RETURN TO INSIGHTS
SSA and Company
SSA Notebook | Holiday Edition | Winter 2012

2012 Deming Cup Winners

In the spirit of the holidays, we wanted to share two of this year’s most inspiring business stories – which I was exposed to at my recent Deming Center board meeting. The Deming Center for Quality, Productivity, and Competitiveness at Columbia Business School is a consortium of leading institutions chartered to create operational excellence in major corporations worldwide. The stories below feature insights from recent talks given by these two outstanding leaders: (1)Terry Lundgren, Chairman, President and CEO of Macy’s, Inc., and (2) Sergio Marchionne, Chairman and CEO of Chrysler Group LLC and CEO of Fiat S.p.A.

We hope you enjoy these thought-provoking stories.

Happy Holidays!

-David Niles, President

How Macy’s CEO Redefined the Model for “Getting Close to Your Customer”

Terry Lundgren, CEO of Macy’s, has employed a bold strategy to personalize customer experience, which started with restructuring the company to meet local needs. In 2009, Macy’s consolidated its seven semi-autonomous regional divisions into a unified national organization, and then redeployed buyers and planners down to 69 local markets, where they now manage merchandising and planning decisions for specific merchandise categories in clusters of 10-12 stores. Previously, these buyers were individually responsible for as many as 100 stores. Today, these individuals know their customers, top sales associates, and local management, and they direct the product selection for each of their local markets.

This reorganization enabled Macy’s to implement its ambitious, customer-centric localization strategy called “My Macy’s.” Through this initiative, Macy’s identifies local variations in preference and customer behavior, and better responds to customer desires. Deming’s principle of fixing the system to improve results embodies the intent of “My Macy’s”: “The aim is to satisfy customers in individual stores and individual markets.” For Lundgren, success is defined by a customer walking into a store in any city and saying, “This is My Macy’s, because you know me, you get me, and you are satisfying my needs because the products you are offering in this store are about me.” The restructuring also allowed Macy’s to remove $0.5B in operating costs out of its business.

Another initiative that has delivered much success is Macy’s OmniChannel strategy, which integrates its stores, website and mobile devices to effectively surround its customers at every touchpoint, and to deploy all inventory (regardless of its location) to better serve customer needs. “Before, when a customer walked into a store and we didn’t have a product, we would ship from our online business if we had the inventory, but two out of three times we didn’t have it,” says Lundgren .”Today, we are now accessing our entire inventory of our entire network and 292 stores, and the chances of success have risen dramatically.”

While some might not associate the Deming model (focused on operational excellence and continuous improvement) with a customer-driven business like Macy’s and Bloomingdales, Lundgren argues otherwise. Deming’s principals around “team work, vendor collaborations, communication, motivation, precision and management effectiveness are all things that every retail organization needs to find success in,” notes Lundgren. You can watch a video of Lundgren’s Deming Cup acceptance speech below.

Operational Excellence Can Drive an Impossible Turnaround – Lessons from Chrysler and Fiat’s CEO, Sergio Marchionne

When Sergio Marchionne took the helm of Fiat in June 2004, the company had been losing cash for months. Bankers, trade unionists, journalists, financial analysts and economists all predicted that Fiat would ultimately disappear from the automotive landscape. Four years later, in 2008, Fiat posted the highest earnings in its history, earning $5B in trading profit. The gloomy predictions of Chrysler’s fate going into 2009 were similar to those of Fiat’s in 2004, with front page headlines bidding farewell to the American automaker. Yet today, the stories read quite differently. By the end of 2011, under the leadership of Marchionne, the formerly bankrupt Chrysler had paid back the U.S. Treasury its loans and returned to profit, with U.S. sales up 26%. At a recent lecture, Marchionne described the major changes that enabled his astonishing turnarounds. Here are some great takeaways:

Decentralize your decision-making structure. One of the first things Marchionne did was to flatten the organization, giving leaders broad spans of control and creating a team capable of decision making. “In an overly bureaucratic organization, it is easy to fall into the trap of being victimized by a process which is managed by others. At Chrysler there are now 25 people who report directly to me,” s ays Marchionne. In interviewing candidates for these positions, Marchionne reached 2-3 layers down through ranks to find people who had been buried in the hierarchy, and gave them the chance to lead.

Broaden the responsibility of your leaders. Marchionne gave some members of his leadership team multiple positions. For example, the head of the Dodge brand also has responsibility for Chrysler Canada and heads all U.S. commercial sales. The Chief Marketing Officer also heads the Fiat brand worldwide. Marchionne employed this approach because it encourages teamwork by holding leaders accountable for results across the whole company. “When people are only responsible for their own narrow area, they tend to see the world with blinders on, and end up competing for a bigger share of the company’s resources,” says Marchionne.

Think big, and deliver quality products quickly. Today’s businesses need to focus on business execution, particularly when facing strong, global competition. “In a fast-changing world, customers will migrate to the latest technology and they will upgrade to an improved vehicle,” says Marchionne. To improve operational performance, Marchionne implemented a continuous improvement program called World Class Manufacturing system (WCM). WCM enabled the organization to improve processes, eliminate waste and get to market faster. The foundational belief underlying WCM is that those “closest to the job have the knowledge, experience and creativity to improve their area of work,” says Marchionne. That’s why Chrysler and Fiat encourage everyone to make suggestions, and they evaluate every idea for potential application. In fact, in 2012, Chrysler’s plant workers have submitted almost 300,000 suggestions.

You can watch Marchionne’s lecture here: