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Archive for May, 2008

Broken Windows

May 22nd, 2008

Jim Press, a senior executive at Ford Motor Company, laughed when he heard Henry Ford II announce that Ford would “push the Japanese back into the ocean” with their new vehicle, the Pinto. Realizing the writing was on the wall, Press left Ford in 1970 to join Toyota and went on to become its North American President. By 1971 Toyota had sold more than 300,000 Corollas in the US which was considered “nothing” compared to the big guys and the company was considered to be a mere fly in the ointment (but one to keep an eye on) by the big US car makers.

They held this view despite the owners of Corollas considering the vehicle to have far superior quality and value than anything the US was producing at the time with vehicles in that class (its price was under $2,000). By 2008 Toyota had grown to be the biggest car maker in the world. It is also the most consistently profitable, never having made a loss since 1950 while the others have had a bottom line that traces the path of a roller coaster.

Toyota’s success is generally accepted as being due to its never-ending pursuit of excellence in everything it does. The Toyota Production System (TPS) is the world’s leading “lean manufacturing” system and while other companies have tried to emulate it, few have succeeded.

If you’d like to learn more about Toyota’s success I strongly recommend David Magee’s book How Toyota Became #1: Leadership Lessons from The World’s Greatest Car Company. I’d also recommend Jeffrey Liker’s book The Toyota Way if you have clients in manufacturing and would like to talk to them about the essence of lean manufacturing. I’d also recommend Liker’s book for your own business.

This is all interesting stuff but the big point I want to make is that Toyota’s success is attributed to 4 things:

1. Its total focus on delivering quality to its customers and giving them what they want through a process of continuous consultation and continuous improvement (kaizen). The underlying philosophy of its business model is the customer comes first, employee satisfaction and happiness is paramount and stable corporate management.

2. Its willingness to take a long term perspective on everything it does. It takes quite a long time to figure out what it’s going to do but once it knows that, it executes very quickly and effectively.

3. Its realization that time to market, waste minimization and customer retention drive improved quality and lower cost. At Toyota, management concentrates attention and resources on getting these things right (“it pursues perfection relentlessly” according to Magee) which then drives earnings and shareholder value growth.

4. It gives total attention to detail and makes sure that the “little things” in every facet of its business get done extremely well.

And point 4 brings me to broken windows.

I have just finished reading a fascinating book by Michael Levine called Broken Windows, Broken Business: How the Smallest Remedies Reap the Biggest Rewards.

The broken window theory was first posited by James Wilson and George Kelling in 1982 in an article published in the Atlantic Monthly. They suggested that something as small as a broken window in a community signals a lack of care and attention by the owner. This in turn suggests that more serious infractions such as graffiti, theft and violent crime might also be condoned.

Wilson & Keeling (together with police departments around the world) suggest that if a broken window is left it will not be long before all the other windows are broken. This hypothesis is supported every time you see an abandoned motor vehicle on the side of the road—if it’s left for a few days it’s not very long before everything is stripped off.

When Rudy Giuliani became mayor of New York City in 1994 he and his new police commissioner, William Bratton, decided that they would attack serious crime in the city by eliminating graffiti on the subways and moving the hookers and pimps out of Times Square to make Manhattan more family friendly.

Giuliani and Bratton were laughed at by critics but their actions sent a clear message to criminals and citizens generally that a “zero tolerance” policy would apply to ALL crime in the city. Over the next few years there was a dramatic reduction in the number of murders, assaults, robberies and other violent crimes. Social psychologists argue that by giving attention to what might be regarded as the little things, serious lawbreakers are being sent a message that much harsher penalties will apply to more serious crimes. Furthermore, the law-abiding community also gets the message that someone is in charge and the improvement in the social climate invites community pride which in turn encourages even more community improvement.

Levine addresses the relevance of the broken windows theory to business in a fascinating manner. Every business has some broken windows and customers notice. As a result, opportunities are lost without anyone ever really knowing why or what they could have done about it. The book is about how broken windows happen, why they are ignored and the consequences when they are allowed to go on unchecked.

