehicle servicing schedules, management of driver hours, no speeding trucks, clean trucks (a good sign of a well-managed transport business), driver training and rigorous selection.

The evidence of success for the division I managed was emphatic. Low driver turnover, high truck utilisation, high profitability and no fatal accidents in the 6 years I managed the business. How was it done?

It was quite simple. A management system was implemented where drivers’ performance was reviewed weekly (over 120 drivers), drivers were involved in managing their own performance, driver selection criteria was rigorous and maintenance schedules were strictly adhered to. Supervisors and drivers were involved and a culture from senior management that safety was paramount.

As a business owner or manager, next time you wish to cut corners for safety keep in mind the consequences…………….and remember to ask the question: “is the business at risk?”

Lessons for managers from Nelson Mandela

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Lessons for managers from Nelson Mandela

“It always seems impossible until it’s done”

Nelson Mandela

What can Nelson Mandela teach us about being a good manager?

During December, I was planning to write a blog about what businesses should do over the Festive Season in preparation for the new calendar year. However, with the death of former South African president Nelson Mandela provided an opportunity to reflect on what Mandela could teach us in our roles as business owners, managers and supervisors. Mandela was an international hero and was universally revered around the world as a vital force in the fight for human rights and racial equality against great odds.

Despite over 25 years in gaol, Mandela came out of prison not seeking revenge. Instead he oversaw the relatively peaceful transfer of power in South Africa.

As Archbishop Tutu, stated:

“Could you imagine if he had come out of gaol a different man, very angry and baying for the blood of his former oppressors? We would not have made it to first base.”

Whilst I am tempted to list dozens of things Mandela could teach us as managers about leadership, it is always best to keep it simple – so here are my three top picks:

1. Integrity

Despite often being called a ‘living saint’ Mandela steadfastly refused to be recognised as such. In his books and speeches, Mandela went out of his way to point out the dangers of deifying him. He admitted to having many flaws, to having made many mistakes and to having had his integrity tested many times.

In 1985, Mandela was offered a conditional release from by President Botha if he renounced violence and obeyed the law (just racial laws). Mandela did not fall for this very transparent gesture. Whilst he desired freedom after decades in prison, he did not betray his principles, and his long struggle for democracy. Mandela replied as follows:

“What freedom am I being offered while the organisation of the people remains banned?  What freedom am I being offered if I must ask permission to live in an urban area?  Only free men can negotiate. Prisoners cannot enter into contracts.”

It was almost 5 more years before he was unconditionally released from prison. In the end, history showed that Mandela’s integrity overcame all obstacles when he  became the first democratically elected leader in South Africa. Integrity was combined with another important leadership trait…

2. Perseverance

Despite the seemingly impossible task of obtaining democratic rule in South Africa, Mandela managed to achieve what seemed impossible

 “Perseverance always overcomes resistance”.

How many times in our business life has this occurred? I can remember feeling that a business in which I was a significant shareholder would never sell after 2 failed attempts over 2 years. There were times I was told to ‘give up’, however, when least expected, an overseas buyer which exceeded expectations.

Opportunities often come when least expected, however this takes time, energy, and focus and perseverance.

3. Vision

Mandela had an over-riding vision of a multi-racial South Africa with a strong focus on the future, not the past. He never lost sight of this vision and did not compromise his goals. Whilst suffering in prison he was offered numerous inducements to compromise his position and be released early. He declined.

His actions and words left no doubt as to his vision. Leaders with vision have passionate and dedicated followers.

I can remember asking a managing director what his vision was for the company and the reply was ‘for me to be here next year’. Can you imagine being inspired by such a person?

Integrity, perseverance and vision are all are leadership traits that Mandela can teach us as successful managers. The outpouring of emotions at his funeral from ordinary people (not the dignitaries) is testament to these qualities.

Are these traits important in your job too?

Déjà vu All Over Again

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Déjà vu All Over Again

The following advertisement for the International Commercial Truck, circa 1910, is on display in Maine’s Owls Head Transportation Museum:

“That the motor truck is an excellent substitute for the horse has been proven in every instance where businessmen have given it a fair trial. But the man who uses his motor truck simply as a substitute for horses neglects to make the most of his opportunities. The horse is not a machine – five to six hours’ actual work – fifteen to twenty-five miles – is its maximum day’s work. A motor truck can be used twenty-four hours a day if necessary, and it will travel the last hour and the hundredth mile just as fast as the first.  Businessmen who are using the motor truck in place of the horse and wagon equipment with the greatest success are men who have given this problem careful study. In most instances it was necessary to change the plan of routing – delays which were necessary to give horses rest were eliminated – plans were laid to keep the truck busy the entire day with as few delays as possible……….”

The use of new technology is the key to increasing productivity. However, often pre-conceived ideas or environmental pre-conditioning of our thoughts prevents us from realising the potential of new technology. There are some great examples. With the advent of the motor car in the late 19th century in England, the Locomotive Act 1865, otherwise known as the Red Flag Act stipulated that self-propelled vehicles have a man with a red flag or lantern walking at least 60 yards (55 m) ahead of each vehicle at walking pace to warn horse riders and horse-drawn traffic of the approach of the vehicle. On a recent visit to Japan I had to wait until 10.00 am for the ATM to open (which was when banks opened) to access my bank account. None of these examples make practical sense.

In an earlier career as a transport manager, I was confronted by the long distance truck drivers I was managing telling me that each driver must have their truck (even though it was owned by their employer). This limited the distance that could be travelled per week to less than 3,500 kilometres, due to legal driving hour restrictions and the driver’s physically being unable to safely drive much further each week. Breaking this thinking was difficult. However, multi-driver trucks were introduced, with drivers rostered to the legal driving hours and with the trucks operating 24 hours per day for over 6 days per week. The average distance travelled per truck exceeded 9,000 kilometres per week (with some trucks doing 12,000 kilometres). This high truck utilisation resulted in significant increase in company profitability as fixed costs were covered early in the working week. Correspondingly, the number of kilometres per driver increased. As they were paid by the distance travelled they were winners too!

The challenge for managers is to do away with pre-conceived ideas based on history and experience and objectively look at where new technology can increase productivity and lower costs. My former accountants (note that I said ‘former’ accountants) continued to increase their charges each year, charging me for postage, when they could have emailed me documents, charging my business a direct debit fee for paying our account rather than sending a cheque and so on. When I queried why our fees kept on increasing I was told it was because their costs kept on increasing. Clearly they were not passing on the savings of implementing new technology and were trapped into the ‘old way’ of thinking. Not only did they lose our business they lost other businesses I was associated with.

Remember change is inevitable and what we did yesterday will not be good enough for tomorrow. If you don’t recognise this I can guarantee that your competitors have.

Are you trapped in your ‘old ways’?

Are working in your business rather than on it?