Cutting Edge Business Unit Design

Charlotte Bygrave:  (A)  I'm Charlotte Bygrave with Capelle Associates. And this morning, I'm going to go through what's called the Roche Canada story. About ten or 15 years ago, I was the head of HR in a pharmaceutical company and we worked with Elliot to assess the organization and essentially to implement almost his entire system. And what we were preparing to do was manage complexity in the pharmaceutical industry. So again this morning I'm going to tell you a little bit about Roche Canada, the affiliate of F. Hoffman Roche, which is a leading global and research-oriented pharmaceutical firm located in Basel, Switzerland. The Roche Canada story essentially began in the early to mid ninety s. For those of you who know something about the pharmaceutical industry, the pharmaceutical industry has long been one of the world's most complex. And starting in the early 90s that complexity began to increase at a spectacular rate. I'm going to briefly describe for you some of that turbulence and Change how Roche as a corporation decided to respond to that and particularly our responses here in Canada. And I'll end up highlighting some of the work that we did with Elliot Jaques, Katherine Cason and Nancy Lee in preparing manage through all of this complexity. Some of their most critical issues were growing in intensity. There were patent expirations on major drugs. There was also growing generic competition in the industry. There were price pressures, mounting anger over the price of the pharmaceutical drugs or research and development drugs. There were also a number of drug development challenges. The pharmaceutical industry was kind of reaching the limits in terms of developing synthetic drugs or drugs based on chemical formulas. Biotechnology was to be the new wave of the future and it hadn't started yet to pay off. In addition to that, there were mounting regulatory and political pressures. The regulatory agencies started to take a far more cautious approach to approving drugs for the market as a result of several major drugs having been withdrawn due to safety issues. And there were also melting political pressures as the industry was not seen as being quite as forthright as it could be. Roche overall responded to these issues with mergers and acquisitions. There was a lot of overcapacity in the industry and mergers and acquisitions was one of the ways they thought would reduce the cost of developing and marketing drugs. In addition to that, there was increased automation in the manufacturing processes and also centralization of a lot of the manufacturing facilities. There was a licensing in of new drugs, again to increase the pipeline and also far more or high number of strategic alliances, often again to fill the pipeline or to acquire the sales and marketing expertise needed to enter a specific therapeutic area. So there were a number of issues going on and a number of solutions being tried and roached to prepare the company to manage through this new and very turbulent environment. In addition to all of those issues. Our corporate senior officers also articulated some other new directions. There were other things that they felt the company had to do in order to prepare to manage through this new environment. Number one, they said, we need managers acting as coaches and mentors, not commanders and controllers. Ever been in Basel, Switzerland? Of course, if you worked there, most likely your immediate manager and your manager once removed, would have been your former commanding officer in the army. So it was very much it was a good company. The Swiss certainly ran a very, very good organization, but highly command and control oriented. We also knew that we needed to eliminate Turks and organization silos. Often organizations we intend to forget that the competition is outside and over time it moves in house. But often, as we know, as a result of this approach to organization design, it isn't always the political issues in the Terse. It's often because we haven't clarified the key accountabilities in the authority and we don't have the organizational framework that we need in place. At any rate, there was a real focus on managers acting as coaches and mentors, the elimination of turfs and organization silos. It was also felt that we needed to have a far stronger goal and process orientation. These issues were particularly significant to the Canadian organization. We were concerned about retaining and developing talent. There are lots of questions around could we learn better and adapt faster to change? We knew that we needed to tear something down some walls there, help managers get better at setting context and direction. Mergers and acquisitions were on the horizon that would impact Canada. We wanted to make sure that we could take advantage of the anticipated benefits, also execute our plans a little better. We planned well. Roche is quite adept at short term and long term planning. But how do we make sure that we could execute those plans? So we looked at a number of different solutions or approaches that could be brought in. Some of them included some of the best management practices re engineering, total quality management, even thought of more training and development. Many of these approaches we knew were great, sound, very practical, and they had been implemented in other parts of the organization. We had them in Canada also, but they didn't quite fit our vision of a solution. I think it was as Rob Pierce said yesterday, we kind of knew intuitively, we didn't know it at a conscious level that we needed to focus more on strategy structure, placing rules at the right level, and the talent development. So literally, the Canadian Management Group was given the assignment of starting to think about what we need to do in Canada. Certainly given the issues, I saw a critical role there for HR. Not exactly sure what the content of the role would be and how it would play out. But I knew that there was an opportunity to take the lead. I also knew that we had very good HR programs. They were readily accessible to the organization, they were cost effective, they were relevant to the business. But this new situation did not mean more of the same. We needed something different, something that would take us to a higher level. We looked at a number of things, and it was pure serendipity that I met with Ms. Elliott. A colleague had faxed me an announcement regarding this one day seminar. She had a note at the bottom saying this is a worthwhile way for a senior person to spend the day. So I went to Elliot's one day seminar and I must admit, I was really taken with his theories. Not only were they practical and sound, but they were integrated into this total systems approach. And here was this individual clearly articulating a lot of the conundrums and problems that I dealt with over the years. He was recognizing that they were real issues. They were issues that needed to be resolved, and there were solutions to these issues. What kinds of issues? As an HR person, one of the things of course, you're often told is must work without authority, right? Use your influence, your ability to communicate and negotiate, but you don't have authority. There are lots of issues that I have seen over the years around lack of clear accountabilities and authorities, and also issues due to the fact that we just had no concept of a manager once removed and what that individual's accountabilities were towards their immediate managers and their subordinates once removed. He was bringing up a lot of issues that were real issues. I got quite excited and ran back and told the president of Canadian Operation about this. And he got it. He got it immediately and wanted to move ahead, but didn't want to do that without the informed consent of the executive committee in Canada. So when we started this work in Canada, one of the first things we did was we spent three days in intensive training with top two levels reporting to the president. Catherine Kacen and Nancy Lee came to Canada and spent that time helping the group become familiar with this particular approach in the principles. Again, the managers got it. It was not difficult for them to understand. There were some pieces, some parts of the principles that caused them consternation found the manager once removed concept was again not well accepted initially. It took some work on that one. Also this whole notion of managers being accountable for the outputs or the results of their subordinates, but the subordinate being accountable for their effectiveness and working towards also caused some concerns. But again, overall, they accepted the system. And a major question for them was did they understand and agree with the values underlying this management organization design and people management approach? And was this the way they wanted to manage the company? Now, many speakers have explained over the last few days. The system is very complex, so it's kind of hard to answer that question. You look at it initially and say, yes, this is the way we want to go. We certainly had a very positive response from the majority of the managers in Canada. And then we decided to go down. Actually after the three day training seminar we experienced. We were going through a merger after that. So this whole approach got put on the shelf for a little while. Our first president, who fully supported has gotten sick and we were also busy dealing with a merger. We had to get through that very rapidly. So this to the back burner for a little while. It was the back it it's it's previous. Very okay, there's previous and continue to hit previous.

Speaker B Right?

Speaker A But it's going in the wrong direction. Anybody jump right there? Anyway, where was I was talking about the fact that this whole approach sat on the back burner for a little while until we got through the merger. And what was pleasing for me as an HR person was to have the managers after the acquisition come forward and say, whatever happened to those principles we learned about? We think we need them more now than we needed them before. So we did find that the principals were extremely helpful in helping us manage effectively. After the merger. We went through the integration of the two organizations fairly rapidly. We knew that there will be some mistakes. We thought the consequences of mistakes were better than allowing this thing to drag on, state of anxiety and just bringing the organization to a branding call. So we moved quickly and then we started in to take a look at both our organization design management practices and our human resource management practices. One of the first things we did, of course, was to look at the organization structure itself. How many levels did we have and need? Were the functions well aligned to keep the focus on customers and the markets and the competition? And did we have those vertical levels and functional groupings well integrated?

Speaker C Sean, I think you've got a handout in front of you of your presentation. Is that right? Yes. Hand them out and you're about halfway through time.

