Monday, October 22, 2007

Managing Transition in TQM

Steps in Managing the Transition
Beckhard and Pritchard (1992) have outlined the basic steps in managing a transition to a new system such as TQM: identifying tasks to be done, creating necessary management structures, developing strategies for building commitment, designing mechanisms to communicate the change, and assigning resources.
Task identification would include a study of present conditions (assessing current reality, as described above); assessing readiness, such as through a force field analysis; creating a model of the desired state, in this case, implementation of TQM; announcing the change goals to the organization; and assigning responsibilities and resources. This final step would include securing outside consultation and training and assigning someone within the organization to oversee the effort. This should be a responsibility of top management. In fact, the next step, designing transition management structures, is also a responsibility of top management. In fact, Cohen and Brand (1993) and Hyde (1992) assert that management must be heavily involved as leaders rather than relying on a separate staff person or function to shepherd the effort. An organization­wide steering committee to oversee the effort may be appropriate. Developing commitment strategies was discussed above in the sections on resistance and on visionary leadership.
To communicate the change, mechanisms beyond existing processes will need to be developed. Special all­staff meetings attended by executives, sometimes designed as input or dialog sessions, may be used to kick off the process, and TQM newsletters may be an effective ongoing communication tool to keep employees aware of activities and accomplishments.
Management of resources for the change effort is important with TQM, because outside consultants will almost always be required. Choose consultants based on their prior relevant experience and their commitment to adapting the process to fit unique organizational needs. While consultants will be invaluable with initial training of staff and TQM system design, employees (management and others) should be actively involved in TQM implementation, perhaps after receiving training in change management which they can then pass on to other employees. A collaborative relationship with consultants and clear role definitions and specification of activities must be established.
Institutionalization of TQM
Ledford (cited in Packard & Reid, 1990) has proposed a model including four processes which are forces which determine whether a change will persist through the phases of institutionalization. These processes are concerned with congruence among these variables: the change (TQM) with the organization, the change with other changes initiated at the time, the change with environmental demands, and with the level of slack resources in the organization. TQM needs to be congruent with the organization's current culture, and with other changes occurring in the organization. In this period of diminishing resources, organizations are likely to be trying to cope, by downsizing or other methods. In some organizations there are increasing demands for quality or client service improvements. Many such changes are likely to be driven by environmental demands, and TQM may be more likely to be successful than at times of less environmental pressure. Unfortunately, the fourth element, slack resources, is less likely to be present: under current conditions, extra resources (money and staff time) are less likely to be easily available. The challenge is to find a way to make the initial investment outlay to start a process which will pay off in the long term.
Institutionalization may also be enhanced by overlaying another, but compatible, change model: the learning organization (Senge, 1990). This involves, at both the micro and systems levels, staff always learning how to do better and management learning how to be more responsive to staff and the community. Leaders help staff develop their own visions and align these with the organization's vision of quality.
Beckhard and Pritchard (1992) emphasized top management commitment to the change, and Cohen and Brand (1993) apply this specifically to TQM by recommending finding and nurturing a core group which is interested in organizational change. They also emphasize the importance of personal leadership and example: managers need to apply TQM in their daily work and to get people to think about and use the concepts and tools. Ongoing monitoring, and action research to make changes as needed, will be required. And, once again, the systems perspective must be noted: TQM must be built into other systems, particularly those involving planning and rewards. Leaders should expect a long term process, including a transition period. They will need to be persistent, using constant reinforcement, for example, through continuous training. Cohen and Brand suggest that TQM should eventually be made an "invisible" part of the organization, permeating all areas and the responsibility of everyone. TQM may be instituted organization­wide or started in one unit or program and then expanded. Diffusion occurs as TQM is spread from its initial application to other units. Dynamics of resistance mentioned earlier will have to be addressed at this stage.
Some Do's and Don'ts
Following are some miscellaneous do's and don'ts which are based on experiences with TQM in the public sector and the human services. Many are drawn from Cohen and Brand (1993), Hyde (1992), and Chaudron (1992).
First, don't "do TQM": a canned approach is likely to be met with skepticism and ultimately fail because it is not adapted to the uniqueness of a particular organization. TQM is particularly susceptible to this phenomenon, because some adherents adopt almost a religious fervor, (they have been described by one observer as "Deming lemmings" (Reid, 1992). "Deming as demigod" is another way this phenomenon has been described: a statement takes on an added aura when prefaced by "Dr. Deming said..." (Chaudron, 1993). Don't copy any particular model but use relevant basic principles such as an emphasis on quality, continuous analysis of tasks to improve performance, and work with suppliers to enable the organization to start with high quality supplies. TQM should be seen as a process, not a program. It should be integrated into ongoing agency operations, and the focus should be on how an organization can better accomplish its goals and objectives. At the tactical level, don't overemphasize techniques such as statistical process control and the use of charts. Focus instead on the systems ­ the analysis and improvement of processes ­ not on statistics or individual variations.
Whereas some large­scale organizational change efforts are often driven by a centralized steering committee or group of executives, in TQM it may be best to not centralize the effort and establish a separate quality management bureaucracy ("qualiticrats", according to Hyde). Don't believe that top management support is necessary at first, as is axiomatic in organization development. While an organization needn't start TQM at the top, successes in particular units or programs should set the stage for diffusion in other directions. Change from below may be appropriate for those at lower levels who want to initiate TQM. It may work best to start TQM with a temporary task force and then hire trainers, expose staff, and hope that managers will be motivated to learn more. People responsible for leading shouldn't devote full time to TQM; they should maintain their regular work as well. Cohen and Brand believe that TQM is best taught by people doing it day to day in their work. Implement it gradually to ensure meaningful culture change, and use frequent feedback to ensure that change isn't just superficial. There is no need for a "grand plan" (a quality council, etc.); just start where the organization is.
Perhaps the most important "do" worth repeating is to involve employees in the decision making process, at whatever stages and levels possible. As a specific aspect of this, advance negotiations and discussions with any unions present should occur. Create "atmosphere of amnesty" (Cohen & Brand, 1993, 202) so workers and managers feel free to share improvement needs. Tell people what the quality standards are so that inspection and review isn't necessary. Emphasize client feedback and both quantitative and qualitative performance tracking. Make sure quality teams have the necessary tools and resources, such as training, facilitation, and time to meet. In large organizations, regional offices in particular will need lots of support in order to keep the process alive and thriving.
Several suggestions may be offered to managers. First, understand the direct service work of your organization. "Management by walking around" is a useful way to stay in touch with direct service workers and their needs. Practice what you preach: use TQM on your own processes. Meet frequently with middle managers regarding their personal efforts to use TQM. Focus on the nature of the work and try to establish in employees' minds excitement about a new way of working. TQM training will be needed for all involved work groups. Also, horizontal and vertical communication training may be useful to get groups communicating with each other. Team building is a core element of the process, to ensure employee involvement and effective problem solving. Build analysis into the culture: "stop and think about how we work," according to Cohen and Brand. Insist on objective measures of results. Look for visible improvement, but not optimization; and try to generate some quick results in terms of time or money saved. Constantly check with employees to assess their comfort with the process. If people are feeling threatened, slow down. Human resources aspects such as team functioning and analysis must be kept in balance. Prevent or watch for schisms between TQM and human resources functions or other parts of the organization.
In summary, first assess preconditions and the current state of the organization to make sure the need for change is clear and that TQM is an appropriate strategy. Leadership styles and organizational culture must be congruent with TQM. If they are not, this should be worked on or TQM implementation should be avoided or delayed until favorable conditions exist.
Remember that this will be a difficult, comprehensive, and long­term process. Leaders will need to maintain their commitment, keep the process visible, provide necessary support, and hold people accountable for results. Use input from stakeholder (clients, referring agencies, funding sources, etc.) as possible; and, of course, maximize employee involvement in design of the system.
Always keep in mind that TQM should be purpose­driven. Be clear on the organization's vision for the future and stay focused on it. TQM can be a powerful technique for unleashing employee creativity and potential, reducing bureaucracy and costs, and improving service to clients and the community.
Beckhard, R. & Harris, (1987). Organizational Transitions: Managing Complex Change. (2nd ed.) Reading, MA: Addison­Wesley.
Beckhard, R. & Pritchard, W. (1992). Changing the Essence. San Francisco: Jossey­Bass.
Bennis, W. (1989) On Becoming a Leader. Reading, MA: Addison Wesley.
Bennis, W., Benne, K, & Chin, R., Eds. (1985). The Planning of Change. 4th Ed., New York: Holt, Rinehart, & Winston, 98­105.
Bennis, W. & Nanus, B. (1985). Leaders. New York: Harper & Row.
Brager, G. & Holloway, S. (1992). "Assessing the Prospects for Organizational Change: The Uses of Force Field Analysis." Administration in Social Work. 16(3/4), 15­28.
Chaudron, D. (1992). "How OD can help TQM." OD Practitioner. 24(1), 14­18.
Chaudron, D. (1993, June). Organization Development Does not Equal Total Quality Management. Presentation to the San Diego Organization Development Network.
Cohen, S. & Brand, R. (1993). Total Quality Management in Government. San Francisco: Jossey­Bass, Inc.
Ezell, M., Menefee, D., & Patti, R. (1989). "Managerial Leadership and Service Quality: Toward a Model of Social Work Administration," Administration in Social Work. 13(3/4), 73­98.
Gilbert, G. (1992). "Quality Improvement in a Defense Organization," Public Productivity and Management Review. 16(1), 65­75.
Hyde, A. (1992). "The Proverbs of Total Quality Management: Recharting the Path to Quality Improvement in the Public Sector," Public Productivity and Management Review. 16(1), 25­37.
Kanter, R. (1983). The Change Masters. New York: Simon & Schuster.
Martin, L. (1993). "Total Quality Management: The New Managerial Wave." Administration in Social Work. 17(2), 1­15.
Milakovich, M. (1991). "Total Quality Management in the Public Sector," National Productivity Review. 10, 195­213.
Nanus, B. (1992). Visionary Leadership. San Francisco: Jossey­Bass.
Osborne, D. & Gaebler, T. (1992). Reinventing Government. Reading, MA: Addison­Wesley.
Packard, T. (1989). Participation in decision making, Performance, and job satisfaction in a social work bureaucracy. Administration in Social Work. 13(1), 59­73.
Packard. T. & Reid, R. (1990). "OD in a Fire Department: Lessons in Using Parallel Structures and Institutionalization," Consultation. 9, 167­184.
Pruger, R. & Miller, L. (1991). "Efficiency," Administration in Social Work. 15(1/2), 42.
Rapp, C. & Poertner, J. (1992). Social Administration: A Client­Centered Approach. New York: Longman.
Reid, R. (1992). Personal communication.
Robey, D. (1991). Designing Organizations 3rd ed., Homewood, IL: Irwin, p. 42.
Senge, P. (1990). The Fifth Discipline. New York: Doubleday Currency.
Sugarman, B. (1988). "The Well­Managed Human Service Organization: Criteria for a Management Audit," Administration in Social Work. 12(2), 17­27.
Swiss, J. (1992). "Adapting TQM to Government," Public Administration Review. 52, 356­362.
Tichey, N. (1983). Managing Strategic Change. New York: John Wiley & Sons.
Vroom, V. and Yetton, P. (1973). Leadership and Decision Making. Pittsburgh: University of Pittsburgh Press.

