Lessons Learned From Kodak’s Fall

March 30, 2012 By Timothy Mojonnier 2 Comments

The winters in Rochester, NY can be long and harsh. I know. My son attends college there. Situated on the southern shores of Lake Ontario, the yearly snowfall averages 92 inches. But the harshness that I am referring to relates to the demise of Kodak, which was born in Rochester in 1889, and died there on January 19, 2012, falling into bankruptcy.

Given that its name was once synonymous with photography, a Kodak moment, the disintegration of this iconic corporation is particularly poignant. As recently as 1976, the company held a 90% market share of film sales and 85% of camera sales. It was the Google of its day, attracting the best technical talent from across the country. During lunch, the company played movies for its employees.

©Kodak used with permission

A disruptive technology—the digital camera—killed off the film business. Ironically, Steve Sasson, a 25 year-old Kodak electrical engineer, invented the first digital camera in 1975. This fact begs the question: how could a great company like Kodak, flush in the 1970’s with abundant resources and some of the most talented people on the planet, fail to take advantage of a product that was invented in its laboratories?

A failed business strategy and management myopia both contributed to Kodak’s downfall.

Kodak’s Failed Business Strategy

When there is a disruptive technology, firms are often unable to capitalize on the invention for fear of cannibalizing existing product sales. Kodak’s primary strategy was to sell high margin film. Known as the razor blade strategy, the company developed inexpensive cameras as a means to an end: their purpose was to facilitate lucrative film sales. In summary, its digital camera invention was held back because of management’s concerns about the negative impact on film sales.

When Sony launched a filmless digital camera in 1981, fear permeated Kodak’s executive suite. Specifically, over the next decade, Kodak invested approximately “$5 billion—or 45% of its R&D budget—in digital imaging,” according to a 2005 Harvard Business School case study. Unfortunately, with disruptive technologies such as digital cameras, the first-mover advantage is too great for late entrants to overcome. By the time Kodak realized that their razor-blade business model was dead, the horses were already out of the barn. The company was unable to catch-up to the competition.

Earlier this month, Kodak’s announced that it was exiting the film and digital camera business altogether. Sadly, all that remains of this once august corporation is the intellectual value of its patents, resulting from decades of belated investments in digital technologies.

Management Myopia

Not only was the first digital camera unwieldy—it weighed over 8 lbs.—but it didn’t even save images. Instead, they were projected onto a TV screen. It is difficult to imagine how Kodak’s mainstream customers—Mr. and Mrs. Jones from Kansas—would have bought that first, clunky digital camera.

Conventional wisdom suggests that good management involves staying close to your customers. And that is what management at Kodak did. Rather than allocating resources towards the internal development of a risky, digital camera that their mainstream customers had little interest in, the company funded projects that enhanced its position within the lucrative film market. Management at Kodak was constrained by the needs of their established customers. That is fine when making incremental improvements to existing products, but it is fatal when dealing with disruptive technologies.

In retrospect, management ought to have spun off its digital camera business to an independent subsidiary. The small business unit could have focused on meeting the needs of the customers who would have embraced it, such as hobbyists and leading-edge photographers. Apple followed this strategy with its first, Apple computer. I remember buying mine from a Chicago-based, electronics shop that catered to technical enthusiasts (techies) who were far removed from the mainstream, consumer marketplace. Over time, Apple developed its product offerings, introducing features and functionality—such as the mouse and Graphical User Interface (GUI)—that made it attractive to Mr. and Mrs. Jones from Kansas.

In his book The Innovator’s Dilemma, Clayton Christensen describes numerous instances where companies have failed at internally developing disruptive technologies. In contrast, firms that set up separate subsidiaries have been able to grow game-changing innovations into full-fledged businesses. HP did this with the invention of the ink jet printer in the 1980s. It set up an autonomous subsidiary in Vancouver, Washington, far removed from the influence of corporate headquarters in Palo Alto, California. Initially, the ink jet printer market was small and limited; over time, the company turned it into a significant business.

Small is Beautiful

I worked as a product manager at a small company that manufactured food-processing machinery for the beverage industry. New product development was the key to its success. In 1980, a large conglomerate acquired it. Within 7 years, innovation, the life-blood of the firm, dried up, and the conglomerate sold off the business.

