15. Building a Culture of Flexibility

Much of this book deals with supply chain designs for increasing security and resilience. Some organizations respond to disruption better than others not because their supply chain designs are fundamentally different, but because there is something “in their DNA” that is conducive to fast response. Both Ericsson and Nokia received the same warning from Philips on March 17, 2000—yet one acted swiftly and the other did not. Following the 1999 Taiwan earthquake, Dell quickly adjusted its offering to balance supply and demand and continued its growth despite the parts shortage. And Toyota and its suppliers sprung immediately into action following the fire in Aisin’s P-valve factory, demonstrating extraordinary flexibility in reconfiguring production lines, thus minimizing the disruption to Toyota.

What makes some organizations so flexible? What makes them contain disruptions quickly and bounce back from disruptions before they become catastrophes and possibly drive the organization out of business? Some of the answers lie in superior supply chain designs. But MIT interviews with dozens of companies, along with prior research, point to another element common to most resilient companies—culture.1

Culture is elusive, difficult to define, and even more difficult to change and manage. What is an organizational culture? How is it created and sustained? How is it articulated? What role does it play in the business?

The culture of an organization can be defined as the pattern of beliefs and expectations shared by the organization’s members; these beliefs and expectations produce norms that shape the behavior of individuals and groups.2 In a sense, culture is “the way we do things around here.” The tangible elements of culture are the artifacts and the espoused values that one can find in any organization. The artifacts are the visible organizational structures and processes such as language, dress code, rituals, office layout, and the way that meetings are conducted. The espoused values include strategies, goals, philosophies, credos, and mission statements.3

Company culture can play a defining role in the firm’s competitive advantage. 3M has a strong culture of innovation, leading to highly successful products such as Post-it Notes, Scotchgard fabric protector, and cellophane tapes, as well as hundreds of other innovations. To encourage innovation, 3M allows its engineers to spend 15 percent of their time on projects of their own choosing.4

The immense pride engendered at the U.S. Marine Corps feeds its warrior culture, which is a crucial element in one of the world’s most effective fighting forces. Its members believe they are superior as a result of their selection and training, and can perform tasks that other forces cannot. Its basic task is to be “the most ready when the nation is least ready” and consequently it is always in training.

Toyota’s respect for people is the most important tenet of the “Toyota Way.” Cars have to be reliable (since this is what the customers want) and Toyota respects that, creating fierce customer loyalty; respect for suppliers leads to true partnerships, encouraging suppliers to share their innovations with Toyota and to stand by them when needed; and respect for employees means that they are empowered to take unilateral actions, suggest improvements, and support each other rather than act as interchangeable automatons.5

The essence of resilience is the containment of disruption and recovery from it. Culture contributes to resilience by endowing employees with a set of principles regarding the proper response when the unexpected does occur, and when the formal organization’s policy does not cover the situation at hand or is too slow to react. It suggests the course of action to take.

The elements of culture that contribute to resilience and flexibility can be found in widely diverse organizations.

Dell

Dell6 epitomizes the fast-moving culture of a high-tech company. Founded as recently as 1984, with its much-admired founder still in control twenty-one years later, the company pioneered highthroughput, low-inventory manufacturing with its direct sales, build-to-order PC manufacturing. The speed of its operations is evident in Dell’s cash-to-cash cycle of negative 37 days; in 2004 Dell got paid by customers more than a month before it had to pay its suppliers.

Dell’s competitive advantage is based, in part, on its ability to adjust quickly to changing conditions, including part availability, new product and component introduction/phase-out, product line mix, volume fluctuation, market demands and trends, and delivery requirements. This flexibility-oriented culture is based on four tenets:

(i) obsession with results,

(ii) teamwork and communications,

(iii) value of personal relationships, and

(iv) leadership at all levels.

Obsession with Results

The first tenet of the Dell culture is the obsession with execution. “Dellocity” is the company’s term for its fast-paced operations and working environment. Dell employees spend most of their time working on projects that will produce immediate results. One company senior manager summed it up when he said that “about 80 percent of employees work on a time horizon of oneto-two weeks, and the maximum time horizon for most employees is twelve weeks.” Officially, Dell requires ROI of twelve months or less on any project. Dell employees do not over-analyze and the company prefers experimentation to lengthy study. A Dell executive described it as a “see the hill—take the hill” mentality.

The short-term mentality and the fast pace are created, in part, by setting “stretch” goals. It is common practice for a goal to be set and accepted, even when the individual or team responsible for it is not exactly sure how it will meet the goal. Once they agree to goals, teams get great latitude to figure out how to accomplish them.

