Our CEO Larry Davis speaks about the anatomy of a customer focused culture.
Larry: I want to thank you. First of all, I want to apologize for not being here with you today. And thank you for the honor of speaking to you. It's a privilege to be chosen to speak about two things, one, why we chose to change the direction of our culture almost 15 years ago, and what that looks like today.
Larry: This video, it's the first time I've seen the video. And I was really struck by the sincerity of our people and the things that they said you're going to hear resonate in the presentation that I prepared before I saw what they had to say. And that's really gratifying to me to see that our messages have been part of the process, people have taken them to heart, they understand them and they're able to live them out on a daily basis.
Larry: Right. The first thing I want to talk about is something that I learned at a conference in 1989 but it stuck with me, this resonated at the time. It was a Mark Twain quote that it's not what you don't know that hurts you it's what you know that isn't true. Especially that last part, what you know that isn't true keeps coming through over and over. It was important to me before we started our journey in 1997. But once we started to change our culture it became incredibly profound.
Larry: We kept learning over and over that the things we had been doing and believed in were actually not the right things to do. In some cases that meant throwing out traditional business practices and substituting things that really made sense. And I say that having gone to business school, finished up my last year while I was working here. Would go learn something, come back and apply it, learn something and apply it. That was in the 80s and in the late 90s we started taking a lot of that stuff apart. And unfortunately, many of those things that we took apart are still taught in business school today.
Larry: So, and I would also tell you that this is rather humbling because I know that some of the things that I'm telling you today, that I believe today, are not going to be true in the future. Whether I discover it or someone else does. And that's the world we live in and this culture of continuous improvement. We've all got very comfortable with the fact that we all don't have the answers but we'll work together to figure it out. All right.
Larry: Why did we change? We were a respected employer, a respected vendor back in the late 90s. Our quality was acceptable, our delivery was average. I would say that's about 85% on time back in that time period. We certainly weren't better than the industry, we were about average. Our customers respected us, we were profitable, we were very busy. So we were getting lots of work. And we could safely say we were as good as our competitors. From a marketing perspective that's a pretty lousy endorsement but that's where we were.
Larry: The reason we wanted to change is that at the top of the organization it was a nightmare. We were operating in chaos, we were a very linear operation, orders would come in, we'd process the order, we'd give them a delivery date, then they would go to design where they would get a drawing from there they go to purchasing. Purchasing would try to buy the material. If the material didn't meet the delivery date they'd go back to the order entry people, they'd change the date, call the customer. Eventually it would get to the shop where it would be scheduled. And hopefully things went as they should. But unfortunately they didn't.
Larry: The wrong material would be delivered, it wouldn't be the right length, machines would break down. It was pretty much a nightmare. And we couldn't, as owners of the company, couldn't conceive is how we were going to continue to grow. Adding more people and more machines just meant more chaos. And it was really quite by accident that we discovered this process. We were getting ready to move into this building and invited someone down to look at our operations. They were a manufacturing consultant. They came in, they looked and started to ask some pretty simple questions. They seemed dumb at the time and our answers were even dumber.
Larry: The short story is that what they promised was we could eliminate the chaos, reduce our costs, improve our quality. Those things seemed reasonable. But then he went on to say that we're going to reduce inventory, which to us was just the opposite of being able to serve our customers. We were going to build smaller lot sizes which meant it was going to be more expensive in our mind to build product. And we were going to stop forecasting. Not forecasting was a really tough one to swallow because that's how we knew what to build. So about half of what he said we could get our arms around, the other half we had to take in blind faith. And I suspect that that's about where you're at. There's a piece where people they kind of get it, but the other aspects that they're... There's a lot of anxiety, confusion, angst and uncertainty. And that's the world we were in in 1997.
Larry: I would also say that we were a command and control company. Very top-down driven. More equivalent to a parent-child relationship, which I think is very traditional. The kind of culture that we have evolved into there's really no place to go learn that, that's not taught in business school, we don't learn it in our families, we certainly don't learn it in school.
Larry: In that old culture we valued technical skill. If I was really good in purchasing or really good as a machine operator I would protect that knowledge because that was my value. In the way we operate today, protecting that value is exactly the opposite of what you want to do. We value people that will share their knowledge and help other people to succeed and teach other people what they know. Our people were territorial. Again, we were very busy. So purchasing did purchasing things, manufacturing had their responsibilities, and seldom did they talk in a cooperative way. And there was no way that they were going to go outside of their [inaudible 00:06:53] to help other people. They were just too busy. And that top-down management style exacerbated that problem.
