Vol. 9, No. 11

November 2007

PQ Systems

Pick the right chart in three easy steps

Quality Quiz: With a video!

Data in everyday life

Six Sigma

Bytes and pieces

FYI: Current releases


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Six Sigma and more:
David Schwinn ponders ‘The Smartest Guys in the Room’ and the ways in which a culture works

As the closing credits rolled, I found myself speechless. One of my students had just shown us the film, ENRON: The Smartest Guys in the Room. The issues it raised covered many levels including goal setting, psychology, incentives, accounting, finance, business law, culture, and, of course, ethics. I highly recommend taking a look at it. Although the story is amazingly complex, I want to cover just one part of one issue in this column, the issue of one aspect of culture.

The culture at Enron encouraged “big ideas.” Everything that was done seemed to encourage and support those big ideas. First, accounting practices were changed to reward those big ideas. Then, as actual revenues fell short of booked revenues, new big ideas created even more hopeful and sometimes actual but ethically suspicious revenues. As losses began to emerge, new big ideas were hatched to hide them. All the while, top management was optimistic, and told the doubters that these ideas were simply too big for others to understand. In some cases, upper management even took steps to silence those doubters. As we all know, Enron eventually went down taking, not the upper management, but the thousands of stockholders and employees who had counted on Enron for their savings, retirements, pensions, and jobs. After it was all over, people were asked how they had been so fooled. They responded that the upper management of Enron was a “seemingly legitimate source” of information about the company. They had trusted the very people who had lied to them about the state of the company.

The story may have made me so speechless because I remembered being caught up in a similar culture many years ago. The dishonesty may have not been so large and the damage done was probably miniscule compared to that done by Enron, but the ease by which I was co-opted is frightening.

At the company where I worked, it was common knowledge that if you didn’t get promoted or make a developmental move every two years, your career was over. You would probably be stuck where you were for the rest of your career. The best way to get promoted was to acquire more assets and people under your control. We were also told that, “It’s just a game.” Obviously, the culture was much more complex than this, but just these elements of it led to the story that came to mind as I watched the Enron DVD.

I worked in a plant that had been overbuilt. It was very much larger than it needed to be, given what it produced. We were, among other things, attempting to bring in more productive equipment to fill it up. One afternoon, our boss mentioned that the company president had expressed discouragement that a proposal recently submitted by another division had just been rejected by the company’s financial committee. Our boss saw an opportunity for us to submit a similar proposal and get it through the committee. We would have to propose that we could make the newly designed parts on equipment we currently had, propose a new technology to make our current parts, and buy enough new equipment to fill our plant up. In those days, we would typically take months or, at least weeks, of investigation and feasibility studies to develop a proposal of that magnitude.

Two of us were asked to pull together the proposal overnight with virtually no knowledge of the newly designed parts or the proposed new technology. We started with the return on investment required by the financial committee and backed into the rest of the numbers based on a combination of limited knowledge, some estimates, many guesses, and a lot of hope. The next day, our boss, armed with the story about our president’s discouragement and our proposal, got our proposal approved. We began to buy equipment. We filled the plant. We even won the national engineering society’s annual award for our innovative new technology. I moved on as I was still on the fast track. So far as I know, none of the operations worked as they were proposed. I expect that the new management team found other work to put into that brand new equipment, but I never got around to asking. In the long run, probably no major harm was done, but what strikes me is how easy it is to accept the culture of the organization in which you work, whether it’s “big ideas” or “It’s just a game.”

An organization’s culture is, first of all, frequently not what’s written on the walls. It can be well intentioned, designed for personal survival, or just based on tradition or a world that no longer exists. It can be useful or dysfunctional. It can serve some of the stakeholders, most or all of the stakeholders, or none of the stakeholders. It is always real but frequently not apparent.

As we discussed the Enron DVD in class and asked what we would do as employees and managers in that situation, one of the students said she would just walk away. As I tried to put myself in the place of an Enron employee or manager, I could have imagined being happy in a company that seemed to be growing. I would have been reluctant to leave a company where I was well compensated and the future seemed bright, especially when compared to the likely opportunities for equal or better employment elsewhere. If some things didn’t seem quite right, but my management team explained that the questionable practices were OK and just too complex for most of us to understand, I might have accepted that. For me, walking away would have taken exceptional courage and a very high level of self esteem. Blowing the whistle, which a few of the employees did, would take even more of those qualities. We tend to attribute a high level of intelligence, competence, and integrity to our traditional leaders. They don’t always deserve it.

Your Six Sigma effort is embedded in a larger but probably subtle culture. Examine it. Understand it. You are NOT unable to understand anything your leadership advocates or acts on. Determine that it is in your best interest and that it is in the best interests of the other stakeholders. If it is not, you and your organization are likely to pay a price in the future. The Enron story shows us how easy it is to go along until it all falls apart. As always, I welcome your comments and questions. I’m at support@pqsystems.com.


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