Force Field Analysis in TQM

The analysis of the force field involves looking at which driving forces may be strengthened and which restraining forces may be eliminated, mitigated, or counteracted. If it appears that, overall, driving forces are strong enough to move back restraining forces, adoption of TQM would be worth pursuing. The change plan would include tactics designed to move the relevant forces.
It is also important to note and validate any points of resistance which are, in fact, legitimate, such as the limited amount of staff time available for TQM meetings. Klein (cited in Bennis, Benne, & Chin, 1985) encouraged change agents to validate the role of the "defender" of the status quo and respond to legitimate concerns raised. This will allow appropriate adaptations of the TQM process to account for unique organizational circumstances. Sell TQM based on the organization's real needs, note legitimate risks and negatives, and allow improvements in your own procedures. This should enhance your credibility and show your openness to critically looking at the process.
Another way to address resistance is to get all employees on the same side, in alignment towards the same goal. Leadership is the mechanism for this, and specific models known as transformational or visionary leadership (Bennis & Nanus, 1985) are most effective. Research on change implementation (Nutt, cited in Robey, 1991) has identified four methods. The first, "intervention," involves a key executive justifying the need for change, monitoring the process, defining acceptable performance, and demonstrating how improvements can be made. This was found to be more successful than "participation," in which representatives of different interest groups determine the features of the change. Participation was found to be more successful than "persuasion" (experts attempting to sell changes they have devised) or "edict," the least successful. Transformational or visionary leadership, the approach suggested here, is an example of the intervention approach. This would involve a leader articulating a compelling vision of an ideal organization and how TQM would help the vision be actualized. These principles will be discussed in more detail in a later section, as a framework for the change strategy.
A powerful way to decrease resistance to change is to increase the participation of employees in making decisions about various aspects of the process. There are actually two rationales for employee participation (Packard, 1989). The more common reason is to increase employee commitment to the resultant outcomes, as they will feel a greater stake or sense of ownership in what is decided. A second rationale is that employees have a great deal of knowledge and skill relevant to the issue at hand (in this case, increasing quality, identifying problems, and improving work processes), and their input should lead to higher quality decisions. A manager should consider any decision area as a possibility for employee participation, with the understanding that participation is not always appropriate (Vroom and Yetton, 1973). Employees or their representatives may be involved in decision areas ranging from the scope and overall approach of the TQM process to teams engaging in quality analysis and suggestions for improvements. They may also be involved in ancillary areas such as redesign of the organization's structure, information system, or reward system. Involvement of formal employee groups such as unions is a special consideration which may also greatly aid TQM implementation.
A change agent should understand that, overall, change will occur when three factors (dissatisfaction with the status quo, desirability of the proposed change, the practicality of the change) added together are greater than the "cost" of changing (time spent in learning, adapting new roles and procedures, etc.) (Beckhard and Harris, 1987). This is represented in the formula in Exhibit II. Any key group or individual will need a level of dissatisfaction with the status quo, must see a desired improved state, and must believe that the change will have minimal disruption. In other words, the change (TQM) must be seen as responding to real problems and worth the effort or cost in getting there. Conditions favoring change may be created by modifying these variables. The change agent may try to demonstrate how bad things are, or amplify others' feelings of dissatisfaction; and then present a picture of how TQM could solve current problems. The final step of modifying the equation is to convince people that the change process, while it will take time and effort, will not be prohibitively onerous. The organization as a whole and each person will be judging the prospect of TQM from this perspective. A variation of this is the WIIFM principle: "What's in it for me?" To embrace TQM, individuals must be shown how it will be worth it for them.