Fueling this focus on execution and fast problem solving is an emphasis on personal accountability. Dell runs a strong meritocracy based on ranking individual performance, not team performance. Top performers can expect generous rewards, a policy that has created an estimated 3,500 “Dellionaires” as of 2004. Dell pressures the 5 to 10 percent that receive the lowest rating to change jobs inside Dell or leave. Although teams are essential to the coordination-intensive tasks inside Dell, teams are not rated by any formal process; they are simply understood as necessary to get things done.

Teamwork and Communications

The second tenet of Dell’s culture is teamwork and communications. The process of creating and disbanding teams at Dell is fluid and ongoing—much more so than at other companies. At any one point, managers can be part of three to five teams working on diverse issues. In the space of a few years, a person might shift multiple times from production to marketing, from PCs to printers, or from consumer to government sales. As people change positions they shift teams, causing managers to “own” their resources for only a short time. This way, employees learn all aspects of Dell’s business, tend to share resources with those who need them most, and develop broad social networks with others in the company in a relatively short period.

Like other organizations, the company also runs formal crosstraining programs where certain higher-level employees learn all of the different parts of the production process. They spend part of their time on the production line and part of their time working on special issues.

Frequent, widely attended meetings are required to keep everyone up to date. These meetings follow many rules to help them run smoothly. While the meetings take time, they are crucial in such a fast and open environment to get everybody coordinated. For example, one of the ironclad rules is that no new information can be brought into a meeting; all information has to be distributed at least an hour beforehand. This avoids knee-jerk, nondatabased decisions and unfocused meetings. While meetings are a fact of life in most organizations, Dell’s high frequency and effective management of meetings set the company apart.

To support this environment, Dell sends out a production report hourly to hundreds of operations people. This report, sent via pagers or e-mail, creates a fast “cadence” of organizational activity.

Informal Networks Based on Personal Relationships

While Dell has a formal escalation process for dealing with manufacturing problems, these processes are rarely followed because the informal networks are quicker. Bypassing a supervisor and going directly to the person who can solve a problem is an accepted practice because it gets results. The use of such personal networks is the third tenet of Dell’s culture.

To encourage the development of the informal networks, Dell maintains an open-door policy, meaning that anyone can schedule a one-on-one meeting with anyone else in the organization, regardless of title and position.

The fast process of making up and disbanding teams also ensures that information flows freely and is not horded. Any teammate may be tomorrow’s team leader. In addition, the fast movement of people throughout the organization ensures that no “fiefdoms” develop, as any employee is likely to find himself on the “other side” at any point.

Leadership at All Levels

Dell empowers workers to lead efforts, no matter what position they hold in the organization. One practical manifestation of this belief is seen in the design of Dell’s Six Sigma program7 (called BPI, or Business Process Improvement). Instead of emphasizing high-level (“black belt”) training of executives and highly skilled employees—like GE’s original version of Six Sigma—Dell’s program puts more emphasis on training and engaging a larger number of lower-level employees. Thus, it trained thousands of employees in the basic program (“yellow belts” and “green belts”). “Leadership at all levels” means that all team members are expected to be innovative and enterprising in solving problems. This egalitarian culture is supported by visible artifacts (which is not unique to Dell but fits its culture well): Almost everyone at Dell has cubicles, and walls are kept to a minimum. Directors and VPs have larger cubicles, but they are located with everyone else in the functions they manage. This use of space sends signals of both equality and access to the organization.

These four tenets mean that employees are empowered and expected to solve problems continuously. Through the personal networks and the wide knowledge of the organization, they can call on resources throughout the company and tap expertise quickly without “going through channels.” At the same time, continuous stretch goals and the emphasis on short-term performance, coupled with the ever-changing environment of hightechnology manufacturing, mean that Dell employees are accustomed to a hectic and constantly changing environment. In such an environment they have to make decisions on the spot without much case-specific guidance, based only on the cultural underpinning of the organization. Such traits, naturally, serve the organization well when disruptions strike.

The “usual” disruptions and challenges at Dell condition the organization for flexibility. When Steve Herrington, a second-shift production control manager, arrived at work one day in October 2003, he was told that the factory had to build and ship 9,000 PCs that day (the usual run was 4,500 and the maximum capacity was only 8,000). As the second shift started, less than 50 percent of the commitment had been met, with 5,600 machines to go.

