The Knowledge Factory
How gathering and dispersing the routine, nuts-and-bolts information of daily operations is transforming a business
By the mid-1980s Joe and Henry Sloss, the twin brothers who had built up the family business, were getting on in years and were thinking about retirement. Joe's son Bob, the only member of the next generation on the payroll, was ready to take over.
Ready. OK, that might be an understatement. More like champing at the bit. Pounding at the door. Because Robert Sloss, then in his thirties, had discovered not just a job but a mission.
The company he was inheriting was a small metal-spring manufacturer, successful in its day but exactly the kind of old-line, low-tech business likely to be eaten alive by aggressive and innovative Far Eastern competitors. Young Bob -- an alumnus of Stanford's summertime executive-education program and a fan of Tom Peters -- set out to search for excellence right in his own backyard. American industry, he decided, could be revived, its loyal employees rewarded and reinspired. The Japanese and Taiwanese and Singaporeans could be repulsed. Spearheading the attack would be the Sloss family business, Connor Spring.
Once in charge, Sloss made all the right moves. He bought state-of-the-art machinery. He decentralized the company, ceding day-to-day authority to the managers of its four plants. He set up an employee stock ownership plan and instituted a quarterly cash bonus based on each plant's profits. He plunged into statistical process control and the other accoutrements of modern quality assurance. And he made sure -- through stylish videos, glossy brochures, slick sales presentations -- that customers heard about the all-new, world-class Connor.
The blitz almost worked. Connor's shipments rose from $12.4 million in 1985 to $16.4 million in 1989. The company landed new jobs from big customers such as Aerojet; it became a certified vendor to the likes of Hew-lett-Packard and Xerox. Japanese transplants searching for U.S. suppliers began sniffing around Connor. Employees seemed more content and more committed. What else could Sloss want? Really, just one little thing. He would have been happier if the company were making decent money.
He knew that Connor's losses in 1989, the first year in at least two decades the company actually wound up in the red, could be chalked up to the closing of a plant in Phoenix and the transfer of many employees to Connor's Dallas facility. But he also knew the financial problems ran deep and that they weren't being solved by all his fancy footwork. The Dallas operation, established in 1984, hadn't yet seen a profitable year. The flagship plant in Los Angeles, Connor's biggest, was barely squeaking by. Only the little shops in Portland, Ore., and San Jose, Calif., were solidly in the black, and at best they pulled the company a few percentage points above break-even. Something had to be done.
It was then that Sloss, almost unwittingly, found himself presiding over a change that would leave Connor Spring looking remarkably different, not only from its most recent incarnation but from most other companies in the United States. The change didn't involve yet another hotshot management philosophy, only a new tool for making the company run better. Or so it seemed at the time; today, midway through the process, the tool seems to be transforming Connor's whole culture.
The tool -- the driving force behind this ongoing metamorphosis -- is information.* * *
Now, the astute use of information is one hot topic among management gurus these days. Gather more data about your customers! Communicate more with your employees! Analyze those critical financial indicators! Such injunctions never hurt. But they may not help much either, because they address maybe 10% of a business's information flow.
The other 90%, the part that never shows up in market-research studies or employee newsletters or monthly P&Ls, is the mundane, nuts-and-bolts information that permeates a company every minute of every day, determining how managers allocate resources and how employees spend their time. Why Customer X is complaining. Which jobs absolutely, positively have to be done by Friday. How much money we stand to make this month on the National Widgets account, why Bill in sales has been spending so much time in Chicago, what's causing the bottleneck in shipping. Small companies' chief executives typically know or learn the answers to those and a hundred similar questions; that's why they feel -- and frequently are -- indispensable to smooth operations and why they intuitively understand bigger-picture issues such as cost ratios or market trends. Most CEOs, however, never think about sharing what they know with any but a few top managers.
But ask yourself -- suppose all employees in the company had easy access to everyday knowledge of this sort? And suppose they could not only receive but exchange information, adding what they know to the pool and thereby enabling everyone to work just a little more intelligently? As Harvard Business School professor Shoshana Zuboff argues in her book In the Age of the Smart Machine, modern computer and communications systems allow knowledge that once resided "in people's heads, in face-to-face conversations, in metal file drawers, and in widely dispersed pieces of paper" to be disseminated throughout an organization, moving upward and sideways as well as downward. People with access to all that information work differently -- work smarter -- because they suddenly know a whole lot more about what they and everyone else in the business are doing.
Bob Sloss hadn't read Zuboff. But he did want to boost his bottom line, and he figured Connor's information systems were a good place to start tightening things up.
Connor Formed Metal Products, as the company has recently been rechristened, is a job-shop manufacturer, making springs and other components to a customer's specifications. In some ways it's a prototypical business enterprise. Like a professional-services firm, it has hundreds of customers, each one with unique, complex, and usually urgent needs. Like a retailer, it has to manage a sizable and varied mix of products, and like a high-tech manufacturer, it has to guarantee near-flawless quality.
And like many, many small American companies, Connor was, less than two years ago, processing information much as information was processed in 1950. In the Los Angeles plant, engineers cranked out cost estimates by hand, penciling in figures for raw materials and machine speeds and labor hours, then erasing and starting over when the bottom line seemed too high or too low. Salespeople kept handwritten trip reports and copies of letters in cumbersome loose-leaf notebooks. In the office, clerical workers typed out highly detailed shop orders, 10 carbons deep, using Wite-Out on errors. Out in the shop, supervisors did their best to read specs off a finger-smudged copy of the order.