TQM As a Tool to Affect Organizational Change

While Total Quality Management has proven to be an effective process for improving organizational functioning, its value can only be assured through a comprehensive and well­thought­out implementation process. The purpose of this chapter is to outline key aspects of implementation of large­scale organizational change which may enable a practitioner to more thoughtfully and successfully implement TQM. First, the context will be set. TQM is, in fact, a large­scale systems change, and guiding principles and considerations regarding this scale of change will be presented. Without attention to contextual factors, well­intended changes may not be adequately designed. As another aspect of context, the expectations and perceptions of employees (workers and managers) will be assessed, so that the implementation plan can address them. Specifically, sources of resistance to change and ways of dealing with them will be discussed. This is important to allow a change agent to anticipate resistances and design for them, so that the process does not bog down or stall. Next, a model of implementation will be presented, including a discussion of key principles. Visionary leadership will be offered as an overriding perspective for someone instituting TQM. In recent years the literature on change management and leadership has grown steadily, and applications based on research findings will be more likely to succeed. Use of tested principles will also enable the change agent to avoid reinventing the proverbial wheel. Implementation principles will be followed by a review of steps in managing the transition to the new system and ways of helping institutionalize the process as part of the organization's culture. This section, too, will be informed by current writing in transition management and institutionalization of change. Finally, some miscellaneous do's and don't's will be offered.
Members of any organization have stories to tell of the introduction of new programs, techniques, systems, or even, in current terminology, paradigms. Usually the employee, who can be anywhere from the line worker to the executive level, describes such an incident with a combination of cynicism and disappointment: some manager went to a conference or in some other way got a "great idea" (or did it based on threat or desperation such as an urgent need to cut costs) and came back to work to enthusiastically present it, usually mandating its implementation. The "program" probably raised people's expectations that this time things would improve, that management would listen to their ideas. Such a program usually is introduced with fanfare, plans are made, and things slowly return to normal. The manager blames unresponsive employees, line workers blame executives interested only in looking good, and all complain about the resistant middle managers. Unfortunately, the program itself is usually seen as worthless: "we tried team building (or organization development or quality circles or what have you) and it didn't work; neither will TQM". Planned change processes often work, if conceptualized and implemented properly; but, unfortunately, every organization is different, and the processes are often adopted "off the shelf" ­ "the 'appliance model of organizational change': buy a complete program, like a 'quality circle package,' from a dealer, plug it in, and hope that it runs by itself" (Kanter, 1983, 249). Alternatively, especially in the under­funded public and not­for­profit sectors, partial applications are tried, and in spite of management and employee commitment do not bear fruit. This chapter will focus on ways of preventing some of these disappointments.
In summary, the purpose here is to review principles of effective planned change implementation and suggest specific TQM applications. Several assumptions are proposed: 1. TQM is a viable and effective planned change method, when properly installed; 2. not all organizations are appropriate or ready for TQM; 3. preconditions (appropriateness, readiness) for successful TQM can sometimes be created; and 4. leadership commitment to a large­scale, long­term, cultural change is necessary. While problems in adapting TQM in government and social service organizations have been identified, TQM can be useful in such organizations if properly modified (Milakovich, 1991; Swiss, 1992).
TQM as Large­Sale Systems Change
TQM is at first glance seen primarily as a change in an organization's technology ­ its way of doing work. In the human services, this means the way clients are processed ­ the service delivery methods applied to them ­ and ancillary organizational processes such as paperwork, procurement processes, and other procedures. But TQM is also a change in an organization's culture ­ its norms, values, and belief systems about how organizations function. And finally, it is a change in an organization's political system: decision making processes and power bases. For substantive change to occur, changes in these three dimensions must be aligned: TQM as a technological change will not be successful unless cultural and political dimensions are attended to as well (Tichey, 1983).
Many (e.g., Hyde, 1992; Chaudron, 1992) have noted that TQM results in a radical change in the culture and the way of work in an organization. A fundamental factor is leadership, including philosophy, style, and behavior. These must be congruent as they are presented by a leader. Many so­called enlightened leaders of today espouse a participative style which is not, in fact, practiced to any appreciable degree. Any manager serious about embarking on a culture change such as TQM should reflect seriously on how she or he feels and behaves regarding these factors. For many managers, a personal program of leadership development (e.g., Bennis, 1989) may be a prerequisite to effective functioning as an internal change agent advocating TQM.
Other key considerations have to do with alignment among various organizational systems (Chaudron, 1992; Hyde, 1992). For example, human resource systems, including job design, selection processes, compensation and rewards, performance appraisal, and training and development must align with and support the new TQM culture. Less obvious but no less important will be changes required in other systems. Information systems will need to be redesigned to measure and track new things such as service quality. Financial management processes may also need attention through the realignment of budgeting and resource allocation systems. Organizational structure and design will be different under TQM: layers of management may be reduced and organizational roles will certainly change. In particular, middle management and first line supervisors will be operating in new ways. Instead of acting as monitors, order­givers, and agents of control they will serve as boundary managers, coordinators, and leaders who assist line workers in getting their jobs done. To deal with fears of layoffs, all employees should be assured that no one will lose employment as a result of TQM changes: jobs may change, perhaps radically, but no one will be laid off. Hyde (1992) has recommended that we "disperse and transform, not replace, mid­level managers." This no layoff principle has been a common one in joint labor­management change processes such as quality of working life projects for many years.
Another systems consideration is that TQM should evolve from the organization's strategic plan and be based on stakeholder expectations. This type of planning and stance regarding environmental relations is receiving more attention but still is not common in the human services. As will be discussed below, TQM is often proposed based on environmental conditions such as the need to cut costs or demands for increased responsiveness to stakeholders. A manager may also adopt TQM as a way of being seen at the proverbial cutting edge, because it is currently popular. This is not a good motivation to use TQM and will be likely to lead to a cosmetic or superficial application, resulting in failure and disappointment. TQM should be purpose­oriented: it should be used because an organization's leaders feel a need to make the organization more effective. It should be driven by results and not be seen as an end in itself. If TQM is introduced without consideration of real organizational needs and conditions, it will be met by skepticism on the part of both managers and workers. We will now move to a discussion of the ways in which people may react to TQM.
People's Expectations and Perceptions
Many employees may see TQM as a fad, remembering past "fads" such as quality circles, management by objectives, and zero­based budgeting. As was noted above, TQM must be used not just as a fad or new program, but must be related to key organizational problems, needs, and outcomes. Fortunately, Martin (1993) has noted that TQM as a "managerial wave" has more in common with social work than have some past ones such as MBO or ZBB, and its adaptations may therefore be easier.
In another vein, workers may see management as only concerned about the product, not staff needs. Management initiatives focused on concerns such as budget or cost will not resonate with beleaguered line workers. Furthermore, staff may see quality as not needing attention: they may believe that their services are already excellent or that quality is a peripheral concern in these days of cutbacks and multi problem clients. For a child protective service worker, just getting through the day and perhaps mitigating the most severe cases of abuse may be all that one expects. Partly because of heavy service demands, and partly because of professional training of human service workers, which places heavy value on direct service activities with clients, there may be a lack of interest on the part of many line workers in efficiency or even effectiveness and outcomes (Pruger & Miller, 1991; Ezell, Menefee, & Patti, 1989). This challenge should be addressed by all administrators (Rapp & Poertner, 1992), and in particular any interested in TQM.
Workers may have needs and concerns, such as lower caseloads and less bureaucracy, which are different from those of administration. For TQM to work, employees must see a need (e.g., for improved quality from their perspective) and how TQM may help. Fortunately, there are win­win ways to present this. TQM is focused on quality, presumably a concern of both management and workers, and methods improvements should eliminate wasteful bureaucratic activities, save money, and make more human resources available for core activities, specifically client service.
Sources of Resistance
Implementation of large­scale change such as TQM will inevitably face resistance, which should be addressed directly by change agents. A key element of TQM is working with customers, and the notion of soliciting feedback/expectations from customers/clients and collaborating with them, perhaps with customers defining quality, is a radical one in many agencies, particularly those serving involuntary clients (e.g., protective services). Historical worker antipathy to the use of statistics and data in the human services may carry over into views of TQM, which encourages the gathering and analysis of data on service quality. At another level, management resistance to employee empowerment is likely. They may see decision making authority in zero­sum terms: if employees have more involvement in decision making, managers will have less. In fact, one principle in employee involvement is that each level will be more empowered, and managers lose none of their fundamental authority. There will undoubtedly be changes in their roles, however. As was noted above, they will spend less time on control and more on facilitation. For many traditional managers, this transition will require teaching/training, self reflection, and time as well as assurances from upper management that they are not in danger of being displaced.
Resistance in other parts of the organization will show up if TQM is introduced on a pilot basis or only in particular programs (Hyde, 1992). Kanter (1983) has referred to this perspective as segmentalism: each unit or program sees itself as separate and unique, with nothing to learn from others and no need to collaborate with them. This shows up in the "not invented here" syndrome: those not involved in the initial development of an idea feel no ownership for it. On a broader level, there may be employee resistance to industry examples used in TQM ­ terms like inventory or order backlog (Cohen and Brand, 1993, 122).
Dealing with Resistance
There are several tactics which can be helpful in dealing with resistance to TQM implementation. Generally, they have to do with acknowledging legitimate resistance and changing tactics based on it, using effective leadership to enroll people in the vision of TQM, and using employee participation.
A useful technique to systematically identify areas of resistance is a force field analysis (Brager & Holloway, 1992). This technique was originally developed by Kurt Lewin as an assessment tool for organizational change. It involves creating a force field of driving forces, which aid the change or make it more likely to occur, and restraining forces, which are points of resistance or things getting in the way of change. Start by identifying the change goal, in this case, implementation of TQM. Represent this by drawing a line down the middle of a piece of paper. Slightly to its left, draw a parallel line which represents the current state of the organization. The change process involves moving from the current state to the ideal future state, an organization effectively using TQM. To the left of the second line (the current state), list all forces (individuals, key groups, or conditions) which may assist in the implementation of TQM. These may include environmental pressures leading to reduced funds, staff who may like to be more involved in agency decision making, and the successful applications of TQM elsewhere. On the other side, list restraining forces which will make the change implementation more difficult. Examples may be middle management fear of loss of control, lack of time for line workers to take for TQM meetings, and skepticism based on the organization's poor track record regarding change. Arrows from both sides touching the "current state" line represent the constellation of forces. Each force is then assessed in two ways: its potency or strength, and its amenability to change. More potent forces, especially restraining ones, will need greater attention. Those not amenable to change will have to be counteracted by driving forces.

Saturday, October 20, 2007

Working With EI

Six Sigma in Motorola

For Motorola, the originator of Six Sigma, the answer to the question "Why Six Sigma?" was simple: survival. Motorola came to Six Sigma because it was being consistently beaten in the competitive marketplace by foreign firms that were able to produce higher quality products at a lower cost. When a Japanese firm took over a Motorola factory that manufactured Quasar television sets in the United States in the 1970s, they promptly set about making drastic changes in the way the factory operated. Under Japanese management, the factory was soon producing TV sets with 1/20th the number of defects they had produced under Motorola management. They did this using the same workforce, technology, and designs, making it clear that the problem was Motorola's management. Eventually, even Motorola's own executives had to admit "our quality stinks,"[i]
Finally, in the mid 1980s, Motorola decided to take quality seriously. Motorola's CEO at the time, Bob Galvin, started the company on the quality path known as Six Sigma and became a business icon largely as a result of what he accomplished in quality at Motorola. Today, Motorola is known worldwide as a quality leader and a profit leader. After Motorola won the Malcolm Baldrige National Quality Award in 1988 the secret of their success became public knowledge and the Six Sigma revolution was on. Today it's hotter than ever.
It would be a mistake to think that Six Sigma is about quality in the traditional sense. Quality, defined traditionally as conformance to internal requirements, has little to do with Six Sigma. Six Sigma is about helping the organization make more money. To link this objective of Six Sigma with quality requires a new definition of quality. For Six Sigma purposes I define quality as the value added by a productive endeavor. Quality comes in two flavors: potential quality and actual quality. Potential quality is the known maximum possible value added per unit of input. Actual quality is the current value added per unit of input. The difference between potential and actual quality is waste. Six Sigma focuses on improving quality (i.e., reducing waste) by helping organizations produce products and services better, faster and cheaper. In more traditional terms, Six Sigma focuses on defect prevention, cycle time reduction, and cost savings. Unlike mindless cost-cutting programs which reduce value and quality, Six Sigma identifies and eliminates costs which provide no value to customers: waste costs.
For non-Six Sigma companies, these costs are often extremely high. Companies operating at three or four sigma typically spend between 25 and 40 percent of their revenues fixing problems. This is known as the cost of quality, or more accurately the cost of poor quality. Companies operating at Six Sigma typically spend less than 5 percent of their revenues fixing problems (Figure 1). The dollar cost of this gap can be huge. General Electric estimates that the gap between three or four sigma and Six Sigma was costing them between $8 billion and $12 billion per year.
Figure 1: Cost of Poor Quality versus Sigma Level
What is Six Sigma?
Six Sigma is a rigorous, focused and highly effective implementation of proven quality principles and techniques. Incorporating elements from the work of many quality pioneers, Six Sigma aims for virtually error free business performance. Sigma, s, is a letter in the Greek alphabet used by statisticians to measure the variability in any process. A company's performance is measured by the sigma level of their business processes. Traditionally companies accepted three or four sigma performance levels as the norm, despite the fact that these processes created between 6,200 and 67,000 problems per million opportunities! The Six Sigma standard of 3.4 problems per million opportunities[1][1] is a response to the increasing expectations of customers and the increased complexity of modern products and processes.
If you're looking for new techniques, don't bother. Six Sigma's magic isn't in statistical or high-tech razzle-dazzle. Six Sigma relies on tried and true methods that have been around for decades. In fact, Six Sigma discards a great deal of the complexity that characterized Total Quality Management (TQM). By one expert's count, there were over 400 TQM tools and techniques. Six Sigma takes a handful of proven methods and trains a small cadre of in-house technical leaders, known as Six Sigma Black Belts, to a high level of proficiency in the application of these techniques. To be sure, some of the methods used by Black Belts are highly advanced, including the use of up-to-date computer technology. But the tools are applied within a simple performance improvement model known as DMAIC, or Define-Measure-Analyze-Improve-Control[1][2]. DMAIC can be described as follows:
Define the goals of the improvement activity. At the top level the goals will be the strategic objectives of the organization, such as a higher ROI or market share. At the operations level, a goal might be to increase the throughput of a production department. At the project level goals might be to reduce the defect level and increase throughput. Apply data mining methods to identify potential improvement opportunities.
Measure the existing system. Establish valid and reliable metrics to help monitor progress towards the goal(s) defined at the previous step. Begin by determining the current baseline. Use exploratory and descriptive data analysis to help you understand the data.
Analyze the system to identify ways to eliminate the gap between the current performance of the system or process and the desired goal. Apply statistical tools to guide the analysis.
Improve the system. Be creative in finding new ways to do things better, cheaper, or faster. Use project management and other planning and management tools to implement the new approach. Use statistical methods to validate the improvement.
Control the new system. Institutionalize the improved system by modifying compensation and incentive systems, policies, procedures, MRP, budgets, operating instructions and other management systems. You may wish to utilize systems such as ISO 9000 to assure that documentation is correct.