When it comes to winning the new product development race, small entrepreneurial-driven firms will usually beat the behemoth corporation, especially when dealing with disruptive technologies.

Filed Under: Philosophy of Management Tagged With: business strategy, innovators dilemma, kodak

Apple's New iPad: A Disruptive Innovation

March 7, 2012 By Timothy Mojonnier 5 Comments

Occasionally, a new technology is introduced that disrupts the natural order of things. Apple’s iPad represents just such an innovation. The touchscreen display and navigation options make this computer a radical departure from the PC. [In this context, I am broadly defining the PC as either a desktop or laptop computer.]

With the iPad, you don’t have to use a trackpad—or mouse—to move a cursor around a screen. Instead, you use your fingers to touch and swipe the screen. In addition, the iPad is very light, weighing only 1.5 lbs (680 grams), and has a battery life of 9-10 hours, which is far greater than the battery life of the typical laptop computer. Combined, all of these features provide the user with a more direct and immediate relationship to computing: all cables, mice and other devices are gone. The iPad facilitates a “magical” experience, according to Steve Jobs. Certainly, it makes life easier for the customer.

Ease-of-use is one of the many reasons that the iPad has caught on like wildfire, becoming the biggest selling device in Apple’s history. For the quarter ending Dec 31^st2011, the Cupertino-based juggernaut sold 15.4 million tablets, accounting for $9.1 billion in revenues or about 20% of the company’s total revenue. Compared with last year’s holiday quarter, tablet sales doubled.

We are witnessing what Harvard Business School’s Clayton Christensen calls a disruptive innovation. Typically, inventions that fall into this category have characteristics that are radically different from existing products; however, initially, they offer lower performance in areas that are important to mainstream customers. For example, compared to a laptop or PC, the original iPad’s processor was slow; storage space was limited; and it wasn’t equipped with a keyboard. But over the past couple of years, Apple has significantly improved the performance of its tablet computer. Here are some of the features contained within the new IPad, which was released today:

High resolution retina display–2048×1536 pixels more than on an HD TV
A dual core CPU twice as powerful as the A5 found in the iPad 2
A rear iSight camera with 5MP sensor and advanced optics, including IR filter, autofocus, face detection, and white balance
HD video recording (1080p resolution)
Voice dictation (there’s a new key on the keyboard for speaking into the iPad)
4G LTE support: HSPA+ for up to 21Mbps or dual-carrier HSDPA for up to 42Mbps or LTE for a max of 72Mbps connectivity
Battery life is 10 hours (9 for the 4G models)

Regarding the future, Steve Jobs described what we can expect. He used the metaphor of the PC as a truck, and the iPad–or tablet–as a car. America was originally an agrarian economy. Then, the truck was used for all tasks done on the farm. But as we developed into an urban economy, the car replaced the truck for many jobs.

The tablet will be increasingly used for consuming digital data—viewing videos and photos; reading news websites, feeds, and books; checking on e-mail & social media; and listening to music. In contrast, the PC will be used for heavy-duty tasks. One of you said it well: “typing a large document or programming a 1,000 lines of code is much easier with a full size, qwerty keyboard.” A PC with a blazingly fast processor, which is hooked up to a large display—including multi-monitor arrangements—can facilitate multitasking and productivity. Developers, professional photographers, graphic artists and hardcore gamers will probably continue to use the PC, at least in the near future. But to quote Jobs once again, “as we move away from the farm, the car started taking over.”

And the data appear to substantiate Job’s prediction. During 2010, when the iPad was introduced, sales of PC’s outnumbered sales of tablet computers by a ratio of 20 to one. In 2011, PC’s outsold iPads by a ratio of only six to one. Horace Dediu, an analyst with Asymco in Finland, predicts that tablet sales will surpass PC sales in 2013.

In conclusion, the iPad symbolizes much more than just simply an incremental improvement in technology. It is evolving to become a PC replacement for many applications. The PC will survive, but its market share will continue to decline vis-à-vis tablet computers. This is no different than what occurred 60 years ago when televisions were invented. As a result, the audience of people who listened to radio shows declined greatly. Although the radio has endured, its share of the overall listening audience is small in comparison to TV’s market share.

Here are other instances where new technologies displaced existing technologies:

How do you weigh in on this issue? Will Apple’s improvement of features and functionality enable the tablet computer to become a PC replacement?