Speaker A Okay. Anyway, we had a little bit of a top heavy and fragmented functional structure that resulted from the acquisition. Marketing organization had been broken up into too many different pieces, so that needed to be redesigned. And after the new functional structure, we realized that not only was there better role design, but it led to improved working relationships and reduced the silos within the marketing area. The top heavy structure was due to the fact that after the merger there were a number of talented employees that we wanted to hang on to. So you make homes for these people because you want talent, not because you're looking at it. What's an effective organization design. So we started with looking at the structure of the organization and we realized that functional alignment was necessary. But Roche had the correct number of organization levels. Once we understood the unique contribution or the level complexity of work that was to be completed at each organization level, our challenge was making sure on an ongoing basis that the complexity of the work matched the levels of the organization and human capability was matched to the levels of complexity of work. One of the ways that we would do that, level five, it was a strategized organization. Yes. One of the ways, of course, to keep the work and the levels balanced was through the strategic planning process. Again, Roche was fairly adept at strategic planning, but one of the things that Elliot and Nancy helped us do was to strengthen that process. Our president now was very much in love with the balance work card approach, but did not want to implement it unless it was consistent with requisite organizations. Elliot, Nancy and I came back and told him, yes, it was they didn't tell you how to do it in a multi functional, multi level organization. So the improvements we made to the strategic planning process had to do with making sure that the company business plan was translated into functional plans and that those functional plans all had strat, appropriate objectives. It was one of the ways of, again, keeping the work aligned with the structure, the business plan integrated with the operational plan, which was then integrated with the performance management system. Another area that we focused on in the assessment, of course, was cross functional working relationship. Intense collaboration is required in the pharmaceutical industry to produce and launch products. So it meant millions of dollars a day to the organization's top line to be able to launch those new products effectively. So the President, the way we looked at the cross functional accountability and authorities was, let's not try and put an authority on every task or accountability in every role. Let's look at where we're having some major issues in the organization and shoot for solving those. So it kind of took what are 20% of the problems or issues that are solved? You resolve those, you're well on your way to major issues. We had the framework in place. You now knew how to look for problems due to lack of cross functional clarity. In addition to that, another major piece, of course, was the establishment of product launch and development teams. Our president had used these kinds of teams in other pharmaceutical organizations and realized their value. So we quickly set up the teams that all kinds of hurdles perform. Well, people were very pleased to come and chose to participate on the team, but clearly over time, things were not working out. Teams were reporting to the executive committee. There wasn't a lot of support from their home based managers for their participation on the team. Given the amount of time they were spending on the teams. They were also concerned about compensation, performance management and their career development. One of the things that Elliot helped Roche do, which was really critical, I think one of the first areas where there was significant short term strategic payoff and would have been even greater long term strategic payoff was in establishing the project and coordinative team structure. As smart as he was, our situation initially brought furrowed brow to his face as he tried to figure out what was going on in the organization in terms of getting our functions, clinical research, marketing, sales to work together and solution came up with. He said you actually need two different kinds of teams and one team will transform itself over time into second type of team. First team was a product launch team and this is a typical project manager team. They're going to study a problem and make a recommendation to the executive group and once that recommendation was accepted, now you're going to launch into business plans and actions that would have impact across the organization. So coordinated team would need to be put in place to ensure that the work of the various departments to get the launches off and running was in safe conditions, timing and resources. About two months or three months into this whole process, it does take a while to get everything settled down. Delegation, clear accountability authorities, not only within a team, but between the team and the rest of the organization. But it was one of the areas in which Rose started to see some immediate payoff. Steve is sitting in the or, Julian sitting there again. Just to summarize on the product launch team, what was most important, establishing clear accountability authorities of the accountable executives. This was ultimately accountable. The president is ultimately accountable for the teams that launch these new products. Obviously we're not going to report ten or twelve teams to the president, so that authority was delegated, verified the authority of the home based managers and also other functions, team leaders and members. We set up selection criteria. People just wonder, well, how do you get to be on a team, how do you get to lead the team? It must all be political, so have to develop the process and make that transparent. There was also important to clarify the human resource management function. Depending on whether one was a project manager or a coordinated team manager, your accountabilities and authorities in this area would differ. You're the project team manager then you were essentially a manager with managerial accountability for your team, including the HR policies and procedures. If you were the coordinative team leader, your authorities were very different. Your authorities were around bringing people together to get the work done, but you were not their manager in the sense of branding, salary increases, unit performance appraisal or career development. This is the other thing that we saw happen, because these these teams, initially, when they first got off and running, they worked for about a couple of months, and then all of a sudden, they were really upset. And they wanted to get on the agenda of an executive committee meeting to explain what their grievances and concerns were. Initially, the President and senior executively think okay, we need some training here. For the team members, actually, training was not what was necessary and they couldn't resolve the problems themselves because they were structural problems. But we did see a major increase in morale and productivity and a move toward reducing the product launch time, another major event. Again, I'll just reemphasize that we implemented this entire approach in Canada, including eliminating the predictive criteria based pay systems or bonuses. But I'm just going to give you some of the highlights. The product teams were one of the highlights. Second one was the talent pool and communicating the results. We not only went through the talent pool assessment, but we went so far as to select within short period of time about 50 employees get feedback from them on what they thought of this new system. Again, feedback came back that people felt that this way of assessing folks, looking at their capability, looking at four critical areas, looking at the capability, their skills, knowledge, whether or not they valued the role and required behaviors was a far simpler way for employees. Common language between the manager and employees. It was far easier for them to have meaningful communications about the individual's capability, to reach agreement about that capability and also to work out plans that develop plans for career development purposes. The manager, once removed did deliver the communication to the employees. This is an area in which we found we needed to keep the immediate manager in the picture. That individual was involved in helping each of their direct report prepare for these mentoring discussions with the manager once removed. Again, this was an area in which we felt that there was immediate payoff because it started to establish and show us, give us proof that that three stratum linking the manager once removed, immediate manager and direct report. If you can get that linking from the top of the house through your entire organization, it's one of the best ways to start getting people along with strategy and also better working relationships between managers and employees. The other thing that people really liked about this assessment system is they knew that it wasn't a once and for all type of judgment. We made it very clear that what was being assessed only your ability to do work at this particular point in time, that your capabilities do grow over time, and that these assessments would be looked at on ongoing an basis. Very positive feedback from employees. They doffed out a fairly sound professional planning system, performance management system. But it did allow us to get away from a high number of pompees and other ways of working with people to simplify it on the reward and recognition side. I'm going to briefly run through this. We went so far we had a number of issues with bonuses. We had many situations where, first of all, there are lots of morale problems every year because bonus situations create winners and losers. We also had to admit at one point in time that bonuses precipitated behavior outside of acceptable standards. And you're in a situation where we were even looking at firing on some of our best representatives. So we had had a number of issues. So we took a look at eliminating the bonus, what it would cost the company financially, and also what we expected the results to be. All of the three business divisions and the three business divisions at Roche were given an opportunity to make their own decisions around whether they wanted to eliminate the bonus or continue. The vote was for eliminating bonuses. What managers wanted to hang on to was what they called a goodie bag, some small little spot kind of prizes and awards that they would give out. They were happy to have gotten out from under the problems caused by the large bonuses, major problems. Because big bonuses typically go with your higher level roles and the higher level roles, it's impossible for you to upfront predict all of the obstacles or the conditions under which the individual plans work. If you've designed a plan to address those kinds of issues, individual could find themselves in a situation where you have to make a choice between do I work to get the bonus or do I work to do the do I do what I know needs to be done for the success of my department in the organization? It's one of the reasons that predictive criteria based pay tended not to work, particularly at the senior levels. Sometimes you found at the lower levels of the organization where it was easier to accurately predict the conditions under which the person will work, but at those levels they tended to work fairly well. But at any rate, it was really outside the box thinking when we got rid of the bonuses. Personal effectiveness appraisals was another area that was changed. Again, we looked at all human resource management systems and we got rid of we used to have five performance rating categories outstanding expectations, et cetera, which would cause no end of reef. Once we had the organization design framework and we understood the difference between the complexity of work at each level, we could move away from those performance categories. We just eliminated the five categories and went to something that was far more neutral or appropriate in terms of describing the individual performance. Yes, it's a managerial judgment, but judgments must be grounded. Managers are able to take a look at a role now and start to think in terms of where the individual is performing. Given the full scope and nature of that role. Top half, bottom half, the top of the top, middle of the top, bottom of the top. So again, it gave managers and their direct report a common language, and both could stay focused on the work and performance around the work. And not feeling employees not feeling that they were being judged in some absolute sense, their absolute work is being tested somehow. Criteria management by the trust. Yeah, when we talk about judgment. So I've heard a couple of things said over the last few days that give you the impression that managers it's okay if managers willy nilly just make judgments. Your judgment has to be grounded because you do have to stand behind it. You got to communicate it to other people. So there was no question that for us, it was the whole business planning process. Performance management process was a big piece of that's where the performance management cycle starts. We thoroughly defined the work and assigned it to individuals. So that was a major piece of this whole system. And again, two way communication between manager and employee in determining what the work objectives were going to be. They were encouraged to do six month assessments, and then on a manual basis, there was a formula.

Speaker B Could you talk a bit about round?

Speaker A Yeah. Not just this morning. I think a couple of times this week we've talked about managerial judgment versus calculating. You're carrying out a calculation. It might, on the surface, appear to be a mathematical calculation. What it really means is you're making a decision in an area in which you know every reason why you're making the decision. So you're essentially following an algorithm. There are some other areas in which there's inherent unknowability. It isn't a matter of just the absence of the fact there's inherent unknowability, and I must make a judgment, but my judgment needs to be grounded. How did you come to that conclusion? Managers are encouraged. Obviously. You're doing the ongoing coaching and counseling, and you're observing and working with employees. You've got lots of evidence to go back to to ground that judgment. I've always believed that effective managers also ask the employee, it's not a one way kind of judgment. Tell me how well you think in it over the last year, did I give you the assistance? Did you have the resources that you needed to do your work?

Speaker B Was there sorry. The equilibration process is that used effectively within the organization?

Speaker A It was used very effectively within the organization. And again, the manager, once removed, wasn't necessarily questioning any individual assessment. You're looking for those overall patterns, so you get a feel for who might be too stringent and who might be a little too lenient when it comes to making these kinds of judgments. And where might the manager need some additional coaching and counseling? So the equilibrium process was extremely important, both for the personal practice appraisals as well as the merit reviews that became a significant part of this whole program at Roche we talked about the personal effectiveness appraisals and some of the benefits that we received immediately there first thing that I noticed was less emotionally charged. Where you did have disagreements, they were less emotionally charged agreements to work out and resolve the issues. These changes employees were quite clear that these changes in compensation and personal effectiveness appraisal did not mean that the performance bar has been lowered, it has been raised. And they agreed that it was a fair exchange. In the very next employee relations survey, the company got extremely high marks for the changes it had made to these human resource management processes. The rogue story probably lasts about two and a half to three years from initial implementation to the time that two presidents, two consecutive presidents supported this system. But the third president, after a third merger was not a great proponent of the system. And so there were some parts of it that were undone. The compensation piece in particular, because he felt that we had set up a culture of entitlement. He liked bonuses, so bonuses were reimplemented. And there were some aspects of the job evaluation system they no longer use solely timestamp. They went back to applying timestamps with the old point factor system. So those were two major changes. Say that as I look back at the road story there's one thing that we should have done was to push harder to get the informed consent and involvement of the corporate COO whom both of the Canadian presidents reported. He was certainly aware that we wanted to move ahead with this initiative and we had his blessings, but we did not have his informed consent in terms of understanding what are you going to be doing, how are you going to do it, what kind of payoff are you over what period of time? So when a new person comes in to the position, I think often we forget that the objectives or the strategies go with the role and not with the individual. And it's very important for the effective operation of an organization as well as employee morale satisfaction that they don't see these constant pushes and directions every time there's a new player at the top. So again, if I were ever implementing this in an affiliate, I would want to make sure that where possible, get that next level of management on board. In terms of, again, just some of the immediate benefits that Roche experienced. There was the common language and the total systems approach. We now had a rationale for analyzing organizational problems and fixing them. There was immediate payoff, strategic payoff in terms of the product launch team and a significant change in employee morale as a result of the changes to some of our most important employee relations programs or human resource management programs.

