Invisible Conflict

Leave a reply

There was no ticker-tape parade. It was much too early to celebrate. In May of 1998, Wall Street celebrated one of the largest corporate mergers in history. Daimler-Benz, the maker of Mercedes-Benz automobiles, and Chrysler Corporation announced a “merger of equals.” The combined company was valued at more than $36 billion, and analysts predicted more than $1 billion in bottom line value creation. It looked like the perfect strategic fit.

Chrysler brought strong North American distribution, a line-up of mini-vans, Jeep models and light trucks. Daimler brought German engineering in a luxury brand. Each company had a successful culture that sparked a conflict of invisible disagreement. Each had its own unwritten set of rules that were about to collide.

At Mercedes, precision mattered. Decisions were deliberate, carefully documented and followed a formal process. Chrysler built its success on speed. Cross-functional teams solved problems quickly and products cycled to market faster.

Neither company was wrong in its own world, they were just wrong together. The merger failed. It wasn’t engineering. It wasn’t manufacturing. It wasn’t finance. It was the belief system held by each respective management team.

The breakup was a war of attrition, not a visible conflict. Meetings became longer. Decison making slowed. Impatient Chrysler executives left. The power dynamic shifted. To many Chrysler executives, the merger of equals increasingly felt like a takeover.   The individual belief systems could not exist in the same container.

After paying $36B to acquire, Daimler made the decision in 2007 to sell 80 percent of Chrysler to Cerberus Capital Management for $7.4B. Chrysler was eventually purchased out of bankruptcy by Fiat and is now part of Stellantis North America.

The most interesting question isn’t why the merger failed.  The question is “What did Daimler have to believe for its management system to make perfect sense?”  And, “what did Chrysler have to believe for its management system to make perfect sense?” Financial models are remarkably good at estimating purchasing efficiencies, manufacturing savings, and economies of scale. They are much less effective at estimating what happens when two organizations bring fundamentally different beliefs about authority, decision making, accountability, and risk into the same conference room.

Culture isn’t an employee engagement survey. It isn’t a list of values framed in the lobby. Culture is the collection of management decisions that become so consistent they eventually define “the way we do things around here.”

The Daimler-Chrysler merger wasn’t undone by incompatible automobiles. It was undone by incompatible beliefs.
—
Premeditated Culture is now available on Amazon.

Just One Thing

Leave a reply

“But, if Herb Kellerher’s mindset was the difference in Southwest’s success, the open seating, the free bags, why did Southwest abandon those things?” Christopher pushed back.

“What makes you think they abandoned them?” I asked.

“Now, they have assigned seating, they charge for bags,” he paused. “They are starting to look like every other airline.”

“Those are behaviors,” I nodded. “What do behaviors usually tell us?”

“That something underneath has changed,” Christopher said.

“You know, your question may be more interesting than the answer,” I replied. “Let’s look at your question. You observed the system that created Southwest and now you see it has abandoned those very things. You traced their success to a mindset, to a belief about Southwest’s place in the airline industry, more specifically about their place in the transportation industry. What change must have occurred in the mindset of Southwest, specifically the current board of directors to cause them to abandon their historic operational differences?”

“Did they start losing money?” Christopher wanted to know.

“You’re a smart guy, with a phone. Look it up,” I instructed.

Christopher was a smart guy and thirty seconds later had his answer. “They lost money during COVID, but so did everyone else.”

“And then?” I prompted.

“And then they made money. And the year after, and the year after, they made money every year.”

“So, they weren’t going bankrupt?” I assured him. “What management beliefs produce almost 47 consecutive years of net profit where every other airline is subject to down cycles?”

Christopher sat with the question. “I can’t see the beliefs,” he said. “All I can see are the pieces of a coherent system. One type of aircraft, fast gate turns, secondary airports, low fares, free bags, open seating. Every one of those things fits together.”

“And what happens when you change just one thing?” I asked.

Christopher didn’t hesitate. “It doesn’t just change one thing.”

Buses Don’t Fly

Leave a reply

“They had a disadvantage, didn’t they?” Christopher answered. “They had to fly out of Dallas Love Field, an old antique airport, against American Airlines flying out of the newer DFW airport, with upgraded terminals and a Skytrain.”

“Then why did Southwest consistently make profit during most years, when other airlines, including American lost money during down cycles?” I smiled.

“Well, they were a lower cost airline,” Christopher ventured.

“Low cost doesn’t guarantee profit,” I replied. “What was different about the way they ran things? Starting with the founder, Herb Kelleher?”

“Well, I heard he liked bourbon and had some wacky ideas like no reserved seating and free luggage.”

“Besides the bourbon, what impact did open seating and free luggage have to do with airline operations?” I pressed.

