1 | Leadership
Trader Joe’s Secrets
Yes, they really are secrets. Trader Joe’s doesn’t divulge information about its management system or its strategies or its success. So Fortune spent two months talking to people who have worked for the company, competed against it, analyzed it, and supplied it (click here for article). This is what they found:
- Trader Joe’s is roughly the same size as Whole Foods. It is owned by Germany’s Albrecht family but still managed by its founder.
- The company is very selective about where it puts new stores. It’s only adding five locations this year. It looks at demographics to choose sites in places that fit its distribution infrastructure.
- Trader Joe’s offers a limited selection of products. Typical grocery stores carry 50,000 SKUs; Trader Joe’s sells about 4,000, about 80% of which bear the store brand. “With greater turnover on a smaller number of items,” Fortune writes, “Trader Joe’s can buy large quantities and secure deep discounts. And it makes the whole business—from stocking shelves to checking out customers—much simpler.”
- Trader Joe’s pays its suppliers on time without the extra charges for advertising, coupons, or slotting fees that other supermarkets charge.
- The company buys directly from manufacturers that ship straight to Trader Joe’s distribution centers, which ship daily to stores. The stores don’t carry much inventory so ordering must be precise.
- Store managers can make low six-figure incomes while full-time employees can start at half that, and Trader Joe’s annually contributes 15.4% of employee’s gross income to tax-deferred retirement accounts.
- Trader Joe’s is becoming more corporate. As a former employee observed, “You…
How to Be the Best
Baldrige.com focuses on information that can help you build the organization you want. As a result, nearly all of the articles address elements that contribute to an excellent management system. This one is different: It looks at how you can become excellent at your heart’s desire.
In “Six Keys to Being Excellent at Anything” (HBR, August 24, 2010), Tony Schwartz quickly dismisses the myth that greatness is determined by our genetic inheritance. He analyzes current thinking about building personal capacity as well as his company’s experience working with executives to state that how hard we are willing to work determines our level of excellence. The minimum level of practice required to be expert in something, according to people who have studied this, seems to be 10,000 hours. That’s about seven years of practice at 4.5 hours per day, six days a week (this will make more sense when you read Tony’s list).
Schwartz offers six keys to achieving excellence:
- Pursue what you love. Passion “fuels focus, resilience, and perseverance.”
- Do the hardest work first. Great performers delay gratification and do the most difficult first.
- Practice intensely – for 90 minutes without interruption. Then take a break. And great performers practice no more than 4.5 hours a day.
- Seek expert feedback in intermittent doses. The feedback should be simple and precise.
- Take regular renewal breaks. Relaxing allows time to rejuvenate, metabolize, and embed learning.
- Ritualize practice. Build specific, inviolable times to practice. As Schwartz notes, “will and discipline are wildly overrated.”
I know a very successful leader who could have written…
24Aug2010 | Steve George | 0 comments | ContinuedSustaining the Culture
Sustainability has become a major issue for organizations and leaders that want to sustain the positive changes they have made through programs such as Baldrige, lean, and Six Sigma, but the truth of the matter is that they can’t. Such programs often flounder as soon as new leadership takes over or priorities change or new ownership assumes control.
I’ve written about the impact of leadership changes in “Leadership Matters Most,” citing the example of AT&T Universal Card Services, which was launched using the Baldrige model, climbed to second in the U.S. credit card industry in just 30 months, and then changed leadership and dropped to eighth over the next 30 months.
In “Keep Your Eye on Process Improvement” (HBR, August 18, 2010), Brad Power recounts the story of Allied Signal, which used Six Sigma in the 1990s to produce 31 straight quarters of earnings-per-share growth of 13% or more. Leadership changed in 2000 and 18 months later, the Six Sigma culture had essentially disappeared.
Sustainability of the positive changes associated with Baldrige, lean, and Six Sigma is not difficult if leadership and ownership don’t change, but such changes are inevitable. CEOs move on, quit, or retire. Companies merge or are acquired. So the ultimate sustainability question is: How can we keep the transformation going after those who led it are gone?
I see two ways this can happen. The first is to replace the leaders of the transformation with new leaders who fully support it. If the CEO is replaced by the COO who was personally…
23Aug2010 | Steve George | 0 comments | ContinuedLeading Also Means Managing
Some leaders believe that leadership and management are two different things and they are only responsible for one of them. In “True Leaders Are Also Managers” (HBR, August 11, 2010), Robert I. Sutton uses the words of Warren Bennis to describe a common perception: “To manage means to bring about, to accomplish, to have charge of or responsibility for, to conduct. Leading is influencing, guiding in a direction, course, action, opinion. The distinction is crucial.”
