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Things to Know

So you want to DIY an ERP project….

Assessing the Enterprise Resource Planning (ERP) capabilities of a company being acquired has become a due diligence component of most Merger and Acquisition (M&A) or Private Equity (PE) transactions, and rightfully so.  Having an outdated or poorly deployed ERP system is, and should be, a red flag and a discount factor for any transaction.  A few months ago, a Private Equity client asked me to put together a quick presentation of my experience with ERP systems and the impact they have on companies. A shortened and sanitized version of the presentation is here; but going back through my presentation notes got me thinking;

A pending M&A transaction is not the only time I have seen an ERP project make or break a company or seriously impact its relationship with its customers.  Any operator worth his/her salt needs to be intimately familiar with the ERP infrastructure of the company they run and directly engaged in major decisions around it.

If you do a Google search on “Failed ERP Implementations” you get over thirty five thousand hits and – depending of whose data you choose to believe – only between ten and thirty-five percent of all ERP projects achieve 100% of their objectives.  Color me purple, but it doesn’t take a math genius to deduce that the remaining sixty-five to ninety percent of projects fail in some way to meet their initial expectations or realize the perilous nature of ERP projects.  Statistics like that, and the publicity of lawsuits against major ERP vendors, should make Chief x Officers (CxO – Executive, Financial , Operating, Information) contemplating a large ERP project think twice about their strategy, their plan, their team, their ERP vendor, and their overall assumptions and expectations about the project.  And many of them do (and thank you to those who call me for help, Ideasphere Partners appreciates your business)!

Over the last fifteen years, of all the challenges I had to address as a technology and operations executive as well as in my Corporate Renewal, Merger & Acquisition, or interim-executive consulting work, issues and projects around ERP systems are usually the most challenging.  There is plenty available research that goes into more detail and offers specific strategies, but for those Do-It-Yourself (DIY) executives who don’t hire any outsiders to help, here are two things you have to do before anything else:

  • If your company does not have an ERP system in place already, better make sure the organization will be ready for one, even before implementation planning starts.  The quality of your plan will depend on how ready the organization is, and the quality of your implementation will heavily depend on how good your plan is.

An ERP system is at a very high level the operating system (OS) of a company.  Just like the OS on a computer, it is the interface between the hardware (business operations) and the software (business strategies), the router of the instructions-for-work to processing centers (customer orders, manufacturing requests, work plans, and schedules), the resource allocation manager (Equipment, service capacity, capital, or people), and the reporter of system performance (financial and operational metrics) to the owners.  And just like only simple computers – on-board controllers and special purpose hardware – can function without a complex OS, only small or single purpose companies can function without an ERP system.  And if your company has a home-grown ERP system you’ve outgrown, or uses a collection of modules from various vendors to perform the ERP function that can no longer scale and you are considering upgrading, keep reading.

Deploying an ERP system where none existed before is a traumatic experience to the organization.  For example, if the company has an each-on-their-own culture and poor cooperation between departments and divisions who are not ready to give up a certain amount of autonomy, accept a level of discipline, and acknowledge organizational inter-dependencies, deploying an ERP system is doomed to fail from the start.  To mitigate that risk, before anything else, make sure you have a solid assessment of the organization and its readiness for change and a solid organizational change plan that includes all aspects of the organization, from sales to manufacturing, to senior management.  There is of course the special cases where the deployment of an ERP system is merely the mechanism an executive team is using to actually drive change, but that’s another blog for another day.  There are many resources on how to effect organizational change, but some of my favored books from my library, not in any particular order, are: Managing Transitions, Influencer, Re-engineering Management, Why New Systems Fail, and Real Change Leaders.

  • If your company has an ERP system already deployed, but it is based on antiquated technology, or a collection of loosely connected modules (i.e. an accounting package, a scheduling package, an inventory management custom app, and a shop floor control system) from various vendors and levels of sophistication, in addition to change management, there are technology and integration issues you need to contemplate before pulling a plan together.

