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The
Mystery of Performance —
The
Secrets of Contribution
ICI Films had just finished an incredible performance
improvement effort. Throughput increased by fifty percent in two years,
profit went from a loss of $16 million to a profit of $73 million, and
safety improved to best-in-class levels.
Then came the bad news. A new competitor had emerged in Japan. They
produced finished polyester film at a price that was lower than ICI's
costs.
The CEO
of ICI Films, Jim Alles, gathered his people in a boot camp. His own
management team had produced the data that showed that their company
would not be profitable unless they could reduce the total costs to
$1.00 per pound.
I remember those days, and nights, of the boot camp as if it
were yesterday. Grizzled veterans taught young bushy-tailed "newbies"
what a lifetime in the plant had taught them. The newbies listened, for
their jobs were at stake. The veterans shared their knowledge, for
their reputations were at stake.
I was listening in with half a mind. The other half was
thinking about the debate that raged among economists at that time. The
debate was about human capital. It had defied measurement, although it
was clearly the most important asset of any company. Now I witnessed
the power of this asset, and its transfer from old to young. From
accumulated experience to embryonic understanding.
The presentations of the work groups to the CEO demonstrated
what was needed, what must be done by what date, and what the results
would be. Jim Alles asked all the hard questions, and then he signed
off on the plan. He announced that he would be present at all the
milestone dates to witness the progress in person.
In a burst of energy, creativity and pride they drove the
cost down to 94¢ per pound, and ensured that ICI Films ended up with its
most profitable year ever.
We have worked with human capital ever since 1972, when we
unraveled what caused people to be productive, and what made them not.
To us, each human being is an extraordinary asset. Yet, inexplicably,
its presence also could be a liability. Like a very costly piece of
equipment, the human being needs to be updated and maintained, or else
it will depreciate and become outdated. The key to success in the
emerging knowledge economy is the ability to learn, acquired at an early
age and in a nuturing and supportive environment. In conversation with
Dr. Art Rolnick of the Federal Reserve Bank of Minneapolis, I was told
that his data indicated a payoff ratio of 17:1 for preschool education
that challenged and shaped, in a kind and supportive manner, children
from 3 to 5 years of age. Training and education, when it is done right,
is an investment in human capital.
At ICI Films, Jim Alles and his management team let the workers
themselves determine what training and education they needed. They
expanded the number of annual training days from 3 to 14. They
formed self-governing teams throughout the company. They let
people on the floor have access to the company jet to help solve
customer emergencies, and they created their own High Performance Team
to become a consulting group offering their newly won expertise to other
divisions within the ICI empire. |
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The economist's conundrum is that understanding
the concept of human capital does not reveal precisely how
this capital can, and should, be increased.
That understanding must come from the insight
from other disciplines: Psychology, anthropology,
sociology, statistics, mathematics, the engineering
sciences, social work, medicine, health care, theology (!)
and more. But the absolutely most crucial factors are the
people themselves — their intuition, their creativity and
experience, and their superior knowledge of their business.
There is one thing high performance, at its
peak, always shares with real experience. In our
jargon, all high performance domains "are wrapped around the
satisfaction axis." That axis is a continuum from high
satisfaction to high dissatisfaction. High performance is
linked to high satisfaction, and low performance is linked
to dissatisfaction. Those who know how to create high
performance domains can increase performance by as much as
twenty times over the current level — any time, any place.
So human capital at work is rooted in emotion.
We see it in a mother's love for her child, and in the
extraordinary sacrifices she will make for the wellbeing of
that child. We see it in the army of volunteers who drove
down to New Orleans in busses from all fifty states to help
after Katrina. We saw it at ICI Films when workers and
management joined hands and did what needed to be done to
save the company.
Human capital is cognitive: It depends on
someone, or a group, knowing precisely what needs to be
done.
But human capital is also affective, and very
different from physical capital. Human capital is activated
by emotion, by challenge, by human fellowship, by community,
by joy.
To see what everyone has seen — and then to
think what no one else has thought — is the core of
innovation. That is as true for companies as it is for
countries, and for individuals. The economic inequality we
see in every society is largely due to inequality in human
capital, formed at an early age, and locked inside the mind
and heart of each one of us.
That human capital rose to full expression in
two plants in Virginia in 1995. Those who experienced it
never forgot it. And those who were privileged to observe
it, as Jim Alles and I were, think of it every time we face
seemingly insurmountable odds.
In the face of those odds, ordinary people rose to the
challenge and did extraordinary things.
And then odds don't matter much. After all, odds are
calculated from past experience.
And the heroes of ICI Films looked to the future.
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