“Well, I suppose, you can find your seat a lot quicker if you don’t have one. And if I can check bags for free, I am going to do that instead of competing for overhead bin space on board. It seems to make the boarding process smoother, maybe faster?”

“And where did Herb Kelleher come up with those ideas?” I asked. “And, here’s a hint. He did not get the idea from another airline. What public transportation has open seating and doesn’t charge for checking bags?”

Christopher had to think, but it finally dawned on him. “A bus?”

“And, what business did Herb Kellerher think he was in?” I prodded.

“The airline business?” he guessed.

I waited. Slowly shook my head.

“The transportation business,” Christoper guessed again.

I continued to wait.

“He was competing with the bus company,” he finally blurted.

“And, they opened up a whole new category of airline customer, used to riding buses, and who could afford a few dollars more,” I described. “And an antique airline terminal is still a step up from the bus station. But, here is the next question. If it was so consistently profitable, why didn’t another airline copy them?”

“But there were other airlines,” Christopher protested. “What about ValuJet, People Express and Spirit?”

“Yes,” I nodded. “Those airlines, and others, copied parts of Southwest, but no one adopted the entire system, even though the system was in plain sight for anyone to copy. What was different?”

Christopher was still. I let the silence do the heavy lifting. He finally spoke. “Low fares. They all charged low fares. None of them copied the way Herb thought. It was a mindset. It was a mindset that created the culture.”

“So, the airplanes weren’t different? The airports weren’t really different? The fares weren’t different?” I asked.

“No,” Christopher insisted. “The belief was different.”
—
Premeditated Culture is now available on Amazon.

Any Company Could Copy This

Leave a reply

Buc-ee’s did not become famous because it sold gasoline. Or soda pop. Or even barbeque. Buc-ee’s became a remarkable roadside attraction because of their bathrooms. Any company could copy that strategy, but Buc-ee’s remains the standout.

It is not a feature that is difficult to copy. It is a decision that no other company is willing to copy. Every square foot in a convenience store is expected to produce revenue. Retailers carefully allocate that space to maximize sales and profit. Dedicating hundreds of square feet in a single location to clean bathrooms is a decision most companies reject.

Private equity, looking for a 30 percent return on their retail square inches, would never agree to the allocation of space dedicated to where customers go pee.

It is not just a feature, it is a promise. Each time they keep that brand promise, a customer willingly shares that experience with a neighbor, who tells another neighbor until everyone in Texas knows about Buc-ee’s.

Somehow, the word got out. A company can make a profit on a single high performing feature. But, customers don’t experience Buc-ee’s one feature at a time. Customers experience Buc-ee’s as a system. Competitive gas prices, fresh food, curious merchandise, spotless and plentiful bathrooms. None of those things, by themselves, explains Buc-ee’s reputation. Together, they become something larger. Every culture starts with a management decision.
—
Premeditated Culture is now available on Amazon.

What Do They Believe?

Leave a reply

“We have plenty of time to fight fires,” Jonas complained, “but never any time to make a plan of attack and everyone pull their weight. We are a bunch of individuals doing our own thing without the total picture perspective. We are the managers in the business. But we don’t manage, we fight the next fire, sometimes of our own creation. When other managers are not concerned with how their tactics affect the next process in line, the culture will not change. It’s a culture of, now that my part is done, I wash my hands of the problem and pass it along to the next manager to deal with. No ownership of the problem, so, no solution that benefits everyone. How can the culture change when the people in the culture don’t want to change?”

“That’s quite an analysis,” I replied. “And, probably accurate. As you watch this going on, what do you think is going through the minds of your management team? What do they believe? What are they trying to protect?”

“That’s easy,” Jonas said. Here is a list.

  • The most important thing around here is not to get blamed for anything.
  • The most important thing around here is to make sure, if you make a mistake, it does not get connected back to you, that someone else can be blamed.
  • The most important thing around here is that if you make a mistake, make sure it cannot be discovered in your work area, or your part of the process.

“So, are you surprised?” I asked. “If that is what they believe, why would they behave any differently? You cannot change the behavior until you change the belief.”
—
Premeditated Culture is now available at Amazon.

Intentional, by Accident, or by Mistake?

Leave a reply

“You said every company has a culture. Some cultures are intentional, some are by accident and some are by mistake,” Sara repeated what she remembered. “So, how do we document our culture so we can make it something we do on purpose?”

“Culture has little to do with documentation,” I replied. “Culture is that unwritten set of rules that governs our behavior in the work that we do together. You can attempt to write it down, but writing it down doesn’t make it so.”

Sara was stumped. “Okay, I get it,” she said. “And, I guess writing it down isn’t any better than putting up a teamwork poster. So, how do we create the culture we want?”