Filed Under: Philosophy of Management Tagged With: apple, ipad

The Price of Your iPad Is Higher Than You Think

January 26, 2012 By Timothy Mojonnier Leave a Comment

There is a glaring lack of ethics in terms of Apple’s supply chain management practices, as suggested by the New York Times. Many Asian suppliers are violating basic ethical principles. Here are some of the questionable practices cited:

Horrendous occupational safety violations
High suicide rates due to stressful working conditions
Long working hours: repetitive 60-hour, 7-day weeks
Employment of children as young as 15 years-old

Although Apple has responded to problems in its Asian supplier base by conducting supplier audits, the worlds’ largest company—in terms of stock market value—has been reluctant to put its foot down. The fate of a 22 year-old college graduate, Lai Xiaodong, is a case in point. He moved to Chengdu in southwest China to take a job at Foxconn, an electronics supplier that employs 1,000,000 people. He was quickly promoted to oversee a team that polished iPad cases. This process generated dust, which is a known safety hazard. Mr. Lai and 3 teammates died from a ghastly explosion, which also injured 14 other workers. After the accident, which seared 90% of Mr. Lai’s body, Apple contacted “the foremost safety experts in process safety,” and assembled a team to make recommendations to prevent future accidents. In December, 2011—7 months after Mr. Lai was killed—another iPad factory exploded due to aluminum dust. As a result, 59 workers were injured; and 23 hospitalized.

I was initially shocked after reading about the story of Mr. Lai, and Apple’s apparent lack of commitment to correcting poor worker-safety practices. Although allowing unnecessary accidents—resulting in worker injuries and deaths—cannot be condoned, we must take a more nuanced view regarding Apple’s predicament, from both a historical and cultural perspective.

In a supply chain management class that I recently taught, we discussed the ethics associated with the use of child labor in developing countries. One of my students grew up in India. He indicated that poverty in India is severe, and compulsory education is not mandated by law. To survive in this environment, some families require that their children work. Were we to impose our ethical values and prevent children from working in Indian factories, we would be depriving Indian families of sorely needed income. It is easy—but wrong-headed—to believe that our ethics and moral values are superior to the moral values held by other societies.

The reasons against using child labor are not moral as much as they are practical ones. It is bad business to permit children to build Apple’s products, if young people are simply being used as a means to an end. Consumers in the west will no longer think that it is “cool” to own i-Phones, if they have been built by Chinese teenagers. How many parents would want to be part of a 21st scene, taken from a 19th century Dicken’s novel?

In Viet Nam, Nike has implemented an innovative solution to this dilemma. Although some of Nike’s Vietnamese suppliers employ children, they also provide employees with a regular wage, free or subsided meals, free medical services and training and education. Nike, as well as western consumers, benefit from low labor costs. At the same time, the workers improve their standard of living and also receive access to education.

Regarding the various safety issues that were described by the New York Times, one has to put them into a cultural context. I recently interviewed an executive who lived in China for 13 years, setting up factories and growing American businesses. During the course of our conversation, he made the point that public safety is non-existent. When walking down the street, you have to always be on the lookout for possible hazards. There may be a big hole in front of you, which is not blocked off with barriers. Or, there could be an electrical wire dangling at eye-level. If unaware, you could walk right into it. If a lack of public safety is the norm in China, how can one expect the private sector to be any different? Would we be correct to impose our ethical standards—as relates to public safety—onto the Chinese? Specifically, should we preach that barriers should be placed in front of Shanghai’ s sinkholes?

Getting back to Apple, from a business perspective, the company must enforce strict, safety practices for all of its suppliers; otherwise, more articles—such as today’s scathing indictment in the New York Times—will appear, tarnishing Apple’s brand. Only by adding teeth to Apple’s supplier responsibility reports and recommendations, will the company avoid future, public relations disasters.

In conclusion, with global competition, superior supply chain management results in consumers receiving products at low prices. But our western ethical tastes are repulsed at stories of worker abuse. Apple must take strong, corrective measures against suppliers who use workers solely as the means to an end, namely, achieving low, production costs. In supply chain management, good ethics makes for good business.

