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G5 Middle managers can turn a workplace into a well-oiled machine slate from G1
hired Accenture to provide its usual advice — essentially, to implement the 38 elements of good management — for a group of midsized textile companies that specialize in cotton weaving in the area around Mumbai. The researchers initially approached 66 firms; 17 (with 28 factories among them) agreed to be guinea pigs in the management experi- ment. Fourteen factories were ultimately provided with the full consulting experience, while six others served as a comparison group tobenchmarkthe improve- ments that came with “better” management. For Stanford professor and co-
author of the study Nick Bloom, to observe the chaos that reigned in the cotton weaving factories before the consultants arrived is to glimpse a world without man- agers.
Bloom recounts seeing store
rooms strewn with rotting yarn, unsorted by color, quality or any other attribute — employees had to rummage about to find the requisite product, if it was there to be found at all. Factory floors were a mess, hallways blocked by heavy machinery and littered with discarded tools. Equipment was dirty, unkempt and often well past expiration dates. On average, the companies in their sample were using only about 10 of the 38 best practices on the consultants’ list. Before the consultants rolled
up their sleeves, each of the 20 factories received a one-month diagnosis of its management and performance. This was effectively an initial management-health check. The 14 factories selected to work with Accenture then re- ceived four months of manage-
ment practice upgrades. For the most part, the same managers were kept in place, but the previ- ously ad hoc ways of getting things done were replaced by the standard protocols of modern management. Finally, Accenture did a follow-up evaluation in all 20 factories to assess whether performance improved after the consultants’ intervention. The before and after photo-
graphs of stockrooms and pro- duction lines tell pretty much the whole story (some of these photos are reprinted in the study’s back pages). Out of disarray and confu- sion, there arose order: In store- rooms, bags of yarn were now stacked, carefully arranged and elevated to protect against damp- ness. Offices previously cluttered with randomstacks of paper were now equipped with charts to prioritize and track the flow of inputs and outputs working their way through newly organized as- sembly lines. Defects were cut in half, and inventories fell by near- ly 20 percent, even as output increased by 5 percent. Overall, the authors calculate that profits at each factory — assuming the new practices remained in effect — would improve by more than $200,000 a year. Better management also led to
a further round of changes in the factories, separate from those in- stituted by Accenture’s consul- tants. All of the new monitoring and control mechanisms created a flood of information that had the potential to overwhelm the factory boss. So, not surprisingly, the Accenture factories also be- gan using computers more inten- sively following the changes in management practices. (This was probably good for the job pros- pects of computer-literate work- ers, less so for unskilled laborers
MICHELLE SINGLETARY
To fix the mortgage mess, stop treating people like numbers
color from G1
mortgages became akin to base- ball trading cards, and since re- moving people from their homes became something like an as- sembly line. The only way to unbundle this
mess is case by case, treating each borrower as an individual, not as a case number. In the mortgage trading game,
millions of home loans have been sold and resold at warp speed. During the housing boom, lenders created mortgage mills and put people into overpriced homes with mortgages that were difficult to understand and even more difficult to maintain. They often didn’t bother to verify in- comes or an applicant’s long- term ability to keep up with the mortgage payments. Now we have foreclosure fac-
tories where many of the people who are supposed to ensure the process is fair and legal simply rubber-stamped the paperwork that led to kicking homeowners to the curb. Some politicians are calling
for a nationwide halt of foreclo- sures, while others are saying that slowing down the process will further cripple the U.S. econ- omy. Then there’s the criticism of
the Obama administration’s re- sponse, which frankly does ap- pear lame. The FederalHousing Finance Agency announced it has directed FannieMae and FreddieMac to “implement a four-point policy framework de- tailing FHFA’s plan, including guidance for consistent remedia- tion of identified foreclosure process deficiencies.” In plain language (something
that eludes many government of- ficials), the agency that regulates Fannie and Freddie is asking the mortgage servicers to double- check the foreclosure paperwork and reviewtheir procedures to assure everything is in compli- ance with the law. “The country’s housing fi-
nance system remains fragile, and I intend to maintain our fo- cus on addressing this issue in a manner that is fair to delinquent households, but also fair to ser- vicers, mortgage investors, neighborhoods and, most of all, is in the best interest of taxpay- ers and housing markets,” said Edward J. DeMarco, the agency’s acting director. That word “fair” is being used quite a bit in this latest crisis. As
Miller, the Iowa attorney gener- al, put it: “Since this issue affects peoples’ homes and has clear economic implications, this probe and its outcome need to be fair both to homeowners and also to lenders.” There is nothing fair about
what’s happened in the mort- gage industry. Fair would be to slow down.