In a quick meeting, the team decided to reconfigure the printer production lines to make PCs instead, and to modify the shipping lanes for the added volume that night. The production control manager called on people to create a team that he knew could help, even if those people weren’t officially responsible for the problem. After only an hour into the second shift, Dell’s printer line was making PCs, and trucks were loading and driving out of the reorganized loading dock. After a long night of managing and monitoring the situation every 15 minutes, the factory more than met the goal, building 9,100 PCs. “We achieved this goal by challenging our assumptions, working together as a team, and being flexible as individuals,” said Steve Herrington.

The changes required to meet the goal, including trading off printer manufacturing against PC manufacturing, were made at the local level without consultation with top management and with single-minded resolve to meet the goal.

United Parcel Service

UPS moves packages “pony express style,” riding on a series of trucks, airplanes, and rail cars. Each package moves from a collection point to a local package center, and then through a series of break-bulk-and-consolidation hubs across the country, to the destination package center, and finally to the delivery truck and the destination. Once handed over to a driver, or dropped at a UPS collection facility, a long-haul package is likely to be unloaded, sorted, and loaded four times at various terminals. It is likely to be hauled by up to eight drivers on the individual segments that make up its journey.

To offer the high service demanded by its customers at a low cost, these handoffs have to be highly coordinated with regimented procedures. But delivery processes are subject to bad weather conditions, missed schedules, personnel problems, and mechanical troubles. And any disruption or delay typically percolates throughout the UPS network, creating downstream scheduling disturbances and displaced volumes of activity.

At the same time that UPS insists on a set of tight procedures, it also empowers its local managers to solve local problems in novel ways. In fact, industrial engineers work every morning in every region of the company to adjust the day’s operations to whatever disruptions are in the making—downed equipment, driver problems, road construction, weather delays, anything that means the daily assignments of the delivery center may have to change. Some of these changes are substantial and require replanning of package sorting patterns and delivery routes as some centers have to take the work load of others.

Delivery drivers follow the “340 Methods” in the process of delivering packages. The methods cover everything from a 57point pre-trip checklist, to strategies for thinking ahead in traffic, and to highly choreographed movements while delivering packages. Once trained, however, delivery drivers get very little supervision. They are supposed to solve problems such as late starts, congestion, flat tires, and adverse weather as they encounter them. This approach is not limited to the front lines; even with management “by the book,” managers are expected to improvise. The UPS Management Policy Book details 89 policies regarding the UPS’s people, customers, shareholders, and communities. Yet managers are expected to solve problems whether there is a procedure for it or not; the company expects managers not to use the policy as a crutch in explaining their actions.

For the most part, UPS recruits full-time employees from its pool of part-time workers, allowing it to conduct, in essence, a long on-the-job interview. This screening, on top of the requirements to get into the part-time positions, allows UPS to hire service-oriented employees. Managers are typically promoted from within. “Once you understand the package cycle, you understand how to deal with any of the instances,” said Dan Silvernale, a UPS manager. All UPS employees understand the process.

The company communicates constantly with its employees. A publication called The Big Idea informs employees about UPS national and district news. The management committee meets every Monday with representatives of all departments to assess the state of the company; the meeting’s minutes are disseminated to all UPS managers. The results of the company’s annual strategy meetings are disseminated to all districts. A short morning meeting is held daily in each hub and package delivery center. In addition, UPS is the biggest user of cellular communications in the world; more than a million messages a day help the company stay synchronized.

Such intensive communications mean that when a disruption takes place, drivers, terminal operators, and local managers are all aware of what are the important issues of the day, what is happening around the company that week, and what is the current state of the system as a whole. With this knowledge, and with the ingrained culture that gives them the general guide, employees can take fast actions in response to disruptions without specific instructions.

Since disruptions are daily occurrences at UPS, it uses a likelihood/severity framework to manage the responses.8 As shown in figure 15.1, high-frequency disruptions are mitigated mostly through redundant capacity, regardless of their magnitude. Such redundant capacity include fueled planes and crew ready to go on 30 minutes notice, and extra drivers and package cars. Lower probability events are managed through contingency planning. Every belt in every sorting facility has a failure plan: The center workers know how to reroute the packages if any of the belts fail. Similarly, if a center is closed, there are plans for other centers in the region to shoulder its load. Low-frequency/high-impact events require a special crisis management operation that can be set up in short order.

The long history of UPS includes many folklore stories about exceptional customer service and recovery from disruptions. For example, Ray Chezna, a weekend maintenance supervisor, took a call from a panicked customer in Alabama, whose suit for a funeral was in the system and scheduled for delivery too late. Ray was able to locate the suit and expedite it in time for the funeral. His manager did not even know of the event until a grateful letter from the family told the story.

