A Business Intelligence, Data Services and Data Analytics company with strong SQL database development and IT expertise

 

Humans Just Like US! A Business Intelligence, Data Services and Data Analytics company with strong SQL database development and IT expertise
 Self-Deception & Confirmation Bias Lead To Questionable Decisions  Self-Deception & Confirmation Bias Lead To Questionable Decisions Fred was a self-made man; he was founder, owner, CEO and no other man on earth could top his thinking (or guessing) process. No one knew the business better than Fred; and if someone tried, they found themselves receiving a reminder of who the boss was and who signed the paychecks. The kind of guy that throws a joke on the table just to make sure no one smiles – a seriousness test of sorts, keeping everyone at attention. The boardroom was silent – yet there were 12 people in there; including the two of us and a secretary that was clearly concerned about picking up her daughter from school – given the blizzard and all – grabbing us some coffee on her way out. The mood was somber….the losses were substantial. Making the long story short, the manufacturing manager hit his productivity goals – he had avoided the backorder situation from previous quarters and his cost-per-piece had dropped. The man utilized his capacity well….nice bonus. The purchasing manager also averted the disasters of the past and manufacturing had nothing but the best to say about the supply chain – bonus for him too. Engineering had made progress toward completion of the three new products that were to save the company – bonus for that man too. And, sales, watch out for sales, they were cranking….selling the new product that engineering had not yet finished – orders were up – bonus to him too! Fred was not an idiot – he was a competent manager and as smart as a human can get – but he was known for his “DECISIONS”…spur of the moment directives and decisions made in anger – Fred believed a man should decide quickly – use your gut, he used to say, your brain makes excuses – your gut never lies….. well, Fred, not always and certainly not this time. How do you tell a client that HE may partially be the cause of the problem? How do you convince him that his “gut” was good enough when the business was tiny but now, with tens of millions in revenues at stake, his own “gut” – the very “gut that built this business son” – was wrong and was causing him to pay bonuses when HE was losing money? As it works out, Fred’s great success came when he pushed his startup company into developing new technology – therefor, focusing on new technology was the way toward success – in Fred’s world. He also enjoyed the fast paced approach – the “fly by the seat of your pants approach” which works for small entrepreneurial companies because the business is still small and it’s complexities can fit in a relatively smart brain without the need of reporting structures and organizational objectives being at play or even stated. Fred’s very success became his impediment when the company grew to the next level. Fred followed a lose MBO system for determining staff manager bonuses. But, there was no cohesion. During MBO setup meetings, Fred would come up with a list of whatever bothered his “new technology” ideas and eliminate it via MBO. Some examples : The last flight to careen, slip and slide on the runway at the Sioux Falls airport – with a blizzard on our tail – was ours…. we were headed to a meeting that “had to be held that evening” because the CEO was upset….. his entire management team had just walked away with large MBO bonuses and huge fanfare in recognitions but the company was losing money – the owner and CEO was seeing red and he was not happy the CFO had paid up the bonuses.

 

When Fred found out manufacturing failed to meet their cost-per-piece objectives because of lack of parts, he incented Purchasing to never have this happen again – failing to also demand limits on parts inventories. Now, Fred was carrying 5 months worth of parts – none of which were rare, end of life or critical purchases. Fred issued an incentive to sales for orders on the new product line – he wanted to make a large production run from the get-go; the more orders, the more confident AND the more pressure he could put on the engineers to get the product finished. Salespeople focused on earning Fred’s incentive and making the boss happy, got orders for the new technology. The new technology was replacing most of Fred’s current technology but it was not yet ready to deliver. Purchasing did as directed and bought lots of parts to ensure availability for manufacturing – manufacturing produced lots of current products and the parts pipeline is full and ready as Fred wanted. The additional purchasing resulted in parts cost reduction for which both the Purchasing and the Manufacturing managers were recognized as great contributors. The sales people got paid …. But, what of Fred’s business? Fred is sitting on 2 months-worth of finished goods, 5 months-months worth of parts and practically NO ORDERS for any of it. He has plenty of orders for the new technology that is not delivering yet, his cash is stuck in non-sellable inventory and has to stop manufacturing and face lay offs…..even worse if engineering does not finish the product….for progress toward its completion they too got paid. It can happen to any of us – because we’re all full of it – we were able to help Fred out of his dilemma and he sold to a larger company a few years back – if you want to know how we did it, click here to send us an e-mail with your question and we'll send you a summary of how we helped.
A Business Intelligence, Data Services and Data Analytics company with strong SQL database development and IT expertise

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