 

All ERP vendors will tell you they can handle any integration issues, but an ERP system, antiquated or patch-work as it may be, if it is functioning at any capacity, it is still analogous to the nervous system in the human body.  Just like the nervous system controls organs as well as thoughts and behavior utilizing a synaptic network, so does the ERP system control operations as well as activities and output utilizing a computer network and electronic transactions.  And once an ERP system is in place, it enables new connections and facilitates activities that are not immediately obvious.  Major ERP changes are like major surgery and you would not want someone to remove or operate on a major organ in your body, without understanding what it would do to you.

 

Before under-taking an ERP project, start by creating an enterprise architecture map and a system interaction chart that shows the various systems and sub-systems, their connectivity and the types of information they exchange.  Creating a simple map will show you the SIPOC (Supplier, Input, Process, Output, and Consumer) relationships that will be impacted when you make a change so you can be prepared.  You will be surprised how Julie from accounting is using some report James creates through the inventory system to manually populate a spreadsheet that sales uses to change the forecast, etc. etc. etc.  Or, how a division IT team connected a supplier to the system through a back-door integration corporate IT is not aware of so they can improve their parts delivery process.  A couple of good books on this area from colleagues I personally know and respect are Enterprise Integration, and Enterprise Information Integration.

And if you don’t think these two first steps are important, drop me a note!  I can tell you enough horror stories to change your mind.

A talk about Leadership – Thoughts on the Future

Talking to High School students about Leadership.  That was my challenge last week as the Keynote Speaker for a Florida Association of Student Councils rally.  I thought it would be important to keep the message short and focus on only a couple of important things.  This 30 minute video of the talk by my friend Wayne Rasanen and the presentation material at Prezi.com are the results.

Relentless Objectivity and Flawless Execution vs Faith and Hope

A very new-age oriented prospective client was questioning me about my two core principles of “Relentless Objectivity” and “Flawless Execution.”  His view was that there are things that cannot be objectively assessed that make a difference, like faith, spirit, etc. and that flawless execution is pursuit of perfectionism that is not realistic.

It’s not the first time I’ve heard those arguments so I thought I would write something about it.  As usual, please send me thoughts/comments at c.papageorgiou@ideasphere.com.

Relentless Objectivity is not a replacement for faith, spirit, positivity, or hope.  It is simply about honing the ability to remove as much of the personal biases we all bring to any situation and to observe, analyze and understand the impact of our decisions and actions.  One of my favorite views on the subject is from Admiral Stockdale, who I met many years ago and who’s book “In Love and War” is one of the most powerful accounts of the Vietnam War I’ve ever read.  This is from the Wikipedia bio entry about him: “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

As far as flawless execution, it is not about the pursuit of perfection.  It is about the pursuit of well thought out plans and the development of solutions that can be executed by “mere mortals” like the rest of us without errors.  In business, hope is not a strategy, neither is faith.  Maybe it’s because I am an operator and therefore biased and not necessarily relentlessly objective on this matter, but execution is what converts faith to action and translates strategies and  hopes to results.  I have seen many cases where a mediocre strategy flawlessly executed delivered results far superior to a great strategy poorly executed.

Both principles are not plateaus to be reached but rather a way of thinking and doing business.

Why do Some People Succeed & Others Fail?

A video segment from a discussion with MalcolmOutLoud on attention to quality and growing a business.

Profit or Growth – A fools choice

What’s more important, the pursuit of Profit or the pursuit of Growth?  Well, I have some definite opinions I share with the MBA students at the University of Tampa.  This is a copy of a presentation I am giving this week.

Dealing with critics

A Jr. Executive I mentor called me a couple of weeks ago devastated because a senior executive in her company had criticized the way she managed her team, and she wanted to know what to do about it.  That discussion prompted this blog.  As usual, comments and thoughts are always welcomed at c.papageorgiou@ideasphere.com.

I believe criticism and feedback are the twin key ingredients for a “breakfast of champions.”  Without these two elements we can’t grow, mature, or realize our limitations and blind spots. I believe that to be true in business, and, even on a personal level, I actively pursue critics and value people who give me their unbiased and direct feedback.

But is every critic legitimate, and is all feedback something to react to? Well, my answer, after many years of experience, is most definitely not!

I used to wrongly believe that every critic who had a higher position of authority, or was older and with more years in an industry, or had more money, had to be listened to.  That turned out to be one of the mistaken beliefs I eventually corrected.  Over the years, because of my work at Ideasphere Partners I spent plenty of my time as a change agent or in turn-around situations.  Doing that, I have been criticized, but thankfully not as much as I have been praised, by company founders, board members, investors, union representatives, front line workers, other executives, etc.  Even though praise is good for the ego now, criticism is good for personal growth tomorrow, so I developed a good nose for critics, their legitimacy, and the need to actually do anything about their criticism and learned to separate legitimate critics and valuable feedback from the “blowhards with an opinion.”

So here is my approach for qualifying critics and determining what to do, if anything, about their feedback.

First, I believe ignorance is not a legitimate point of view, so I try to assess whether the critic is a “critical expert”, or simply an “expert at criticism.”  It’s easy to confuse the two, especially since sometimes they go together, but a critical expert is someone who has a legitimate point of view from where they provide criticism, where an expert at criticism is one who provides criticism, even when they are totally ignorant about the subject.

The first step is to always listen with an open mind.  As my favored poem, The Desiderata, says “listen to others; even the dull and ignorant; they too have their story.” Then determine what kind of critic you are dealing with and if it’s worth doing something about it.

First look for evidence, independent of the critic, that he or she is, indeed, a critical expert.  Some evidence is easy to find.  For example, consider the track record of the critic. What does that record tell you?  One time I had an executive, let’s call him Joe, criticize my management practices as being too “results oriented” who suggested I needed to be less specific and demanding with my expectations of the management team reporting to me.  I was concerned that maybe I was too hard on the team, and while I accepted his feedback as a true statement, I had to consider if I wanted to adapt my style to be closer to his.  But here is the catch; this particular executive had a 90% turnover in his direct reports over the course of five years.  Of the half dozen department heads who reported to him only one had been in the job for more than three years and each of the other positions had at least two, and some of them three managers rotate through it.  This executive was fun to hung out with and was a likeable guy, but did not set clear expectations for his managers who eventually failed, or got frustrated of not getting clear directions and left.  Clearly the track record indicated I should discount the criticism significantly.  On the other hand, every time Paul provided criticism – a mid-level manager who was considered the toughest boss to work for, but a builder of talent who had trained many managers who went on to become executives of the company, and was widely respected, I not only listened, I took notes and found ways to adopt based on his feedback.

But maybe the track record is not available, or not clear! Then, perhaps, check the critic’s beliefs?  Does he hold more true, and fewer false, beliefs?  One critic I dealt with at some point during a turn-around project was absolutely convinced that money was the only motivator for people, men made better factory managers than women, and that Six Sigma and Lean manufacturing were fads that would never work in his factory.  Needless to say, when it came to his criticism of my plans to improve the factory, I took all his feedback with a very large grain of salt.

Some people are good at hiding their beliefs behind seemingly logical arguments.  So it’s also important to know if the critic has enough domain knowledge that is demonstrable better than the average.  I remember one time I worked with a team to build a financial model to predict the impact of currency fluctuation on their business.  I have an average understanding of currency and so did the CPA who worked on the project with me, and we thought we had put together something really good.  Then I run it by a partner of mine who has advanced degrees in finance.  He proceeded to show us how nuances we had not even considered, let alone model, could impact our results significantly.  His criticism was spot on, so we started making changes based on his feedback.  I should note, however, that we need to be careful of the “advanced degree” trap.  It’s not enough that someone has a degree.  After all, some people have to, by default, graduate at the bottom of the class, so look for evidence of agreement by other experts in the field before accepting the feedback as legitimate.

And finally it may be a good idea to investigate what biases the critic has which may have an impact on their view. All of us, humans that is, are susceptible to biases, conscious or unconscious.  Even critical experts are not immune to that.  I remember working on a project I thought was very clear cut and I was delivering even better than promised.  But there was this one member of the board who kept criticizing what I was doing.  For the life of me I could not figure out why.  This was a director who had a track record of success, knew the right things to do, was considered an excellent director, and had significant knowledge of the subject.  His feedback and criticism was starting to get to me, and I was beginning to doubt my approach to the project, despite the results it was producing.  And then, another board member pulled me aside and delivered this insight!  I was using an approach the other director had tried at a previous company, and failed with – one of the very few times he failed at anything – so he believed that approach would never work, contrary to any evidence.  From that moment on I paid attention to specific criticism about specific points on the project, and ignored the general criticism about the approach.