“You can start by identifying the behaviors that you want,” I replied.

“But then, shouldn’t we write down those behaviors?” she pressed.

“Not a bad idea, but making a list doesn’t guarantee that is what you are going to get. Behaviors are always tested by the consequences of reality, and reality always wins. Culture is not what you aspire to, or write down, put on a poster, frame it on the wall. Culture is what you tolerate.”
—
Premeditated Culture, now available on Amazon.

Whirling Dervish

Leave a reply

“It’s just that everything around me is like a whirling dervish,” Angela explained. “I started this company and we grew, then we grew some more and now we have almost grown out of control.”

“I thought being a CEO was being on top of the world?” I smiled.

“You know better,” she said. “It was easy in the beginning, a new challenge, gratifying, one thing after another. It was always a big win. Now, the wins are smaller, the pressure tighter, demands from more directions and all at the same time.”

“Do you think it will stop, that things around you will calm?” I asked.

She thought for a moment. “No. I mean, part of our growth has been our ability to deal with the increase in complexity, but now, it almost seems too much.”

“And, at the center of that complexity is who?” I pressed, looking straight at Angela.

“You’re looking at me?” she replied with a question.

“Yes, your ability to deal with complexity is determined by your ability to stay calm within yourself. The whirling dervishes will continue. There is only one thing you can control. The more you work on your inner peace, the more you ground yourself within, the more you will be able to navigate the uncertainty.”

Start Small and Build

Leave a reply

“Why the long face?” I asked.

“I just spent my annual training budget on a re-engineering consultant,” Omar began. “I knew that re-engineering would require a reasonable amount of training to be effective”

“And?” I asked.

“I was happy at the beginning, the biggest bottlenecks were at the top of the agenda. In the re-engineering meetings, everyone was excited and enthusiastic. It’s only now, after the project was shut down and I sent the consultant packing that the truth begins to emerge.”

“The truth?” I said.

“I intended this process to bring the team together, to create trust, cooperation,” Omar looked down. “Tackling the toughest workflow issues seemed admirable. Only now, I find out about the different agendas within the team, some of which were hidden agendas, mistrust, turf skirmishes and blaming behavior. The team is worse now than before.

“Sounds like you had two large agenda items you were trying to solve at the same time?” I prodded.

Omar was quiet. “I figured that solving our throughput problem, attacking the bottlenecks would improve the way the team works.”

“And what do you think, now?”

“I think, before we tackle the bottlenecks that we need to work on the team. And pick something small to get a win before we tackle the biggest problems in front of us.”
—
Premeditated Culture is available now on Amazon.

Costco Doesn’t Sell Cheap Toilet Paper

Leave a reply

“There are a lot of companies with low prices,” Curtis began. “But people don’t talk about Costco the way they talk about Walmart.”

“Why the curiosity?” I asked.

“We can debate the low prices, but what they talk about is the people,” Curtis replied. “Why is there such a stark difference in the people who work at Walmart versus the people who work at Costco?”

I nodded. “Tell me more.”

“When I visit, Costco employees seem happier. They’re helpful. They work there longer, turnover is less. Even though the carts are jammed full, the checkout lines move quickly,” Curtis explained.

“How do you know?” I pressed.

“I’ve shopped there. I’ve read stories. Friends tell me the same thing.”

“So, these are observable behaviors?”

“Yes,” he nodded.

“Both companies are in the category of low-cost-provider,” I said. “What’s different about what Costco believes about their team members?”

“Well, I know they pay their employees more,” Curtis was quick to reply.

“If Costco pays more, why isn’t that simply a higher expense? What does Costco believe about their team members that is different?”

“It’s not just about the money,” he stopped to think. “I think they believe that if turnover is less, recruiting costs are less, people gain more experience, experienced people make fewer mistakes, they know the merchandise better, that the total cost of personnel is worth the tradeoff against low wages. That creates a completely different working environment.”

“Do you think that different working environment has an economic impact on other things? Are customers more likely to renew their memberships? Are customers likely to buy more? If that’s the case, then is paying higher wages really an expense or is it just part of their business model? Do customers look at a visit to Costco as an adventure?”
—
Premeditated Culture, now available from Amazon.

Independence

Leave a reply

In the United States, we are celebrating our 250 anniversary since our Declaration of Independence. In 1787, Elizabeth Willing Powel asked Benjamin Franklin, “Well, Doctor, what have we got here, a Republic or a Monarchy?” Franklin replied. “A Republic, if you can keep it.”

Stay safe this July 4th. We will see you next week. -Tom

This podcast just dropped.  All about Elliott.
KPI Fireside Chat, hosted by Keith Norris, guest Tom Foster.