In another case, a UPS public relations employee got a call informing him that a crucial part needed for the NASA mission to fix the Hubble telescope was mistakenly shipped via ground service and would delay the launch. The employee tracked the part down to a train, contacted the railroad to intercept the train, and had local UPS employees identify the right rail car and container. The local employees opened the container, found the small package inside, and air-freighted it to the Kennedy Space Center.

In both of these examples, the people who solved the problems took personal responsibility for seeing the whole operation through. They did not transfer responsibility either when they got the call or anytime through the process of solving the problem, even though they were not dispatchers and such problem-solving was not normally part of their jobs. UPS has numerous cases of service calls like these (many of them seem to be about wedding dresses, according to dispatchers) and the culture is such that the dispatchers try to do their utmost to get the packages delivered. This is possible, in part, because of the extensive information technology infrastructure that supports nonstandard operations (such as expediting a single package out of the daily flood of shipments).

A culture artifact that emphasizes the service orientation, according to Albert Wright, a UPS corporate engineering manager, is UPS’s insistence that “no one goes home until all the packages are delivered.” Such mentality underscores the importance of customer service and fosters cross-functional team orientation.

The main problem-solving mentality at UPS is probably rooted in the decentralized nature of the operations in which managers are expected to “do whatever it takes” to solve the problems they encounter daily. The ultimate manifestation of this is the lone driver who has to deal with daily problems on his or her own.

Aircraft Carrier Operations

Military organizations are designed to expect the unexpected. But whether in wartime or during training operations, few environments are less predictable and less forgiving than an aircraft carrier’s flight deck. A Nimitz-class carrier, the newest in the American fleet, is home to 6,200 sailors. It is propelled by twin nuclear reactors and carries 80 combat aircraft, which it can launch at a rate of up to four aircrafts a minute.

On the deck, the carrier catapults jets laden with fuel and bombs and retrieves these jets on a short, slanted, rocking, and moving runway—day and night, rain or shine. At the same time, the carrier has to coordinate the actions of about ten support vessels in the battle group while possibly engaged in combat, and with radar and radios shut down to conceal the carrier’s location.

During day-to-day operations, the carrier operates along its hierarchical structure of command, with discipline strictly enforced and procedures done “by the book.” But during hectic times, such as during flight operations, the entire organization seems to follow a different mode of operation.9 The command and control structure gives way to collegial cooperation based on extensive communications between experts, rather than on the basis of orders handed down from above.

For example, several teams are involved in bringing a jet in to land on the carrier. These include the command team on the bridge, the air controllers, the arresting wire team, the on-deck emergency teams, the search and rescue team, and the operators—the pilot and the landing signal officer (LSO) who guides the pilot on the final approach. These teams communicate constantly among themselves while the jet is approaching, making sure that the approach is open, the arresting wire is set, the deck is all clear, and emergency teams are standing by. At the same time, the LSO communicates with the pilot regarding the approach, while the flight controller communicates with the pilot from the tower regarding the environment on the deck and in the air.

To the uninitiated, these conversations sound like a lot of unnecessary chatter. Yet listening officers and team personnel know what to expect; the first sign of trouble is a phrase, a tone, or a response not according to expectation. This allows all involved—from the captain to the air wing commander to the team members on the deck—to be aware immediately of a developing dangerous situation. Officers and enlisted men on the deck can take corrective actions without the delay associated with going through channels, explaining the situation, and getting instructions.

The deck environment during flight operations illustrates the value of continuous communications in challenging situations; the “listening network” provides all involved with a context regarding the general situation (planes in the air, mission, and deck status). When a problem starts to develop, the listening network makes sure that all the people who could do something about it are informed not only about the developing problem but also about the status of the environment, and it allows for monitoring corrective actions. Such communications are in addition to the provision of general context. Day in and day out, carrier personnel are kept informed about the ship, its mission, the battle group status, and conditions in the outside world through continuous briefing and debriefing, as well as through daily meetings and announcements throughout the ship.

Critical decisions made during flight operations on the deck are also characterized by “deference to expertise” rather than rank or seniority; team members on the deck defer to experienced petty officers and veteran enlisted men. This environment is reminiscent of Dell’s reliance on personal networks and teamwork to meet stretch goals in a short time.

It may be surprising to some who view the navy as a “Yes Sir/No Sir” environment to realize that even the person with the lowest rating on the deck has not only the authority but the obligation to suspend flight operations immediately, when circumstances demand it, without first clearing it with superiors. Flight operations are the carrier’s reason for being, and stopping it means stopping dead in its tracks the mission of a multibillion-dollar plant and its more than 6,000 highly trained workers. Events on the flight deck, however, unfold too quickly to use the normal chain of command, so individual acts to avert a disruption are encouraged. Most important, the person halting the operations will not be penalized for being wrong and will often be publicly congratulated if the stoppage avoided or prevented a significant problem.10

Other operations also condition the crew for flexibility. To this end, the air wing combat or training assignments are frequently reconfigured in response to actual or simulated change in conditions. Each reconfiguration may involve different ordinance, different departure sequences, and/or different approaches, requiring fast coordinated actions by many teams. Such reconfigurations, performed under pressure, condition the planning and execution team to work closely and fast, preparing the system for response to unfamiliar and stressful situations that may rise as a result of a large-scale disruption.

Common Cultural Traits

On the face of it, the free flow of ideas and activities at Dell, the regimented efficiency of UPS, and the command and control structure of a U.S. Navy carrier may seem to have little in common. Yet all three organizations are flexible and resilient—they respond quickly to disruptions, making sure that small disruptions are not allowed to become large ones. The main cultural traits that lead these organizations to respond quickly and flexibly can be characterized by

(i) continuous communications among informed employees,

(ii) distributed power,

(iii) passion for the work, and

(iv) conditioning for disruption.

Continuous Communications among Informed Employees

Fast and flexible organizations continuously transmit information throughout. Toyota displays continuous production reports in all its plants; Dell updates all its managers hourly on production; UPS keeps the vast reaches of its network in constant cellphone communications; and aircraft carrier deck operations are conducted in view of the air wing commander and through constant communications in several interconnected listening networks. When a disruption occurs, such communications provide employees with the knowledge of the immediate state of the system so they can respond intelligently and immediately.

Very intensive communications also have a negative aspect: People may “tune out” if a high portion of the data is irrelevant, if they do not trust that the senders of the information understands their job, and if they are not empowered to act on it.

The information regarding “how do we do things around here?” is transmitted in formal learning, job descriptions, and standard operating procedures. Since the organizations described here are large, no one person can fathom the complexity of the entire operation. Consequently, people are moved around from job to job in order to build a comprehensive and deep understanding of the entire operation.

Examples include the ever-forming and ever-disbanding project teams at Dell; the constant movement between jobs on an aircraft carrier and between navy ships and shore duties; and UPS’s reshuffling of managers across functions and territories. Southwest Airlines achieves this through their “Walk a Mile” program, in which any employee can do another employee’s job for a day. The operations agents cannot fly the planes, but the pilots can—and do—work as operations agents. Seventy-five percent of Southwest’s 20,000 employees have participated in the job-swapping program.11

High intensity of communication yields benefits only if managers have a deep knowledge of operations, so they “know what they are talking about.” The leaders of the organizations mentioned here are perfect illustrations of such managers. Mike Eskew, UPS’s CEO and chairman, has been with the company since 1972; he started with the company as an engineering trainee. His predecessor, Jim Kelly, started out washing package cars then graduated to driving. Michael Dell founded the company and is still very much involved in daily operations. And the pool of chief petty officers, who basically run any navy ship, rotate in and out of similar ships in the fleet; these officers have long service records in their specialty and are a source of the “navy way” to new recruits and new officers alike.

All the organizations mentioned here have to train new operators continuously and they have developed processes to ensure they hire the right people. In that sense, having to hire a large number of people is not looked upon as a problem but rather as an opportunity to hire the type of individual who is likely to fit with the company and then indoctrinate him or her into the corporate culture.

Between 1984 and 2004, Dell grew from a single entrepreneur in a Texas dorm room to a worldwide manufacturer with 50,000 employees. UPS grew from a bicycle messenger service in Seattle (it was founded in 1907) to the world’s largest package delivery company, then adapted to being a technology company, a supply chain management company, an international operator, and an airline. Each phase required the hiring of thousands of people and acculturating them.

When Toyota expanded to the United States it hired thousands of American workers to turn out cars with quality comparable to their Japanese counterparts. Toyota avoided hiring former American auto industry workers and preferred hiring employees with no previous manufacturing experience, so it could train them in its own processes and culture. Their success demonstrated that it was the processes and culture that make Toyota succeed, not the work of Japanese “automatons.”