A very powerful feature of Six Sigma is the creation of an infrastructure to ensure that performance improvement activities have the necessary resources. In this author's opinion, failure to provide this infrastructure is the #1 reason why 80% of all TQM implementations failed in the past. Six Sigma makes improvement and change the full-time job of a small but critical percentage of the organization's personnel. These full time change agents are the catalyst that institutionalizes change. Figure 2 illustrates the required human resource commitment required by Six Sigma.
Figure 2: Six Sigma Infrastructure
Six Sigma involves changing major business value streams that cut across organizational barriers. It is the means by which the organization's strategic goals are to be achieved. This effort cannot be led by anyone other than the CEO, who is responsible for the performance of the organization as a whole. Six Sigma must be implemented from the top-down.
Champions and Sponsors
Six Sigma champions are high-level individuals who understand Six Sigma and are committed to its success. In larger organizations Six Sigma will be led by a full time, high level champion, such as an Executive Vice-President. In all organizations, champions also include informal leaders who use Six Sigma in their day-to-day work and communicate the Six Sigma message at every opportunity. Sponsors are owners of processes and systems who help initiate and coordinate Six Sigma improvement activities in their areas of responsibilities.
Master Black Belt
This is the highest level of technical and organizational proficiency. Master Black Belts provide technical leadership of the Six Sigma program. Thus, they must know everything the Black Belts know, as well as understand the mathematical theory on which the statistical methods are based. Master Black Belts must be able to assist Black Belts in applying the methods correctly in unusual situations. Whenever possible, statistical training should be conducted only by Master Black Belts. Otherwise the familiar "propagation of error" phenomenon will occur, i.e., Black Belts pass on errors to green belts, who pass on greater errors to team members. If it becomes necessary for Black Belts and Green Belts to provide training, they should do only so under the guidance of Master Black Belts. For example, Black Belts may be asked to provide assistance to the Master during class discussions and exercises. Because of the nature of the Master's duties, communications and teaching skills are as important as technical competence.
Black Belt
Candidates for Black Belt status are technically oriented individuals held in high regard by their peers. They should be actively involved in the process of organizational change and development. Candidates may come from a wide range of disciplines and need not be formally trained statisticians or engineers. However, because they are expected to master a wide variety of technical tools in a relatively short period of time, Black Belt candidates will probably possess a background including college-level mathematics and the basic tool of quantitative analysis. Coursework in statistical methods may be considered a strong plus or even a prerequisite. As part of their training, Black Belts receive 160 hours of classroom instruction, plus one-on-one project coaching from Master Black Belts or consultants.
Successful candidates will be comfortable with computers. At a minimum, they should understand one or more operating systems, spreadsheets, database managers, presentation programs, and word processors. As part of their training they will be required to become proficient in the use of one or more advanced statistical analysis software packages. Six Sigma Black Belts work to extract actionable knowledge from an organization's information warehouse. To ensure access to the needed information, Six Sigma activities should be closely integrated with the information systems (IS) of the organization. Obviously, the skills and training of Six Sigma Black Belts must be enabled by an investment in software and hardware. It makes no sense to hamstring these experts by saving a few dollars on computers or software.
Green Belt
Green Belts are Six Sigma project leaders capable of forming and facilitating Six Sigma teams and managing Six Sigma projects from concept to completion. Green Belt training consists of five days of classroom training and is conducted in conjunction with Six Sigma projects. Training covers project management, quality management tools, quality control tools, problem solving, and descriptive data analysis. Six Sigma champions should attend Green Belt training. Usually, Six Sigma Black Belts help Green Belts define their projects prior to the training, attend training with their Green Belts, and assist them with their projects after the training.
Staffing Levels and Expected Returns
As stated earlier in this article, the number of full time personnel devoted to Six Sigma is not large. Mature Six Sigma programs, such as those of Motorola, General Electric, Johnson & Johnson, AlliedSignal, and others average about one-percent of their workforce as Black Belts. There is usually about one Master Black Belts for every ten Black Belts, or about 1 Master Black Belt per 1,000 employees. A Black Belt will typically complete 5 to 7 projects per year. Project teams are led by Green Belts, who, unlike Black Belts and Master Black Belts, are not employed full time in the Six Sigma program. Black Belts are highly prized employees and are often recruited for key management positions elsewhere in the company. After Six Sigma has been in place for three or more years, the number of former Black Belts tends to be about the same as the number of active Black Belts.
Estimated savings per project varies from organization to organization. Reported results average about US$150,000 to US$243,000. Note that these are not the huge mega-projects pursued by Re-engineering. Yet, by completing 5 to 7 projects per year per Black Belt, the company will add in excess of US$1 million per year per Black Belt to its bottom line. For a company with 1,000 employees the numbers would look something like this:
Master Black Belts: 1
Black Belts: 10
Projects: = 50 to 70 (5 to 7 per Black Belt)
Estimated saving: US$9 million to US$14.6 million (US$14,580 per employee)
Do the math for your organization and see what Six Sigma could do for you. Because Six Sigma savings impact only non-value added costs, they flow directly to your company's bottom line.

Implementation of Six Sigma
After over two decades of experience with quality improvement, there is now a solid body of scientific research regarding the experience of thousands of companies implementing major programs such as Six Sigma. Researchers have found that successful deployment of Six Sigma involves focusing on a small number of high-leverage items. The steps required to successfully implement Six Sigma are well-documented.
1. Successful performance improvement must begin with senior leadership. Start by providing senior leadership with training in the principles and tools they need to prepare their organization for success. Using their newly acquired knowledge, senior leaders direct the development of a management infrastructure to support Six Sigma. Simultaneously, steps are taken to "soft-wire" the organization and to cultivate an environment for innovation and creativity. This involves reducing levels of organizational hierarchy, removing procedural barriers to experimentation and change, and a variety of other changes designed to make it easier to try new things without fear of reprisal.
2. Systems are developed for establishing close communication with customers, employees, and suppliers. This includes developing rigorous methods of obtaining and evaluating customer, employee and supplier input. Base line studies are conducted to determine the starting point and to identify cultural, policy, and procedural obstacles to success.
3. Training needs are rigorously assessed. Remedial skills education is provided to assure that adequate levels of literacy and numeracy are possessed by all employees. Top-to-bottom training is conducted in systems improvement tools, techniques, and philosophies.
4. A framework for continuous process improvement is developed, along with a system of indicators for monitoring progress and success. Six Sigma metrics focus on the organization's strategic goals, drivers, and key business processes.
5. Business processes to be improved are chosen by management, and by people with intimate process knowledge at all levels of the organization. Six Sigma projects are conducted to improve business performance linked to measurable financial results. This requires knowledge of the organization's constraints.
6. Six Sigma projects are conducted by individual employees and teams led by Green Belts and assisted by Black Belts.
Although the approach is simple, it is by no means easy. But the results justify the effort expended. Research has shown that firms that successfully implement Six Sigma perform better in virtually every business category, including return on sales, return on investment, employment growth, and share price increase. When will you be ready to join the Six Sigma revolution?

The High Return on Valued Employees

Sam Walton of Wal-Mart Stores Inc. has been quoted as having said it takes just seven days for new employees to start treating customers the way they are treated at work. All the customer service skills and training in the world can be undone in only one week if an employee is treated poorly by his or her co-workers or boss.
Companies spend countless amounts of time and resources on developing quality customer service techniques. Employees are taught that the customer is always right. They are taught to do whatever it takes to get and keep a customer's business. What is often overlooked is internal customer service. Companies talk the talk to the outside world, but don't walk the walk with their own people.
Do you give your internal customers a positive or negative service message? Ask yourself these questions:
How do managers react when there's an external customer service problem? A manager's job is to be sure his team is providing good service externally, but does he support them when there's a problem? Some managers place blame, become angry and step in with the customer, making it obvious to everyone that the person on the line did a poor job. Better managers support their people and provide whatever backing the employee needs to make the customer happy. Instead of finding fault, they help find solutions. In the end, the customer is happy, the employee maintains his dignity and, ideally, the employee learns how to do better the next time.
Is your staff empowered to make decisions? The classic scenario of no empowerment is a car salesperson constantly checking with the sales manager to obtain approval during negotiations. This type of environment teaches employees that they have little or no say in the decision and it sends a message to the customer that he is dealing with the wrong person. As a customer, don't you wish you could just talk directly to the sales manager and save the hassle? If employees are empowered to make decisions and solve problems on the spot, the customer will go away satisfied most of the time.
Do co-workers support each other? Most people don't work alone; they rely on others to help them get the job done. When someone needs information from a co-worker, is it delivered on time? If people don't deliver on deadline internally, the end product will be late to the customer. When that happens, co-workers start the process of covering their own skins and placing the blame on others -- nobody takes accountability for the missed deadline.
Do your employees have the tools to do the job? Perhaps that car salesperson had to keep running to his manager because he didn't know enough about the dealership's negotiation policies to make the deal on the spot. While you're training the staff on how to satisfy customers, also consider training on team-building, time management and other techniques to help the staff work as a cohesive unit.
How do you match up against your competitors? Is your competition using your weaknesses against you in a sales pitch? If your staff feels like they're getting beat up by the competition, their attitudes can slip quickly. Poor morale around the office leads to lower incentives to do a good job for the customer, making the situation spiral downward. Don't just sit back and let the competition tell your story, work on problems internally so your employees feel confident out on the street.
Do your employees think service is important? Top management needs to send the message that service is a priority, both internal and external service. People must be accountable for their actions and must be motivated to do their best work. Some companies think tactics such as "Employee of the Month" recognitions are corny; but for many employees, that internal recognition goes a long way in goodwill -- goodwill that is passed on to the customer.
How are customers treated behind the scenes? If your top customer was a fly on the wall in your office, would he or she still be a customer? Companies that allow employees to bad mouth customers are breeding an environment of mistrust. If a junior employee hears a top executive trashing a customer, he is going to lose sight of the fact that the customer is your company's livelihood. Employees in that environment are more likely to talk bad about their co-workers and engage in back-stabbing behavior.
A company's culture is set by top management; employees learn what's acceptable by watching what those at the top say and do. Therefore, if you set a tone for support and service, it will pay off in satisfied customers, inside the company and out.