Way before Giuliani became mayor and Levine wrote his book, Paddi Lund, an Australian dentist, understood the broken window concept and its relevance to business.

Paddi understood better than anyone (it seems) that people could not make a judgment about how good his dental work was because they were unqualified to do so. If his patients (or prospective patients) could not make this judgment then it would be very difficult for him to differentiate his service from other dentists. This would make it difficult for him to market his business even if he was allowed to by his professional body—which he wasn’t. And even more important to Paddi was the desire to create a business that he and his team enjoyed being a part of—a happiness centered business—if you will.

So Paddi came up with some of the most amazing strategies you could imagine built around giving attention to the little things—he refers to them as Critical Non Essentials—that change customers’ perceptions of him and his business. Things that turn them (and his team members) into raving fans who have enabled him to create a phenomenally profitable dental practice and an equally successful publishing business.

Paddi Lund was a keynote speaker at our Practice 2020 Annual Conference in Brisbane, Australia. He talked about the systems he’s developed and implemented for marketing, customer service and building a harmonious organization. If you’re looking for a way to differentiate your own firm whether you make cars or fill teeth, or you would like to be able to help your business clients look for a different way to get a competitive advantage, you should read his books. With uncertain economic times ahead it’s going to be even more important for businesses to find ways to get ahead of the pack and Paddi holds a key to that.

In a recent interview recorded on one of Australia’s leading radio networks Paddi talks about some of his ideas. Click here to listen.

One person’s wishlist when looking for an Accountant

May 18th, 2008

A friend of mine gave me a copy of a “wish list” he created when he was looking for an accountant to do his work. I thought you might be interested in what he regarded as being important. You could even take it further and ask yourself how you and your firm stacks up. Here is his list:

Simplicity – systems and advice to keep our accounting processes and a hand-over easy.

Truth – if you don’t know the answer, say so. If you make a mistake, say so and let’s move on.

Expectations – accurate estimates of fees and time to complete before the work starts, no more than 10% out when it is finally billed.

Proactive – look over my shoulder and tell me when you think what I’m doing could be improved, share your knowledge and experience with me.

Aggressive – but don’t over-complicate and not at the risk of an audit by the taxation authorities.

Stability and accessibility – a consistent Key Contact person to deal with so there’s no chopping and changing contacts and having to re-explain structures, goals and setup each time. If you do want to change your team members around please introduce me to my new “contact person.”

Fees – reasonable and transparent, don’t make me pay for your mistakes or lack of experience.

Cashflow – ability to balance payments over the year (happy to do that in advance).

Management – if work can be done by a member of your staff that’s fine, but don’t abandon me completely.

Timing & Contact – two main contacts a year initiated by you: tax planning during the last 2–3 months of the financial year and a review meeting within 2 months of you receiving my books.

In response, his new accountant (who incidentally committed to all of his documented expectations) gave him a list of characteristics that reflected what he was looking for in a client:

Trust – I need to be trusted to be able to a proper job.

Openness – In working with any client it is frustrating, and prevents me doing all I can, if you do not give me all the information I need. Because of the nature of my job this requires that you be totally open about your affairs, otherwise I may give inappropriate advice.

Feedback – I would much prefer clients to be totally honest about how they feel about my firm’s performance – feedback (good or bad) is how we’re going to improve.

Defined Expectations – I prefer to know what you expect from me. Do you just want tax returns and no advice, or are you looking for more than that.

Response to queries – Obviously a timely response to requests for information from clients assists me greatly and enables me to provide you with a much better and faster service.

Time frame for work – I need clients to understand that we are all busy and work can’t always be done instantly – I expect my clients to be reasonable in terms of times frames for work my firm does for them.

I would be interested to hear what you think your clients are looking for in the relationship they have with you and, importantly, what characteristics you consider to be important for defining a good client.