Larry: We were very linear. As I explained how we processed work, we'd go from one group to the other which is not a very efficient way to do work. And like I said, we were too busy to grow. So hang on to, it's what you know that isn't true because that's going to come up over and over.
Larry: This slide was very insightful for us. When we started down this path we discovered that most businesses in the traditional fashion, it is this entire graph represents all of the human time spent in an organization. About 95% of it is spent in non-value activity. I had a hard time getting my arms around that because of the people that we employed, two thirds of them were people making product. I'm thinking, how can that be? Well this isn't about what happens when we put the part in the machine and close the doors, it's about what those people do while the machine is operating and all the other support systems in the company what they do while that machine is operating. So, the other way to talk about this is that about five percent of the time people are spending time on valuable things that customers are willing to pay for.
Larry: Another thing that we learned that wasn't quite true was because we saw ourselves as engineers and manufacturers we spent all our time focused on making those processes go faster and ignored this 95% where there was a tremendous amount of opportunity to improve this by reducing this. That was counter-intuitive to us. And one of the things that we learned in believing that focusing here was the best thing for us to do was exactly wrong. It was focusing here was where it was easiest to improve this by reducing that.
Larry: So, on the left is a list, not a comprehensive list by any stretch, but it's a list of the kinds of things that depict what non-value is. If you take a look you'll recognize that you probably do a lot of this stuff. Those are things that customers prefer not pay us to do. Waiting for approval, moving things around. Certainly expediting was a big part of what we did and expediting in our world meant that the plan had failed and we needed to take product, expedite it and move it on to take care of the customer. Scrap, [inaudible 00:09:35] and you can read through the list, meetings, recruiting, inspection, accounting. Forecasting was a big one. So the way we went after this stuff was to reduce what we could, get rid of the things that we could, and then reduce what was left. In the process we got this down to about 70%, which by default meant that we were spending 30% of our time now on valuable items. And people that do this for a living will tell you that when you're in the 70-30 range you're world class. I should tell you that in that slide before I mentioned the 95-five, when we mapped out our process we were actually one percent, 99%. What's really hard to get your arms around is that we were profitable. All right. Any questions?
Larry: All right. This really was interesting so many people refer to this they didn't always get it right. But I believe you've talked about values prior to this part of the presentation. In the mid 90s, we wanted to develop a mission statement, that was the hot thing to do at that time. So I went to Stephen Covey how you build a mission statement seminar. Spent two days. And at that time, I believe 27 words was the max, you had to get it done within 27 words or less. Which was a little bit difficult but finally got it down to 21 words. And I'm going to recite it for you to make a point. We will provide outstanding technological and service leadership beyond our customer's expectations so as to promote their interests, thereby ensuring continuous opportunities for our people. I can repeat that 10 more times and you still won't get it. You see it on paper and you read it and it makes sense and it's philosophical. We also developed our core values about the same time. And if you look around the building you'll see them posted on the wall. And they were part of that video.
Larry: Those static things, the values listed and the mission statement listed, really didn't... I mean they served their purpose and they moved us along but they really... It was needed to incorporate them into every day activity. So in about the 2004, 2005 range it kind of dawned on us that these are the two things that we actually do, do the right things for the right reasons and help our customers be successful. I don't care what it is in the company, if you do something, make a decision or do something that you think is of value and can point to one or both of these as the reason behind what you did, you're good. And most times the things that we do apply to both.
Larry: Conversely, we don't want to be doing anything that doesn't fit into either one of these categories. Do the right things for the right reasons, and help our customers be successful. And I'll bet you you've got a pretty good chance of remembering those things when you leave here. They're very simple and the people in the video in various forms are saying the same sort of thing.
Larry: All right, as far as our culture goes a number of people mentioned trust. I wanted to tell you a story about trust that really brings it home for me. We had been wanting to... There's an organizational process called 5S, which Krysten can explain to you if anyone wants to know what that is. But we were starting a 5S project in our largest cell. And this is a Friday afternoon, I knew they were out there working on this thing, we had shut down the cell for two days to go through this organizational process. So I went out just to see what was going on and there's some really neat things that they were doing. And I told them they were doing a great job and went back to my office. On the way back I'm thinking, you know that stuff looked kind of expensive I wonder if they've got a budget? So I went back out into the shop and asked one of the machine operators if they've got a budget. He goes, yeah. I said, you mind sharing what that is? And he said, yeah we have $25,000. I said, cool, sounds good. So back to my office.