So back to the call from my young friend; after we went through my checklist we determined her critic was an expert at criticism rather than a critical expert.  He was criticizing everything and nothing.  No specific expert opinion was provided, nor did this critic have any demonstrable knowledge of the area he was criticizing.  Based on his track record he had a bias against younger; especially female, managers, and her educational credentials and experience far outweighed his.  So my advice was to just listen politely, look for any kernels of wisdom, but generally ignore him; Until he provided technical feedback on specific technical items.  Then, because he was a great engineer, with a solid track record of design, well respected in the industry, and a bias for creative solutions, listen carefully and do something about it.

 

Ethical Behavior Assessment Tools…

It seems like everywhere I turn these days someone is talking about using one assessment tool or another, from the old stand-by, Meyrs Briggs, to some very sophisticated profiling programs.  Even though it may be new to some, in the work I do for Ideasphere, I have been using many of the same tools for years to quickly assess existing management teams as well as hire new team members. I am personally partial to the Harrison Assessment, because it focuses on behavior that impacts daily work life and performance, rather than identifying underlying reasons for the behavior, but I think I have used every one of them at one point or another.

I value some the tools more than others, and take all of them with a grain of salt, but I do use them; They can give me a quick perspective on individuals and teams that can save me weeks of observation, which translates to a smoother, and more rapid implementation of any project, or turn-around I work on.
But here is the challenge; none of these tools tell you anything about the character of an individual, and I have yet to see a meaningfull test that can predict the ethical nature of one’s behavior. Regardless of people’s socio-economic backgrounds, education, credentials, or jobs they held at the time or prior, unfortunately, I have been surprised enough times by unethical, or illegal, behavior that almost nothing shocks me anymore. I have seen people flat out lie under oath, sabbotage coworkers by feeding them wrong information, mis-represent their own qualifications on their resume, cook the books to look good for investors, go back on verbal agreements, and use insider information to make illegal trades, that I would be justified to be somewhat cynical. But, and call me a softie on this one, I personally start by believing every person is decent, and give them the chance to prove otherwise. I always hope people will surprise me to the better and may times they do.
But I do believe there is one personality trait that is a good predictor of the potential of behavior that may go out of ethical or legal bounds.

It is an ingrained sense of entitlement, usually un-justified.

It has been my observation that, when someone deeply believes they are entitled to something, they will go to any length to attain it. This was also the conclusion of a friend of mine who is industrial psychologists and leads the assessment practice of a large recruiting firm. Through research conducted during a period of a couple of years, he also discovered that one common element for unethical behavior was a sense of entitlement about something around that behavior.

So be carefull about what you believe you are entitled to, because that may be the one thing that can cause you to display behavior unworthy of an operator, a manager, or even a decent human beeing. These are just some questions from experiences with people who displayed unethical behavior, even though, at their core, they thought of themselves as decent and ethical human beings.

Do you believe you are entitled to your discoveries, even though you developed them while employed by a company that makes it clear they own anything you develop while in their pay? If you do, be careful; this sense of entitlement may lead you to commit the crime of “Theft of Intellectual Property.” This is not something minor. This is a serious crime that, should it be pursued, can carry a jail sentence.
Do you believe you are entitled to a portion of the profits a company makes because of your contributions, even though you are not a commissioned sales person and the company does not have a profit sharing plan? If you work in accounting and have access to company bank accounts, this may lead you to steal directly from the company.

Do you believe you are entitled to a promotion because of the years you have been with the company, or in the industry, or your superior education, regardless of the opinions of your managers and co-workers? This may lead you to actively pursue making your peers look bad by pointing out imaginary short-comings, in the mistaken belief it will make you look better than them. Even though this is not illegal, it eventually catches up with you.

