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Issue
2
View from The Lighthouse is the biquarterly electronic newsletter of CoastWise Consulting. This issue of View from The Lighthouse is about Malden Mills, where Polarfleece and other Polartec® fabrics were invented and are manufactured. Their story is unique in many ways, and there are some important lessons to be learned from them. This is about The Ecology of Loyalty. It also contains · A commentary on the book The Story Factor: Inspiration, Influence, and Persuasion Through the Art of Storytelling by Annette Simmons 2001. (Cambridge, MA: Persis Publishing.)Each issue focuses on a topic or theme relevant to CoastWise Consulting's mission: To create a competitive advantage for our clients by leveraging the Please feel free to forward this newsletter to others who would be interested in receiving it. You may quote anything herein, with this attribution: "Reprinted from View From The Lighthouse, © CoastWise Consulting, Inc."· Power or Organization Design We welcome your feedback and suggestions for future topics. Contact us at: info@coastwiseconsulting.com
Tracy will be speaking at the following conferences/meetings on the topic Designing Organizations for Competitive Advantage in the Supply Chain Organization
Design Forum 2002 Annual Conference South
Bay Organization Development Network Meeting
THE ECOLOGY OF LOYALTY, OR THE PRICE OF DISAFFECTION Malden Mills has been in the news lately. I've been thinking about them and their remarkable story a lot, thinking about how their history and culture will affect their future. At the end of last year, Malden Mills declared bankruptcy. In the wake of the dot.com meltdown, the recession, and the after effects of 9/11, this hardly seems unique. What does, however, is how their employees and other stakeholders--including their customers--have responded. First, some history: Founded in 1906 by immigrant Henry Feuerstein, Malden Mills was the largest employer in Malden, MA, then the heart of the New England textile industry. Still a privately held, family-owned business, Henry's grandson, Aaron, now 76, runs the company. In the 60s, when other local textile companies went south—literally--or offshore, Malden Mills stayed put, expanding their operations into nearby towns and states. In the 70s, their technologists figured out how to make a warm, lightweight, and quick drying fabric known as polarfleece from recycled plastic soda bottles. In the 80s, when fake fur fell from fashion, they went bankrupt for the first time. But by leveraging the innovation and growing popularity of garments made of fleece, they launched what is now a $3B market. Malden Mills has grown over 200% in the last ten years and now generates over $300M in sales annually. Aahhh…an American Success Story. "Interesting," you say, "but not all that unique." The next part of the story I remember clearly: It was a couple of weeks before Christmas in 1995. Not yet having become a full-blown California Weather Wimp, I was only in the early stages of becoming a Polartec® aficionado. But as a New Englander who had had some experience with brick textile mill buildings, the pictures and story of the disaster at Malden Mills struck me. On Mr. Feuerstein's 70th birthday, an explosion in the flocking area triggered a wind-whipped fire that burned 600,000 square feet of manufacturing space to the ground, leaving only the shell of one building. Miraculously, no one was killed. Tragic, and a little more unique. Here's where it gets more unique: When many (perhaps most) others in a similar situation would have elected to do some version of take the money and run (i.e. relocate, retire, sell the business), Feuerstein did none of them. Instead, he elected to rebuild the factory complex…and to continue to pay the 3100 workers for 90 days. Easier said than done, and there were many obstacles and difficulties along the way. Despite extraordinary progress, the Flock business could not be rebuilt in time to leverage that industry's buying cycle, and it went out of business. Two senior managers left, for different reasons. Not everyone could be called back to work as quickly as hoped for. Some customers' deadlines couldn't be met. New machines didn't work the way they were supposed to. Still, most agree that what was done was beyond extraordinary. On the site of the burned out factory rose a state-of-the-art facility that was completed ahead of schedule and under budget and has won awards galore for innovation. The story of their renaissance was published in The Boston Globe while I happened to be there, and I was captivated. I thought, "Wow! This place is really unique!" I am still touched by what they accomplished. Aaron Feuerstein is all too unique in the way he chooses to run his company. By all reports a disciplined scholar and businessman, he is a man of principles who lives his values and walks his talk. An Orthodox Jew whose other grandfather was a rabbi, he sees no conflict between the rigors of running a tight ship and his belief that how he treats people, most especially employees, is directly connected to the success and profitability of the business. That if you treat people fairly and honorably, pay them a living wage that enables them to care for themselves and their families, they will produce quality products, and that quality is the source of competitive advantage. That the union officials are not the enemy. That your customers and suppliers are your partners. At the time of the fire, many people, including some of his own employees, told him he was nuts to rebuild. Nuts to keep paying employees. Nuts not to make changes to the manufacturing process that would automate the line at the expense of jobs. Each time, his decision was based on his commitment to stand by his people who, he believed, had stood by him and would continue to. Although he emerged as a local and national hero, many intimated or even said outright that his beliefs and practices were outmoded and that real businesspeople are more expedient and self-interested. Some, now that the company has declared bankruptcy, are quick to say, "I told you so." They say that the new factory was overbuilt, and that they should have kept the cash rather than continuing to pay employees after the fire. (The amount of money in question, coincidentally, is roughly the same as the continuation payroll.) Other factors that contributed to the current problem are the collapse of the Flock business, foreign competition, and market saturation. But we should also wonder what the impact of not rebuilding and not paying employees would have been. While corporate value is increasingly determined by the bottom line, there are also other important indicators: innovation and the value of the company's products to its customers, contributions to the state-of-the-art in ones business or industry, quality of life in a community, the condition of the human spirit and the importance of work to