Even the US is Losing it Intellectual Capital

The land to which people immigrated for its educational and employment opportunities is losing an increasing number of potential citizens. In 1991, 1.82 million people immigrated to the United States, according to the U.S. Department of Homeland Security’s Office of Immigration Statistics. By 2000, that figure had dropped to 849,807. Although it was back up some to 1.06 million in 2002, it had dropped again to 705,827 by the end of the 2003 fiscal year.
David Heenan is the author of "Flight Capital," a forthcoming book discussing this phenomenon. He says that despite the decrease in foreign nationals immigrating to the United States, more of those who do immigrate are choosing to return to their homelands to live out their white-collar careers there rather than here in the United States compared with a couple of decades ago. That, he says, is going to take its toll on corporate America’s intellectual capital.
"These people who immigrated to the United States with the notion that they would work here and never go back (to work in their home countries) started to see their former home countries move up the economic ladder and create what turned out to be some very interesting opportunities," Heenan says. Others have been disenchanted with raising their children here. "One guy described to me that the MTV generation, with its bare midriffs and vulgar languages, made him want to raise his kids in an environment that was less stressful and less fast-paced," he says.
"This trend I am describing in terms of flight capital began as a trickle in the mid-1990s, but now has picked up speed," Heenan says. "Many of these people are going back to Ireland, Israel, Singapore and China and are feeling very good about that decision."
But the United States is not just losing Joe and Jane Scientist. It’s losing their kids too. "If you look at USA Today’s all-American student list or look at National Merit Scholars, about 60 percent of those are kids of foreign nationals," Heenan says. "When the parents go back, the kids go back. This is the exodus of America’s best and brightest. If you do a projection, by 2010 there will be a significant shortage of high-end talent as we have not been developing our own Americans."
Beyond those leaving the United States after some time spent in corporate America, there are also those foreign nationals who just aren’t coming in the waves that they once did.
The number of immigrant scientists, engineers, academics and other employer-sponsored professionals and skilled workers dropped 54 percent from 179,000 for fiscal year 2000 to 82,000 in fiscal year 2003, according to data from the Office of Immigrant Statistics. Figures for 2004 have not yet been released, but given that in October 2003 the U.S. government capped H-1B status--the visa used for employee-sponsored immigration of professionals--at 65,000, the nation cannot expect the same high number of immigrants it saw in the first part of this decade.
Heenan, a former senior executive with Citicorp and Jardine Matheson who also served on the faculties of the Wharton School, the Columbia Graduate School of Business and the University of Hawaii, says, "We are also losing that guy who is now in China seeing these people coming back and they say, ‘Gee, if they are coming back and moving up the scale, why do I have to go to the United States in the first place?’ "
Jobs aplenty in China Ames Gross is president of Pacific Bridge, a Bethesda, Maryland, recruiting firm and consultancy specializing in placing Asian returnees with companies. He says the quality of life in China is much better than it was a couple of decades ago. The pay is also a lot better, he says, in part because of the increased number of multinational companies with operations there paying good salary with benefits.
Gross points out that in China there are probably three to five job openings per one educated Chinese person. It is an ideal situation for returnees who often feel that they hit the glass ceiling while in the United States.
"The main reason many go back is because of the opportunity for more senior positions and more bang for the American buck," Gross says. "A Chinese from Taiwan or China who worked his way up in the U.S. knows he is only going to get so far if he speaks broken English and doesn’t go to the right country club. Whereas if he goes back to China he might have more opportunity"--even within an offshore division of an American company.
Many of these countries like Singapore, Ireland and China have created attractive incentives to lure their natives back home. From tax incentives to housing incentives, especially for people in the sciences like medicine, biotech and information technology and software development--these natives with foreign work experience are in tremendous demand all around the world.
Home is beckoning In order to lure home Western-educated talent, the Thai government devised the so-called "Reverse Brain Drain Project." The project, developed by the Ministry of Science, Technology and Environment, is designed to recruit educated Thai citizens in Japan, North America and Europe to return to Thailand. Scientists, engineers, and doctors are the main targets.
One way to lure these professionals is to have them return as lecturers in the universities, according to a report by Pacific Bridge. Unfortunately, the starting salary of a lecturer with a doctorate at a public university is only around $4,500 per year, the report reveals. According to the Bangkok Post, Thai professionals would consider returning if the government offered such incentives as housing loans or subsidies, a competitive salary, tax subsidies for research equipment, or relocation compensation.
"Their governments know that if they are going to make it in innovations, they need these blue-chip personalities and will go to great lengths to bring them home," says Heenan, who traveled to several countries conducting interviews for his book.
Enterprise Ireland, a Dublin-based economic development and recruiting agency with offices in New York, periodically holds seminars aimed at enticing people in the biosciences to go back to Ireland to work. It targets those who immigrated to the United States from Ireland five years ago or even 30 years ago who now work for Merck or Pfizer. About 60 percent of the audience attending a recent conference was prepared to go back to Ireland for at least five years for the right incentives.
Wyeth Pharmaceuticals, which in 2004 opened a $1.5 billion bio-pharma center in Ireland, was one of several companies speaking to the crowd about working for U.S. companies back in Ireland. The biopharma campus on a 90-acre site currently employs 1,000 and for 2005 is looking to hire another 300--whether local, returnee or expatriate--a corporate spokesperson says.
A very convenient way for foreign nationals to go home without losing a lot in terms of risk is to return with a multinational company such as 3M or Motorola. If they are Japanese returnees, they can go back with 3M and stay in the company loop as they continue with their U.S. employers. Many of them, however, get picked off by local companies because their worldwide experiences make them attractive.
Hot commodities The United States is also making it more difficult for some foreign nationals to come to this country if they wanted, Heenan says. The number of foreigners with advanced degrees or exceptional skills allowed into the country plummeted 65 percent last year, he says, while international student enrollments fell for the first time since the early 1970s. An important reason he gives is the length of time it now takes to get a visa--often six months or more.
Thirty percent to 40 percent of U.S. companies report serious delays in bringing skilled employees and customers to the country, according to data in Flight Capital. Many say their businesses will be in jeopardy--and so will the jobs of many Americans. What’s more, U.S. immigration policy is heavily skewed toward reuniting families. More than 70 percent of annual visas go to family reunifications, while only 20 percent are given to professionals and skilled workers, Heenan writes.
"My point is you better take care of these guys," he says in an interview. "In the old days if they went back to Brazil with General Motors, chances are they’d stay with GM the rest of their lives. But when these returnees go back today they are hot commodities. There are a whole lot of other options out there with the government incentives, local companies and venture capitalists who will be all over them. So companies need to take care of these people and let them continue their career paths and salary progression. This book is a wake-up call for America."

The Global Talent Race

Global companies based in the developing world look much like their developed-world counterparts. They manage their employees with similar policies and pay practices. In this world of sameness, differentiating the employment brand requires a new focus on career development.

workforce management is an extreme sport in Hyderabad, India, a first-tier offshore hotspot where foreign multinationals compete with Indian companies for software engineers and managers. In the mad scramble to recruit and retain employees, annual sal­ary adjustments have turned into quarterly raises. The average wage increase for 2006 will top 12 percent.
Labor cost savings for U.S.-based companies operating in India could shrink from 80 percent to 40 percent within a decade, according to Andy Goodman, executive vice president of human resources at Islandia, New York-based CA Inc., formerly Computer Associates International, which employs 1,100 workers in its Hyderabad software development center. "But even so, India will still represent a significant economic value," he says. "It is really a question of exploiting the global talent pool wherever it exists."
Increasingly, that global talent pool lies outside the United States and Europe. Half of CA’s 15,800 employees work in foreign countries. Since 2000, U.S.-based multinationals have consistently reduced the number of workers employed in the United States and increased the number employed abroad.
Thirty-three million young professionals with university degrees and work experience now live in 28 low-wage countries, compared with 15 million in eight high-wage nations, including 7.7 million in the United States, according to McKinsey & Co. The number of university graduates from the low-wage countries is increasing at an annual rate of 5.5 percent, compared with just 1 percent in the high-wage countries.
This shift in the location of critical knowledge workers will continue to draw more developed-nation multinationals into developing-country labor markets. At the same time, relatively new multinationals based in the developing countries are dominating their local markets, expanding abroad and adopting the same global compensation and performance management systems used by developed-nation multinationals.
For both developed- and developing-nation multinationals, labor arbitrage is a fully formed corporate strategy, with the cost savings already built into profits. As wages rise in first-tier offshore cities such as Bangalore, Shanghai, China, and Prague, Czech Republic, U.S. and Indian multinationals alike are moving to Jaipur, India, Chengdu, China, and Kiev, Ukraine. Ho Chi Minh City is the new Manila.
The upshot for workforce management is that increasingly indistinguishable companies are following one another around the world, offering the same compensation packages to the same workers. Creating differentiation to attract and retain top talent is now the global challenge. And staying one geographic step ahead of the global competition on the arbitrage map means re-creating that differentiation again and again in different locations.
Global Systems Eighty-five percent of multinationals have a global pay strategy in place, and the remaining 15 percent plan to introduce one by 2007, according to a 2005 survey of 90 multinationals by Mercer Human Resource Consulting. These global strategies consistently include policies on positioning pay relative to the market, short-term and long-term incentive design and methodologies for job grading. More than half incorporate fixed guidelines.
CA’s global system includes an annual universal performance evaluation that captures value-based behaviors, role effectiveness and delivery of objectives. The company communicates performance management standards to all employees through its intranet; managers use an automated global repository for performance ratings.
The notable exceptions to CA’s annual compensation and performance management cycle occur in the emerging markets. "There, the competitive marketplace is moving so rapidly that an annual adjustment is not sufficient," Goodman says. "In particular, India is a very competitive marketplace because there are so many organizations focused there. Every company that comes in basically determines that it’s going to offer a 25 percent increase on the current levels. This drives everyone into the same competitive spin."
In Hyderabad, CA competes against India-based multinationals such as Zensar Technologies. Forty percent of Zensar’s 3,000 employees are based outside India in 18 countries, including the United States, Germany, China, Japan and South Africa. Yogesh Patgaonkar, associate vice president and head of human resources, manages Zensar’s workforce with the same global compensation and performance management reach that CA employs.
Getting Sticky Both Patgaonkar and Goodman use intangibles to create differentiation and retain talent in Hyderabad. "Our first task is to remain competitive and holistic in our compensation structures," Goodman says. "The second is to reinforce other retention vehicles such as training, work environment and career pathing." Those are the differentials, he says, that help CA stay "sticky."
"It can’t purely be a bidding war with business conducted on a mercenary basis," Goodman notes. "It is difficult to stand still and not be reactive to the marketplace, but the degree to which you need to do that is dependent on the other aspects you put in place to retain talent."