And finally, do you believe you are entitled to a job, regardless of your contributions? This sense of entitlement, may lead you to do less than expected of your job and try to cover it up with busywork, or excuses. Now this may not be illegal, but I would consider it highly unethical.
Me personally, I solved the business ethics problem. I believe I am entitled to nothing and have to earn everything. Problem solved! ;-)

My four favorite questions

I was the guest speaker for a group of 100 or so executives talking about strategy, when one of them asked me to share the one question I ask myself on a regular basis that I found most useful.  That got me thinking about a couple of questions I ask all the time, but I do not always hear others ask, so here they are; in no particular order.  My four favorite questions I wish more people asked more often.  If you have yours, please send them to me at c.papageorgiou@ideasphere.com.

1)      Huh?

It’s not a sign of weakness to admit someone is talking over your head, or they are using terminology you do not understand.  Like the amateur investor friend of mine who was ready to make an investment in a company with a product that was going to “revolutionize energy generation.”  He was so sold on this product by the inventor that he wanted me to co-invest so he sent me some of the literature to review.  Now, being an engineer, I fancy myself as a reasonably technical executive, but after the first paragraph, I have to admit I was totally lost.  From what I read, it looked as if this “inventor” had built a functioning perpetual motion machine.  So I called him, with my friend on the line, and asked him to help me understand the technology (without telling him I have an engineering degree) in layman’s terms.  After a half dozen “Huh’s,” followed by “so help me understand this better because I am not sure how this would work,” the “inventor” resorted to the classic “this is too technical for the layman to understand.”  When he dropped the word “quantum mechanics” in the mix, but could not articulate how that related to his invention, I knew this was a con.  Had my friend asked a few Huh’s himself, he would have been spared the ribbing he will be getting from me for the next decade for almost falling for this classic con.

2)      Then what?

I am amazed at the number of decisions being made without a single consideration for their subsequent impact.  Like the decision to pursue an acquisition of a competitor without any consideration of the integration challenges or the post-acquisition market response.  Or, asking the executive team to spend 20% of their time producing reports on a number of activities every week, without any plan of action to actually do something about or with the information.  Or, the reaction to a competitor announcement of a new product, by a company announcing its own “me-too” product coming soon and diverting resources to produce it.  In each of these cases, a simple “then what” might have saved the first company from the pain of having to take a significant loss because of the very high cost of integration, and the loss of critical customers who thought the merger was a bad idea.  A simple “then what” would have resulted in a more meaningful reporting format with actionable items assigned to specific individuals and a better use of the executive team’s time.  A “then what” question may have led the company to consider investing in developing the next generation of the product, rather than a “me too,” and taking market leadership position, rather than chasing the leader.

3)      So what?

There is so much information coming at us so fast, that sometimes its meaning is lost, exaggerated, ignored, or generates a wrong reaction.  Like a competitor issuing a press release they are working on “the next evolution of our industry” that sends the R&D group into a frenzy to get more resources.  Or a disgruntled employee subpoenaing a manager to “testify in a wrong-full termination lawsuit” that sends the HR department into a panic and the complete investigation of the working conditions in that particular department.  Or, the best one of all, a drop in revenue that causes the owners to re-shuffle the entire management team.  A “so what” would have kept the R&D group focused on their next product release, which was truly the next evolution in the industry.  A simple “so what,” would have kept the HR department from wasting thousands of dollars investigating a department and a department manager who had not a single complaint in fifteen years.  And a “so what” may have stopped the ensuing turmoil from changing the entire senior management team of company for a revenue drop that was consistent across the entire industry and, instead, made them listen to their requests for investment in new revenue streams that was delivered to them at each board meeting, in a different light.

4)      What’s the upside?

I owe this question to one of my clients, and a good friend, who always asked this question every time we had to make a decision.  Like the executive who, after losing his job because of poor performance, decided to step in the middle of a custody battle between one of his former co-workers and their ex-spouse by sharing confidential information from the company with the ex-spouse.  Or the investor in a company who decided to pursue litigation against the company founders after it failed and the founders declared bankruptcy.  In the first case, the great feeling of sticking it to the co-workers (the upside), had the downside of the company deciding to follow the letter of the law and make no concessions to that executive.  The investor in the second one had his day in court (the upside), but, since the three founders were all broke, he ended up spending tens of thousands of dollars in legal fees with nothing so show for it.