The U.S. Navy may represent the most impressive success of hiring and indoctrinating people into an organization. The navy continuously brings new recruits onto its carriers, training them and giving them significant responsibilities at a young age. (The average age of the 9,000 sailors in the Theodore Roosevelt battle group, and the 5,000 marines in its Amphibious Ready Group, is 22 to 23 years old.12)

All of these organizations transfer knowledge and cultural norms to new and new-on-the-job people continuously. This knowledge transfer sustains the organization’s culture and ways. It takes place through the espoused values (such as mission statements), artifacts (such as dress codes and employee benefits), employee training and, most important, the continuous communications sent formally and through examples of the leaders’ actions and behavior.13

At the same time, senior managers understand operations and are attuned to them. It is difficult to imagine a carrier captain promoted from the accounting department or from an armored brigade; they accumulate vast operational experience before assuming command. The same is true of Mike Eskew at UPS, with his engineering background, and Michael Dell, who still calls on production line supervisors when there is a problem. This is also the case with other companies known for their operational excellence; Fred Smith founded FedEx and is still active at the company; Herb Kelleher cofounded Southwest Airlines and ran it for 30 years, creating and sustaining its winning culture; Hiroshi Okuda, Toyota’s chairman (with Toyota since 1955), was familiar with almost every aspect of his company’s operations before assuming his leadership role; and Sam Walton started as a management trainee at J. C. Penny and founded several successful retail stores before starting Wal-Mart.

Distributed Power

In situations that require immediate action, flexible organizations allow for and empower individual actions by “first responders.” These are the people who are on the front line and close to the action; they are the most likely to spot a problem first and their immediate reaction can prevent it from growing.

A culture of distributed power and empowerment can be found in many successful and flexible organizations. Any worker can sound an alarm on the Toyota production line by pulling an andon cord if he or she sees a quality problem. Within seconds, supervisors and specialists will descend on the manufacturing station in question and try to fix the problem. If the problem cannot be fixed within 60 seconds, the production line will stop and the problem will be solved before the line can be restarted. Giving this kind of responsibility to lower levels of the organization is one of the ingredients in Toyota’s success; it allows the system to react quickly before a large number of defective cars move down the line, creating an expensive “rework” challenge.

Some retailers are much more flexible and faster than others in responding to the fickle demand of fashion clothing consumers. The Japanese retailer World and Spain’s Zara need only three weeks’ production lead time (vs. the industry standard of six to eleven months); they take six weeks to introduce a new product (vs. the industry standard of one to two years); their markdowns are only 15 percent of sales (vs. the industry standard of 33 percent); and they turn their inventory ten times a year (vs. the industry standard of six).14 A critical ingredient in their success is the empowerment of the product development, production, and marketing teams to tackle challenges immediately and without headquarters approval. Managers from these departments meet every day to plan reaction to daily sales figures from the stores. They have the power to change product designs in order to respond to sales trends and solve component shortages.

At one point Southwest Airlines faced a problem. Its competitors, the large airlines who own most international and national reservation systems, began demanding payments of tens of millions of dollars a year from Southwest for use of their computerized reservations systems by travel agents. In response, Herb Kelleher decided to embark on an electronic, ticket-less system. It turned out that people from several departments had already gotten together, anticipated such a contingency, and begun work on a system, unbeknownst to Kelleher or the rest of Southwest’s top executives. That kind of initiative exemplifies most of the empowerment principles mentioned above—anticipating the crisis, taking action without asking for permission, cobbling together a group of experts, and working toward a solution. The Southwest Airlines culture encourages and celebrates such an attitude.15

To be successful, such employees have to “internalize” what is the general mission of the organization and what is its current state so they can take the correct action. They must have the authority and the orientation to take such action in the first place, and they must be rewarded for the initiative and not disciplined for mistaken calls under pressure.

In his book chronicling the World War II European campaign, Citizen Soldiers,16 the historian and popular writer Stephen Ambrose makes the point that part of the superiority of the U.S. Army was rooted in its soldiers’ local decision-making power. In the fog of battle, senior officers had no clear picture of the battlefield and neither the Americans nor the Germans were prepared for several contingencies. The difference was made up by the tendency of American local unit commanders to take initiative and improvise. His argument is that, by and large, the German army was more command-and-control oriented and as a result reacted too late or inappropriately to changing battlefield conditions and requirements.

Passion

Flexible organizations have one more element in common, an element that the artifacts and the espoused values try to instill and that the training and acculturation try to implant in new members of the organization. This element is a personal, deeply felt concern and responsibility to serve the objective of the firm, or simply passion. Others call it “urgency,” “mindfulness,”17 or “alignment” quality.