"It can’t purely be a bidding war with business conducted on a mercenary basis. It is difficult to stand still and not be reactive to the marketplace, but the degree to which you need to do that is dependent on the other aspects you put in place to retain talent."--Andy Goodman, CA Inc.

Zensar uses multiple strategies to retain workers, but Patgaonkar draws the line at biannual wage increases, even in the most competitive labor markets. "Every company has finite resources," he says. "We prioritize our budget to take care of our critical talent. But we also have to worry about the cost of operations."
Zensar aligns itself with the market for base salaries and sets variable pay at 20 percent to 25 percent, using a range of skill- or knowledge-based incentives and longevity bonuses. The company also uses stock option awards based purely on performance, with about 15 percent of employees qualifying.
Most important, with a roster of Fortune 500 clients that includes IBM, Fidelity and Accenture and key partners such as Oracle, SAP and Microsoft, Zensar can offer its employees the same career development opportunities as the large U.S. multinationals. "People want more than a brand," Patgaonkar says. "They want careers. We offer career building that makes us as competitive or more competitive than the U.S. companies. We have been operating in the global market for some time now, and we understand the motives that employees have in working for us. People from the great brands come and join us all over the world."
Patgaonkar is far more concerned about retaining the 30 percent of the workforce that the company categorizes as critical talent than he is about general turnover. "Our compensation philosophy is to differentiate, prioritize and reward performance--everywhere. We keep it extremely simple and extremely transparent." Managers use a global system to report results, with all information centralized at headquarters in Pune.
Both CA and Zensar work with universities in all their locations to help staff technical jobs, but filling managerial positions is even more difficult. Although the business press often notes the shortage of managerial talent in the developing countries, Goodman disputes that focus. "It’s difficult to find good managerial talent anywhere," he says. "Obviously there are some additional complexities when you start moving into the global landscape, but for the most part, management capabilities are a challenge in all locations."
For U.S.-based multinationals, the overall shortage of managerial talent is exacerbated by the fact that the developing-country multinationals now match the salaries and career opportunities offered by U.S. firms. To relieve some of the pressure, CA uses expatriates on a selective basis.
Zensar addresses the managerial talent shortage by partnering with business schools and connecting with MBA candidates as soon as they are admitted. "We call this program ‘catch them in the cradle,’ " Patgaonkar says. "When they graduate, they come straight to work for Zensar." Top managers spend a considerable amount of time at the schools.
In addition, Zensar identifies technical employees who want to move into the management domain and covers their expenses for completing an MBA program. "Outside of India, we run similar programs to recruit and train both technical and managerial talent," Patgaonkar says. "We recruit from all of the premier campuses and use our own training centers so that employees continue to grow."
Roaming Arbitrage Career development will become more important as multinationals push offshoring to the next stage. Offshoring is no longer under serious challenge anywhere in the world--the business case is simply too strong. Cost comparisons still drive most offshoring decisions, according to the Everest Research Institute, and will continue to do so for the next 30 years. With wages rising 6 percent to 15 percent a year in the first- and second-tier locations, multinationals are moving into a third tier.
"The cost advantages will remain, but the global reality is that the margins will become narrower and narrower," Goodman says. "At the same time, it must be remembered that we are getting better at remote and global management and developing global managerial talent, so the productivity coming out of locations such as India is growing. Even if the margins loss is there, there will be value gained."
Goodman notes that India’s strong talent pool and education system have attracted a number of global companies. "However, other emerging markets such as China are going to begin to take some market share and play a larger role in organizations looking to exploit the global talent pool and gain some economic leverage around the world," he says. "But organizations are not looking for an exit strategy from India. The demand will remain fairly consistent."
Still, multinationals will have to move farther afield as markets tighten in current offshore sites. McKinsey estimates that the supply of suitable labor will be squeezed in Prague as early as this year and in Hyderabad by 2008. In China, multinationals have been avoiding the first-tier cities for years in favor of second-tier locations such as Chengdu, Hangzhou and Nanjing.
Intel announced February 28 that it will open a $300 million semiconductor assembly and test facility with 1,200 employees in Ho Chi Minh City. Cost pressures pushed Intel to move into Vietnam instead of expanding existing capacity in China, the Philippines and Malaysia.
U.K.-based TalkTalk announced February 6 that it will open call centers in Cape Town and Johannesburg, South Africa, bypassing established hubs in Manila and Delhi. Junior customer service representatives average just $1.86 an hour in Manila, according to the Boyd Co., a site selection consultancy based in Princeton, New Jersey. But wage increases in the Philippines will top 9 percent this year. Wages average a low $1.91 in Delhi, but call center turnover has become too costly.
India certainly still has appeal for companies, which are seeking customers as well as workers there. Dell Inc. last month announced plans to double its number of employees in India in three years. The company currently has 10,000 employees there. Most of the new hires will be for the company’s call centers, but Dell also intends to hire for product testing and possibly manufacturing jobs.
At CA, the process for determining which work goes offshore and where it will be located is, of course, a strategic business decision.
Human resources "assists with information on labor markets and skill sets and the viability of sending work to a specific location," Goodman says.
"HR also helps to determine whether a particular body of work should be U.S.-driven and supported by an offshore workforce, or whether we’re moving the whole project offshore."
With 33 million reasons to move into labor markets in the developing countries, the offshore preference will grow as developed-nation multinationals continue to look for talent at the lowest cost. Signing on that talent, however, will be more difficult as global players proliferate and compete for technical, professional and managerial employees. Differentiating the firm on the basis of superior career opportunities and pushing into third-tier cities will form the core of global workforce management in the years to come.

