MDM has syndicated MIT senior lecturer Jonathan Byrnes' blog focused on profitability management. Byrnes has worked with several businesses across industries, including distribution. MDM published a two-part interview with Byrnes in October 2010. He shares best practices based on his experience here.
Did you hear about the railroad operations manager who stayed up all night in a snowstorm helping right a derailed boxcar so the train could get through on time?
If you were running the railroad, what would you do –
- recognize him in a major company-wide event;
- reward him with a promotion; or,
- reprimand him and put him on disciplinary watch?
To most managers, 1 and 2 seem so obvious that it appears to be a silly question. But is it really?
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I recall working with the top management team of a major U.S. railroad a few years ago. The company was emerging from a difficult period characterized by chronic service problems. In this context, the operations managers like the one described above were treated as heroes. They embodied the values prized by the organization – tough, persistent and effective. These were the managers that were celebrated and promoted.
But when I probed the situation more deeply with the top managers, it became clear that the real underlying problem was that the operations heroes had not done a good job of day-to-day maintenance and all the other mundane tasks that would have prevented the crisis. By celebrating the heroic response, the company’s top management team was in essence telling the organization that it was OK to skimp on the quiet, unobserved day-to-day work, as long as they responded forcefully to the problems that inevitably resulted.
They were communicating that crisis response is more important than crisis prevention.
I saw the same thing in telecom several years ago. When a line was out, a trouble report quickly went up the management hierarchy. If not fixed in a matter of hours, the report landed on a vice president’s desk. Just like the railroad. In this context, the manager who braved the elements to fix the line was a hero, even though the real issue most often was a lack of effective preventative maintenance.
The Real Problem
Both the railroad and the telecom company subsequently installed new operations management teams that instituted operations reorganizations. These new top managers understood the importance of crisis prevention, and developed a new focus on appropriate actions and metrics.
It was very difficult for these top managers to change their respective companies’ culture. One of the biggest problems was that the middle and upper-middle managers who were in place had been promoted for crisis management. They were not skilled in crisis prevention, and importantly, their personalities were more suited for the action-oriented crisis response than for the more systematic and analytical process of crisis prevention.
In both cases it took years to turn around the operations through a combination of steady knowledge development, comprehensive training, and slow change-out of the prior management team.
To the credit of both companies, the top operations managers of both companies were persistent, effective and ultimately very successful.
The Sales Hero
A similar problem arises in sales and account management. When a major customer has a problem, the fire bell rings, and everyone rushes to respond. The sales manager who saves the account relationship is celebrated as a hero, often slated for promotion. By contrast, the sales reps who are skilled at maintaining and slowly growing major accounts often remain in the shadows.
In the most effective companies, however, top sales leaders understand the process of quiet, steady account development. This involves mapping the customer’s buying center, understanding how to increase the customer’s profitability, and seamlessly involving operations managers with their customer counterparts to reduce the costs for both customer and supplier. This is a long, steady process, but it creates customer relationships with high sustainable profitability and growth.
It also leads to the question: who is the real sales hero? And to this question: are these operations managers – the ones who quietly drive major sales increases and cost reductions – the real operations heroes?
Profitability Heroes
I was reminded of these questions a few weeks ago when I spoke to a joint MIT – Harvard alumni event in Jacksonville. The subject of my talk was “How to Lead a Profitability Turnaround,” and I was asked a question on how to be an effective transformational leader.
When I thought about it, it seemed that most of the images of a turnaround leader conjured up a “man (or woman) on horseback” like Teddy Roosevelt leading his rough riders in the charge up San Juan Hill. The action-oriented crisis manager – celebrated for his success. Like the operations hero.
In my experience, most of these “heroes” are skillfully (or not so skillfully) managing a crisis that was avoidable. In most cases, their companies were suffering through a very painful transition period that really should not have occurred.
The real profitability heroes are the managers who have the wisdom and insight to develop systematic information, processes, and behavioral drivers that enable their managers to coordinate with each other to achieve more and more profitability. With this in place, their management teams naturally form effective coordinative processes and a culture of profitability.
Effective transformational leadership is not at all like leading the charge up San Juan Hill. It is much more like deciding to get healthy by eating better and getting regular exercise. Not dramatic, not romantic, not exciting – just very, very effective.
Top Management Choice
One of the truisms of management is that – as in teaching – you get what you expect. If you celebrate the mythical operations heroes, sales heroes, and profitability turnaround heroes, you will get mediocre performance punctuated by occasional flashy displays.
But if you have the foresight to systematically create the conditions that enable your managers to inexorably increase performance and prevent crises, you will get consistent excellence that exceeds even your most optimistic hopes.
Jonathan Byrnes is a senior lecturer at MIT and author of the recent book, Islands of Profit in a Sea of Red Ink. He is president of Jonathan Byrnes & Co., a consulting company with which he has advised over 50 major companies, medical institutions and industry associations. Contact him at jlbyrnes@mit.edu.