The difference between the accepting-and-trusting Ericsson and the apprehensive-and-fast-responding Nokia in the face of the Philips plant fire can, in part, be explained by their respective cultures. Nokia’s response can be captured by the Finnish term sisu, which translates loosely into “curtness under pressure.” Nokia took swift action because its culture included two critical elements: (i) deep relationships and extensive communications with suppliers and (ii) broad and fast internal communications. It was able to recognize immediately the severity of the disruption and it had the implements in place to communicate critical information broadly and quickly. Nokia always encouraged quick escalation of bad news within the company. Ericsson, by contrast, with a more laid-back culture, did not spring into action the moment employees detected the disruption. Ericsson’s employees lacked the urgency, mindfulness, and passion that helped Nokia react quickly.

When asked about Southwest Airlines’s culture, Herb Kelleher commented, “Well, first of all, it starts with hiring. We are zealous about hiring. We are looking for a particular type of person, regardless of which job category it is. We are looking for attitudes that are positive and for people who can lend themselves to causes.”18 In a Business Week interview,19 Kelleher gave the following example: “A guy calls our Dallas reservation center from St. Louis, and he tells the reservation agent that TWA has canceled its flight out of Dallas/Fort Worth Airport to St. Louis on which his 85-year-old mother was supposed to fly, and that he’s very concerned about her coming over to Love Field after having to make an intermediate connection in Tulsa. So the reservation agent says, ‘I’m going to be off in five minutes. I’ll pick her up at Dallas/Fort Worth, drive her to Love Field, and fly with her to St. Louis to make sure that she gets there okay.’ That’s the kind of devotion I’m talking about.”

In the private sector, such “passion” and alignment with corporate goals is often encouraged through stock options and other success-sharing mechanisms that align the financial success of the organization and the individual. The 3,500 “Dellionaires,” and the thousands of UPS managers who own UPS stock, have an incentive to see the company succeed. (UPS insiders own 90 percent of its stock and 99 percent of the voting rights.) Southwest officers’ salaries are about 30 percent less then the norm in their industry, but Southwest offers more generous incentive compensation in the form of a substantial amount of stock options. Cash or stock incentives, however, are not the only or even the most effective way to breed passion. Many companies give stock options without such results, while others do not give options at all but are very flexible and resilient with employees who are loyal to a fault. Neither Toyota nor the U.S. Navy uses stock options to motivate employees.

Flexible and fast-responding companies align the employees’ interests with the organization’s. They seem to succeed in this at a fundamental level—their employees identify deeply with their company. Such employees fulfill their personal needs when the company succeeds, reaching self-actualization in the process.20

While employees of most organizations care about doing their job well, members of flexible organizations are truly passionate about it, thereby creating the flexibility and resilience of the organization. This passion is typically shown in a combination of pride and humility. The pride is part of a belief that the company’s business is a cause, not only a commercial enterprise: UPS drivers and managers understand deeply that the packages they deliver are part of their customers’ fabric of life and consequently the packages have to be delivered on time.

Don Schneider, chairman of Schneider National, the largest truckload company in the United States, motivates his employees by stressing that Schneider National is not really in the trucking business. According to him, Schneider is in the business of raising the standards of living of its customers and the nation by providing a low-cost freight transportation service. Since transportation is imbedded in the cost of all products, the company contributes to the nation’s access to affordable goods.

As a Southwest executive put it: “The important thing is to take the bricklayer and make him understand that he’s building a home, not just laying bricks.” Clearly, officers and sailors in the navy think about what they do not in terms of driving big ships but in terms of serving the nation and defending freedom.

The other part of the passion exhibited by flexible organizations is humility. Firms with passionate employees are never satisfied, always recognizing they could do better. When a Dell organization gets great results, Michael Dell says he is “pleased . . . but not satisfied” because they can do more and better. While such senior managers are proud of their organizations, they are also humble about what they have not yet achieved, knowing they could and should improve.

Andrew Grove, former CEO of Intel, popularized the notion of a “paranoid” culture—one that is constantly looking out for threats and potential disruptions. He advocated a certain mindset that continuously questions existing common wisdom and beliefs to maintain a vigilant watch for new and evolving threats. Instead of viewing itself as the dominant market leader that it is, Intel scrutinizes its competitors’ and customers’ every move and privately bemoans its own future, apprehensive of new competition from unanticipated parties and cynical about its ability to succeed. And perhaps because of this arguably healthy skepticism, Intel continues to dominate the industry.

