Wednesday, February 27, 2008

Curing the Cancer of Business

There was a time, when the “C” word was cancer, and it was whispered in conversations. Our attitudes have changed, as we learn more about cancer. The same is true in business. Cancer eats away at the very heart and soul of a business.

Perhaps the deadliest form of business cancer is cost cancer. That is the focus on measuring and managing cost at the expense of measuring and managing value.

Allow me to offer up the optimization cycle as an example. Many US business entities follow what is know as a Chase Cycle. They staff up when demand is high, they staff down when demand is low and it seems logical on the surface.

Each time they shed talent, they remove key balancing elements of the foundation from the business. There is a loss of perspective, knowledge, skill and wisdom. There are also those elements of the foundation that remain; which include loyalty and structure. When an upsurge in demand occurs, the foundation that remains, tries to clone itself. They seek people who are loyal, structured and detail oriented; and this comes at the expense of competence.

Down turns put talent onto the street. Some retire, some are absorbed by small firms and others are transformed to another profession. No one is waiting around on holiday. Then like a tsunami, surges from pent up demand are so great, that business entities cannot find the talent needed to do it right. The market place is unprepared to provide the talent needed. The result is a change in cultural rules of competency. Education, training and experience are viewed as development alternatives to each other. Instead of seeking people qualified to do the job, we look for people who aspire to develop competency under fire.

The lessons learned on the job lack the balance of traditional development. Whatever understanding is gained is limited to the experiential perspective. Knowledge of theory and concepts gained through formal education is rationalized as unnecessary. Skills developed by professional training are rationalized as trendy. Because more downturns are expected in the future, on-the-job experience becomes the preferred method of cost effective development.

In time, the once complimentary balance between education, training and experience are viewed as conflicting. The balance of perspectives is lost and a myopic cancer spreads with each and every wave of the Chase Cycle.

In time, the organization dies of natural causes, or the organization is dismantled and rebuilt. The best-known example of the second is GE, a process that took twenty years to complete.

Organizations like Toyota avoid this cancer all together. They do this by not following a chase strategy. Instead, they follow a level strategy. They forecast demand over long periods and set the capacity, capability and competency based on the mean.

They not only keep the foundation of knowledge, skill, wisdom, loyalty and structure together, they build discipline on top of it. Something US firms are not able to achieve. Discipline is a very valuable proactive element, but it also comes with a high cost. US business entities tend to have more of a reactive perspective, and that is why the Chase strategy makes sense to them. Developing discipline is not important, because their perspective does not allow them to see the value, only the cost.

As the Japanese ways continue to transform the rest of the world, in time, the old world methods of the US will die off. Survival for American business will either be accomplished by a Jack Welch type of transformation, or through foreign ownership. Either way, what business entities do in the US, will probably die in the US. The only question is at what economic cost to the US.

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