Fair would be to hire even more people, as many as it takes, to spend a fair amount of time re- viewing the cases of people in mortgage trouble. Fair would be carefully examining every single sheet of paper in foreclosure files. The salient feature of the ro- bo-signing was that lenders were not treating each foreclosure with individual attention. In- stead, they were looking for a way to mass-produce foreclo- sures just as they mass-produced mortgages. There is no easy solution for
courts, governments or lenders except to give up on mass pro- duction of both home mortgages and foreclosures. If there isn’t enough money to
be made in this slow-down solu- tion for major banks, then tough. They need to fix what they broke. Handle mortgages the way
they should have been handled. That is, if we really do still be- lieve that homeownership is an integral part of the America dream. The mission now should be to
create “sustainable” mortgages people can afford.Make a great- er effort to provide loan modifi- cations for those for whom loan modifications will work. For those who can no longer afford to keep their homes, make short sales a less frustrating process. And if a foreclosure is ulti-
mately deemed necessary, don’t send the person’s paperwork off to a foreclosure factory.Handle it with care.
Readers can write to Michelle Singletary c/o TheWashington Post, 1150 15th St., N.W.,Washington, D.C. 20071. Her e-mail address is
singletarym@washpost.com. Comments and questions are welcome, but because of the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.
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now at risk of being made redun- dant by the factories’ improved efficiency.) Equipped with new detail on
the operations of each individual factory, the company boss might feel more comfortable yielding greater discretion to each factory manager; any drop in production —ormysterious disappearance of yarn from the supply room — would raise red flags at the head office. Indeed, the researchers found
more delegation of responsibility to factory managers after the new management practices were put in place. Previously, without a way of keeping an eye on middle managers, owners had been lim- ited in their ability to expand and often employed immediate fami- ly members who could be trusted to keep their hands out of the till. (When Bloom asked the owner of the most efficient company among the 17 in the study why he hadn’t expanded beyond a single plant, he shook his head sadly and answered, “No sons.”) It turns out that the manage- ment shortcomings of Indian tex-
tile firms are hardly unique. In an earlier study, Bloom worked with a pair of London School of Eco- nomics researchers to conduct a worldwide survey of manage- ment practices, using metrics of management quality similar to those employed by Accenture. They hired MBA students to in- terview managers at corpora- tions in 17 countries. India ranked third from the bottom — just behind Brazil and one posi- tion ahead of China. Together, these three terribly managed economies constitute nearly 40 percent of the world’s popula- tion. Not surprisingly, the top posi-
tions in the global management survey were held by some of the world’s richest nations: the Unit- ed States, Germany, Sweden and Japan took the top four spots. Why can’t Indian managers
learn to run their factories more like German ones? And if they can’t do it themselves, why aren’t more of them hiring Accenture to help them out? The study’s authors asked the factory owners themselves why
they hadn’t already done so. About one-third were simply un- aware of many managerial prac- tices — such as preventive main- tenance to keep machines from breaking down — that are com- monplace in most modern facto- ries. Even if they were aware of the practices, they didn’t think they could be profitably applied to their own circumstances — after all, the market value of Accenture’s five months of free consulting was about $250,000, so it’s easy to imagine the price tag might scare off would-be cus- tomers who might doubt that the boost in profits would be enough to justify the expense. The study’s findings suggest
that we might do well to direct at least some of our aid funds to- wardbuilding business schools in India and elsewhere in the devel- oping world to provide their economies with the consultants and middle managers they need to create the corporate bureau- cracies we so love to hate in America. Study co-author DavidMcKen- zie argues that another implica-
tion is that India should allow more multinationals to set up shop to serve as training grounds for managers. Of course, these multinationals will also drive the worst-managed Indian compa- nies out of business, making this proposal a tough sell in a country with a history of economic na- tionalism. And what of the cubicle dwell-
er lamenting the injustices of the modern office?Whenthe 38 prin- ciples of good management meet the realities of running an organi- zation with tens or hundreds of thousands of employees, what results is a rigid set of rules, regulations and constraints that can seem designed to make office life a pointless misery. But it’s also what allows the modern corpora- tion to avoid the chaos of the unmanaged cotton weavers of Mumbai. Ray Fisman is the Lambert Family professor of social enterprise and director of the Social Enterprise
Program at the Columbia Business School. He is at work on a book
about the economics of office life. He writes for Slate.
including possible loss of principal. *Morningstar FundInvestor, June 2010. Morningstar evaluated the 30 largest fund groups (based on asset size) on the following measures: manager retention rates over the last 5 years; average fund management tenure (how long the portfolio managers have managed their funds); fund managers’ investment in the funds they manage; 3-year asset-weighted performance of all share classes; and Morningstar Stewardship Grades, which evaluate a fund group’s culture, fees, Boards of Directors, manager incentives, and regulatory records. Data used were as of 5/31/10 except for manager retention, which is through 12/31/09. **Morningstar made its selections based on low cost, a focus on investors’ interests, consistent investment strategy, and fund management experience. Fund returns have been affected by market volatility and are negative for certain periods. ©2010 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. T. Rowe Price Investment Services, Inc., Distributor.
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