Julian Fairfield Thank you very much. We're going to go through Is quite quickly because this is a two hour presentation. Go through it now. So my target is. To finish by ten parts and then we'll leave you guys plenty of time to talk. This is a more conceptual and a theoretical viewpoint about the linkage between Stratum theory and strategy. And we decided to put this ahead of the English value because in fact, what you're seeing is a sort of theoretical way of thinking about what English has actually done. And the last slide is a great sort of lead in for your study. I read your study the other day. So what we'll do is we'll go through these sections. One is a brief introduction to the ideas level capability, and that'll be quite brief because a lot of you guys are very familiar with it already. We'll then talk about its application to strategy, we'll talk about its application to individual functions and how you can look at each function through the set of glasses of levels of capability. We'll then go into the seven S's model, which is a McKinsey model that allows you to describe organizations quickly. And then you can relate the seven S's model back to levels theory and say you get different characteristics of organization S by S, depending upon what level you're operating at within the organization and what functional level you're operating at. So you see a match between levels and seven S's. And as the level changes, the nature of the seven S's changes as well. So you're getting a picture of how the whole organism, as it were, changes as the level changes in the organization. A little bit about in there what would be gained by a level shift. Because my basic message in here is that really good strategy is one of two things. It's either deciding that this is, say, one of the businesses I own is a level three business, and if I tried to push it to four or five, I probably stuck the business up. It's either knowing very clearly what you are and winning at what you are, and one of my businesses is a level three business and I have difficulty accepting that, but actually that's what it is, so I better just stick with it. Or if you're in a business where you have the ability to shift levels, say from four to five or five to six, and if you want to beat the competition, that's actually what's happening. You shift from five to six or four to five and you beat the hell out of the competition. Interesting from an army point of view, where a level six army situation is actually competing with a level one, level two terrorist organization, and what the relationship is when two combatants are actually using completely different modes of thought as to how to deal with the same problem as how to defeat the enemy. So I haven't thought about but it's actually quite an interesting thing to think about. And then the last bit is why this is so difficult to do. And there are two reasons that it's difficult to do. One is congruency requirements and also is capacity requirements. There's enormous demands on changing level capacity of the organization, which means changing the people in the organization. And you actually have to get congruency because I'm going through quite quickly if there's an area that some of you that heard the presentation before that says, hey Julian, you skipped that. And that was actually quite interesting, can you just tell me and I'll go back to it? All right, so we'll go. Off we go. So this is some background. Elliot at Glassier Medals was confronted initially with creating pay grades. There really wasn't a system available that had any conceptual foundation as to how to create pay grades. He, along with Lord Brown, developed some hypotheses. And this is three pretty simple sentences, but they're actually quite earth shattering. First one was that work was the use of discretion or judgment to resolve a problem, not doing stuff. Now, that's a little simple, no brain at that stuff, but that actually, I think, is just a staggering insight because it actually says Tinker Taylor, Soldier, Sailor. You can now normalize a description of the complexity of Tinker Taylor Soldier, Sailor and describe them in turf. It have a unified descriptor that says I can compare levels of work because I've got levels of discretion or judgment across different domains that we normally relate to. What you're doing, what stuff do you do? Is what defines the work. And Elliot came up with this idea that stuff that you do is sort of irrelevant. It's the use of your discretion, which then for the first time really, in the history of organizational theory, gave you a normative description of the level of work across all organizations, whether it's in the army, or whether it's in nursing, or whether it's in the church, or whether it's in a business. I've got a way of normatively describing work that is just an incredible insight. When I first read that, I just blew my mind and I understood what that meant for second one, he got a hypothesis that the complexity of work was related to the length of time that judgment had to be applied to complete a task which was then called at that time called time Spanish discretion. An instinct that the big guys at the top of the organization seemed to be dealing with long time span tasks, and the guys at the bottom of the organization seem to be dealing with shorter time span tasks. So an instinct of that and that was reflected in things like pay scales and time clocks. And people have contracts of two or three years, or I'm paid by the month, or I'm paid by two weeks, or I'm paid when I first went to the States, we actually paid our employees by every 3 minutes. They clock in and they're clocked out. We actually calculated to every 3 minutes. So it was quite a short way of thinking about paid, and that the classic hierarchy and the pay scales were a reflection of different levels of realized problem solving capability. You hope each level adding value so as to legitimize the pay and to legitimize authority. This was a concept that said I've got authority over Michael. What legitimizes my authority other than I'm just big and nasty? What legitimizes my authority over Michael? Surely the only thing that would really legitimize my authority to direct Michael is that I can add value to him, that I actually can solve problems of complexity that Michael can't solve, and I can help him. And that in another way, I can lead Michael because I contain Michael's uncertainty. So Michael's got some uncertainty about the world and how to solve problems. I contain that uncertainty by a higher level of intellectual capability then my boss contains my uncertainty also. So I am legitimizing a men in discordant relationship, which is enormously power infused can. The only reason I should have a power infused relationship over Michael or Raymond is that I legitimize that relationship because I can add value to them. And then all the other stuff that comes later, which is a lot of Elliot stuff, is recognizing and this is in my speech tomorrow, that I'm predisposed probably to the misuse of power. I'm predisposed to dominating Raymond and kicking the shit out of him and making Raymond submit to my will. All the other stuff that Elliot comes up with is actually stopping that domination taking place and mediating it with manager once removed stuff and all those sorts of things. So that's the beginning of it. So some confirmation of these hypotheses is that you can empirically observe this going on. First of all, two, that some research was done, which I'll show it's a no brainer exhibit. And then we'll talk very briefly about what happens when you disobey the rules, which is some confirmation that we're onto some type of stuff, and that in your careers. If you want to think back about what you felt were very good relationships in managers, board and relationships, you had what were very stressful relationships, either because your boss was a lot smarter than you or because you were compressed. I think you can feel personally, you can validate this through your own experience. So the first point note, this is no brainer stuff that we've all dealt with before. And here we've chosen the CRA view of the world of the business unit at level five. Business units can be at level two if you felt like it, we actually just depicted it at level five. These time spans seem to be operating. That managing director was operating their longest time span task.

Speaker B Junior.

Speaker C Maybe this is distraction. We can talk later.

Speaker B But I'm interested in understanding I think.

Speaker C I understand why five is considered sort of the optimal business unit. But I'm wondering what the consequences are establishing at six or at four. The consequences will be quite expensive to go in. Whether you establish at two, three, four, or five or six is absolutely a choice. Like, I'm choosing on one of my import businesses to establish that at the freight, and I'm cool with that. And it happens to be level two industry, so I'm cool with level three. So if you're in, say, the oil industry, I doubt whether you could establish it at four or five. You might actually have to shift it to six because your competitors are up there. And then the consequences that flow from that will be legion, basically, on this stuff. And I think it's probably worthwhile also reflecting on this chart. The operator is where all the action gets to. And I'm getting increasingly concerned with what I call the reality interface, and the operator is a reality interface. So all this stuff up the top here is abstraction. By definition, it's abstraction, and the abstraction somehow has to get made into reality. And so you better pay a lot of attention to where you actually hit reality, right? Otherwise you can convince yourself that you're awful bright and awful smart doing all this abstract stuff that isn't actually tested in reality until now. I move this from here and I put it over there. Nothing has actually happened. You might think it's happened because you've done all this wonderful thinking, but nothing has really occurred, right? So I think this operator interface stuff is really important to understand. So this was research to some degree. This is tautological research. There's a tautology in here. And what really is wrecked? What is a well operating organization that's A, I can't tell you frankly, but I can feel it. But I can't actually number it or anything.

Speaker D What's interesting, Julian, is this is where we hear it, for example, is that the last fun job is when you're in touch with reality. You're down there because you see it, you feel it, you sense it, you touch it, you talk to the operator, you talk to the soldier, and it feels real. And you're enjoying it.

Speaker C Absolutely.

Speaker D And when you get to the hot four and five, it's too abstract.

Speaker C I work at least once a week in the warehouse packing boxes when I'm in Australia. And I really enjoy I come home that day. I come home and say to my wife, I had a really good day. Other confirmation very quickly, if you've got too many levels, you can observe stuff that's not very constructive. B becomes extra communication link. B tries to take the leadership to C, but can't add any value because they're in the same level. So it's an illegitimate relationship between me and Michael. C has CA as the real boss, but has to go through B. And every time C wants to do something through politeness, he goes through B. If there's a crisis, he jumps B, and then B is pissed off. And so he creates bad vibes. There's no clear accountability for B and C separately. You can't create a performance review system or performance management system when you got too many levels. Try doing It can't be done. That's the quickest test for too many levels. You try to actually define a performance system and it can't be done. You go, Shit, these two jobs are the same. I can't figure out what's different. There's confusion over leadership roles for D. D is confused as well. And all the underlying systems which I mentioned just don't work. They don't actually align. This one used to be what the world was about 1015 years ago. It was always too many levels. Like in Broken Hill, it was twelve to 15 levels in a level four unit. Right. Nowadays, what happens competition is so tough that a new chief executive comes in, often at a much higher level than the rest of the organization. So the new chief executive is here, the organization is here, and the chief executive goes down and tries to drag it up, right? And you've got a gap, and it is tough stuff when this is happening. Okay, so A can't get across to B what needs to be done. There's no translator. A either gives up on B or has to come down to four at a lot of personal costs. B is in a state of constant anxiety because they can't meet what A's are talking about, and they think A is talking about airy fairy stuff that actually doesn't mean anything. And that bloody A is just getting in the way of me doing my work basically all the time by talking about this airy fairy stuff. I do that all the time to my guides, but I say, let me just fantasize for a while. Don't take this seriously, but just listen to me. And then they say, yeah, Julian, you're off in the bloody fairies game. And I say, well, is any of it right?

Speaker B Does any of it feel good?

Speaker C And I slowly find out what's real. And the team and leadership behaviors are impossible too. This is much more what you see in organizations now, where there are gaps in the organization. This is quite frequently I'm dealing with a client right now, apparently, because it's been OD, this particular organization, but it's operating way too lower level. So it's got apparently the requisite number of levels, but the CEO is not operating at the requisite level. So in this particular case, CEO should be operating in a five to ten year horizon. It's actually operating a one to two. So it's compressed everybody down within the organization. And the organization knows it. Absolutely knows it. So you have the same pathology as too many levels, even though it appears as though you have requisite levels. Right? I've got that right now with a client that's got a strategic plan that is absolutely level five, maybe level six, the corporation is demanding that degree of change. The organization is struggling at four and it's coming apart at the seams because it actually should be structured at five. The perversion is they know some stuff about levels theory and they say, no, we're not going to move it to five. And I say, well, you're going to have a disaster. And I'm trying to get better words around it to explain why they can have a disaster. Julie, do you find that's a capability issue at the top? Usually the CEO, rarely is it anything else. The CEO has been over promoted or out of role in that particular case. So what's going on here? Right? If this is true, what the hell's going on? Elliot basically says there's two things going on. There's a pattern of language moving from the concrete to the abstract. And we'll use a very simple example. This is the reality barrier here. And down here you've got a thing here, it's called a dog. Dogs don't exist. In real. Dogs per se don't exist. Things exist which we call dogs, but dogs don't exist. So this is a thing that happens when we look at it that we've decided is a dog. First of all, you got things, then you got the dog, then you've got, say, domestic animals, then you've got animals, and then you've got, say, living creatures, and then you've got, say, matter. And what you're seeing is a Russian doll's shift in level of abstraction and description. And each higher level encompasses each lower level, but explains it at a different level of order. Now, this, I think my personal view is this is how we actually work in the world. This is how we structure the world. This is how our thinking works, is that we cascade up like this. And what Elliot is saying is, if you're at level six or five or whatever, your language is all up here. Because once you go up here, you can solve more complex problems than if you go down here. In my case, for instance, in one of my businesses, we have about 40,000 transactions a month. We have 2500 products, plus about 800 of those products change every six months. I've got 3000 customers, and of the 3000 customers, about 1000 change every six months. I cannot analyze this, right? I can't deal with it. So I have to abstract market segments, product segments, and get insight from understanding about market segments and product segments and how they behave. Because I sure as hell can't understand this. There is one guy who does in the whole business, one guy who actually understands that because he spends 4 hours a day going through our daily reports, product by customer, and every day he goes through his daily reports and our inventories. And he understands that, well, I sure as hell come. So I have to move up here and think about market segments, customer segments, trend analysis, all this sort of stuff. It's the only way I can get up here. However, I'm up here, and I'm faffing around up here. And I go back to Kevin and say, I think this is happening, Kevin. And Kevin says no or yes. And Kevin's always right because he's down here. Right. Thank God.

