Saturday, December 24, 2016

Reaping What You Sow...My Years With PHILIPS!

Reaping What You Sow...My Years With PHILIPS 
by Bryan J. Neva, Sr.

Do not be deceived; God is not mocked, for whatever a man sows, that he will also reap.  - St. Paul (Letter to the Galatians 6:7)

I recently called an old friend to wish him and his family a Merry Christmas and a Happy New Year. We were friends and colleagues for almost two decades first with a company called ATL Ultrasound and then with PHILIPS Medical Systems (the famous old Dutch electronics firm).

In the years before PHILIPS acquired ATL in 1998, the company's management style was quite progressive, fair and supportive (which was the management norm in the 1990s). After PHILIPS acquired ATL, the management style slowly reverted to a 1950s style of top-down management by fear and intimidation. We were frequently reminded that we should be thankful just to have a job while our workloads steadily increased and our salaries steadily decreased.

And when the 2008 recession hit, the company's management style went from bad to worse, and we became even more overworked and underpaid. Especially at the end-of-the-year when PHILIPS wanted all their new systems installed so they could record the sales and show a huge profit for their shareholders. They couldn't be like normal companies and end their fiscal year on September 30th; they had to end it on December 31st during the holiday season. There were many, many Christmas Eves and New Years Eves when we were all out installing new systems just so PHILIPS could record the sales. I don't think we ever had the chance to enjoy the holidays when we worked for PHILIPS. And the thanks we got for working our tails off was, "Well, you get to keep your job!" Several years ago, my friend and I both quit in disgust.  He had almost 30 years with the company and I had almost 20!

PHILIPS management behavior is quite typical of a Mergers and Acquisition (M&A) firm.  They buy profitable companies, drive out the competition, and then start making draconian cuts and disruptive changes all while managing with an iron rod in order to quickly recoup their investment and earn double-digit returns for their shareholders.

The standard modus operandi for M&A firms like PHILIPS is to first realize cost savings by consolidating back-office operations like human resources and payroll.  Then they make cuts in management (they keep the mean, bad managers and rid themselves of the compassionate, good managers), and then they eliminate redundancy by downsizing the workforce (they rid themselves of the higher-paid, experienced workers (like my coworker and me), and keep the lower-paid, inexperienced workers).  After these, they target salaries by restructuring pay-plans, freezing salaries, and making it extremely difficult to even get a measly cost-of-living pay increase. Then they'll cull the workforce by requiring managers to rate their employees: the big raises go to the top-rated employees while no raises go to the bottom-rated employees (the mean, bad managers will use this to get rid of employees they personally dislike regardless of their actual measured performance). Then they'll try to increase productivity and sales revenue by working their employees even harder (12 hours a day/60 hours a week is the norm). And finally, they'll cut production and manufacturing costs while keeping the sales prices high. (The customers are essentially paying more for a lower quality product.) The problem is that there are not enough cuts in any company for an M&A firm like PHILIPS to recoup their initial investment within five years or to make the double-digit returns their shareholders demand.

For PHILIPS, making a profit wasn't even the issue, it was how BIG of a profit they were making, and it was how quickly they could recoup their investment. And they lived up to the old Dutch stereotype of being penny-wise, pound-foolish, and big cheapskates! Their motto back then was, "Sense and simplicity." We used to sardonically say that PHILIPS' motto should be, "Senseless and stupidity!"

As progressive as they might seem, the Europeans are actually notorious for their hard-nosed, winner-take-all, profit-at-any-price management style. To PHILIPS employees aren't even human beings with hopes and dreams and families they’re trying to support, they're just easily replaceable resources, cogs-in-the-wheel, units-of-production, or line-items on a spreadsheet. The managers and employees who thrived at PHILIPS probably had some degree of narcissistic sociopathic tendencies without an ounce of compassion or empathy for others.

ATL made state-of-the-art, top quality, and highly reliable ultrasound systems that lasted years (many of them are still in service today).  Most of their manufacturing, including electronic circuit boards, was done here in the United States. After PHILIPS took over, most of the manufacturing slowly shifted overseas to China (they only assembled the final products here in America); the circuity, cabling, and structure were not as durable or as reliable as they used to be; and they released products long before all the hardware and software bugs were all worked out. The results were quite predictable: their quality and reliability declined precipitously. As for us field engineers, there weren't enough hours in the week to keep up with the high demand for repairs.  