it, the willingness to be part of something larger than oneself and to sustain the interdependence on which we all depend. Look at what has emerged at Malden Mills since the experiences of this past December: employees have given up paid holidays for the next year; agreement on a new union contract was quickly reached—one that freezes salaries until 2003; creditors like Patagonia, North Face, and Dartex Coatings cite their previous experiences with Malden Mills, including the time following the fire, as reasons to trust that in the current situation they will continue to be treated fairly. An employee says, "I would never leave him at a time like this, for what he's done for me." End customers who believe in Malden Mills and its business practices have actually sent them money and also taken the "Polartec Promise" to support these practices and buy something made from Polartec. Contrast this with a couple of other recent examples: A front page article in the San Jose Mercury News (3/25) asserts that one of the most difficult tasks faced by Hewlett-Packard CEO, Carly Fiorina, is finding a way to "make peace…with her own employees"…in the wake of "an already existing rift among HP’s 88,000 employees, who are passionately loyal to…the company and...its culture, known as the HP Way, which emphasizes technical innovation and respect for the individual." In another article, a local business writer describes how, at the merger meeting, he came to appreciate the "two-way loyalty between workers and management" and the "fierce affection workers have for the company," when a 22-year employee opposed to the merger took the microphone and "put personal comfort and advancement at risk—in an attempt to avoid what (he) saw as a disaster for the company (he) loved." Various estimates suggest that one- to two-thirds of HP employees oppose the merger with Compaq. That's a lot of disaffected employees. At United Airlines, the mechanics have not, until recently, had a raise since 1994 and worked for two years without a contract. Now the airlines are in even worse trouble and are asking employees for concessions to help restore profitability. The union members overwhelmingly voted down the first contract proposal, despite the impact it could have had on the airline, the economy, and their jobs. This is not about whether there will be disaffected employees in companies. I'm not suggesting that business decisions should be made solely on whether or not employees support them. Nor do I think that United employees should have approved a contract that union leaders and workers believed to be flawed as a way of supporting their troubled company. I do think that there is a price associated with disaffection and lost or non-existent loyalty among employees, and that many companies fail to take that into account. And I am suggesting that the way employees and other stakeholders respond, how far they'll go for a company in both good as well as difficult times is in part a reflection of how they've been treated and the extent to which loyalty has been extended to them. So I'll put my money on Malden Mills and their recovery from bankruptcy. I think the Ecology of Loyalty will go a long way in helping them. If I could buy stock, I would, but I guess I'll just have to buy something else made from Polartec® instead. You could say I have a vested interest in their success.
The Story Factor: Inspiration, Influence, and Persuasion Through the Art of Storytelling by Annette Simmons. (Cambridge, MA: Persis Publishing, 2001.) If we want to influence others, we must first find ways to genuinely connect with them, establishing trust, credibility, and empathy. Only then will they really be open to changing how they think or what they do based on your ideas. Simmons has written an intriguing and instructive book about the power of stories to engage others and invite them to consider the possibility and potential of your desired outcome. She says there are six fundamental and important categories of stories that are essential for influencing others and that we should have a repertoire of stories that we can tell at various stages of the influence process. The six categories are: · Who I AmMany of us fail to take the time to build trust, reveal our agendas, enroll others in our vision by telling them what's in it for them, or teach by modeling rather than by telling. Simmons makes a compelling case for why this is important and why it's a much more effective influence strategy. Other parts of the book that I found particularly useful were the chapter on how to tell a good story and the one on the psychology of storytelling which deconstructed why it works. I happened
to read this book at the same time I was thinking about and researching
Malden Mills. It helped me understand why Aaron Feuerstein's
stories are so impactful and how he inspires such loyalty in those
around him. RESOURCES: www.loyaltyrules.com
You will find several articles that he's written on the topic and links to other resources on the topic. He "argues that loyalty is still the fuel that drives financial success - even, and perhaps especially, in today's volatile, high-speed economy--but that most organizations are running on empty. Why? Because leaders too often confuse profits with purpose, taking the low road to short-term gains at the expense of employees, customers, and ultimately, investors. In a business environment that thrives on networks of mutually beneficial relationships, it is the ability to build strong bonds of loyalty--not short-term profits--that has become the 'acid test' of leadership." www.polartec.com
or www.maldenmills.com A web search on Malden Mills will offer many articles that will give you a good sense not only of Feuerstein and the company but also of the myriad awards they've won. www.boston.com/dailyglobe2/094/business/Out_in_the_cold_+.shtml
The
Human Equation: Building Profits by Putting People First by
Jeffrey Pfeffer "There's a disturbing disconnect in organizational management. On the one hand, research, experience, and common sense all increasingly point to a direct relationship between a company's financial success and its commitment to management practices that treat people as assets. Yet, even in the face of this mounting evidence, trends in management practice are actually moving away from these very principles. "Drawing on his research into companies ranging from the Men's Warehouse, ServiceMaster, Volkswagen, and AES to Apple Computer, United Airlines, and banks in the U.S. and Germany, Pfeffer builds an irrefutable business case that the culture and capabilities of an organization--derived from the way it manages its people--are the real and enduring sources of competitive advantage. According to The Human Equation, this success comes from taking seriously the often heard yet frequently ignored adage that 'people are our most important asset.'" (from the book flap) |
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