Filed Under: Ethics, Philosophy of Management, Supply Chain Management Tagged With: apple, china, ipad, worker safety

How Steve Jobs Rose to the Top

January 5, 2012 By Timothy Mojonnier 3 Comments

“The dwarf sees farther than the giant, when he has the giant’s shoulder to mount on.”
—Samuel Taylor Coleridge, in The Friend (1828)

Every business executive and aspiring entrepreneur should read Steve Jobs, a biography by Walter Issacson. It provides a frank, unadulterated look at the career of the greatest business executive in our time. Consider this. Job’s founded Apple in 1976, which began as a 4-person operation in his father’s garage. By 2011, it became the world’s most valuable company by market capitalization. I agree with Isaacson’s contention that Jobs belongs right up there in the pantheon next to Ford and Edison.

There are many takeaways from this book. One of the “lessons learned” is that Jobs stood on the shoulders of others in order to achieve his phenomenal success. We all need mentors, and Steve Jobs needed them more than most. Given up for adoption by his biological parents, he spent much of his life looking for a father figure who he could emulate:

Personal Role Models

Paul R. Jobs, his adoptive father, who enjoyed refurbishing and selling used cars after work. Steve spent hours by his father’s side, “eager to hangout with his dad.” Job’s dad was the first person to provide him with exposure to electronics. And the rest is history.

Kobun Chino, a Soōtoō Zen master, who served as Steve Job’s spiritual guru. Job’s longtime teacher presided at Job’s wedding. For Jobs, Zen represented more than a philosophy of life; it also infused his thinking about design, which he felt ought to embrace beauty, minimalism and simplicity.

Business Role Models

Arthur Rock, a venture capitalist and early Apple Board member, took Jobs under his wing. However, the relationship was about more than just business. “Arthur had been like a father to me,” said Jobs. Rock and his wife Toni hosted Jobs in Aspen and San Francisco. He also taught Jobs about opera.

Mike Markkula, Jr., an angel investor and Board member of Apple, was the third employee of the company. Like Rock, he also became a father figure to Jobs. Markkula taught Jobs how to market, sell and package a product. Markkula oversaw Jobs growth and maturation. He served as Apple’s CEO from 1981 to 1983.

Ironically, Rock and Markkula eventually distanced themselves from Jobs. Here is the story. In 1983, Jobs recruited and hired John Sculley, President of PersiCo, to become Apple’s CEO. Two years later, Jobs had second thoughts. He and Sculley had a showdown before Apple’s Board of Directors. Both Rock and Markkula sided with Sculley. Years later, in recounting this event, Jobs broke down in tears. He felt betrayed by his business father-figures, much in the same way that he felt abandoned at birth by his biological father.

We all need shoulders to stand on, particularly during the formative phases of our careers. The poet John Donne said it best: “No man is an island.”

At the age of 16, I was inspired by Dr. Winters, a visiting minister who had a daytime job as a consultant to G.M. He was an outstanding speaker, and imparted numerous, fundamental life-lessons. He piqued my curiosity about business. Many years later, I worked with an external company consultant, A.K. His ideas brought about significant changes within the organization where I was employed. From him, I learned about the power of ideas, and how to present them well. As a result, my career direction changed from management to consulting.

What are your passions? Do you have a coach/mentor/boss/friend who you can learn from? Whose shoulders are you standing on in order to achieve the goals that you seek?

Filed Under: Leadership, Philosophy of Management Tagged With: apple, Steve Jobs

MF Global: Déjà Vu All Over Again?

November 4, 2011 By Timothy Mojonnier 2 Comments

MF Global may have disguised its debt levels to investors by temporarily reducing the amount of debt shown on its books at the end of the quarter before publically reporting its finances (source: WSJ). Every quarter, for seven consecutive quarters in a row, the debt was always lower at the end of the quarter. The debt levels at the end of the quarter were lower than the peak for each quarter by an average of 24%. Yet another shell game courtesy of Wall Street!

Although window dressing is legal, it is immoral, because it misleads investors who—based on publically reported information—believe that a firm is taking on less risk than what is really the case. Given MF Global’s bankruptcy earlier this week, investors must feel that they there were deceived.

I know the feeling. I bought some Lehman Bros. convertibles in 2008, based on published financial information. During that period of time, the company’s management team loaded up on a $85 billion portfolio of risky mortgage-backed securities. At the end of the quarter, the management team moved these securities off Lehman’s books, a practice that the New York Times described as a “shell game.”

It has been over three years since the Lehman Bros. bankruptcy, the largest in U.S. history. The SEC is considering a rule that would require financial companies to disclose more information about their borrowings, but has not taken action.

George Santayana, a famous philosopher, once remarked: “Those who do not remember the past are condemned to repeat it.”

Is it not time that we pass regulations that eliminate the unethical practice of window dressing that destroys the credibility of our financial system?

Filed Under: Ethics, Philosophy of Management Tagged With: shell game, wall street

Surviving in a Dying Industry by Using the Toyota Way

January 10, 2011 By Timothy Mojonnier 6 Comments

The U.S. coffin manufacturing industry, like so many other domestic goods producing industries, has undergone hard times. First of all, people are living a lot longer. Thus, demand for caskets has declined. Second, more people are choosing cremation rather than opting for the traditional—and more expensive—burial. Finally, customers are buying less expensive coffins from China. All of these factors combined have dampened demand. U.S. casket sales peeked by volume in 2000 at 1.9 million. Since then, they have declined by 11%, to 1.69 million in 2009. (Wall Street Journal).

Despite these trends, the Batesville Casket Company has been able to survive, even prosper.

Symbol of the Company That Pioneered the Toyota Production System (TPS)

And they have done so, in part, because in 1995 they adopted the Toyota Way—known also by such names as the Toyota Production System (TPS), just-in-time (JIT), lean operations.

The Toyota Way—as originally conceived by Toyota Motor Corporation—is focused on the elimination of all waste from the automobile manufacturing process. Here are the 7 typical wastes, or inefficiencies, which are part of any manufacturing or service process:

Overproduction
Waiting time
Unnecessary transport or conveyance
Overprocessing or incorrect processing
Excess inventory
Unnecessary movement
Defects

This lean philosophy has been used to reconfigure the assembly line at the Batesville plant in Manchester, Tennessee. Using touch screen computers and bar codes, the workers on the line assemble 1,000 custom caskets per day, choosing from 22 possible colors along with thousands of personalization options. The assembly line has been reconfigured into a pull system, where material is ordered only when it is needed by the customer. 98% of the 224 parts that go into assembling a coffin are produced on site.

Reduction of waste and defects can be accomplished by simplifying processes. The Manchester plant employs visual signals that facilitate ordering the correct materials. In an article in the Atlantic Monthly, Mary Jo Cartwright, the plant’s director of operations, described how a new worker to the interiors line asked about how she was suppose to do her job of resupplying the seamstresses. “Visual displays were everywhere; sheer material for mattresses and canopies hung from color-coded racks that simply needed to be matched with corresponding colors. ‘This is kindergarten,’ the worker said.”

Improving the efficiency of a process can also be achieved by substituting technology for labor. Previously, a worker lifted the 65 lb lid of each casket over 500 times a day. Batesville improved worker safety—while simultaneously increasing productivity—by replacing several people with two giant robotic arms.

As a result of the adoption of lean operations, the Manchester plant has reduced manufacturing costs by 25% over the past 15 years. At the same time, the labor hours required to build a coffin have been reduced by 40 percent. (Industry Week)

The practice of continuous improvement (kaizen in Japanese) is another element of just-in-time. It is the belief that “there is no best, only better.” The Manchester, Tennessee factory’s 370 associates—the term that the company uses to describe its factory workers—are empowered to improve their work on a daily basis. In 2008, two busloads of Batesville Casket Company employees traveled to Georgetown, Kentucky to study how the line workers participate in continuous improvement.

Rather than trying to hit the big home run, the workers at the Batesville Casket Co. attempt to hit many singles: they are empowered to focus on improving their work, day-in and day-out. In terms of output quality, the continuous improvement philosophy has paid off in spades. In 1999, 20% of the caskets produced had a defect; today, the numbers of defects coming off the line are less than 1%.

Waste elimination and continuous improvement are two of the pillars of the Toyota Way. But the final, foundation-piece required is Respect for People. The employees are the ones who have the best ideas for improving their job processes; yet, if, as a result of a suggestion, an employee is “laid off,” what motivation would anyone have for making recommendations for process improvement? The workers at the Manchester, Tennessee factory are represented the United Steelworkers union. At this site, management agreed that no factory associate would lose their job as a result of a kaizen event, which is a workshop that challenges a cross functional team to design or improve a designated process. This promise—coupled with the reality that the home office is closing plants that are inefficient—-has resulted in the realization that success requires that everyone must work together.

Toyota Motor Corporation stumbled in 2010, losing its way by recalling over 10 million vehicles. Despite this reality, the business philosophy that Toyota developed—today known as lean operations—is still valid. The top management team in Toyota City, Japan have simply taken their eye off the ball.

In addition to becoming the dominant operations strategy of US manufacturers, lean operations is rapidly being adopted by the service industry as well. Batesville Casket Co., the worlds’ #1 casket manufacturing company, is a good example of the success of this strategy. Last year’s sales and profits were $749 million, and $111 million, respectively. For a dying industry, lean is the precise remedy that any good doctor would order.

Filed Under: Lean Operations and Just-in-Time, Managing Quality, Philosophy of Management Tagged With: manufacturing, Toyota, Toyota Production System

A Candidate for the Business Hall of Shame

December 8, 2010 By Timothy Mojonnier Leave a Comment

“We aim for sustained earnings growth in excess of 20 percent, powered by increased revenues and margin expansion. …[Tyco’s] model has produced consistently strong results for well over a decade.”

– Dennis Kozlowski, former CEO of Tyco International from page 18 of the 1999 Shareholders Annual Report

Last week, Dennis Kozlowski, the former CEO of Tyco International, was directed by a judge to forfeit all of his compensation earned during a nearly 7-year period beginning in September 1995. In his order, the judge said that the total compensation outstanding under the agreement is well over $100 million. (Source: WSJ)

The denouement of this once famous corporate executive is not surprising. Although BusinessWeek named Kozlowski one of the 25 outstanding managers of the year in 2002, for the previous decade he had beaten down his division managers. Year after year, each division President was expected to increase profits by 20%, regardless of circumstances. If there was a hiccup, namely, profits grew less than 20%, then the division President was subjected to intense pressure to perform. If, for a second year in a row the company again failed to meet the 20% growth hurdle-rate, then often the division President was fired. In one business unit, the division’s chief financial executive traveled hither and yon in order to find acquisitions that would bolster profits. He spent almost a year in Asia frenetically searching for an acquisition so that the business unit could achieve Tyco’s 20% goal. It was a very simple—yet brutal—system that everyone understood.

I realize that it is not unusual for corporations to have aggressive objectives for their senior managers. But usually there is a more collaborative relationship—integrated through some sort of strategic planning process—between corporate management and the divisions. In contrast, Tyco’s managerial process had an unrealistic, even coarse aspect to it. It reminded me of what W. Edwards Deming said years ago. Simply having [financial] goals—without a method for achieving the goals—is useless.

However, during Mr. Kozlowski’s reign (during which time, I had a consulting engagement with one of Tyco’s divisions), Tyco did produce seemingly impressive results. Between 1995 and 1999, ostensible net profits increased from $.2 billion to $2.6 billion, and the stock price rose from $7 per share to over $51 per share. But in 2002 Kozlowski resigned as Tyco’s CEO, and the stock price plummeted. Tyco’s foundations were built on sand, and when the winds blew, it toppled over. In June 2005, Mr. Kozlowski, the son of a police investigator, was convicted on 22 of 23 counts, “including grand larceny, conspiracy and securities fraud.” (Source: WSJ) He is now serving time in New York State’s Mid-State correctional Facility.

If a corporation’s mission is to simply maximize profits anyway possible, unethical decisions by managers will surely follow. At a minimum, top management must articulate the strategies that are required to achieve corporate financial goals. And, more importantly, the CEO must exercise virtuous character traits in order to lead the many stakeholders who are dependent on the corporation for their well being. On all counts, Mr. Kozlowski failed his many constituencies, and the company almost fell into bankruptcy. In his vision for Tyco, the jailed CEO had an ethical blind spot, which was his undoing. He did not realize that ethical behavior—on the part of the CEO–is good business.

Do you agree that corporate management is responsible for more than just meeting certain financial targets? Should the goal of the CEO be to simply maximize profits? Or are virtuous character traits important to running a company?

Filed Under: Ethics, Philosophy of Management Tagged With: profit maximization

Project Mis Management at Boeing

November 19, 2010 By Timothy Mojonnier 4 Comments

As someone who has a deep interest in the tools and techniques that companies use to monitor and control the performance of their ventures, I was surprised to learn that Boeing’s new Dreamliner project suffered yet another setback. Specifically, an in-flight fire on a Rolls-Royce engine may postpone the 787 Dreamliner’s entry into service for the seventh time, adding as much as a year to the three-year delay for the composite-plastic jet. Altogether, Boeing’s poor performance in achieving project objectives has cost it billions of dollars in penalty fees to the airlines.

My introduction to formal project management techniques began when I was given responsibility for implementing a business system–called Material Requirements Planning (MRP)–at the Beverage Equipment Division of FMC Corporation. At that time, FMC was a multi-billion dollar conglomerate with interests in the defense, petroleum, chemicals and food industries.

The Beverage Equipment Division was one of FMC’s smaller divisions, and I was a member of the steering committee that chose the software (ASK), which all of the smaller divisions eventually implemented.

Since that time, I have participated in a variety of projects as a project manager, project team member, and external project team consultant. Simultaneously, I have taught myself the fundamental principles of project management. I also teach courses in project management at local universities.

What is astonishing to me is that Boeing’s project management techniques are known as being the best in class. Over the years, the corporation has developed extensive project management tools and methods. Case studies have been written detailing how project management is part of the company’s corporate culture. And some companies benchmark their project management methodologies against Boeing’s.

One of the first lessons in project management is that all projects should be judged in terms of their ability to meet the “triple constraints” of performance, budget and schedule. On all counts, the Dreamliner project has failed miserably. How can a company—whose DNA is project management—fail to meet the most basic standards of performance? What do you think are the causes of Boeing’s fall? Has there been a lack of leadership at the top?

Filed Under: Philosophy of Management, Project Management Tagged With: triple constraints

Can Business Ethics Be Taught?

September 20, 2010 By Timothy Mojonnier 4 Comments

The movie “Wall Street Never Sleeps” opens up at theatres on September 24^th. Starring Michael Douglas, it calls attention to the issues of corporate greed and moral depravity. This film is timely, because over the past decade, CEO’s at many Fortune 500 corporations have committed unethical acts. To cite a few: After having been indicted on 35 counts of fraud, insider trading and other crimes related to the collapse of Enron, Jeffrey Skilling–the Harvard MBA and former Enron CEO–is currently serving time at a federal prison in Littleton, Colorado. Dennis Kozlowski, the former CEO of Tyco International, is presently spending time in New York State’s Mid-State correctional Facility. He has been convicted of various corporate crimes, including his receipt of $81 million in purportedly unauthorized bonuses. (In the interest of full disclosure, I had a consulting engagement with a unit of Tyco during Kozlowski’s reign.)

And then there is the current economic crisis that we find ourselves in. CEO’s of financial companies involved in the subprime mortgage fiasco have avoided jail thus far. But the anecdotal evidence suggests that the behavior of some senior managers was unethical at best. Wall Street has put the business goal of profit maximization on steroids. At worst, the unbridled greed of top managers–at mortgage brokers, traditional banks, investment banks, insurance companies, and government agencies–almost caused the demise of our financial system.

In response to the moral lapses of our business leaders, many MBA programs are incorporating ethics into their curriculums. Some schools now offer courses titled “Business Ethics” whereas other schools are instead opting to integrate ethical issues into all of their courses. Newly minted graduates from these institutions will learn about various ethical theories such as utilitarianism, Kantian deontology, and virtue ethics. Regardless of the approach to teaching ethics, the fundamental question is this: Can ethics be taught? Let me relate a story that sheds light on the issue.

When I was 7 years-old riding in the back of my grandfather’s black Buick, I threw a gum wrapper out the window. My 77-year-old grandfather immediately chastised me, indicating that if everyone did what I did, then we would all be living in a trash-filled world.

Even today, when I take the wrapper off a piece of gum or candy, I sometimes entertain the thought of throwing it on the ground. But before I do so, I am immediately struck down by the words that I imagine emanating from my long-ago, deceased grandfather.

