 |
| Pradip Chanda, is a turnaround consultant
based in Delhi. He is the author of The Second Coming--Creativity
in Corporate Turnarounds |
An
increase in the level of tolerance for imperfection is one of the
most vital signs of a corporation's failing health. When a company's
quality of control department responds to complaints with ''Yes,
but that happens only once in a while'', that is a sure sign the
organisation is on the skid row.
The climb back is that much tougher when the rot comes out into
the open. So, I knew Whirlpool was nowhere near getting back to
its feet despite its declaring an operating profit when I received
its shabbily produced annual report with a stamp affixed askew (there
was no envelope!) on one side.
Surely a company that claimed to be a contender
for the number one spot in white goods could afford to spend a little
more to reassure its investors that it took quality seriously. Instead,
its high tolerance of imperfections made me want to sell my shares
as soon as I could find a buyer.
Tolerance of incompetence can spread like cancer
and make a company far too sluggish to take remedial action, even
when faced with an explosive situation.
Serious safety hazards had forced Chrysler
to take back a million cars of one of its fastest-selling models,
the Pinto, for retrofitting, just a year before Lee Iacocca joined
the US company. One would have thought that Chrysler would have
been forced to draw its lessons from such an expensive setback and
set right the glitches. Did they?
They didn't. One of the first sights that greeted
Iacocca when he joined Chrysler were tens of thousands of unsold
cars rusting unsheltered on the Michigan Fair Ground. Dealers were
unwilling to stock these, as by now they were well aware that cars
came off the Chrysler assembly line with multiple and serious defects.
This could happen because of high tolerance of incompetence in key
operating areas.
It was no surprise, therefore, to Iacocca when
he discovered that the company was spending close to $350 million
a year in warranty costs, but no one in the senior management knew
the causes of the 10 most frequent warranty claims.
A fallout of increasing tolerance of incompetence
by companies is the lowering of their standards to make them look
less inept than they are.
Take, for example, goal-setting. A lot of companies,
having failed to achieve business targets for a couple of years,
switch to a bottom-up numbers system. Touted as a great motivator,
everybody buys into the numbers they set for themselves. What actually
happens is that conservative estimates are fed in to protect the
non-performers from a tough quota. No matter how committed you are,
if the impact of the number you turn in can make the difference
between getting a pink slip and a fat performance bonus, where would
you pitch the number? This is how some companies take pride in pointing
out how year-on-year they never fail to achieve incremental growths.
Such numbers, if way below what the market merits, will actually
deny the company major opportunities.
The entire field force of Apple Computers turned
in highly conservative estimates. A performance system designed
to pay handsome and escalating incentives for beating the forecasts
may have influenced the numbers generated. The sales management
cadre upped the numbers, as they also benefited from the same incentive
plan.
Such plans have a direct bearing on manufacturing,
inventory build-up, and promotional plans. The result was Apple's
inability to service an overwhelming number of orders.
But the damage does not stop there. Potential
business goes elsewhere. Competitors find a way in and get busy
filling up the void.
This perhaps explains why newer, hungrier entrepreneurial
organisations seize sizable shares in markets dominated by majors,
with their Achilles' heel well-covered, but not protected.
|
