by Phil Gilbert

Why Your Company Could be Next to Melt Down: Visibility

Jan 13, 20096 mins
IT Strategy

What happened to the auto and banking industries may happen to service industries next. Without visibility to crucial data, CEOs of the world's largest companies run houses of cards, built on risk, says Lombardi Software President Phil Gilbert. But the solution, he argues, is not bailouts.

While many people see a bailout as the only solution to solve the liquidity crisis for the automotive Big 3, others believe the real problems rest deep within the white collar ranks, where a lack of visibility across company operations has created enormous inefficiencies and risks. Phil Gilbert, president of business process management firm Lombardi Software, is known as an efficiency expert sought by CEOs, CFOs and CIOs to help cut fat, at companies including Ford, Honda, AFLAC and Hasbro. In this opinion piece, Gilbert argues that the real problem facing the automotive industry has more to do with the lack of visibility and process efficiencies across all parts of the company, and less to do with runaway salaries and lack of technology innovation.

Blue collar workers aren’t killing Detroit, white collar workers are. And since the entire service economy is built on white collar work, what happened in Detroit over the past thirty years and happened to banks in the last 10, will happen to everything else in the next three.

In fact, everything in the American economy is driven by service economy workers (“white collar workers”). But the model upon which this economy is built is broken. It is based on the unscalable heroics of artisan workers, who largely work outside the limelight. In the worst cases, they work outside any light at all. To prevent another industry meltdown, business leaders need a set of white-collar principles based on the bedrock of visibility.

While Congress debated over a historic bailout of the Big 3 car manufacturers everyone became an expert on what needs to change. According to one opinion in the Wall Street Journal the problems start with the big, bad unions and stop only if you can “gut” them. According to the Beltway folks, we’re in this mess because the car manufacturers didn’t produce enough hybrids or, in the vernacular, they “didn’t build the cars America wanted.”

Neither is right.

One of the three (Ford) is in demonstrably better shape than the other two, and it’s no mystery why. Two years ago, when he took the reins of Ford, Alan Mulally identified two things that needed to change: parts costs have to go down, and engineering productivity must go up.

Get it? The white collar workers who design the cars have to move from artisan to engineer, and they need to work together across all the company’s platforms to use common parts.

While cutting healthcare benefits and union concessions might help conserve another month or two of cash, neither would address the causal differences between old school manufacturers and those from a new school focused on white collar efficiency and cross-process visibility.

But this type of change doesn’t come on the cheap. It requires imagination and determination. Imagination to re-think the details of what we do and how it’s measured. Determination to take on the entrenched interests inside our companies and drive change right down to the desktop of every white collar worker. So far, these failures haven’t only resulted in the Big 3 crisis and all the related manufacturing meltdowns over the last 30 years, they’ve also caused the mess on Wall Street.

In Michael Lewis’ terrific article in, “The End Of Wall Street’s Boom,” he highlights the two key drivers of the banking meltdown. First was the huge, unseen risk of leverage in the new financial products that were being developed. Second, in the article’s money quote, John Gutfreund , the former Solomon CEO, reflected on the role of CEOs across all of today’s megabanks. He said, “I didn’t understand all the product lines, and they don’t either.” Lewis writes “the Wall Street C.E.O. [has] no real ability to keep track of the frantic innovation occurring inside his firm.”

CEOs and everyone below them must have a common understanding and visibility into the processes needed to establish new efficiencies. As an example, it’s rumored that Toyota’s engineers spend more than half their time “doing engineering.” In Detroit, it’s half that. And as Lewis points out, few people anywhere knew that a single mortgage was leveraged up to 10x through the various CDOs and credit swaps.

In both of these seemingly diverse industries, decisions about parts, risks and returns are made in the vacuum of virtually unchecked darkness. In companies today there’s no direct linkage between the tasks your people are doing and the goals of the organization.

This isn’t a lack of automation It’s a lack of visibility. Regardless of industry, the world’s largest companies are houses of cards, built on darkness and risk.

This should scare all of us.

Ironically, the off-shoring, which was the first response to the symptoms of the artisan-economy-on-steroids, served to increase risk and darkness even as it hid behind the allure of cost savings.

Because the growth in the service workforce was not easily scalable (costs went up in a linear fashion as heads were added), CEOs found it easier to fire local workers and hire distant ones who were paid a fraction of their U.S. counterparts. These executives took the easy way out, often-times they actually added headcount to an already-unwieldy process and boasted about their “savings.”

So now our U.S. companies are in increased peril: white collar tasks are more opaque than ever, while customer and product risks are on the rise.

Today, leading edge companies across the manufacturing and services spectrum are working on new ways to reduce risk, and increase visibility. The technical bits are fairly easy, but the cultural change needed inside the white collar parts of the organization is massive.

There needs to be a revolution in implementation of processes that bring greater visibility and less risk to all aspects of our businesses. It is no longer acceptable that senior management remain ignorant of the goings-on at even the deepest depths of the organization.

Technology can play a key role in providing this linkage and visibility. But before this can help, we need leadership at the top that doesn’t fail to imagine and is determined to make their people work differently. This isn’t about taking on the popular bogeymen of the past. It’s about fundamentally changing our culture and our capabilities.

The old manufacturing and service economies can be saved, but they both need to be rebuilt upon the bedrock of visibility.

We need a new service-enabled economy that lowers business risks, lowers business costs and increases the number of local jobs.

But it requires imagination and determination from the very top of the tree. It requires driving change throughout the upper, middle and bottom of the white collar parts of your organization.

Phil Gilbert is president Lombardi Software in Austin, Texas.