PHILIPS obviously did not care about their customers (the healthcare providers), the patients they treated, or the field employees like us that had to face the music every day trying to clean up their mess and make apologies and excuses for their poor quality products. Years ago when I first started working in the medical device industry, there were dozens of companies that manufactured all sorts of medical imaging equipment thereby allowing competition in the industry and giving customers a choice in who they did business with. Back then, companies competed on performance, quality, service, and price. Now due to industry consolidation, there are only a few big players left in the U.S. industry: PHILIPS, GE, and Siemens; although, in the past several years they're starting to get more competition as several Asian companies are entering the U.S. marketplace (I noticed that the reliability and performance of the Korean and Japanese medical devices were significantly better). And that's what the medical device industry needs right now as the cost of healthcare in the U.S. is exponentially rising: more competition!

Similarly, the big three American automakers rested on their laurels for years as their quality and reliability declined. It wasn't until they started getting more competition from the Japanese automakers when they finally started to focus more on building better automobiles. Competition works better for the consumer, while industry consolidation (i.e. M&A) and oligopolistic practices only hurt the consumers.

My old colleague made an astute observation, "How can PHILIPS treat their employees and customers so badly and expect to stay in business?" The answer is they really cannot. But that's the whole point of an M&A firm like PHILIPS: staying in business isn't in their long-term business plan. They buy profitable companies like ATL, exploit them for all they're worth, run them into the ground, and then divest themselves of them when they're no longer profitable! In short, they use them then throw them away like yesterday's trash. PHILIPS epitomizes everything that's wrong with Corporate America (or Europe) today with its short-term thinking, winner-take-all, profit-at-any-price attitude, and their mistreatment of their customers and employees in the name of the business.

Recently, I ran across an Internet advertisement for quality professionals at PHILIPS.  Frans Van Houten, the CEO of PHILIPS, has a video where he talks about the need to improve quality at PHILIPS.  His punch line at the end of the video was, "The ultimate cost of not being focused on quality is that we have no future." Well, Duh Frans! My colleagues and I were raising the red flag about the declining quality of PHILIPS' medical equipment years ago. Why didn't you and your fellow executives in Holland listen to us then? You don't have to be a well-educated genius to figure out that you'll reap whatever you sow. If you plant weeds you can't expect flowers to grow. It's nice that PHILIPS is finally starting to focus on improving the quality of their products, but I can assure you the only reason is that their poor quality has probably caught up to them and has begun to seriously affect their bottom line!


Wednesday, December 21, 2016

A Self-Fulfilling Prophecy by Allen Laudenslager

I keep hearing that American business can’t find qualified workers and they must look overseas for those workers. In large part the blame rests with American business itself.

When you want to make a train engine, you must have steel mills to make quality steel which is affordable and in the quantity needed to make the parts. You must have people who can design the individual parts, and you must have workers to assemble the parts. What no one not familiar with the process of making things will notice it the missing elements from my description: you must also have people who can design and manufacture the machines to make the parts such as lathes, drill presses, or welding machines. At each step in the process of making a complex product there are many other parts that must be made to make the machines that make the parts of the final product.

For many years, American business managers came from the ranks of people who actually made the products: the designers, the production managers, not finance, accounting, marketing, or purchasing. Why was that system so successful? Huge corporations like Ford and General Motors had management career paths that put their people first into manufacturing to learn the business. Only after they understood the process of making cars were they transferred for a few years (not for a few weeks or months) into financing, accounting, marketing, purchasing, and all the other departments in order to give them a solid grounding in the business.

As the cost of doing business rose, major projects needed more outside financing and the lenders demanded more participation in the decision making process and they got seats at the table. The problem of course is that financiers were trying to make decisions about processes they didn’t fully understand. They fell into the trap of thinking that everything could be reduced to numbers. One of those traps was not understanding just how much they didn’t know.