Larry: From there I went to talk to my partner who's Vice President of Operations and I said, Dave, you have any idea what they're spending this money on? He goes, none. I said, good. Because that's kind of the answer I expected. So, Monday rolls around, again I'm sitting in my office. And being an old concrete guy I know what a concrete saw sawing concrete sounds like. And that's what I hear. So I'm back out in the shop and again, ask the machine operator what's going on. And he explained that we have these electrical lines and pneumatic lines laying across the floor with a OSHA approved dam, it's bolted down, it's a pain in the neck, we can't get stuff over it and we wanted a pneumatic and power to a different part of that cell. The only way to get it there effectively was to saw this channel in the floor, bury it, and then refill that. I said, okay, cool.
Larry: But the point is, as the President of the company I didn't approve the budget number, Dave gave them that money. And Dave, being an accountant by training, did not ask for any kind of an ROI. How are you going to spend the money, what are you going to get back for it? That wasn't part of the equation. But our culture has advanced over a 15 year period to the point that we know when we believe the money that they spent would be spent well. And what was going on was that the machine operators had ideas about how to improve their work space. The leaders, about five leaders in the company went to that cell and helped facilitate the fruition of those ideas.
Larry: So you take any one of the projects that they were working on and you couldn't make sense of it from a financial standpoint. But, you also can't make sense of what those people feel when the ownership of a company gives them $25,000 to do things that they believe will help themselves. The fact that we trusted them to spend that money, you can't put a dollar value on how those people feel relative to how we trust them. So again, at this point we're 14 years into that culture. We didn't come out of the box handing out $25,000 check but that's where we've evolved to.
Larry: Another thing we've learned is to focus on systems, not so much on people. The old top-down, parent-child relationship we were managing people. You know, how long is somebody sitting on a break? Should they be there? Where should they be if they've been there for too long? That kind of thinking doesn't have any place in our culture today. We focus on systems. We dial them in, we figure out what's wasteful, what's not. And we do that together. And put a system together that is truly a functional way [inaudible 00:17:11]. And then put the labor in place to support that system.
Larry: At one point I was trying to get my arms around what the magic is in our organization. I was getting ready for presentation, I took about five of the manufacturing leaders out to lunch just to talk with them to see what it was that they thought was different about us. And this again was in preparation for the 5S project in cell C. And we're talking and they're telling me what they expect to have happen. And I know what the by the book method is to do the organizational process they're talking about but there's an element of it that they want to do that doesn't belong in this 5S thing. So I asked how do you deal with that? And he says, well that's easy, we don't do anything by the book, we take the important things that apply to a particular project and we Damanize it. I said, Damanize, what? I would like to say that's a word I coined but that's a term that our people use, which really brought it home to me the fact that they own the process. They're not afraid to do things the way they think they need to be done. And that's a huge plus.
Larry: Leaders wanted, that's not a semantical term. Wal-mart hires associates, we have employees, we're all employees. I'm a majority owner, I'm still an employee of the company. What we call people isn't important. But when it comes to how we operate, we want leaders, we want leaders at every level. And we want as many leaders in here as we can possibly get. The old school way, the top-down method, we used to tell people to shut up and sit down, not interested in what you have to say. They really got in the way. But when you develop a system and a culture that embraces change, is comfortable with being challenged, and I guarantee that I am challenged on a regular basis, you want people who can think, who can take those ideas move forward with them. Not afraid of failure, we all understand that failing is an opportunity to learn, it's a much more comfortable environment to be in. It's more comfortable for me, I don't feel like a nurse maid or somebody who's lording over people. It's much easier to be real people and to appreciate each other and develop relationships with people that work for us.
Larry: Shelly sent me, four months ago, five months ago, six months ago, a YouTube. It was about what motivates people. I think they were trying to get at conversation doesn't necessarily motivate people, was I think the premise. But what they discovered was that mastery, autonomy, and purpose in a culture is what really allowed people to thrive. So as a good leader I'm always scanning, you know, are we doing the right things and what else could we be doing? So I looked at the video and I'm comparing us to it. And as I go through I'm saying, yeah, that's where we are, mastery, autonomy, and purpose. Our people on the shop floor, we operate 24 hours a day effectively without supervision. That whole middle layer of supervisory people doesn't exist here. Not that those people from the traditional world don't have other roles within our organization, but that supervisory piece is gone. And when you put systems together that are really effective you don't need supervisors, you don't need people telling other people what to do.
Larry: So, but in that mastery piece I think we want to jump to technical skills, make sure they really know how to do their job from a technical perspective. That's important but along with those technical skills are the ability to get along with other people, to problem solve, brainstorm, to be collaborative and to work well together.
