Success and Failure: Making a success of a failing enterprise
Submitted by Robert Heller on Sat, 2006-07-08 21:18. Al Dunlap Eckhard Pfeiffer James Adamson Lord Weinstock Robert Ponchak Thomas Watson

Western managers loathe and fear failure. They dread and hate poor results so much that often they inadvertently create the very object of their loathing. Every time a business is closed, a project is cancelled, or a product is withdrawn from the market, the management responsible has slammed the door on the possibility that, tackled differently, the business might have flourished, the project might have made a money-spinning breakthrough, or the product might have become market leader. The failure is a self-fulfilled prophecy.

That self-defeating process can start long before the end. Damned as a no-hoper, the victim is starved of funds and eyed with increasing contempt. The people in charge become disheartened - and the low morale spreads. Demoralised managers and staffs tend to deteriorate in performance, which reinforces the case against their enterprises. Yet these disregarded lumps of coal have often become jewels in the crown - like the Dundee plant which made NCR world leader in automatic teller machines.

RISING FROM FAILURE
Never forget the immortal words of Thomas Watson, the founder of IBM: 'That's where success lies - on the far side of failure.' Thinking Managers has previously recounted the tale of Windows NT, which looked to be Microsoft's largest and most visible flop, but was turned round to become its flagship product in the booming client-server market. But the NT triumph doesn't mean that failure is always reversible. Watson's giant, after all, persisted for years in wasting billions on developing its own operating system, in a futile attempt to shake clear of Microsoft's monopoly. IBM's mistake wasn't to stop, but to have launched the venture in the first place.

Still, the contrasting stories raise a fundamental and taxing problem. How do you decide when to persist, keeping the patient alive, and seeking a radical cure, rather than letting nature take its course? You start with a basic question. What action would you take, ideally, if the business, project or product were all your very own, and the only one in your proud possession? Without doubt, closure would be the very last alternative - unless lack of funds forced the issue. In better financial circumstances, you would strive with might and main to find a successful solution.

That process must start with analysis, establishing what the real difficulties are, and why they have arisen. If it's a whole business that's under scrutiny, six basic questions have to be answered:

1. Are the products/services the right ones for the markets being supplied?
2. Are the products/services being provided in the most effective possible manner?
3. And at the lowest possible cost?
4. Is the business tackling the right markets?
5. On all key indicators, is it as good as or better than the best competitors?
6. Is there a clear reason for customers to choose this company and its products/services, rather than somebody else's?

The answers will almost certainly be negative on most counts. That raises the question which strikes to the heart of the matter. Can the negatives be turned into positives? That is nearly always possible, with one proviso: that the right leadership can be found. Fortunately, that's not so hard as it sounds. The people with the necessary drive, skill and enthusiasm are very often available in the most convenient possible place - the business itself.

That's what happened at the NCR plant at Dundee, where James Adamson was the man in charge. The same scenario was enacted at the General Electric Company when the future Lord Weinstock, previously heading only the consumer electronics side, took control of the entire electrical group in the mid-1960s. Both Adamson and Weinstock began their drives to turn failure into success by tackling the six basic questions listed above with great vigour. That meant, first and foremost, setting new, far higher and exacting standards.

For NCR, the selected criteria were customer satisfaction and engineering quality. The key to setting standards has to be effective benchmarking - none of the six questions can be answered satisfactorily without uncovering the truths (usually hard ones) about relative performance. Adamson investigated the reliability of the competition in ATMs and insisted that his engineers should do twice as well. After first ridiculing the idea, they actually trebled the reliability through a complete redesign of the machines.

LOOKING FOR BENCHMARKS
Weinstock had used a similar approach at Radio & Allied, the family TV business that had merged with GEC. As he told the Financial Times, he brought down the price of larger-screen TVs by methods which included asking 'our few but highly competent and practical engineers to reduce the number of electronic valves from potentially 20 to 12. We eventually got down to 14.' At GEC, which 'was in a real old mess - everything was done wrong', Weinstock lacked the detailed control he enjoyed at R&A: so he turned to the US for his benchmarks.

'We had to develop a set of efficiency criteria quickly, which could be applied generally. The figures did not have to be exactly right, just so long as they were adequate to show up the tendencies of the different elements of the business.' A GEC man was sent to the US to identify 'best practice' in the industry, and came back with the basic material for key ratios (for instance, of inventory turnover, debtors and margins). With other statistics, these were consolidated into a famous management reporting and control system - still working fine after more than 30 years.

Every business, whether or not it's attempting to rise from failure, needs the same primary tools: key data that can be rapidly mined to give speedy information about the significant dimensions of the business; and key targets whose achievement will transform its performance. The same requirement also applies to products and projects. Managing them effectively demands swift and regular information, plus targets for progress and exacting ambitions - as Adamson saw at NCR, there's no point in aiming to outdo the competition by small increments. Aim for real breakthroughs and you have a real chance of breaking through.

The corollary is that small ambitions beget small results. The hallmark of the rescued businesses is that they aim far beyond survival. The Wall Street Journal tells the story, as remarkable as that of NCR's Dundee plant, which is still unfolding in North Berwick, Maine. The factory makes jet engine components for Pratt & Whitney: after 17 years of life, it was facing the death penalty as the company sought to slash costs in face of severe competition from Rolls-Royce and General Electric. The nearly condemned plant, though, has since become one of Pratt's best peformers, cutting operating costs by 20% in two years as defect rates fell by 30%.

The pattern is again instructive.
(1) Leadership was provided from within, by the existing plant manager, Robert Ponchak.
(2) He insisted on winning complete commitment from management: 145 of 325 salaried jobs went as Ponchak proceeded to remove 'naysayers'.
(3) Best practice methods were introduced, with the aid of a young expert wished on Ponchak by his superiors - despite friction between the two men, lean production techniques freed floor space, cash and manpower. But the improved methods required decisive help from
(4) the enlistment of all staff, not by exhortation, but by practical means.