Speaker A So, Julian, is there a risk then? Have you spent too much time up that you actually look like the bed of a dog?

Speaker C You have to. And Elliot talked about this in a slightly different way. You are constantly oscillating back and forth, back and forth, back and forth, back and forth, back and forth. And it's a concept of ground object and context. If we were in space and this was floating around in space, I couldn't tell you whether that was a kilometers big or whether it was a millimeter big. The only reason we know it's, whatever size it is, is because I've got all this stuff around me. Which gives you context. Right. The same thing going on here. This is an abstraction. And you've got to see whether it's real. Right. And you get this oscillation between high level thinking and reality. High level thinking. You keep going back forth, back forth, back forth until you yeah.

Speaker D Yeah.

Speaker C This sort of makes sense because I keep getting confirmation down here that that makes sense. If you don't do that oscillation, you are going to be flat. Wrong. Absolutely wrong.

Speaker B You'll be very modest. What's your value add to Kevin in this example?

Speaker C Not a lot, actually. I suspect there is. Well, what happens is I'm faffing around up here and I'm slowly drawing Kevin. Kevin's a very, very smart young man who's not had a lot of education. And I am accelerating his knowledge base and his capability by spending a lot of time up here, making him quite anxious. I'm actually drawing him up here. I've actually given Kevin 20% of business. Kevin, you're so important to me. Here's 20% of the business, and I want you to grow up here and for me to do nothing, basically.

Speaker A But don't you also add this value? Don't you by using patterns that you can see when you're working at your level versus the individual detail that he's working, you're able to make different kinds of decisions?

Speaker C Absolutely. It may not work, but we're trying to create a completely new route to market that nobody else has ever tried in the industry.

Speaker A He couldn't do that.

Speaker C No, he wouldn't do it. But he's invaluable at telling me how to do it right. And whether it was I could apply my level four intellect to sighting. So my view is it's just how you decide to conceptualize the issue. It's as simple as that. So is that a fair answer or not? And I'll find work. Okay. There's also this stuff of moving through declarative, cumulative serial and parallel way of arguing something through declarative is bang. Yes or no. Cumulative is here's five reasons. Disconnected reasons for why we should do this serial here is an ABCDE answer and parallel an ABCD FGHP answer where I join these together. The guys who are really good at this stuff, which is not me, say absolutely they can see this happening, okay? I don't see it as happening as well as they do, but I don't profess to be an expert at assessing capability. What also happens is that, and this I really do believe in, because it's my idea, is that what you see is a shift in the number of functions that you have to cross integrate in order to move up level. So here's a picture of the MD marketing manager and regional sales manager. The MD actually has to cross integrate financials legislation, social trends, corporate relations, blah blah blah, blah blah and one thing is marketing. The marketing manager doesn't actually have to deal with all that stuff up there but the marketing manager has to think about consumer segmentation, profitability, product plans, blah blah blah blah and executional planning. The sales regional sales manager has to think about executional planning and do all the promotion plans, district plans and so forth and so on. The interesting thing is the MD actually also has to have a view of the quality of the district plans because this is a Russian doll, right? Russian dolls again in action, right? So the MD has to actually have a view are those district plans worth shit or not? Right? Not do them, but have an opinion as to the quality of them and what you see going on, which is actually really now I'll do this, is that at the MD level, the reason why time is required to resolve complex problems is that each of these functional components suppose it's development, finance, sales, marketing, HR and say technology. Each of these individual components has an individual objective function. Development is trying to do good development, market finance is trying to do good finance in its own right. Marketing is trying to do good marketing and they're striving away, borrowing away, right? But the MD is sitting up here and saying well, your individual silo activity actually isn't sufficient overall I need to cross integrate you in a Russian doll and I need to be able to meet all your objectives but I can only meet them over time. I will never meet your individual objectives like that. I can meet all your objectives over time. If you give me five years, we will meet all our financial objectives. We will meet all our development objectives. We will meet all our marketing objectives. But I can't do it on Tuesday. I'll lead some up. I'll pull that some slip back for a while. I'll bring you forward. I'll put more resources here, less resources there. And we'll have a ballet and a dance. But at the end of five years we've got a new outcome that has shifted up, not only achieved your individual objectives, but an objective beyond these individual objectives. That's why it takes time. Otherwise I'd all do it on Tuesday, right? Boom. Let's do it Tuesday. That's what happens. So what you've got is this picture on the right hand side here for me, where you get actually an increase in number of functions that have to be cross integrated as you go up the pyramid, basically. And that's what drives time. That's why time is required to solve complexity, in my view, nothing else. What you also see is over on the other side is you've got Russian dolls again, and you've got a series of either or statements which become and statements. At the next level, there's either make or buy. And then I'll say the and is I'll make and buy to be low cost producer. So I've now resolved not a make or buy. I'll do make and buy, potentially. I've then got high quality. Is this material or that material? I may use both of them in different circumstances. And I've now got another Russian bloody doll to resolve. Another and or statement is low cost producer or high quality. So in the auto industry was in an either or statement about either you have high quality or you have low cost. The Japanese rock up, say, sorry, we'll do both. We'll have high quality and low cost. Shifted up a level of abstraction, shifted up a level. Kicked the shit out of the auto industry for ten years until the Americans caught back up again. Then the Japanese said, oh, that's really interesting. We'll change the game again. We'll go to speed to market. We want speed to market in months rather than six or seven years. Speed to market for a new design for a car. They said, okay, let's try and do it in less than a year. Oh, that's a bit nasty. Win the game again. So there's this constant shifting up.

Speaker B Of.

Speaker C Breaking boundaries, of breaking either or. And interestingly enough thing that Jack was talking to me about last night is when you shift a level, you always have to give something up. You have to give up a felt truth to get to the next one, right? I really feel that it's either low cost or it's quality. And I will from tomorrow's presentation, I will imbue that felt truth with survival vigor. That is as important to me as my very own survival. And you bastards aren't going to threaten my survival because that's how I construct my reality in my world. I will not change. However, to change, you're going to have to give it up. So you're going to have to go up to the next level. And this is some of the stuff about why moving levels of capacity are so difficult and why midlife crises and all the rest of it is because you come unglued for a while, because you actually don't know what your view is. Like you're standing on a table that's Dell dead certain this table is disappearing underneath you as a new table is emerging. So I'm moving from level four to level five in my thinking, but that table hasn't actually emerged properly yet. And there's a gap between the two tables. This is actually disappearing as I stand on it. There's a gap there. The new table actually hasn't been produced. And I've had about two nervous breakdowns, so I know it well, right? And I know what the gap feels like and it's bloody terrifying. And you have one of two choices. You can say, no, I'm not going to do it. I'm going to stay here. I'm going to stay on this table.

Speaker D And you hold the table.

Speaker B That's right.

Speaker C Or you say, oh, shit, here we go again, and you sort of go into the void, as it were. So all your ideas of how the world actually works are temporarily destroyed. And that's why this capacity shifting stuff is so hard. Great strategies are always a level shift. In my view. You're up in this right hand corner. There's probably new markets because the level shift has actually created a new market. It actually has changed the nature and you've shifted level. So that's what happens with strategies. And we'll just whip through this. If you take this concept of Russian dolls and what's happened throughout industry, what you get is if you go back to the hundreds, strategies is about functional execution. I'm the best manufacturer or whatever down here. 1900. If you go back to McKinsey's early writings of McKinsey himself, he was actually the first person to really sit down and analyze a business unit. In this case, it was a department store in Chicago is what drives profitability. And sudden Breitbark in BCG came along and said, you know, what drives profitability in your clients? That's sort of irrelevant, because that profitability is dependent upon the profitability of your competitors, not just you. So you can be absolutely brilliant here, but if they're more brilliant than you are, you ain't going to make any money, right? So you've got to actually understand relative competitive position. And then Porter came along in around about 1980 and said, well, that doesn't make any sense either, because there are some industries when we do the analysis, if this is time and this is profitability, some industries trot along here, some industries trot along here, and some industries trot along there. So it's about industry structure. So industry A is always more profitable than industry B and is always more profitable than industry C. So something's going on here to allow this to happen. So I've got to think about what it is. The five forces. And basically you're talking about power. At the end of the day, you're either talking about buying power or you're talking about pricing power. Can you price as you would like to or can't you? Or can you buy as you would like to or can't you? And ultimately. That's what it's all about. And then now we're up into worldwide industry structure and becoming very, very relevant because China's actually hammering everybody in any tradable product. Basically, if you can make it, it's better to be made in China, right? If it's a service or whatever, then okay. But whatever can be made, I can assure you it's a lot better to make it in China. And their quality, responsiveness, time to market, and all the rest of it is just fantastic. In my business, I can go to a Chinese producer and I'll say, I love that. That's a really beautiful shape. I prefer it made in this material, and I want the Union Jack on it. That's Monday afternoon at a trade show hundreds of miles from that plant. Either by Tuesday evening or Wednesday evening, it's in my hand and it costs five and a half cents. This is extraordinary, right? So this starts to get really important. If your competition is thinking at this level and you're thinking at that level, you're going to kill them. If your competition is thinking at that level, and you're thinking that level, you're going to get killed. And this is just night follows day going up, the hierarchy, that type of stuff. Everything that happens, the models of analysis you use, the questions you ask, the analysis approaches, the objectives, the time frames and consulting fees for those who are in the consulting business all reflect level. In Australia. Here you get paid about $1,000 a day. Here you get paid about 1000, $502,000 a day. Here you get paid $3000 to $4,000 a day. Here you get paid $5,000 a day, and here you get paid $10,000 a day. That's what happens. McKinsey's great trick is to come in at an average of $6,400 a day, have all the thought leadership here, and then do a huge amount of work here and charge you for this, right? That's what they do. Wonderful system. I benefited dramatically from it. Some insight strategy, horizon condition. You keep walking forward, you think you're getting to it. The bloody horizon moves again because competition moves, right? Strategy business is determined by capability top manager, which is the question over here, and the contiguous levels below. So if you have gaps, you ain't going to deliver, right? High level strategy demands large negative cash flows. Basically a requisite business. If this is positive cash and that's negative cash, you need positive cash flow in any business. But say it's your core historic business, your cash flow will be dropping off like this. There's a decay curve on every business's cash flow. So that's wave one. Say you hopefully, knowing this has happened, you've had another wave that's actually doing this, which is wave two. And then you've got bets in the poker game. Sorry, they're actually going this way and then they're doing that. Right. You've got a series of bets in the poker game that are going to turn into twos and ones. Okay? And this takes up an awful lot of cash and you better have it up here. And if you don't have it up here, you get into a doom loop because you don't have enough here to spend here to actually survive. So you're in a doom loop. If you have enough here to spend here and you're smart enough to spend it properly, you're in a virtuous loop and you kill your competitors. There's a need, which is the point earlier on to run up and down the hierarchy. You got to keep coming back to reality. If you don't come back to reality, you can eat your own bloody head and your own dope and it's meaningless. You got to come back to reality. You got to get back into the reality base. Different felt truths at each level. If we go back, if you speak to managers at each of these levels, they will hold on to a felt truth. Down here is manufacturing is what makes this business work. If we do great manufacturing, we're going to be fantastic. They hold on to that thought with survival vigor because their whole being is invested in it. And if you rock up and I tell Michael, Michael, that's not true, michael will defend that position as though his very life depends upon it because in fact it does. The construction of his reality depends upon it. And we attribute we're all animals so we all have to survive in a Darwinian sense. And then we misallocate survival vigor to felt truths that may not be true in that case ain't true, right? But yet you think it is. And we misallocate all our survival vigor to that. We may even misallocate it to stupid things like I've got a better brand on than you or whatever. So I buy a branded shirt because it allows me to feel I am part of the group, not out of the group, which is a survival instinct. And this brand is really important therefore right. It's really weird stuff and stuff don't like it. The dominant player in the market is operating one level above the others. Parity is insufficient if you want to make any money and certainly the decay wave is going to kick in. So you better think about the K waves. Consulting is one of two sorts. It's either improved the current level lift business to the next level and shifting levels is extremely hard, which is the next section. So okay on that lot.