Bridging The Talent Gap

n the weeks following the September 11 terrorist attacks, Nicholas Santangelo of the Fire Department of New York spent days and nights searching for bodies at the site of the collapsed World Trade Center. Sleep was an afterthought for Santangelo and his fellow New York City firefighters as they tirelessly combed through the rubble of the Twin Towers 24 hours a day.
The FDNY had lost 343 of its 11,300 firefighters after two hijacked planes slammed into the 110-story Twin Towers, killing 2,749 people and plunging the city into a state of shock. It was the biggest loss of life the department had ever experienced in a single disaster. But two weeks after the attacks—which included another hijacked plane hitting the Pentagon in Washington, D.C., killing 184 people, and a plane going down in Shanksville, Pennsylvania, killing 40—acting Fire Chief Daniel Nigro and Fire Commissioner Thomas Von Essen called a meeting with Santangelo, the chief of the department’s fire academy, at its headquarters on Randall’s Island in New York City.
"They told me that we have to start to rebuild," Santangelo says. "It was time to get the academy in full swing."
Despite the enormity of the terrorist attacks, it was critical for the FDNY to not only quickly replace the firefighters it lost, but to revamp its training program to address the new threats that September 11 revealed.
That meant new training on terrorism awareness and handling hazardous materials. But the huge loss of life caused by the attacks also exposed a greater need for leadership development, talent management and succession planning pro­cesses to ensure that if a disaster of such magnitude happened again, the FDNY would have the people in place to continue doing its job.
The events of September 11 revealed similar needs at other organizations. Succession planning and leadership development have become top priorities at the Port Authority of New York and New Jersey, says Michael Massiah, the port’s director of management and budget.
The Port Authority, which had 2,000 employees working at the World Trade Center, lost 84 people, including its executive director, Neil Levin. "Succession planning was important before 9/11, but after the attacks it became evident that we always need to have an available pool of talent," Massiah says.
Executives at Marsh & McLennan Cos., which lost 295 of its 1,900 employees at the Twin Towers, were forced to rethink how they defined people’s positions and which employees could fill these roles, says Kathryn Komsa, vice president of global human resources.
"We began to look internally at our talent more than we ever did before," she says.
In many ways, the events of September 11, 2001, forced organizations to come up with better talent management processes to meet today’s challenges: the aging workforce and what many companies see as an impending talent shortage, observers say.
William J. Morin, chairman and CEO of WJM Associates, a New York organizational consulting firm, saw the number of requests for talent assessments double in the wake of September 11.
"That morning made everyone realize how much can change in one minute," he says.
Rebuilding Marsh & McLennan spent the weeks after the terrorist attacks reaching out to families of employees, reassuring clients, offering counseling and figuring out where to put its displaced employees.
Early on, executives realized how drastically its business had changed as a result of the events. "All of a sudden clients needed things like terrorism insurance," Komsa says. "Our clients’ priorities had changed, and thus so did our work priorities."
It also became clear that the talent pool in New York had changed dramatically in the wake of September 11. People didn’t want to work in New York anymore, Komsa recalls.
"Between having a talent market that was different and a change in our work priorities, we realized we had a whole new set of skills and roles we didn’t have before," Komsa says.
Executives began looking at Marsh & McLennan’s own people to fill new and existing positions.
"We really took on this attitude of ‘Let’s stretch people,’ " Komsa says. That often meant taking a chance on employees who were not necessarily ready for a larger role, but giving them support and training to help them do it.
In other instances, it meant combining positions. If there was a duplication of roles in Chicago and New York, the Chicago manager was asked to take on all the responsibilities.
Focusing more on internal promotions and expanding employees’ responsibilities served a dual purpose, Komsa says. On one level, it was a business imperative. It also was a way to get employees moving beyond the tragedy, she says.
Recruiting also took on a new context at the Port Authority after September 11. The agency didn’t have problems getting people to apply, but the terrorist attacks caused the agency to emphasize different qualities in candidates, Massiah says.
Specifically, the Port Authority put greater emphasis on a candidate’s dedication to public service.
"Beyond everything else, we have to provide a service to the public no matter what the circumstance is," Massiah says, noting that he didn’t go home for five days following the attacks. "It wasn’t until Sunday that I could heal with my family."
Project management skills also became more important after September 11, Massiah says. The agency had to allot more of its budget to security and hire more police, which meant cutting costs in other areas. This meant employees had to be able to use resources efficiently and juggle multiple roles at once, Massiah says. Port Authority officials developed two several-day training sessions teaching such skills to staff members.
Today, managers are evaluated on 10 competencies, emphasizing project management and productivity improvement. The agency stresses a commitment to public service in its evaluations of new hires.
A focus on training Like the Port Authority, the FDNY didn’t have recruiting problems in the weeks after September 11. For every candidate who decided not to be a firefighter anymore, there were one or two who wanted to join, Santangelo says.
To address new terror threats, the FDNY extended the orientation training from 11 to 13 weeks.
"We began offering more training around what would happen if some kind of national incident occurred," he says. Counseling sessions were also offered at the academy.
Because of its losses, the FDNY increased its orientation class size to get firefighters on the job faster. The first class that began training in October 2001 had 300 firefighters, double the normal class size.
Current firefighters are required to return more frequently for training than before September 11. It’s partially because of the additional requirements triggered by the terrorist attacks, but also because so many firefighters just started their careers, Santangelo says.
Today, a firefighter attends training at least 12 times a year, up from five times annually before September 11, he says. To accommodate greater class size and more classes, the department increased its number of instructors from 170 to 220.
The FDNY also has implemented a formal performance management system to test firefighters on their skills. Today, every firefighter has an annual review, which was not the case before September 11, Santangelo says.
The FDNY estimates it lost 4,440 years of experience the day of the attacks. But developing leaders also is critical to the FDNY because about 4,000 firefighters have retired during the past five years, Santangelo says. Many retirees had exceeded their 20 years of service, the minimum to receive their pensions.
The FDNY has expanded its management training to develop leaders within the department. This entails working with outside parties, like the U.S. Military Academy at West Point. It also requires trainees to participate in rescue operations with other groups, as it did last fall when personnel went to New Orleans after Hurricane Katrina.
"We have expanded our management team training so our people are prepared to work with outside parties," Santangelo says. "We need to be part of a national team to respond to major incidents."
It has become a greater challenge in recent months because it has gotten harder to fill orientation classes, Santangelo says.
In June, as a result of contract negotiations, the FDNY had to cut its starting salary from $36,000 to $25,000, he says. After the 13-week training program, salaries increase to $32,700.
"We are definitely starting to feel the effects," Santangelo says.
But Farrell Sklerov, an FDNY spokes­man, says there has been no difficulty recruiting firefighters, noting that more than 7,000 applicants have passed the entrance test in the past four years.
"We aren’t having a problem finding enough people," Sklerov says. He says that it’s too soon to say whether the new salary structure has had an effect on recruiting, but emphasizes that starting salaries actually end up around $37,000 because new hires get automatic overtime and holiday pay.
Regardless of why it’s harder to fill classes, Santangelo and his team are working to get new firefighters up to speed faster.
To do this, the department is sending out mobile training vehicles to different stations. The department has three on the road and hopes to add more in coming months.
Santangelo believes the increased focus on training and development in the wake of 9/11 has helped prepare the department for the aging workforce issues it’s experiencing now.
The Port Authority’s increased emphasis on training and development and succession planning has helped the agency cope with its aging workforce today, Massiah says.
"We review candidates and do more leadership development than we did five years ago," he says.
But at an agency where the average age is 45, "the challenge continues to be leadership continuity," Massiah says. "We have the right programs in place now, but we have to keep our focus on it."

GE Style of Change Management

Culture is often described as "the way we do things around here." In fact it is more complex. It is also feelings, underlying beliefs, values, history, and assumptions about an organization. Those are rooted in experiences, stories, and behaviour patterns sometimes decades or centuries old. The culture tells people what is and is not okay. Culture is enduring, difficult to develop or reshape.
Despite that, fundamental culture change is necessary for the reforms envisaged in Results for Canadians.
Governments everywhere are undergoing basic management reform. Canada has one of the finest public services in the world; its excellence is the legacy of generations of dedicated public servants and over three decades of reform initiatives. But the process of modernization is never complete.
New initiatives underway all seek Public Service renewal. In the words of the Clerk of the Privy Council, we are poised for an even more aggressive assault on management excellence. Modern Comptrollership offers preparation for this assault. It focuses on the fundamentals in order to build a strong foundation for modern management.
At the heart of Modern Comptrollership is a commitment to delivering results for Canadians, based on a culture of shared Public Service values and ethics. Strong leadership, a motivated workforce and clear accountabilities enable managers to make sound decisions, viewing actions through a lens of risk management and performance measurement.
Modern Comptrollership is the latest in a continuum of management improvement efforts in the Government of Canada. It complements other initiatives and provides the foundation for them. For example, improved reporting to Parliament depends on integrated information systems and the ability to explain the results and true costs of services provided to Canadians.
All the reforms seek to promote excellence. But they raise questions: How do we change management culture? What steps should deputy ministers / head of agencies and their executive teams take to promote real, lasting change? Who within our departments and agencies should be involved? Since the reforms are complementary, how can we implement them in an integrated fashion? How can we ensure that managers are not themselves overwhelmed? In response to such questions, this document provides a tool kit for managing cultural change.
The guide presents a step-by-step approach to managing change, one that deputies/heads and their executive teams can follow when undertaking management reforms. The pursuit of management excellence has many labels - reform, renewal, modernization, transformation, re-alignment - but all are about changing the behaviours that characterize Public Service management culture. For purposes of illustration this guide focuses on Modern Comptrollership, but it is generic in nature and its approach can be applied to any effort to change management culture.
Three activities contributed to the preparation of this guide:
a symposium with change management specialists from academia and former/current senior public servants;
an extensive review of the literature; and
interviews with key deputies and assistant deputy ministers, as well as provincial public servants and leading academics.
The symposium findings, literature review and interviews have been published separately, along with an annotated bibliography of the literature on management change.
Based upon these sources, the various models of change found in the literature were summarized into a single five-stage model with three basic approaches: top-down, transformational and strategic. Each of these approaches is described below. The three were combined in developing the approach adopted within the guide. Nevertheless, circumstances may dictate choosing a particular model, or elements of it, over another.
Change models
No single approach can fit all. Instead, every organization needs its own model of change corresponding to its needs and issues. When change efforts fail, it is common to blame organizational resistance but this is an inadequate explanation. Change goes wrong for systemic reasons: poor vision, inadequate communications, insufficient planning and resources, failure to make a compelling case, and inconsistent messages with leaders not following through.
Change models fall into three types: top-down; transformational leadership; and strategic approaches. Overall experience shows that with careful and appropriate application, each of the models presented here can be (and has been) used successfully in the public sector. Each model is described in more detail within the research report entitled Changing Management Culture: Models and Strategies, produced as part of this project and published separately.
Top-down models emphasize leadership. The CEO can orchestrate relatively rapid change by developing a vision, communicating it and involving employees. The leaders set goals, clarify desired outcomes, provide feedback, give rewards for desired performance and take action when goals are not met. They do not ignore the human factor - they care about people and want to see them grow - but they focus on performance driving cultural change, not the reverse.
Transformational leadership: In his latest book, Managing Politically, McGill University Professor Henry Mintzberg looked at three federal departments. He has long argued that change bubbles upward. "You can't drive change down an organization," he says. "You facilitate the situation so that change can come up. Create a climate where people can individually and collectively think for themselves, take initiatives, and build interesting things. Change grows from the grass roots, where people know what needs to be done."
Transformational leadership works by influencing the values and priorities of followers, thereby motivating them to achieve more. Leaders inspire followers through the mission, optimism, enthusiasm and emotional appeal. They provide personal support and encouragement, show concern and offer coaching. They set a personal example, sacrifice for the group and show good ethics. They challenge people to view problems from new perspectives and to find new solutions, while making it safe for them to express negative emotions and business concerns. Followers then connect more to the mission, seek ways to improve their performance and thus enhance the organizational culture.
Of course, despite the cover stories in magazines, not all great leaders are larger than life. Many prefer responsible, behind-the-scenes actions. They lead by quiet example and by working through others.
Strategic approaches: Perhaps the best-known author on change is Professor John Kotter. He lays out an eight-step strategy:
Establish a sense of urgency.
Create the guiding coalition.
Develop a vision and strategy.
Communicate the change vision.
Empower employees for broad-based action.
Generate short-term wins.
Consolidate gains and produce more change.
Anchor new approaches in the culture.
Notably, his model does not start with vision. That only comes after an organization's leaders have established a sense of urgency for change and built a coalition to help them push for it. Skipping the first stages, warns Kotter, will lead to failure.
And although cultural change is critical to long-lasting change, Kotter puts it at the end rather than the start of the process. "Culture changes only after you have successfully altered people's actions," he says, "after the new behaviour produces some group benefit for a period of time, and people see the connection between the new actions and the performance improvement."
Find a change model to fit the situation
A top-down approach apparently can be effective, but only if the leader controls the levers of recruitment, promotion, incentives and dismissal - and at the same time pays attention to the people factor and is open to feedback. New behaviour will eventually be accepted and become the culture.
In another view, culture change comes through changing the way things are done in an organization so that, over time, people will change as well.
A third view holds that if you change how individuals feel and provide them with new experiences, they will eventually adopt the new behaviours, leading to the emergence of a new culture.
What matters is to find what works best in the specific situation, given your understanding of all the factors.
Stages of culture change
Common themes emerged from the interviews with executives and the review of management literature, advising that significant change in complex organizations requires:
strong leadership, a vision, and a change team or guiding coalition charged with implementation;
perseverance and commitment to follow through;
understanding of the current culture, where the resistance will come from; and
the courage to tackle resistance head-on.
The chart presents a roadmap for changing management culture.
Stage 1: Before anything else, leaders must build an understanding of the organization's current culture by collecting information on the types of behaviours being practised. In other words, they have to understand their own leadership style, the organization's culture and where it is now.
Stage 2: Next is developing a vision of where the organization should be, and performing a gap analysis; this reveals where the organization falls short of the vision. To fill the gaps, design a strategic plan that articulates the vision, outlines priorities for improvement and establishes measurable targets with an eye to early successes. A team must be established, trained and mandated to implement the change. Ultimately, the whole organization must be involved, although specifics will vary according to the scope of the plan and the nature of the organization.
Stage 3: Next comes implementing the plan: The deputy/head and the guiding coalition must make the case for change, communicate again and again (and again), and build capacity.
Stage 4: At the same time, there is a critical transitional period in which people "let go" of one set of behaviours as they move to another. This is the stage where many change initiatives begin to lose momentum. It's important to celebrate wins and early successes, communicate widely and often, and find innovative ways of motivating people to adopt the new behaviours, processes and systems.
Stage 5: Finally, following up. It's important to keep measuring progress, seek feedback, and continue to adjust and improve. Over time, the leadership must build a deeper understanding, update the strategy and get better at implementation