Sutton disagrees, arguing that such a distinction produces leaders with big, vague ideas that can have little to do with reality or can be nearly impossible to implement. It isolates leaders from reality, giving them a reason “to avoid the hard work of learning about the people that they lead, the technologies their companies use, and the customers they serve.”
The Baldrige Criteria does not make this distinction. The first Category in the Criteria asks a number of questions about how senior leaders lead and manage:
- How do senior leaders set organizational vision and values? (Lead)
- How do senior leaders personally promote an organizational environment that fosters, requires, and results in legal and ethical behavior? (Lead)
- How do senior leaders create a sustainable organization? (Lead)
- How do senior leaders create an environment for organizational performance improvement, innovation, and agility? (Lead)
- How do senior leaders communicate with and engage the entire workforce? (Manage)
- How do senior leaders encourage frank, two-way communication throughout the organization? (Manage)
- How do they take an active role in reward and recognition programs? (Manage)
- How do senior leaders focus on creating and balancing value…
Managing for Innovation
Managing for innovation is a Baldrige core value. According to the Criteria, “innovation means making meaningful change to improve your products, services, programs, processes, operations, and business model to create new value for the organization’s stakeholders.”
It’s not just about being creative: It’s about making creative change. Vijay Govindarajan and Chris Timble spent a decade studying innovation, writing a book that presents best practices for executing an innovation initiative called The Other Side of Innovation: Solving the Execution Challenge. They asked thousands of executives at Fortune 500 companies to rate their companies’ innovation skills on a scale of one (poor) to ten (world-class). Generating ideas got an average score of 6. Commercializing them—turning ideas into meaningful change—received an average score of 1.
In other words, most organizations are pretty good at coming up with ideas and very bad at acting on them. To remedy this situation, Govindarajan and Timble devote their book to describing the nature and work of dedicated innovation teams because, as they note, “innovation is by nature non-routine and uncertain.”
You can get a jump on developing processes that solve the execution challenge by improving your responses to these key questions about innovation in the Baldrige Criteria:
- How do senior leaders create an environment for innovation?
- How do you innovate product offerings to meet customer requirements?
- How do you select and use comparative data and information to support innovation?
- How do you translate organizational review findings into opportunities for innovation?
- How does your learning and development system address innovation?
- How do you innovate your overall work…
What Great Organizations Achieve
The bottom-line question every senior leader asks about Baldrige is: What does this management system stuff have to do with the bottom line?
John Friel, former president and CEO of Baldrige Award-winner Medrad and the man responsible for leading the metamorphosis of its management system, answered that question for himself in 1989 when he visited Milliken, a textile manufacturer that had won the Baldrige Award the previous year. “They talked about two things that struck me,” said Friel. “They were the market share leader, charging the highest prices and getting the highest margins in the industry, and they had the highest customer satisfaction and retention. That’s when I was converted.”
Milliken’s second point put the responsibility to act on Friel’s doorstep. “They told everyone to stand on a chair and yell at the top of their lungs, ‘Management is the problem!’”
When Friel took over as Medrad’s CEO in 1998, he solved that problem by committing Medrad to annual Baldrige applications. The results came quickly. The company’s revenue started growing at 15% a year. It increased operating income as a percent of revenue, a measure of profitability, from 16 percent in 1999 to 20 percent in 2002. Its percent of “very satisfied” customers exceeded 70, with more than 80% very satisfied with its service. Employee satisfaction exceeded the best-in-class industry benchmark. In a national survey of 57 medical imaging companies, Medrad ranked second. None of its direct competitors finished in the top 20.
A management system consists of interrelated parts. Medrad’s approaches deliver the…
22Jul2010 | Steve George | 0 comments | ContinuedLeadership Matters Most
The ease or difficulty in transforming a management system lies with the leaders of that system. I’ve worked with five Baldrige Award winners and in every case, their executives drove the renovation of their management systems. No company did it the same way: Some had it mastered in a few years while others took a decade or more. Not every senior leader felt strongly about the Baldrige model or the evaluation and improvement process it supports, but as long as the top executive did, it didn’t matter.
Executive attitudes toward creating a sound management system regularly surprise me. Those who recognize its value preach this systems perspective with the fervor of true believers. Those who don’t buy into it bide their time until the boss leaves and they can return to what they know is best. The trouble is, what they know is best is rarely as good as the systems approach they abandon.
Motorola, IBM, and AT&T dominated in the late 1980s and early 1990s when their leaders conducted regular, formal assessments of their management systems. As that process waned, so did their fortunes. AT&T formed its Universal Card Services division in 1990 with a management system based on the Baldrige model. In its first 30 months of existence it rocketed to second largest in the U.S. credit card industry, winning the Baldrige Award in 1992.
Thirty months after that it floundered, hobbled by new leadership that deserted the systems approach in favor of “better ideas.” Thirty months after that, in October…
21Jul2010 | Steve George | 0 comments | Continued
