Article originally published in the Philadelphia Business Journal on April 22, 2019
As the business environment changes, as the economics of industries change, as the nature of customers and clients change, companies also need to change and continuously improve on how they provide products and services.
In January 2018, I wrote an article about breaking traditional paradigms to move a business forward. This is an update of that article.
Breaking paradigms and thinking “out of the box” is crucial for achieving breakthrough results. As president of one of my company’s subsidiaries, I was taught this lesson by the CEO of our company, Paul Staley, who challenged the design of a micro-plant my business unit was trying to economically justify. The return on investment was initially below the hurdle rate for this type of project.
Strategically, we wanted to build the plant because it would open a new geography in a growing market for the company and protect that market from the entry of a competitor. However, we needed a higher return on investment to get the board’s approval. We didn’t want to justify the plant just on a strategic basis, but on an economic basis as well.
I told Staley that due to low initial revenues in the early years of the plant’s operation, the internal rate of return of the project was insufficient to present to the board. Staley asked that I review with him every aspect of the plant’s design.
This type of plant would normally be staffed by three people on a one-shift operation, led by a plant manager. Staley asked if it would be possible to design the plant to operate with a two-shift self-managed crew eliminating the need for a plant manager — one person on the first shift and one on the second shift, something that had never been done before.
My response was, “So, you want a more-efficient plant built at lower capital cost run by fewer people and with no management? These objectives are mutually exclusive!” Staley just smiled and said, “Break your paradigms. I know you and your team can do this.”
Working with our engineering and plant-operations team, we broke every paradigm we ever had about this type of plant. Through brainstorming, out-of-the-box thinking and open dialogue, we reoriented equipment and scaled down the capacity of the plant to lower the initial capital investment but left it expandable if and when the demand justified additional capacity. We raised the qualifications of the operators hired to run the plant, ensuring they had the capability to self-manage.
There was much skepticism within the company that the plant could run with a self-managing crew of only two people. For political reasons, I added the cost of a third person to the cash-flow projections. A third person was added a few years later after demand grew, requiring operation on the third shift.
After the plant design was revised and staffing reduced, the return on investment rose significantly, and we received board approval to build the plant. Because of its new design and the way it operated, it was the lowest cost plant of its type in the industry and became our company’s model for future plants.
A competitor chose not to enter the geography because of our plant’s low-cost operation; they couldn’t match its low costs. They refused to recognize that change was needed to successfully operate this type of plant in an initial low-volume business environment.
A few years later, we built a replica of the plant to serve another geographic market. We operated the plant at even lower cost with one individual on the day shift and a local retiree who filled in when the individual took vacation or a sick day.
How do you create a paradigm-breaking mindset? I believe you need a catalyst. For us, it was the need to economically justify a new plant that would initially operate in a low-volume market environment. In other situations involving an existing business for example, it might be insufficient revenues to support the traditional cost structure. Unless the business model radically changes, the business can no longer continue to operate and may need to be shut down.
The adage, “don’t tell me it can’t be done; find a way to do it” is applicable to these types of situations. As president of my company’s subsidiary, we broke existing paradigms and found a way to build a plant to achieve our market and financial objectives. With this philosophy and approach, many existing businesses can be saved and operated on an improved financial footing.
Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com.
Stan – Great article. Keep them coming. Joel