Legal contracts and common sense…

Maybe it’s just me, but, how would you feel if a sales executive, from a company you are considering doing business with, told you that his company should be allowed to, knowingly and negligently, deliver one of the parts you designed/built into your product, based on their specifications and warranties, that is defective and/or will not function as specified; and if/when they do that, and if your product fails, and the consequences have a significant impact on your company, they expect you not to hold them liable for any of the damage they caused you.

I am sure, like me, you would probably have a strong negative reaction and consider not doing business with the company, or simply just throw the sales person out the door. And yet, company attorneys insert this kind of language into the contracts that eventually follow most business discussions and agreements, without a second thought. Here is an sample below from one client:

IN NO EVENT SHALL COMPANY BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, WHETHER DIRECT OR INDIRECT, ARISING OUT OF THE USE OF, OR INABILITY TO USE, PRODUCTS SOLD OR EQUIPMENT OR SERVICES PROVIDED BY COMPANY HEREUNDER, WHETHER SUCH DAMAGE, LOSS OR EXPENSE RESULTS FROM BREACH OF WARRANTY, NEGLIGENCE OR ANY OTHER CAUSE AND WHETHER OR NOT COMPANY KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH LOSS, EXPENSE OR DAMAGE.

My reaction to language similar to this one on another project got a conversation started with one of our attorney partners, whom I have worked with for years and have great respect for, about the role of attorneys, and the General Counsel in today’s business environment. As usual, clients and names are altered to protect the innocent, but comments and feedback are welcomed.

I, and my trusted attorney friend, happen to believe there are two types of business lawyers.  Those who see their role as a facilitator to make business happen within the boundaries of the law, and those who see themselves as being the final arbiter of all company decisions, based on the assessment of legal risk. In my role at Ideasphere Partners, and as a corporate executive, I can work, and have worked, with both types but I clearly prefer the first.

In my experience, the relationship between the Chief Executive Officer (CEO) and the General Counsel (GC), whether employee or outside attorney, is a partnership very critical to the success of any business.  The current litigious environment notwithstanding however, the CEO and the operating team still must have the final responsibility for making business decisions and being held accountable for them. My simplified view of the relationship is that the GC is responsible for understanding and explaining/quantifying the legal risk of any transaction, contract, or business document, and proposing legal strategies and contract language to mitigate it, and the CEO, with additional input from the executive team and the Board, is responsible for the final decision of whether to accept it or not.

At least, that’s how I have worked with GC’s and other legal experts over my years as an executive inside companies, or as an executive consultant in M&A and Turn-around situations with Ideasphere Partners. In its simplest term, the job of the GC is to protect the company by providing counsel and competent legal advice; hence the title. Even though some GC’s go beyond that, and add incremental value to the business by driving certain operations/transactions, or acting as the independent consciousness of the company when it comes to ethics and business practices, that is not always a requirement for the job.

Running a business requires taking some calculated risks. Fear of litigation is just one more factor the CEO and the operating team must consider when making decisions. A good CEO needs to listen to their GC and, especially, if even the potential of interpretation of an activity as illegal exists, follow their guidance. However, a management team can not hide behind their GC, or delegate the decision of accepting/refusing /mitigating risk to her. Unfortunately, some CEO’s, are using the fear of litigation, as an excuse to do exactly that. They ask, or allow, their GC to attempt to mitigate all risks, at the risk of violating common sense, through legal means such as contract language and agreements. That is an exercise in futility that also makes doing business with these companies more difficult. By definition, the law is not perfect and can not contemplate all possible scenarios; therefore legal language is an imperfect means to protect the company in all cases and from all risk at all times.

