A key attribute of all successful organizations is the ability to break long-held paradigms, which are established ways of doing things. How many of us have heard the response, “But that’s the way we’ve always done it,” when a new, better approach was suggested?
As a business unit leader at PQ Corporation early in my career, we had the opportunity to build a small manufacturing plant in a geographic region to supply a pulp bleaching product to the rapidly growing pulp and paper market. The first supplier in the market with a source of local supply of product would have a significant competitive advantage for many years to come. We used the standard design for the plant. When we ran the internal rate of return (IRR) for the investment, we found that it was significantly below the IRR needed for board approval.
I told Paul Staley, the CEO of our company that I wanted to justify the investment in the plant on an economic basis, in addition to its strategic justification. In reviewing the scope of the investment, Staley asked me how many people would staff the plant. I told him four – the usual number. He asked, “Can you operate the plant with no people?” I responded, “of course not!”
Staley then asked if the plant could be operated with one person, and I said no. He asked, how about two people? I responded, perhaps. He then said I want you to examine every aspect of the plant design scope. Reduce its size so we are not building capacity to satisfy projected demand years out. We will expand the plant’s capacity when justified by increased demand.
Staley said to size the capacity of the plant so that it would satisfy year-one demand on a two shift per day operation, and design it so two people could operate the plant – one person on the day shift and one on the evening shift. This would increase the IRR due to lower capital and operating costs. As I was leaving his office, Staley said, “I know you and your team can do this.”
The next day I met with my plant management and engineering team and shared with them my conversation with Staley. They all had doubts of what was asked of us. I told them Staley was asking us to break our paradigms about this investment to raise its IRR.
By questioning every aspect of the plant design, we were able to significantly reduce its capital cost and improve its process flow. A self-managing staff of two – one person on each of two shifts created a sense of personal ownership for the operation of the plant. The ability to manufacture product and provide a great customer experience depended on them alone. We raised the qualifications of both individuals, so they could more effectively fulfill their responsibilities.
There was so much skepticism within the company, we added a third individual to the cost of operating the plant when the project was presented to the board, which they approved. A third individual was eventually added to run the third shift when justified by increased demand. This project turned out to be one of the highest IRR projects undertaken by the company.
This project taught us how to build smaller plants to enter smaller but growing markets – a significant competitive advantage.
Our experience breaking our paradigms with this plant in part formed the philosophy of continuous improvement for all of PQ’s operations, which helped improved our competitiveness.
By challenging our standard assumption about how to design and operate this new plant, Staley had re-introduced me to this paradigm-breaking process. It was originally introduced to PQ years earlier when Staley invited Russell Ackoff, then a professor of management at the University of Pennsylvania to speak with the senior leaders of the company about his idealized design approach to breaking paradigms. As a young manager, I was fortunate to be included in this group.
Ackoff described a 1951 meeting in which he participated at Bell Labs, the research and development division of the phone company AT&T, years before its breakup by the U.S. government.
At that meeting, the participants were told that the U.S. phone system, built on rotary dialing and mechanical switching, was just destroyed, and the question was posed, how should it be rebuilt? The participants knew that touch-tone dialing would shave 12 seconds off dialing time, and their projected increase in telecommunication demand would challenge the ability to continue to add mechanical switching capability.
It was at that point the decision was made that AT&T would adopt touch tone dialing and electronic switching. They could have never imagined the role that decision played in the explosive growth of telecommunications.
The ability to break paradigms is what moves our companies forward. It is a key trait we should all develop.