At Toyota, any form of waste creates dissatisfaction.21 The company’s continuous effort to improve itself is focused on seven categories of waste that add cost without adding value:22 overproducing; wasting time; unnecessary transportation; overprocessing; excess inventory; excess motion of operations and workers; and scrap and rework. The company broadcasts its wasteful ways internally so that employees and managers will focus on what is wrong rather than on the company’s spectacular results in the marketplace.

UPS’s founder, Jim Casey, called it “constructive dissatisfaction”—the drive to improve constantly. He believed that “once you make up your mind that you are pretty good, you will no longer feel the urge to do any better.”

Conditioning for Disruption

Resilient organizations appear to be regularly conditioned to be innovative and flexible in the face of low-probability/high-impact disruptions through frequent and continuous “small” challenges. UPS, like FedEx and other transportation carriers, operates a vast network subject to weather, traffic congestion, city construction, and many other daily disruptions. Dell operates in the hightechnology industry, subject to widely changing demand patterns, continuous new component introductions, and a global supply chain where something goes wrong daily. Intel is not satisfied with the daily ebbs and flows of its business; it introduces added uncertainty into its processes by conducting simulated disruptions and exercising response, preparing the firm for a broad range of possibilities.

Conditioning drives the firm’s culture and how it responds to the cards it is dealt; the frequency and broad range of “normal” disruptions (or exercises) builds a “get ready for anything” mentality that permeates the ranks of the firm. UPS’s Albert Wright captured the quality that comes with conditioning through response to daily disruptions by saying “disruptions are really normal [at UPS].”

Flexibility through Culture

Company culture may be the real secret to the business success of the companies discussed in this book. The cultural traits mentioned also provide these companies with a flexibility that breeds resilience to high-impact disruptions. Day in and day out, this culture allows them to respond quickly and effectively to fluctuations in demand, small supply disruptions, and manufacturing woes. Dell’s build-to-order system is no secret; Wal-Mart’s use of cross-dock operations instead of traditional distribution centers is well known; and Toyota is willing to teach anybody its methods and to take competitors for tours of its plants. Yet competitors are not able to duplicate the less tangible element of these organizations’ success—their culture.

The cultural elements mentioned in the previous section complement each other and, by virtue of this, they constitute a selfperpetuating system. Understanding the interrelationships of these activities and principles unlocks the secrets of success of these systems.

First: Continuous communications provide workers with both a general “state of the company” and with real-time situation reports so actions can be taken quickly and in context.

Second: In time-constrained situations, there is deference to expertise (whether or not the expertise comes with a title)23 and strong teamwork, helping to identify the right response without delay.

Third: Distributed power allows employees to take timely action.

Fourth: Management is very much involved with the operations and is knowledgeable and experienced. In fact, it is management’s knowledge of the operational environment that makes it confident enough to let underlings respond with no supervision in cases in which a fast action is called for. It also lets management lead by example.

Fifth: Hiring and training practices lead to passionate employees who can be entrusted with the power to act when called upon by special situations.

Sixth: These organizations are conditioned to be innovative and flexible in the face of low-probability/high-impact disruptions through frequent and continuous “small” challenges.

Instilling passion is a long and difficult process. Changing an existing culture is even more difficult. Examples of massive culture changes—indicated by changes to attitudes and beliefs—include the antismoking campaign in the United States and the antidrinkingand-driving movement. The first resulted in a decrease in the U.S. population that smokes from 43 percent in 1966 to 25 percent in 1997. The second resulted in a decrease in the percentage of U.S. highway deaths because of drunk driving from 55 percent in 1980 to 38 percent in 1999.24

Corporate turnarounds are invariably based on changing the corporate culture. In just one year, Continental Airlines went from being the last U.S. airline, in terms of on-time performance, to being the first. Gordon Bethune, the CEO who led the change, described the process in his book From Worst to First. Most of the book is devoted to the many ways in which Bethune was able to change the culture at Continental Airlines—in particular improving the trust and respect between labor and management.25

In the late 1980s, Magma Copper went from being beset by violent confrontations between labor and management, teetering on the verge of bankruptcy, to the cover of IndustryWeek in about two years. Its CEO, J. Burgess Winter, used the same approach—focusing on changing the culture first—to change the fundamental relationship between the company and its (unionized) workforce.26

The literature on corporate culture change is vast. The process is extremely difficult, but the few examples mentioned here demonstrate that it can be done.