Larry: The autonomy piece, again, is knowing what to do, and how to do it, and when to do it without being told. And simply taking the opportunity to do that.
Larry: And for us, that purpose piece is helping our customers be successful. They hope to get paid, but hopefully people are coming here in the commitment of helping our customers be successful.
Larry: Now lastly, I just want to talk a little bit about the elements of the constituency of our culture. Certainly at the top of the pyramid would be customers. We don't exist, none of us have a job, we have no reason to be if we're not taking care of our customers. If they don't send work to us, we're out of luck. We have no contracts with our vendors and no contracts with our customers. We have no [inaudible 00:22:17] contracts on our purchase orders or on our sales orders. We hang it out there simply doing the right things for the right reasons and helping our customers be successful.
Larry: The customers are number one. Us... Just to give you an example of how we value employees. And as a subset of helping our customers be successful we have to help our employees be successful. And one of the people in the video actually said that. And to give you an idea of how that works, this particular example fits into both doing the right things for the right reasons and helping our customers be successful. We recognized that nationwide about 50% of the population struggles financially, white collar, blue collar, doesn't matter. We do not do a very good job of managing our money. We also knew that we had a problem because we had creditors calls coming in looking for various people trying to find money. And at some point in the process, in the continuous improvement mode, it dawned on us that if 50% of our people have their minds cluttered with financial stuff trying to fight off creditors then one, how effective are they going to be when they talk with customers, how effective are they going to be when we're asking them to build quality products, deliver on time, train other people, or we're trying to impart training on newer people, how much of it are they going to hear?
Larry: So it became obvious to us that we needed to help our people understand their finances better. So we sent Kristin to the Dave Ramsey University, got her certified, and offered that program to our employees. Effectively free, they had to pay something to go through this 13 week course but if they went through it and completed it we gave them their money back. So it effectively cost them nothing.
Larry: In the process we discovered that out of 60 employees we had roughly $800,000 in non-mortgage debt and $10,000 in sales. So we had a problem. And over the next 13 weeks went to work on helping them understand how to do that. One of the coolest stories was a fellow who was in that kind of a condition, had credit cards maxed out just paying the interest, couldn't see how he would ever pay off his credit cards or his mortgage. Within two years had his credit cards paid off and was doubling up on his house payments, and today he has no debt, he's debt free.
Larry: Now we did that for the right reasons and we did it to help our customers be successful by helping our employees be successful. But the goodwill that that generated from the people that went through the program was incredible. And they started to talk to our customers about this program. And it falls into the category that we call profound education. If we teach somebody how to do something on the job, that's okay. But if we teach them something that is applicable to the job but they can take home and improve their life at home and teach their kids, then that falls into that profound category. And we like to do as much of that as possible.
Larry: When we talked about systems, we bring our vendors into the process. We have very few vendors but the ones we have we depend on dearly and they are true partners in what we do. We have been partied to partnerships where the bigger vendor [inaudible 00:25:55], this is not that case. We don't throw our weight around, we want our vendors to be profitable, we also don't let them abuse us, pricing is fair but we ask them to do some extraordinary things to help us help our customers be successful and they get that. Our vendor base is very important to us. We do seminars for them. They're very involved in what we do here. It's a good relationship.
Larry: Community. That's primarily fallen to me over the last 15 years but slowly it's starting to move into the company. That's a little tougher one because people that are running machines are not... They want to run the machine and go home and do their life. So getting them to do things beyond that it can be tough. But we've kept up the attempt and one that's been really successful was kind of fun. This is the workshop project for a one day workshop that about 60 seventh and eighth graders attended from the South Bend Community School Corporation. And this is an attempt by our industry to help kids at that level get a little exposure to hydraulics and mechanical things. So, in a three hour period we take them through how to build this thing which is an element of a machine that they're going to have to build over the next five to six weeks and come back to compete with. So, we take them through this, which actually works. Kristin, take this with you for the actual presentation. We teach them how to build that and then they're given the actual challenge which is to move wooden dolls from this location to this location using only what they've learned on this demonstration day. So, there are at least four functions that they have to work with. This thing has to swing, it has to elevate, clamp.