So, my behavior—insofar as littering is concerned—is ethical, because by not littering, I am helping to save the environment, which is a good thing. In the context of ethical theories, my grandfather’s admonitions would be termed Kantian. This German philosopher suggested that in examining whether to exhibit a behavior, ask what the effect would be if all of humankind did the same thing. If the behavior in question causes universally, harmful effects, then doing it is unethical.

Although I studied Kant in college, my tendency not to litter is based on the values that I internalized from significant adults in my growing-up years. In summary, I believe that our behaviors as adults are primarily based on the moral principles that we learn from our elders in our childhoods. ~~Had Jeffrey Skilling taken a business ethics course, would his subsequent behavior as Enron’s CEO been different? I think not.~~ While at the Harvard Business School, Jeffrey Skilling actually took an ungraded course in business ethics. That course didn’t affect his subsequent behavior.

How do you weigh-in on this issue? Can business ethics be taught?

Filed Under: Ethics, Philosophy of Management Tagged With: financial crisis, profit maximization, wall street

Are Profits and Ethics Mutually Exclusive: Where Business and Philosophy Meet

May 18, 2010 By Timothy Mojonnier 10 Comments

In 1978, I graduated from the University Of Chicago Booth School Of Business. I completed my MBA degree at night while toiling during the day as a Purchasing Manager at a food machinery manufacturer.

The classes were held at 190 East Delaware Street directly across from the John Hancock Center. Ironically, the name of the MBA program was the “190 MBA.” What a remarkably undistinguished name!

Much of what I learned three decades ago is no longer valid. But as the philosopher John Dewey once said, the measure of an education is not what you learn, but your ability to learn how to learn.

For example, the Chicago Booth faculty constantly inculcated the notion that the purpose of a business is to “maximize profits.” All of the faculty members towed the line in terms of advocating this point of view.

Some CEOs follow this dictum to the extreme. The maniacal focus on quarterly profits culminated in the 2001 downfall of Enron Corporation, which morphed into a house of cards, the foundation of which consisted of inflated and, in some cases, downright fraudulent profits and assets.

The most recent incarnation of profit-maximization gone amuck is manifested in the financial services industry. As reported in The New York Times, it is an open secret on Wall Street that many firms use end-of-the-quarter window dressing to make their financial statements appear to be better than they really are. For instance, the management team at Lehman Brothers loaded up on an $85 billion portfolio of risky mortgage-backed securities. They did not want their shareholders and stakeholders to know about this portfolio, because such knowledge could negatively impact the firm’s stock price and their executive bonuses. So the management team moved these securities off their books, which the New York Times described as a “shell game.”

This reminds me of the David Mamet movie, House of Games, in which a small-time criminal Mike (played by Joe Mantegna) dupes various naïve souls with a multitude of cons and acts of deception. Senior executives at Lehman are on an equal moral footing with Mike the criminal. The only difference is that many of the Lehman swindlers have MBAs and could concoct more sophisticated acts of deception than the fictional Mike. Unlike the movie which was quite entertaining, the cons perpetrated at Lehman Brothers resulted in the largest bankruptcy filing in US history, an event that almost toppled our financial system.

Business school education has instilled the ethos that a good manager should win at all costs. In a recent Wall Street Journal article, it was stated that many people blame the business schools for educating their students to focus on manipulating the financial system, and, in that respect, they are partly responsible for producing the managers that have been culpable for the recent corporate melt-downs. After all, the Harvard MBA and former CEO of Enron, Jeffrey K Skilling, was the mastermind of the scheme that manipulated the firm’s stock prices. The jury convicted him of various crimes, including twelve counts of securities fraud, and he is currently serving a 24 year sentence in federal prison in Waseca, Minnesota.

At one of the business schools that I teach at, DePaul University, there is a major effort to incorporate ethics into the curriculum. This represents a sea-change in thinking, namely, that the role of business is not to simply produce leaders who will be solely focused on their self-aggrandizement at the expense of society. Rather, the implication is that business has a role to play beyond profit maximization. Indeed, it suggests that ethics do matter.

What do you think? What is the purpose of business? Does senior management have any ethical responsibilities to society at large? If so, what are they?

Filed Under: Ethics, Philosophy of Management Tagged With: business school education, financial crisis, profit maximization, shell game

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