The old cliché, “If all you own is a hammer, everything looks like a nail.” means that human nature will filter what it sees to fit what they already know; that we will trim a problem into the elements we recognize. This is particularly true if you have to make a decision very quickly, without time to put your feet up on the desk, ponder the problem, and consider all the solutions.

Those finance wizards thought they could save a lot of money if they didn’t have to make some of the parts. So they said, "Let’s get someone else to invest in the machinery and employees to make fuel pumps. We can buy them cheaper than we can make them." But they didn't understand that making fuel pumps was a training ground for the people who would one day design complete automobiles. 

The same is true for senior management. We won’t have career paths for entry-level people in order to groom them for upper management. We can just hire that expertise from somewhere else and save a lot of money!

How does this apply to those assembly line workers? In the rush to save money the people who didn’t understand how assembly workers learned how to do the work tried to shift the responsibility for training to someone else (like trade schools subsidized by the local government). They say, workers should be experienced when we hire them, the schools aren’t training enough people to work with their hands. But the schools can’t provide the kind of familiarity with your product that actually working in your plant could. Yes, this method is going to cost a company in the short-run, but in the long-run you'll end up with a first class workforce.

Companies will retort, “if we train those workers, then they'll run down the street to my competitor the first time they get offered ten cents more an hour and I’ll lose my investment in training them!” Well, duh!
IF THEY’RE WORTH 10 CENTS MORE AN HOUR TO YOUR COMPETITOR, THEN THEY'RE WORTH 11 CENTS MORE TO YOU! That extra penny is what you don’t have to spend to train a new worker. In the same way, some of the people making fuel pump parts will be able to advance their skills and make even more precision parts. If you are outsourcing those parts, you'll never develop the workers to make those parts. That will cost you money, but it is an investment in the long-term health of your business and your industry. You are trading short-term profits for the long-term health of your company. And the one key question you, as a senior manager, must ask is, “do we want to still be in business next year, in 5 years, and in 25 years?"

The self-fulfilling prophecy is that by shifting the responsibility and cost of training workers to someone else you lose the very benefit you need, trained workers, to operate your business.

Monday, December 19, 2016

Business Is Personal!

Business Is Personal!
by Bryan J. Neva, Sr.

"It's nothing personal, it's just business!" so says the popular cliché which has crept into the very fabric of Corporate America. The actual quote, however, is attributed to a 1930s gangster named Otto Berman and was popularized in the 1969 Mario Puzo novel The Godfather and the subsequent movies of the same title.  

It's as if using this cliché somehow absolves or justifies a person or Corporate America of their bad or uncompassionate behavior towards others; it's a way of dehumanizing others by not acknowledging normal human emotions or needs; it's a way of telling victims that if they show any kind of emotions at all then they're unprofessional, overly sensitive, or not management material; it's a way for managers to look themselves in the mirror every day after they've screwed their customers, employees, suppliers, or other stakeholders in the business.

Typically people who live by this cliché have little if any emotions themselves, and there's a name for this type of dysfunctional behavior: it's called psychopathy! Having some degree of psychopathy does not necessarily mean that one is a criminal or serial killer, it just means they exhibit certain antisocial, dysfunctional, or abnormal personality traits such as a lack of emotions, empathy, or remorse; they also may exhibit egotistical, narcissistic, or amoral behavior.

Studies have shown that a high percentage of business leaders exhibit some degree of psychopathic behavior. That's why they usually rise fast in organizations where greed is good and a winner-take-all, profit-at-any-price mentality exists. Even in the public sector where salaries are a pittance compared to the private sector, psychopathic behavior is high among those in positions of power where power-at-any-price is the name of the game.  Just look at the people in positions of power within the State and Federal government and decide for yourself.  

The fact-of-the-matter is that business is personal! Because human beings are social animals, people don't normally live totally detached from all human contact. People do business with people; people work with other people; organizations are made up of people; monetary transactions occur between people; deals are made between people; marriages are between people; relationships are formed between people; anytime people interact, whether it be a casual encounter or when conducting business, they're personally interacting. So how could you honestly believe the cliché it's nothing personal, it's just business? You really couldn't; that is, unless you're a psychopath like the gangster Otto Berman! 

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