Larry: So these kids, these seventh and eight grade kids, who had no exposure to this stuff leave with just that amount of knowledge and over the next five weeks figure out how to build this machine. They come back on competition day they can't bring what they've built, they can only bring a portfolio of a drawing and some other issues or things that are part of the criteria. This event was held at Notre Dame. We've been trying to develop a relationship with Notre Dame for a long time. But through this project we were actually able to make contact with the engineering group, they got excited about it, they got their engineering students to come in to the South Bend schools and mentor these kids and help them through that build process. About eight of our people got involved as judges and people that work behind the scenes to make this happen. We involved other businesses that we know by trying to get them involved. We got their money, we weren't as successful in getting their bodies here. But we were winning all over the place. And the people from our place who helped had a great day, both on the demonstration day and on the actual workshop day. And of course they come back and they tell everybody what they did that day. It's a good deal.
Larry: But involving our people in the community I think is really important. We sell hydraulic valve manifolds, it's not a household word we're not going to sell more of them because we did that thing at Notre Dame. But it does build good will. We certainly want to hire people who think like we do so the more of those things that we can do beyond me, is a good thing.
Larry: I don't think we need to go into the other two things unless you have a question about those. Okay. That's pretty much the presentation as I want to give it. I applaud the fact that Midwestern Energy is attempting this. We do presentations here and have for at least the last 10 years. I'll do a little presentation, take people on the shop floor, they come back and ask questions. And to a person they're blown away, awesome, cool stuff. And when I ask so when are you going to start? I don't think it's really for us.
Larry: So I can count on five hands, of the hundreds of companies that have gone through here, one hand, the people that have actually taken the step. And they don't take the step because out of fear. The leaders are afraid of being exposed for not knowing. In 1997 I was the number two guy and I'm supposed to have all the answers. And being able to go through this and accept the fact that we really don't is a big step for a lot of people. Plus you have the risk. The devil I know is a whole lot better than the one I might be stirring up. So it takes a lot of courage from leadership to move in this direction. And I suspect there's a lot of anxiety amongst the workforce.
Larry: I mentioned that there's a level of people that aren't doing the job that they did in the traditional world. And there are times when companies will bring in their whole team and we'll go through what our organizational chart and they'll say I don't see a scheduler, I don't see purchasing, I don't see me. What's that mean? And the simple answer is it all comes down to attitude. If you get behind the process and you become part of the solution, and you embrace it even though it's scary you embrace the opportunity, and move it forward, you're golden. If you're going to resist and try and fork the change this is probably not a place for you. But really it all boils down to how everyone in the organization embraces the change.
Larry: We have not done a flavor of the month thing in the last 15 years. Everything we do is agreed upon and understood at a very deep level amongst our leaders certainly. And we move forward as a group. No longer top-down. Overall we do some coaching, some directing, some what-ifs but if we can't sell to people that have to make it happen then we either have to retool and come back and resell or it's not a good idea. So, that's all I have to say. Wish you well. If you have any questions I'd be happy to.
Speaker 2: Just one if I can.
Speaker 2: You talked about this being a 14, 15 year process and you do get a lot of people out of their comfort zone, I think you're out of your comfort zone a little bit as well in terms of [inaudible 00:32:57] and the culture. How long really did it take, I mean I assume you adopted the new values and there's period where maybe everybody's crawling and then they get up and start walking. And then they're jogging and then they're full sprint. I mean, how long is that process?
Larry: I can tell you how it would work had we done it correctly. But we made some mistakes, by our own admission. We were told that we needed to do certain things and we were under the gun moving into this building. And we made the mistake of thinking we knew what high performing work teams were, based on our experiences on athletic fields. And athletic field teamwork has nothing to do with business.
Larry: So we didn't prepare our people properly. And you are. You've got people from all throughout the organization involved and teams are starting to make this happen. But we didn't do that. So we really struggled for the first two years until we realized just how much of a mistake we had made. And that's the point where I think most companies would have pulled the plug and said, this doesn't work, we're out of here. But luckily, the ownership of the company believed in the process. And we hired two people, hired one and then brought in a consultant and really worked on the team building piece. We had people that wouldn't speak to each other. But those were great opportunities to help us gain, build, and learn and it was really fascinating to watch them move from a real contentious mode into one where they thought there might be some hope and they started to work through their problems.
Larry: This is a six month to a 12 month deal to get to critical [inaudible 00:34:44] if it's done correctly. The fellow that helped us is still doing it and he'll tell you that it's a six month process. In six months you should be up and running and better off than you were six months prior. And from that point on you keep getting better. So I say we've been at it for 14 years but we probably were sailing after five and from then on it's just refinements. The kinds of improvements that we make today are things that we never would have dreamed, we never [inaudible 00:35:16] they're so small but when you're operating in the traditional fashion.
Larry: Anything else? Good. I'll get my coat off.