Speaker B Okay.

Speaker C What then happens is the transition now between this bit and next bit is I started to think in my mind this level theory stuff and strategy, how does it manifest itself in organizations? And I'd seen it manifested in space. In a real live example in Australia we had an Australian smelter called Sulfide which was lead zinc smelter. We had a sister smelter in Japan at Hachinoi and Hachinoi operated, operated with about two or 300 people less than we had in Newcastle. And when I looked at any variable in hatchinoe against Sulfide, if this is time and this is a variable, it was any variable from absenteeism rate to output of quality to accidents to a thing called self elimination rate, to production per day. What you saw, assuming that big is good, that the Japanese average was up here, the sulfide average was here, the Sulfide standard deviation looked like this. The Japanese standard deviation looked like this. I thought, oh, that's interesting. And they're doing it with two or 300 less people. What's going on here? What was going on was if we go through 5432 and one is the Japanese smelter had one five, about three or four level fours, something like eight level threes and about 23 level twos and whatever it's left in level ones. The Sulfide smelter didn't have anybody at five. It had one, four, six, threes and 27 level twos and about 500 level ones. So there's something going on here between capability and outcomes there. That's what this section is about. I started then thinking about functions. I'd come out of manufacturing and can you read that or not? Look at your papers if you can.

Speaker B Right.

Speaker C And this is all just Julian's bullshit, but there's no research here or anything. This is just julian. I took across the top strategy, marketing, quality control, inventory, cole and so forth. And then I layered down levels and said, I think in my experience, because I've worked in a lot of situations, I can see patterns. And so I gave sort of slogans to these levels. Now, I happen to also be the executive chairman of an engineering company that's heavily involved in maintenance. So this is quite easy for me to deal with. Level two is breakdown. Maintenance will fix it when it breaks. Right? Okay. That was what was done in the 1950s, 1960s. Then some bright spot came along and said, oh, we should do time based change out. So when this bearing has run for 400 hours, we'll change the bearing out. When this belt has run for 233 hours, we'll change the belt out type of stuff. And inventor prevented it. That was a shift in level of insulection capability. And all the subsystems and all the processes and so forth had to shift simultaneously to achieve it. And so did the capability of the leader of the organization have to shift. Then somebody came along and said, christ, this is an awful wasteful thing to do. If this bearing actually could run 600 hours and we're changing it out at 400 hours, we're wasting 200 hours. We're actually putting labor in when we didn't need the labor. And really weird things happen is whenever you change anything, you stuff it up anyway, so you actually increase the number of defects often. So could we actually invent a new thing, which is called reliability based maintenance that says, I will monitor the condition of this bearing, and when it gets to a certain temperature at certain RPMs, or the oil analysis tells me that the bearings are degrading or the vibration analysis is telling me the bearing is vibrating more than it should be. It's starting to tell me on a condition basis that I should start to think about changing this bearing out. If we then do the analysis to get the condition interval that tells me that once this condition starts I have actually got to 20 hours before it's going to fail. I now will change out the bearing condition plus ten. That's huge breakthrough. Then we go to zero failure stuff which is redesigning the bearing from scratch with a whole bunch of new tolerances materials and all rest of it. This is don't want the bloody thing to fail at all. Building in redundancy and this is what Aeroplanes basically have and then this hasn't been invented yet. It's starting to be invented. You and I are self maintaining systems to more or less degree. I'm getting less but we will get to the point where we will have self maintain. We're getting it already in electronics but we will get it in the physical world as well eventually. So you have actually self maintaining systems. The system knows when it's degrading and self maintained itself. Now my thesis is that you can take any function it's really to your point, any human activity and say depending on what I can apply different levels of capability. Now we'll get different outcomes. And that what you're seeing in competition is at a functional level the key functions of success in the business, the businesses that are winning are operating those functions at a higher level than their competitors are operating at. So if marketing is really important say for Nike, nike has conceptualized marketing at a higher level of abstraction than say its competitors has. And if quality control is important for the Japanese when they were up at TQM or efficient consumer responses for Walmart and purchasing is virtual integration for Walmart then they're going to kick the shit out of the competitors until the competitors catch up basically. And unfortunately if you don't catch up quite quickly you get into a doom loop because you don't have enough money here to fund the catch up because you come down a decay curve too fast to actually spend the catch up. So the big guys, the smart big guys win all the time. So then looking at that I then said well I worked in with Peters and Watermen San Francisco and they developed a model called the seven S's which is a descriptive model. So I said could I use the seven S's against the functional levels and come up with a relationship between the seven S's and the functional levels. So the seven S's are super ordered goal strategy, structure system so on and so forth. Probably some of you already seen this so moved on. So I took a couple of functions. And you can't read this. This is in Japanese, but you can read in your handout, but you can absolutely take any function, which is this was quality. And here the client was from what to what down here? To achieve what. So I've a slogan in my mind from what to what? To achieve what, which is the to achieve what? And you can describe in terms of strategy, structure, skills, systems, and the prize. And you can do this at a very fine level of granularity if you want to. One of my clients, we were looking at sales and marketing. We broke the sales and marketing processes down into between 20 and 30 different processes. And we created four levels of capability for each individual process and said, where are we and where are our competitors against these four levels of process? Against 20, right? So we actually had this bloody great big matrix, and we plotted ourself on it, we plotted our competitor on it, and we said, where are they better than us? Where do we need to be better than them in order to compete against them and defeat them in the marketplace? And that was binders this thick for each process. So this is just a schematic, as it were. But you can get down to a very, very fine level of granularity and see the differences. Even at a fine level of granularity, outcomes of making a level shift are absolutely staggering. I've seen this is a plant I ran. Scrap rates were normally in plant twelve to 15%. We got them, we started event to 2.8%, we got down to 1.8%. We've shifted level of capability in a wiring cable plant that I ran in an earlier life. And the jokes there is the head office actually wouldn't believe us. They actually said, this is not possible. You're only doing one department. You're sending us the scrap report for insulating. What's happening? The rest of the plant, as we know, defect rates were normally with end of line inspection. That sort of stuff were 1% recycle, send it to repair, bring it back again, recycle, so forth. With six sigma. It's parts per million that you deal with in purchasing. I've just finished with a client where we took over $200 million worth of purchases and saved them by shifting level from level three purchasing to level four purchasing. We saved 17% on $200 million. Actually wasn't very hard to do, is it? Sales. This is mortgage managers moving from level two salesforce to sorry, it was level two to level three. We went from two sales per week to five sales per week. $80,000 a sale instead of $130,000 to $130,000 a sale. So we're doing five sales, 130,000 as against two sales at 80,000. Would you like that? Yes, you would. Right. Maintenance availability at level at level two was 64%. At level three, it's 85. We've now moved the client to level four. It's about 97 98%. Availability, administrative overhead. I've never been anywhere where I couldn't reduce my overhead by 35% to 40%. I've never been replaced. I couldn't do that. Market shares with some different consumer insights based on some really interesting ideas about maleness. Because it was a beer company, we absolutely annihilated the marketplace. Some ideas about maleness and femaleness and what females would accept about maleness and shifting to a less aggressive position of maleness that females actually would contribute to.

Speaker B Sorry, they were all in favor of.

Speaker C Worked like a dream. Time to market. Moved from, in fact, close to years to weeks in terms of new product developments, operational productivity, massively understated. I've worked in organizations where we've moved productivity 500% through level shifting. So this is quite interesting stuff.

Speaker B How do you deal with the apparent contradiction that if you're right, then you're actually wrong?

Speaker C Give me more.

Speaker B In terms of capability, as you describe very well, that the application levels of capability as developed by the model and as applied, gives you a tool as a manager to help understand how you might step the organization through. But at very high levels of capability, you know it's wrong and you're at a much different level of extraction. It's a bit like Einstein's.

Speaker C You talk matter.

Speaker B We know the theory that the concept.

Speaker C Of matter is basically.

Speaker B And took Einstein thinking on a different plane to understand that. How do you deal with that apparent contradiction?

Speaker C This is a very complex question. I go back to the point that it's always a horizon condition. You're always wrong, but you're less wrong than your competitors. That's all it is. And next week you will be wrong because your competitors have actually figured out something better.

Speaker B If you close your eyes and listen to, let's say, mining industry, the major companies in the mining industry at the moment, they're all talking very similar strategies. I suspect the leadership is all around the same level of capability. Are you waiting for that day when.

Speaker C One of them says absolutely. In the mining industry? In the mining industry, always. And I didn't actually express it enough. A position, whether it be at level one, two, three or four, is always an either or statement. It's either X or Y. And I'm believing in X right now. A breakthrough is always an and statement. And you're looking for the and statement, right? Always. And when you shift level I didn't actually spend much time on that slide. Here we are. This is the signals of a shift in level of capability. You've got increased area of knowledge, you've got increased time required to handle different language of explanation and increased geography of thought. When you see those going on and you see either or statements being resolved, which is up here. Right you go, I think this is a good idea. I can see something happening here that's actually useful. That's my test. I run those through my mind of what's going on. But you're right, you're always wrong, right, Einstein's? Wrong just happens to be the rightest of us at the time. Oh, back again. So why somebody help. Where is the help? Technology, please. Who's good at this stuff? You're good at this stuff. I've locked. Who can get me out of being locked in? I need to get back. Are you sure? No, it's actually something quite simple that we've got oh, here we've got smell coming up.

Speaker A Julian, why don't you continue to talk while we do this?

Speaker C Yeah, all right. You then are confronted with you're then confronted with the issue is you say, well, how the hell do I jump level? And what's the implication? Which is in fact, the next presentation, really? I mean, what I'm talking about is what you did. Right on. So you say, well, if I'm going to move from level three to level four, what are the implications of that? Now, there's a whole bunch of all the seven S's have implications, but the structural implication is just staggering because what you have to do did you as bad as these. You're right. Okay, we don't do this again. Thank you for that. Hey, did it again. It won't go to that last slide anyway. You've got it in your hand, right. So the last slide you got in your hand, which is that one, right? Yeah. Just page 21. If you're going to go from level three to level four, you're confronted with quite a problem. You've got to get a level four manager. You've got to get at least, at least four level three managers, maybe more. You're going to have to have 20 level twos, and you only had six, and you're going to have to actually get relieved of 36 level ones. And if you don't, you might as well not bother because you haven't changed your cost structure. Right. So you're confronted with now do this slowly this time. Did you?

Speaker B There we go.

Speaker C Thank you very much. There we go. You've got to find a level four, and the level three probably isn't the level four because otherwise they'd have done it. You've got to find yourself four level threes. And if you keep the original level three, the dynamics between an unacceptable level three and the new four are usually pretty interesting. This used to be my job, and now you've come in and I've got all the loyalties with everybody here and so forth, so you usually have to get rid of them, too. That's reality. Sorry, the supervisors, you had six of them, you now need 20 of that capability. Right. Not supervisors of the capability of operators. You had 36. My rule of thumb is that a third, a third, a third, a third will actually have been telling you to do this anyway. A third you can grow into the new role, and a third you actually have to get rid of so this is devastating stuff when you're having to change an organization. And not only you're having to do this, if I can go backwards, you're actually having to do it with congruency. Because if I want to actually say put, if I want to put Total Quality Management in, if I have to put just in Time Inventory in, have to put Purchasing, Symbolic Purchasing, and I have to put Zero Failure in Maintenance in, I cannot actually do CQM unless I do the other four simultaneously. And I've probably got to go over to it's not on here, my development function. And I've got to tell my development people they've got to lift their level as well. Otherwise ain't going to work. Right? So you've got to have Congruency in a number of your key functions that relate to each other. I don't have to change the cleaning lady. She can stay, or I don't have to change the finance guy. Maybe they can stay, but I've got to change all this stuff. So not only do I have to change a single function with all this problem associated with it there, I've got to do that probably in three or four functions. Oh, God. No wonder it doesn't work, right? It's a nightmare. So that's it.

Speaker B Okay. I'm mo dutcher zach. I'll be setting the context for this case. Steve Clement will go on later. He was our consultant in those days. I was the VP Admin. I ran five corporate functions for a company that was in trouble, england Limited. So big. Before I start off, how many people are Americans here or outside of Canada? Okay, so you've never heard about English, but it was part of Whirlpool. Whirlpool bought us out. How many people are academics? Because you may not like this presentation. It's all application. So any academics here? No. Good. The academics are, in theory, part. So, first of all, I want to thank Charlotte. There's one aspect that she didn't elaborate on. Her company did the compensation part of Requisite, one of the few companies that have gone on. And it's a great case. I've heard it before, but because of time limitations, please didn't get into it. But there's a lot of similarities. What they went through, what England went through. And also from Julian's presentation. Is Julian here? Is he lost? Okay, we lost him. So from Julian, unless you have the right strategy, don't do organization design. Forget about structure and accountabilities and all that. It just won't work. You're just going to eat up more money. If you got the wrong strategy, you might as well tell your CEO to go home. Because they destroy less shareholder value. So that's just what Mark Van CLEET was saying the other day. They have destroyed so much shareholder value. So the whole concept is you need a strategy in order to do this. So the context is that English did have its strategy figured out before we met Elliot jake in Switzerland. We used McKinsey Group, which is another story. I mean, they're really good. They're very smart. But as Julian was saying, he made a lot of money. We ended up with a senior partner. We saw him a couple of times, and a whole bunch of intermediates and junior consultants came in. And I don't know if anyone else here has done McKinsey studies, but they come up with such involved and complex strategies. We didn't have the people or the structure to do the strategy that McKinsey gave us. Now, they helped us in branding. They helped us in cost reductions. We broke down all our competitors appliances. We knew down to the last $0.05, what it costs cancog to make a laundry unit. And so they gave us some rigor. But the problem was, this is the problem we were facing. We were competing against GE campco. G Campco was formed in 1977. It was a merger of Westinghouse, GSW and GE. Prior to that, for 100 years, GE was the number one appliance company in Canada. So here we are. We got Bill Nardelli, who is now the Home Depot world CEO. He was the Camco CEO. We're in a situation where Whirlpool is acquiring bits of us. They had owned us for quite a few, I guess, from the 50s Canada that owned 20% of England. And they kept on buying little chunks of us. They didn't control us all, and they were buying us because we were so bad. We made a refrigerator, which we call a P 2000 refrigerator. We put that together in 1988. It was a very state of the art refrigerator, and since it didn't have that backing in the back, refrigerators used to have this thing that came out, and we got rid of that. We put so many chips in there, but our project management was so poor that we made a refrigerator that was an 8th of an inch wider than a standard door. So when you dropped malkie, you name it, and I was living in a house, I got one of the first P 2000. I wanted a beer fridge, and we slid it down into my basement. And basically they said, you'll never get that refrigerator out again. It scratched all the paint and stuff like that. They said that you'll never get that out again. So the other problem with the P 2000 is that we had so many chips in there, they would heat up to a point where fire would start, it would melt down the whole ice box. So you just imagine the recall we had, and this was just an example. We had warranty issues. You always take reserves on warranties, and we were really in bad shape. So there was all sorts of problem. We didn't have the right people. We didn't have the right systems. So Whirlpool gave us, in 1988, bug Wampak, who had been running the entire manufacturing for Whirlpool. They did a McKinsey study. He was out of a job because they went to a branded unit rather than functional. So he was 62, 63. He said, Well, I'll go to Canada. I like hunting, I like fishing. So we ended up going to stratum a low seven, probably running a level. English had been a level six, but we took it down to level five unit. So we got the strategy right. And basically what happened is we couldn't get any further. We couldn't catch up to campcoge. We were working 100 hours, days or weeks, rather. We were doing great things in the plants. We were using social technical redesign in the plants. And it's interesting, when I come out here, I see that the Glacier works. Two things came out of Glacier works social technical redesign and requisite organization. So English use Requisite for their salaried staff, and we use Social Technical Redesign in a plant. So we made great progress there. We set up a boot camp to come up with it, just break down the bureaucracy. So we brought 100 people at a time. We took them to a lodge for six days. We had some of the top consultants in North America there, and we broke down their thinking. Here's the new values, here's creativity. We had an ambassador from McMaster University doing an old day on creativity. We had Heather Reesman, who now runs Chapters Indigo. She's helping us on leadership. Out of that came core education programs. So we were doing all these things, but we just couldn't get caught up. So I guess the culminating moment was that Whirlpool gave up on us and bought the whole thing. And they fired a board of directors. We were in a Toronto stock exchange, and they came in in their limos. There was Dave Whitwom, who just retired as the CEO of Whirlpool, and guy called Moron, who was running North America. And they basically said, here's the imperatives. This is what you got to do, and we want you to become number one in Canada and increase your profit. We were making no profits after we paid $2 million to McKinsey. We figure out a lot, but no bonus, no profits. Things are going really bad. And they said, look, you got too many people. Just keep the good people. Get rid of the non critical people we want you to steal. Market share from the market was like this. It's like a $1.8 billion market back then, and I'm using 19, $91. It's a lot higher now. So if egliss it's not called Whirlpool Canada, the sales would be close to a billion. But this is the dollars. In 1991, about 450,000,000 G had about 600 million in sales. Frigid air? About 400. And then Maytag had a little over 100 million of sales. And then you had all the imports, the high end imports from Europe. The other thing they want us to go at is Julian back about it. He was. Talking about SG and a we lost our setup guy here, so we needed to take out at least $60 million out of SG and A. And I was very interesting. We had our VP sales, and when Whipwamp came in, I kept my head down, but Jacques sometimes lacked wisdom. So Whitwomp said, you're the size of California. Cut your expense to the size of California. And Jacques made the mistake and said, well, we're the biggest country in the world and we got 2500 dealers so forth. And he got just slaughtered out there. So we knew, they basically told us, you're out of a job within two years unless you can do this, we're bringing other people. So that was our mandate. And we worked very hard, as I said, on this, but it just wasn't happening. So another culminating moment was that Whirlpool bought a white goods business for electronics. So they became number one in the world. Electrolux had been number one in the world. And as an aside the case, there's a story still it's still in draft format. Ken Shepherd, I didn't want it in there, but Ken convinced me to put the story. So in your package there's the English story. It's still maybe 40% done. Forest Christian in the back has been writing it. So I really appreciate you putting this together. So it sort of gives you, when you get a chance on the plane, whatever it may, give you an idea of what was happening there. So thanks, Forrest, for all the help on that. So the culminating moment was in the first global meeting for Whirlpool. They brought in all the Phillips guys, and there was about 100 of us in Montre, Switzerland, and overlooking Lake Geneva. And it was a long conference, it was six days. And the first two days, they had these gurus, big consultants, worldwide consultants, giving concurrent sessions. And Elliot Jakes was one of them. And I went to that one with Mike Thieneman, who was the CEO of English at that time. And he proceeded to insult all the Americans, saying they were anti requisites. So the tie in there, he's the culprit. Elliot ended up at Whirlpool because Tom, who knows Tom Hill, who did a lot of records, tom brought Mike Malone in because Tom was an ex army person, leadership person. Mike Malone brought Steve Clement, and then Steve Clement brought in Elliot Jakes into Whirlpool and talent pool. So you're the culprit. There some people at Worldpool never forgave you, but that's another story. So here's this guy, white hair, he's pretty fat, he's got a bowl of tie sandals, and he's talking about all this stuff and he seems insulting the Americans, saying, well, you're not requisite. You're not doing this. And then there was a big shouting match because there was a new Chief Information Officer and he was agreeing with what Ellie was saying. And the Senior VP of HR, Ed Dunn, took exception. So they started fighting. It went from the end of the meeting into the corridor. So it was very odorous start. But one thing he said, he said one thing that grabbed our attention. Nellie has said this if you do what I'm telling you, your organization will flower by 20% to 40% productivity and growth. So I looked at Mike, I said, well, why don't we bring him up to Toronto, we'll fly him out because we got nothing to lose. We're going to lose our jobs because we haven't figured out we're working 100 hours weeks and we haven't figured out how to make we weren't making any headway against campcoge. So we brought him out and Steve Clement came out and we did two days of discussions on how the system worked. And then we decided to set up a project team. I was the head of the project team with Steve Clement as the outside consultant. And we proceeded to do the restructuring. And I don't know of any that we can talk about, I guess without losing our cars, our houses. And we're signing some pretty heavy nondisclosure clauses, but I don't know of any restructuring that increased sales by 33% in 18 months in a flat market. So it's all stealing and it's never been done before. Camco didn't know what hit them. And they had good management, good systems, they had great support from Louisville, Kentucky. And how did this happen? And that's what we're going to talk about. So how did this happen?

Speaker C How did magic occur?

Speaker B So let's get into it. So what we did, what the project teams did, they went out and we did hundreds and hundreds of interviews and figured out how the work was actually done. So we got this Jacques Levesque guy that I mentioned before that didn't know when to shut his mouth. So we were on a fire here. Jacques was VP sales. Was VP sales. And we felt that he was too much in the weeds. We used to joke we need speed bumps here in the corporate corridor because he would run around and try to do things. Nothing was happening. So we're at the point of hiring someone and firing him. And then we said when we did this, we said, wait a minute, we just found out the prop why Jacques came to his job. The only person who's level three is Andy Clysdale, who was 62. And he was taking care of the private label sales for Kenmore first years. And we said, everyone else here is level two. And they're all compressed. You've got as many as three levels. So what Josh was doing, he was doing his level three work, not doing the level four work. And in fact, this was so messed up you have to go on level two to get things done. Because when you have 2500 dealers key accounts, it's a lot of work to have sales. So this is what Requisite helped us is that we actually went in there and studied how the work was being done. We had England and Admiral sales. Each of them had five regional officers across Canada. Each of them had an ops manager, each of them had an order desk. We had field sales managers here, and these didn't add value. And we were really concerned. Here we were bringing in the new KitchenAid luxury appliances. Before that, KitchenAid only had a dishwasher, and they had those big mixture appliances. We're coming in with very high level 10,000, $20,000 refrigerators, built in stuff. And we said, we don't have the not only we don't have the director of sales to run KitchenAid, we don't have the sales staff to run KitchenAids. So how is this fixed? And I wish Julian was here, because we really overpowered the function. First of all, you might think we added costs to this. We actually reduced the sales budget by 20% by getting rid of this mess that we had here. So what we did, we brought in 25 well, in the whole company, we recruited 25 level three people. A lot of them were really capable at four. So the new sales structure had a director of support services. We centralized training. We took the order decks from all these regional offices, put it at corporate. We moved the credit manager from finance to sales because they felt she was just too difficult on the customers and didn't understand what the problems were. So we set up this function. We took merchandising out of marketing because we felt marketing was very strategic. Whereas merchandising, you're looking at point of sales spiffs. I don't know if you know appliances, but when you go buy an appliance, you get spiffed all the time. Because we the dealers, not the dealers, but the distributors spiff the sales guys. So we say, if you sell like four long repairs, we'll give you a bonus of $150. So be very careful when you go to a dealer. When they're pushing you in one area, just do your internet search and so forth. So at any rate, there was a lot of spiffing being done, and you need a pricing that was important as well. So we set up a merchandising function in sales, a new function. We brought in a chartered accountant to just do data on what our best customers are, what kind of margins we can have out of them to get away from just selling on revenue. We got to the point where we would walk away from sales if it didn't meet our margin requirements. And so with a lot of analysis being done there, one of the key issues that we had was key accounts. At that time, the power retailers were taking over from the 2500 dealers out there. They were like Leon Stebrick future shop go, Maxino and Quebec. And they were picking up tremendous sales from the mom and pop dealers. And we weren't strong there we didn't have salespeople that could work at the cognitive ability of the buyers for Leon. So what we did is we brought in some very high level people that could sell at that level and set up these Kia cup managers. In national sales, we had about 120 territory managers, or TMS rather. So what we did, we had two people in telesales. What we did is we reduced the number of territory managers and put more people in telesales because we'll be showing the example why that makes a lot of sense. Builder sales. We had bought the admiral brand and a lot of builders had lost money. When admiral went bankrupt, they wouldn't let us back in there. We were really poor in builders sales, so we elevated that function to level three. Same with KitchenAid. Because of this big product introduction, we brought in someone who could work at level three. Now, some of these people had never done appliances before. Like, some came out of PNG, some shoppers drug market. This guy came out of shoppers drug market. Within six months. He had figured out the complexity. He was doing more than someone who had been in that job for 20 years. This guy now runs the north America business for whirlpool Kenmore. That's about a five $6 billion business. So a lot of these people ended up going within Whirlpool or other companies to become credit. So that's how sales was put together. And Steve, why don't you talk about the basic sales organization and some of the sign ups that we did?

Speaker D Not unusual. The sales reps would call on small dealers and there would be if you actually look at the finances of the small dealer, the company made no profit. But they would spend all their time calling on small dealers because they sold only four or five appliances in a given sales period. And so we took all those away. Now they like doing that. Why? Because they went out to lunch. And when they drove through all these small towns, they had built up a history of doing those kinds of things. And so we said, no, not going to do that anymore. All of those small accounts are going to be shifted to telesales, and we're going to call on them on the telephone. That was traumatic because old Bob was no longer stopping off to have lunch. He was upset. Dealers were upset. But we in fact thought we could service the dealers and actually make a dollar on the damn thing when we did that. But it was traumatic in terms of that. You saw how we had to clean out the deal. I think the big power retailers, julian talked a little bit about it. They eat your lunch if you don't have the capability of selling to the power retailers. So you have to increase the capability of your sales to do that. So the sales force went through some dramatic changes, but it actually began to work out pretty well.

Speaker B Everything was analyzed. The project team worked. We had had an executive dining room with a chef. We had got rid of those entitlements. We took that over and we would basically work day and night in there. And if there's one thing we did wrong, we under resourced. We almost killed our team. My wife left me because we were working 24 hours a day. But I was lucky to have Steve. Steve would start at four in the morning, go to bed at nine, and I would go to bed at four in the morning. So we covered 24 hours and it was a lot of fun. But I don't know if my body could take this again. This project, you have these slides, these are some of the things we did. Some of it is centralization, some of them is elevating the abilities, the cognitive abilities of the people in the work. We probably took out 250 people through early retirement, through some that left, some were demoted. And I had a deal with Caldwell partners. They got us 25 very high level people and we taught them how to identify the people. And then Steve had taught me how to assess people. So I would spend like half a day with every one of these 25 people with the VP in charge. And we had 100% batting average. Usually when you hire an executive, it's 50 50 on this one. Basically everyone that came in there produced. And part of it is because I think we had clear accountability. They knew what they had to do. So we did the same thing in all the corporate departments. This is an example of marketing, where we had a level three director marketing, and the fix was to hire a level four director marketing. We were lucky because the VP sales and marketing at G Campco didn't get along with Bill Nordelli, so he fired him. So we brought in Michelle. Michelle runs the Whirlpool brand for Europe now. So the fix there, I'm going real fast here, was to bring in Michelle Trudel as a level four, and we brought in a level three person for product development in order to make sense of cooking, dishwasher, refrigeration, laundry, as well as the designer, so we would have better products. We also brought in a director of market research, very high level, in order to determine what the consumers would want 1015 years from in the future. So this worked well because they worked hand in hand. So, for example, the product manager for cooking worked with the product engineering team for the cooking operation in Quebec. And all of them were at the right level. So they came up with a cooking product around 1993 that's still the best in Canada. And that engineering team as Whirlpool did this North South thing because of free trade, product marketing and product design, went to Dayton, Ohio. This team of five French canadians actually went down to Dayton, and they're now I guess they got tired of living in Ohio. They're back in Quebec, and they do the CDUs for Boba Ye. They're the design team. So we had some great people in all areas that was able to execute this and grow by 33% in 18 months. So if I was betting when we had this imperative from the chairman and CEO of World Pool, I would have bet against myself. So if someone said, here's $10,000. You can bet either way, I would have bet with Campcoge. So this stuff is like magic. I never seen this stuff there already no, we recruited that. I think we had the design manager. We rated him very high, but it was a new team, a young French Canadian.

Speaker A How long did it take you to figure out kind of where we are today, what we need to do?

Speaker B Well, the project team took us about six months to execute. We had a two day draft of the VPs and the CEO of England together for two days. And we looked at the results of the study. We had assessed the people, and so we had the seats. So for two days, we actually put the people in seats. And then you ended up with excess people, or you ended up with people that you had to talk to and say, you can't do the KitchenAid job, but you have a job at level two. So then we executed that. It took about six months to do that, but then we did the plants. Later on, we decided that we didn't have enough resources to do everything at once, so the plants were done at a later date. So six months.

Speaker D We trained the project team in the underlying theory. We didn't train the execs because we needed the project team to understand why we said this was a level three job or a level two position, et cetera. So they had to have a basic knowledge of that. And not all the project team were HR. We brought in project people from the operations. We didn't want all HR people.

Speaker B Yeah, we had a general manager for.

