Saturday, June 11, 2011

The Limits Of Long-Distance Management

Whether running overseas operations or monitoring investments across the world, we have become dependent on our high-tech communication tools to manage remotely. Volcanic ash grounds the flight? No problem — Skype your way through the meeting. Board call at an inconvenient time? Grab your headset and take it from your car. In today's fast-paced world, managers receive real-time information on company performance 24/7/365. It all works so efficiently.

That is, until it doesn't. Until performance starts to slip. A missed forecast here, a supply chain surprise there. When a company begins to underperform, the questions mount. Tension ratchets up. Demand for data intensifies and even the most talented managers are baffled that nobody saw it coming.

As an advisor and interim CEO for troubled companies, I have learned that the way to effectively manage performance from a distance — to see it coming — is to get on site, up close, and extremely personal. Spending significant time in person delivers insights, forces focus, and facilitates difficult decisions. It is the only way to understand what is truly happening in a business and how to turn things around. What follows are a few examples where these lessons were driven home to me.

Nothing focuses the mind like an idle plant. As the new vice president of operations for an automotive parts manufacturing business, I arrived at our Mexican plant when it was eerily quiet at midday. I heard the hiss of compressed air bleeding from the lines and the intermittent clicking of electrical contacts before meeting workers who were waiting idly in the cafeteria for critical components to arrive. Reassurances I had received the previous week from our U.S.-based materials manager about how we were solving component shortage problems no longer seemed comforting as I tried to explain the situation to staff and asked them to stay motivated.

To share the local tension, I called the materials manager in his office 2,000 miles away and suggested he get on a plane. After working two weeks in the plant and with local officials, he came to understand the impact of historical scheduling processes on this new, remote plant. Once he lived it, the problems were obvious, and a solution was quick to follow. Theoretically, that all could have been resolved by phone, but theory gets complicated, and patience wears thin across borders, cultures, and languages. He had to be there.

Even the best phones don't pick up body language. Despite advances in communication technologies, they still obscure our senses and often deaden our intuitions. The complexity of team dynamics — and the need to observe them firsthand — was reinforced when I later became CEO of that auto parts company. The general manager of our Alabama subsidiary had been a hero for averting bankruptcy at the division many years before. But the improvement had leveled off, and despite the transfer of several historically profitable lines into his operation, performance was declining. Material was piling up, quality was slipping, and customers were starting to grumble. Only by spending time on site with the GM and his staff did I realize the core problem: He was overloaded and not able to delegate.

The GM had rescued the company by controlling the details, but the operation had grown too big for him to manage alone. In one-on-one sessions, staff members acknowledged the inefficiencies but complained of a culture where it was difficult to get things done. In meetings I noticed the body language: No one made a move without the GM's approval or advance support. His gruff, authoritarian style, which had been effective in a crisis, was no longer adequate or appropriate. Several months later, after a management change and a lot of long days by the local team, the operation was humming again with activities coordinated among departments. It took being on site to understand the problem and implement a solution.

"De-imperialized" visits enable real listening. Much of my work today is for private equity groups, which include some of the brightest people I know. I am amazed at how well they understand industries and many facets of company operations. But they are also some of the busiest people I know, and this often leads to sterile update calls and board meetings where they review template-formatted numbers, which may not be the true drivers of the particular business. Their off-the-cuff ideas or hypotheses are frequently acted on as though they are purposeful instructions. (These are the company's owners after all.) Rare company visits become events with nervous managers and employees on high alert during rehearsed presentations and orchestrated tours.

I recently served as the interim CEO of a forest products company owned by a U.S. private equity firm. In my first briefings at headquarters, there was much discussion about the strategic importance of wood supply and the criticality of maintaining strong vendor relationships. When the owners visited the offshore plant with me, they were shocked to see the storage lot full of logs and the supplemental rented space across the street overflowing, as trucks continued to arrive with even more wood. It took that visual — along with the plant manager's candor about the oversupply of wood rotting in storage — to make it clear to the owners that their well-intended input was causing significant operating problems.

The shrewdest private equity groups realize that the way for them to get real insights into their companies and to substantively contribute is to "de-imperialize" their visits. They ask for formal reports but get on site for informal interactions. They recognize that familiarity leads to comfort, which yields informality in meetings so real information can flow. Their exchanges become substantive and useful to their management teams, and they in turn get a deeper understanding of the business themselves.

You can't look someone in the eye while reading your BlackBerry. I am all for multitasking, but I've seen countless examples of ownership visits to portfolio companies interrupted by urgent phone calls or emails on unrelated matters. The interruption knocks the management team members off focus and sends a message that they are not important. No one will complain, but morale takes a hit. The reason to visit is to actually be there, absorbing not just what is shown but also the sights, sounds, culture, and conversations that can only take place in person. We know this intuitively, but too often forget when the device buzzes. Home office checks should not be impromptu but planned as part of the visit.

Face-to-face time at a company's operations accomplishes a number of things. It yields multidimensional data to make the right decisions, data that is otherwise inaccessible. It builds trust and helps forge a sense of partnership. In the long run, it saves both time and money. Conference calls, videoconferencing, email, instant messaging are tools that improve efficiency but only if we recognize their limitations. Business remains a human enterprise. For an owner or manager, seeing operations up close and in person is critical to success.

- Jesse Hermann, MBA '88, is a senior director at Zolfo Cooper, a financial advisory and interim management firm.

Thanks to Stanford Business Magazine


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