A Profile of Sam Walton, Founder ofWal-Mart

Sam Walton was a man who took chances, never said never, and kept on fighting the odds. He was like no other man in this world. All through his life he has fought an up hill battle and in the end he won. Sam Walton was a leader not a follower. Sam Walton grew up during the depression and knew that hard work and thrift were a way of life. Sam was described as to be industrious, always trying to get the most out of money, and had a burning ambition to succeed. This is all apparent by: how he helped his family through the depression, started his own business from almost nothing, and how he changed the field of management.
Sam Walton was born on March 29, 1918 to Thomas Gibson and Nancy Lee Walton near Kingfisher, Oklahoma. In Oklahoma, they owned and lived on a farm until 1923. The Walton's then decided that the farm was not profitable enough to raise a family on. So, Sam and Jame's (Sam's younger brother born in 1921) dad decided he would go back to being a Farm Loan Appraiser. Once this job started the Walton family moved out of Oklahoma and moved from town to town in Missouri. This would traumatize most children but for the Walton boys though it was no big deal. This could be seen when Sam was in 8th grade at Shelbina he became the youngest boy in the state's history to become an Eagle Scout and this was only a start of his many of accomplishments.
As Sam Walton grew up he was always an ambitious boy. He attended Hickman High School in Columbia there he played basketball and football, in which he was the starting quarterback for the football team and lead them to the state title in 1935. He wasn't the most smartest person at school but he was determined to do good so with hard work and lots of studying he became an honors student. Besides being athletic and smart he was also a political figure at school, too. He severed as Vice- President of his Junior Class and President of the Student Body his senior year. Don't think this is all Sam did though, he also had to help support his family, along with his father and brother because money was lacking due to the depression. Sam's job was to milk the family cow, bottle the milk, and then deliver the surplus of to customers and then went off to deliver newspapers afterwards. When he graduated from high school he was voted the "Most Versatile Boy" in his class. During this time it would have been easy for Sam to just give up on school and go to work full time. Seeing though how his family was struggling to make ends meet, he decided he was going to stay in school and attend the University of Missouri.
At the University of Missouri Sam majored in Economics. He could not really afford to attend school so he worked extra hard to get the money. Sam waited tables in exchange for meals, lifeguarded at the school pool, and also delivered newspapers. While he was not doing that he was either at his fraternity in which he was an officer, or at a student government meeting since he was a member of the student senate, or fulfilling his duties as an ROTC Officer, and then on Sundays he was President of a Sunday School Class in which many of his fellow classmates attended. While accomplishing all this he was also in the National Honor Society. When Sam Walton graduated in 1940 he was voted the permanent President of his class. Three days after graduation he entered the retail world working at JcPenney's in Des Moines, Iowa as a management trainee earning a salary of $75.00 a month.
As Sam grew up and anyone could see how determined he was to succeed and as time passed he went from being a poor town boy to the richest man in the world. He gained experience at Penney's but in early 1942 Walton resigned to wait to be inducted into the military services for World War II. While waiting, Sam took a job in a Du Pont munitions plant near Tulsa, Oklahoma. While working and living near Tulsa, Sam met his future wife Helen Robson. She lived in a little town called Claremore where she attended Claremore High School and graduated valedictorian of her class and went on to attend college at the University of Oklahoma at Norman and graduated with a degree in business. They met in April of 1942 and were married on February 14, 1943. In 1944 they had their first son, Samuel Robson (Rob), John Thomas was born in 1946, James Carr (Jim), born in 1948, and Alice born in 1949. Her father was L.S. Robson, a prosperous banker and rancher who would go on to help Sam start his first store.
Soon after they were married, Sam went to serve in the US Army intelligence corps in the continental United States, supervising security at aircraft plants and prisoner of war camps. By the time Sam was discharged from the war he was ranked as captain and decided he wanted to own his own department store. This dream came a reality in the fall of 1945 when he purchased a store in Newport with the help of his father-in-law. Sam borrowed $20,000.00 from his father-in-law and had $5,000 saved from the military.
Sam's store was a franchisee of the Butler Brothers, who consisted of two chains. One chain was the Federated department stores, which were small department stores and then the Ben Franklin variety stores. Sam store was going to a variety store and with the assistance of the Butler Brothers, his store led in sales and profits in the six-state region. Sam made this possible by properly stocking all the shelves with a wide range of goods with very low prices, keeping his store centrally located so it was easily accessible to many customers, stayed open later than most stores especially during Christmas seasons, and experimented with discount merchandising ( buying straight from the wholesaler which enable him to lower his price per item and then was able to sell a greater quantity of goods, and thereby increasing his sales volume and profits). All these were ideas were new to businesses but Sam caught on fast and was able to use them to his advantage. Since his store was such a success everyone wanted a piece of the action. So, when his lease was up his landlord would not renew the lease because he wanted the business for his son. Sam sold the store and made a profit over $50,000.00. This deal was complete in January 1951 and the new owner then took possession of the store. This did not stop Sam from continuing with his dream. Before the sale was even finalized between him and his landlord Sam started looking for a new place in town but he would have no such luck. In 1950 though, he purchased a store in Bentonville, Arkansas, which ended up being called Walton's 5 & 10, this store was also a member of the Butler Brothers' Ben Franklin chain. Before this store opened it needed many improvements but to Sam that was no problem. He was never discouraged for a second. To introduce his store to the new town in July 1950, Walton staged his first sales promotion , called the "remodeling sale" and then the following March he had the grand opening. During this time Sam operated both stores the one in Newport and the one in Bentonville. In 1951 after his landlord took over the Newport store his family and him moved to Bentonville and settled in quite nicely. They became quite involved with town activities, such as Walton served as president of Rotary Club and the chamber of commerce. He was elected to the city council and served on the hospital board and in 1954 he launched a Little League baseball program in town. This is only to name a few of his activities and accomplishments in the community.
Most people would not have time to do anything else but Sam did, he decided to start a second store in Fayetteville, located about 20 mile south of Bentonville. This was also named Walton 5 & 10 but it was not a Ben Franklin franchise but it was just as successful as the other Walton 5 & 10. Walton knew though he needed a qualified manager to run the store so it would be as successful as his other store. So, he said, " I did something I would do for the rest of my run in the retail business without any shame or embarrassment whatsoever: nose around other people's stores searching for good talent" ( Scott 11 ). With this search he hired Willard Walker, the manager of a TG&Y variety store in Tulsa. He attracted Walker by offering him a percentage of the store's profits, now known as profit sharing. Even with this new manager Sam did not neglect the new store. He visited once a week to make sure everything was running smoothly and once a month he examined the store's books and compiled a profit-and-loss statement.
To keep his stores running in tip top shape Sam was always trying to find new ideas to improve business. The next new thing he found was a concept known as self-service. This is that the cash registers that were located at the counters throughout the store would be replaced by checkouts located in the front of the store where customers would pay for everything at one time. The cashier would unload the new light weight baskets and ring the goods up and put them in bags and then the customer was ready to exit the store. Some other customs, Sam had to keep customers happy were: he had a wide assortment of goods, had special promotions, kept the place well lighted and clean, demanded that the staff be loyal and did this by sharing a percentage of the profits with the employees.
As time passed Sam opened more stores with the help of his brother, father-in-law and brother-in-law. In 1954 he opened a store with his brother in Ruskin Heights, a suburb near Kansas City in a shopping center. This store was quite profitable, too. He decided to take this idea to Arkansas but it was not quite as successful as his other stores. At that time Sam decided to go back and just concentrate on retail business instead of the shopping center business. Sam opened larger stores which were called Walton's Family Center. To keep management on their toes and on top of the game, Sam offered them the opportunity to become limited partners if they would invest in the store they were to oversee and then invest a maximum of $1000.00 in new outlets as they opened. This kept the managers always trying to keep profits at a maximum and kept them improving their manager skills. His ways were proven to be successful because by 1962 Sam and his brother Bud owned 16 variety stores in Arkansas, Missouri, and Kansas. With all these ideas and new management techniques that is how Wal-Mart got it start and that is why they are different from any other store today.
Wal-Mart first opened in 1962 and became the world's number one retailer. Wal-Mart's success has also given many people today an opportunity for a bigger job market. More than 600,000 Americans work at Wal-Mart. The reason for its popular success it still follows Sam Walton's values: by hometown identity, each person is welcomed personally by People Greeters, each store honors a graduating high school senior with a college scholarship, bake sales to benefit a local charity, associates determine where charitable funds are donated, and the prices are low and customers do not have to wait for a sale to see savings. This is only to name a few of the things that Wal-Mart does for the community. Wal-Mart goes according to what Sam Walton believed, "Each Wal-Mart store should reflect the values of its customers and support the vision they hold for their community" ( The Wal-Mart Story). With this saying always in mind the Wal-Mart community outreach programs are steered by local associates who grew up in the area and understand its needs.