Just like the example above! This clause attempts to perfectly isolate the company, at the expense of common sense. I am sure I will get e-mails from some of my attorney friends explaining to me that this is standard language designed to protect the company; that other sections of the contract should allow for holding the partner accountable; etc. etc. etc. I know all that, and, in the particular case I am talking about, we made sure we added language in other sections of the contract to protect the client; but please, read this from a business executive’s perspective and consider your reaction if you had to do business with someone who walked into a meeting with you and with a straight face yelled at you (notice this is in all caps) that:

IN NO EVENT SHALL COMPANY BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, WHETHER DIRECT OR INDIRECT, ARISING OUT OF THE USE OF, OR INABILITY TO USE, PRODUCTS SOLD OR EQUIPMENT OR SERVICES PROVIDED BY COMPANY HEREUNDER, WHETHER SUCH DAMAGE, LOSS OR EXPENSE RESULTS FROM BREACH OF WARRANTY, NEGLIGENCE OR ANY OTHER CAUSE AND WHETHER OR NOT COMPANY KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH LOSS, EXPENSE OR DAMAGE.

Again consider this; if that message was delivered verbally in a meeting between executives from the two companies, the reaction would have been one of absolute shock. This language is a real sample of contract language. It is similar to the one in the contract that got me started on this.  In all the meetings, the company executives praised their quality control systems, their engineering prowess, their attention to “doing business the right way,” etc. etc. etc. In all the meetings they talked about partnering with this client and being an “integral part of the success of this new product.” And after the deal was agreed to, the attorneys, well intentioned, or instructed, as they may have been to protect the company from everything possible that could went wrong, sent a document with language similar to the one above.

Of course they fully expected that section would be modified by my client’s attorney’s, or even negotiated out, but imagine the reaction of the business team who did the first review of this document. Some of the engineers on the team, before our attorney calmed them down, just wanted to drop the partner and look elsewhere. Cooler heads prevailed, and in the end, the deal was done, but creating language in other sections of the contract to counter the impact of this paragraph took away valuable weeks of productive time and increased the legal costs significantly.

And in the end; for what? Does any one really think that if the company knowingly and negligently ships bad parts that are off spec and cause the product to fail, there will not be litigation? Does anyone really think that they can permanently hide incompetence, unethical behavior, or stupidity behind legal language? This Kabuki dance goes on all the time and really accomplishes nothing other than test the ability of the lawyers from each side to write clever language to counter the other party. But then again, what do I know?  I am just an operator!

Relentlessly Objective Reality (Part 2 of 3)

The Cognitive Dissonance worm-hole

Those who listen to National Public Radio, know the Lake Wobegone motto that “all the women are strong, all the men are good looking, and all the children are above average."  In a Cognitive Dissonance Environment certain beliefs exist that are so ingrained in the company’s culture that they force people to collect data supporting them, but ignore data not consistent with those beliefs.  Over the years I have seen slogans and buzzwords become embedded in the company’s folklore, migrate to becoming consistently held beliefs, and eventually becoming sacred beliefs that could not be challenged.  When things go wrong, or not as planned, teams assess reality as it is defined by those credos, and transport themselves to the Lake Woebegone Universe.  They will address all other aspects of the company, but ignore any data indicating the problem may be because of one of those long held beliefs. 

This was a lesson I learned after an investor group asked us to assess the reasons for the declining revenue of a manufacturing company in their portfolio.  The company founder, started the company thirty years earlier based on the core belief that engineering excellence was the key to success.  He hired “the best and the brightest” and the company prided itself on its engineering prowess.  Every facility was adorned with engineering award plaques earned in the early years of the company’s existence and engineering had a special seat at the table.  So when sales declined, an internal team spent six months analyzing data to understand the reasons.  High prices, and the lack of an advertising program were identified as reasons and the team launched projects in both area to address them.  Alas, that did not generate any meaningful results.  By not questioning the “best and the brightest engineers”, they missed the one major contributing factor to the declining sales.  The market place viewed the latest products from the company as shoddily built and poorly engineered.  The team failed to recognize that in reality, the founder was no longer involved in engineering and had not been in fifteen years despite the rousing speeches on the subject.  And to make things worse, the engineers who designed the original product had been retiring for the last ten years, and the company could not hire the “best and the brightest” based on its past glory because competitors paid much higher salaries.  Even questioning the role of engineering was sacrilege for so many years that presenting our assessment was an extremely tough day for all involved.  But, after the company traveled back from Lake Wobegone to the Relentlessly Objective Reality universe, it hired a new director of engineering, re-structured its campus-recruiting and compensation package, and bought a small engineering firm to jump start development of the next generation of products.