Speaker D We brought them in from all the functions, and we wanted to make sure it was cross functional. That was also a strategy to embed in the function when we left some knowledge of levels and so that it wouldn't just be alien to them. So they were taught and they worked it, and we put charts up, and we'd say and we tell them, why do we think that's a level two role? What's the work? And then they would go out and do some of the interviewing and get the data back, and we would discuss.

Speaker B That once they sold very they were the leaders of English. So when we rolled this out, they said, hey, this is good. We believe in it.

Speaker D And what Mo didn't tell you was the pain came faces to spaces is where it's painful, getting the spaces and the structure identify what you need, then going in and asking the tough question, do I see Bob as having the capacity to fill that job? And I'm telling you, Julian was absolutely right. If you leave an incumbent in and you bring somebody in above them, it festers. And so you're sometimes better just cleaning house if you can't transfer them to a different function because it'll fester and it'll just cause undercurrent. And guess what? People do insidious things to make their boss look bad if you don't realize that. So if we couldn't find another place for him, we got rid of.

Speaker B So there was a lot of bloodletting, but there was no other way around it.

Speaker A What process did you use for collecting the existing information about the current work?

Speaker B The interview, was it a structured set.

Speaker D Of structured set of interview.

Speaker B We had something like 50 questions that we would go through, and the data was put together in the evening.

Speaker D We interviewed everybody, every single employee, and somebody wanted to talk to us offline we did that. Some would not talk to the internal people. They'd only talk to me. And we made sure we had confidentiality, but we would then go back and say, all right, here's what's going on. And that's why the discussions were that's why in the evening that's taken about.

Speaker B Two months, two to three months. But a lot of it was analysis in that war room. We would come back at night and put all the data together and start to construct how a lot of us was research based. Like, why do you have 39 service and parts branches across Canada? Can you get away with 26? Why do you have 250 service technicians? A lot of it was getting right down. So whenever my responsibility with Steve was to go to the collegiate, the CEO and his team at England, whenever we went up there and said, here's our findings, we never lost because we had so much backup data, what happened? We had, like, the region, what a TM would sell in every region. We had so much data on our hands, and we were finding things that no one because no one had ever gone down there and looked at, we were finding new ways of running these organizations. Like, why 39 service branches can we do with 26? Why did a service technician have to go back to the branch office every day? Why do you need a dispatcher in every service branch? So a lot of it I mean.

Speaker D Dumb thing, the repair worker had to show up in the office and then be dispatched. Then he had to come back at night and then go home. His territory may have been on the total other side of Toronto, for example. Well, you know, Toronto traffic. So how much lost time you get? Just and you know why it was to make his boss feel better because I can see him. I said, well what about Jesus? How do I know he's at work? Well, you got the repair date, you got the thing that's repaired. So it was those kinds of issues.

Speaker B Yeah, and we're going to go to the plan. I'll just finish off with a few. One thing we found that we worked with a project manager. We actually set up a temporary project management team. We took three, high level three, and we had them run all the projects so they would run like the new cooktop. They had a team of people and every there was cold gates a system, and we never had surprises after that. I learned a term dinner last night, a hog never butchered himself. So this is what happened at It. The VP of It had bought a 30 90 computer. It was a wrong computer to buy. And they used to go to these. IBM is very good at taking you to Florida. They were fantastic at selling. So he went off to Italy, and I took over It. And I not an It person, but I know business, I know strategy, I know how it works. So I was able to butcher the It group to make it better. Now the VT of It that went to Italy never would have done that because he had 100 people in there. So I managed with this Rich Keller guy who was the chief information officer for Whirlpool to make a deal where Whirlpool would buy more IBM products and they would take back that 30 90 and resell It. That took 20 people out of the It group. Then we had all these crazy systems patchwork system, I had all these It applications people running these systems, and I looked at Whirlpool systems and I said they're not great, but they're better than what we have and they're more integrated. So we brought in the Whirlpool system, so we didn't need all these people to run these It applications. But they had a shortage. You're out in Bettenharbon, Michigan, the middle of nowhere, they couldn't get It guys. So I said, well why don't you take the English It guys and they'll work for corporate, but stay on English. So I was able to reduce the budget of It by 60%. So these are the type of things you learn by doing requisite and the term about butchering your hog. So Steve, why don't you talk about the plants and then we'll make some practical questions.

Speaker D We went into plants. I just took here's Cambridge where they were making dryers, and the dark one is where the role was, and the white is where the person was actually operating. So the utility of looking at extant versus requisite or versus manifest is what's really happening. And what's important about extant is the people do what they need to do to get by It's. Either because the system forces them down they're not capable. But people work gets done every day in organizations, and so you need to figure out how and why it's getting done, and then that gives you glimpses to what you need to do. So we had the same problem here. We had everybody crammed out at level two. Nobody doing level three work, certainly nobody doing level four work. And in this case, they didn't have the capacity. And so we had to bring some more people and clean out the operations. And just to show you what we did, you've seen these kinds of charts before. We created wow and some supervisors with some managers that were really there. And we got rid of, cleaned out a bunch of people and had organized level three. You built compactors. I want you to go to bed every night, worry about compactors. Don't worry about dryers. You worry about compactors. I got Maurice over here worried about dryers. And then we had everything matrix around, and that's what's screwing up things. Now we got all this engineers matrixed out. We had their own quality engineer work for him. Now, the engineers, they went bananas. In fact, the engineering director, at momenti, he got so mad at us, he quit because he had the biggest department at moment, E, the engineering department. And engineers are very proud of people, and they all like to work for him. We said, no, we're breaking up your engineering department. They're all going to be allocated out to the manufacturing process. This is not an engineering company. It's a manufacturing appliance company where we don't sell engineering services. He got so upset, he quit. He says, you break me. I used to have 40 people. Now I'm down to four. I said, life's tough, but in fact, production went up, so you have to do that's. What we mean by getting down to core business, what's your core business? It's just amazing how you'll find out that they organize around. And I'm surprised that Morris didn't have his car broken or stolen or something. Well, so that's really kind of what we did. We applied the principles we've talked about. Go ahead, Morris.

Speaker B Okay, we don't have time to go through principles. Some of the key I'll talk about the key ones, and I learned this on Monday morning. I mean, just listen to Julian. Monday morning made this I'm glad I'm here. I'm so busy. But it made the time. I'm allocating to this conference, and he was saying, you can only make these changes if you overpower. So if you're a level five, you bring in level sixes. So just looking this analogy works because Bud Wong Pack, the first person we got, the guy that ran all the manufacturing for Whirlpool and lost his job because McKinsey changed us from functional to branding. So he's looking for a job and came out, he was probably a high six, low seven. And he helped us put the strategy together with McKinsey mike Feedaman, the second CEO, had been the best quality guru in global procurement for World. He was an engineering PhD, and he was probably high five, low six. And then the last guy we got came out of GE and been with Boston Consulting Group and he was a high six as well. Fran Spritko. Now, Fran and I went off to work at Fisher Scientific, and we restructured six companies within Fisher Scientific using these concepts. I'm not allowed to talk about it, but there's a competitor from one of the chemical operations. But we had incredible results. Well, one of them was the largest lab furniture company in North America. And we went in there, didn't even talk about Requisite restructured it. And it was almost bankrupt. And it actually put two of its competitors into bankruptcy. So this stuff does work. So overpowering makes sense. The accountabilities, it's really dry, boring. It's a blocking and tackling. Under Steve's leadership, we would take over a whole hotel, bring the whole corporate functions in, and each would like marketing would work in one room, sales in another room, HR, everyone, logistics it, and they would work out their tasks, their roles. Was it advisory? Was it prescribing and monitoring? And we'd have all these discussions for a day and a half. Then we'd put them all together in a room, and then we would look at the tasks, those accountabilities and authority. Everyone in the room could say, well, I don't think this is prescribing you're more advisory. So we really worked hard on the accountability. What we didn't do well, we didn't listen to Steve. He said, you need these leadership practices like setting contests, task assignment, coaching, monitoring. And we already had our university sort of going based on this six day boot camp where we took everyone for six days. And then we had five core education programs. So I was tired and so we didn't really listen to them. So we probably could have got more out of this if everyone would have learned those eleven leadership practices that are within requisite. So those are the things we learned underresourced the project team. We almost killed them all. And working at these credible hours, I guess out of hindsight, what I suggest to my clients now is try to liberate someone from their responsibility. Like, I was running five corporate functions and I was a project leader of this, and it's just too much for an individual. So you really got to put resources when you do restructuring. So any other comments?

Speaker D Yeah, one of the things that struck me as of the last couple of days here, here's a typical business unit. It's got the functions, development, production, sales, marketing, and it's got the usual staff toads over here. And what's happened is this is an effective structure, and I don't think I'm the staff people.

Speaker C That's why I was calling.

Speaker D That okay, because this is where it's fun. You actually touch. This is reality here. You make your money. All right? So that's an effective organization. It's not very efficient, but everybody has their own engineer. Everybody has their own sales and marketing. Well, then all of a sudden, recently, we've got this great AHA that we got this new organization and we're taking purchasing and we're taking HR. We're taking some other thing. We may even take manufacturing. And we're moving all that crap over here to another business unit, shared services. And so now, instead of owning all that, you got this guy over here or gal over here with their tentacles into your business unit. And guess what? They have a PNL and they have a vision and a strategy. And I liken it to and I couldn't get my picture up there, but where I used to have a ship and I was the captain and I owned all the assets. Now I've got a flotilla of little barges around here and I'm dependent on all of them, but they're not always necessarily supporting me. And over time, they're going to a different lake. I'm trying to go forward and they're out there working on their own particular solution, and they've lost sight of the.

Speaker B Forest or the trees.

Speaker D And that's the efficiency that we've got. So the pendulum seems to swing from time to time, and it probably has to do with who's the CEO or who's that from effectiveness to efficiency. Then they screw it up and then they have to go back and get effective. And we just got to go through this cycle if we manage to survive in terms of that, the most effective organization is not the most efficient, and it's a trade off. And at CRA, we invested in effectiveness, and there are lots of companies now that are investing in efficiency. And my prediction is that I'd much rather compete against them. That's right. It's either or. And the solution is to step up and do it differently in terms of some other kinds of things. And it's having a theory about how you organize your businesses and what functions and how you do that. So we take the theory. We applied it. It has payoff. What, 30%. They survived. They didn't get fired. It had dramatic payoff, but there was some trauma in terms of getting there. And it's doable in a relatively short period of time, but it's heaven as background.

Speaker B That's enough.

Speaker D We'll leave a little bit of time for questions. Any questions out there? Everybody's hungry?

Speaker A It was great. Thank you very much.