Even managers were often flying blind. Once a job was out the door, for example, no one could be sure whether it had been profitable. For a while, Connor kept labor-time records for each job by hand. But the data were never collated or analyzed, in part because their accuracy was suspect. Ironically, Sloss had spent nearly $300,000 on computers a few years earlier, installing several IBM System 36 minicomputers. But the big machines and their canned software proved too clumsy for daily plant-level chores such as estimating or job costing, and managers mostly ignored them.
By 1989 Sloss had begun thinking about using personal computers, which were getting more powerful by the day, and about custom software. His San Jose plant manager had already begun experimenting with PCs, albeit with packaged programs. And now here was this young man named Michael Quarrey looking for a job.
Quarrey had some unusual credentials. He had worked for the National Center for Employee Ownership and was an ESOP expert. He was also an experienced programmer and was just leaving a position with another job shop. After a moment's hesitation -- "the idea of a little company like ours hiring a computer programmer was mind-boggling" -- Sloss hired him and installed him in Los Angeles with instructions to develop an effective job-tracking and job-costing system. On Quarrey's recommendation he immediately began buying PCs and networking software.
Before long Quarrey was writing programs to computerize the L.A. operation's information flow. Before long, too, the two men realized they shared an agenda going well beyond computerization.
Ever since he took over, Sloss had been chipping away at Connor's old-fashioned, secretive style of management. Employees had become part owners of Connor through the ESOP, he argued; they should be treated like owners. So he explained the company's financial statistics to them, and he made a point of walking around the plant, answering questions. Now, he figured, the new computer system gave him a chance to disseminate day-to-day operating data, exactly what owners ought to see. Quarrey, similarly inclined toward employee involvement, designed his system to ensure broad access. He also designed a two-way flow of information: each electronic shop order would contain "notes" areas, so that engineering or quality control, for example, could enter comments about a particular job.
But it was Roy Gallucci, a blunt-spoken machinist in Connor's coiling department, who may have had the biggest impact on the new system.
"Gallucci stopped me one day in the shop," remembers Sloss, "and pretty soon we were talking in the plant manager's office behind closed doors." The machinist's message to the boss was simple. At least one computer should be out in the shop. Blue-collar employees should have the ability not only to enter comments about a job but to somehow force the office to pay attention. He didn't know exactly how it might work, but if the company was going to put in a whole new system, it had better do it right.
Bingo, thought Sloss: Gallucci was touching on a perennial complaint, namely, that the office never listened to the shop. Here was a chance to deal with it.
Quarrey agreed -- not that he had much choice. "There was no discussion," he remembers. "Bob said, 'Do it.' " By May of 1990 Quarrey had his unusual new system up and running.* * *
Pull up to Connor's L.A. plant -- it's actually in Monterey Park, on the outskirts of the city -- and you won't be immediately impressed. It's housed in a standard-issue industrial building. Inventory spills out from the shipping door into the weed-rimmed, California-size parking lot. Inside, Connor looks like a company on a bare-bones budget. There's no receptionist: visitors are invited to use the phone in the lobby. The office staff -- which, it turns out, handles customer service, invoicing, purchasing, bookkeeping, personnel, production scheduling, and all related paperwork -- numbers exactly six.
But don't be misled by the seeming austerity: this is not a company done in by the recession. In the last two years the plant's head count has dropped (through attrition) by 15 -- yet its sales have risen 28%, to an annual level of $10 million. In 1990 Connor's L.A. division turned a 5% pretax profit. It's maintaining that pace this year, despite the downturn in the economy.
On the face of things, the difference between today's Connor and 1989's is purely technological. Customer-ser-vice reps now prepare shop orders on a quietly humming PC -- no more carbons and Wite-Out. Engineers use an estimating program to calculate trial quotes in minutes, not hours.
But dig a little deeper -- talk to people throughout the company about what's different now -- and the magnitude of Connor's ongoing transformation becomes apparent. Plenty of companies computerize their information systems. Not many disseminate information to every nook and cranny of the organization -- let alone share the power all that knowledge carries with it.
At Connor, that's pretty much what is happening.
Thanks to Roy Gallucci, for example, every employee has full and instant access to data about the jobs he or she is working on. Not just the customer's name and the specs, but a full history of the job to date, special notes or instructions from engineering or customer service, and management information once thought of as sensitive, such as the price and the margin. An employee who spots (or develops) a problem with a job can go to the computer and put a "shop hold" on it. Until the engineering department investigates -- and makes a formal written disposition of the problem -- the software won't allow Connor to take any new orders for the same part.
In one recent six-week period, Quarrey counted 117 holds emanating from machine operators and their supervisors. "This grinding can only be done by A-1 Surface Grinding," read one, adding the address, a contact name, and the price per part that the preferred outside vendor would charge. "OK, will change the master," responded engineering. "Change run speed from 850 pcs/hr to 650 pcs/ hr," recommended another. "Changed speed from 850 pcs/hr to 700 pcs/hr," answered the not-totally-compliant engineer. Gallucci himself admits to using the feature regularly -- for example, to propose sending a three-part order out for heat treating all together rather than one batch at a time. And Quarrey points out that similar holds can be put on a shop order by quality control, by engineering ("Don't allow this estimate to become an order until we have a clean blueprint"), or by customer service ("Don't ship without clearance from us").
A direct effect of sharing information and power is that problems get nipped in the bud and jobs that cause difficulties the first time around rarely cause the same difficulties the second time. Closing the loop, Quarrey calls it: the people who need feedback get feedback. That effect shows up most graphically in a number calculated monthly by Armando Lopez, Connor's head of quality control, and posted on the bulletin board outside the lunchroom. In 1989 Connor's "cost of discrepant material" -- rejects, rework time, and so on -- came to 4.28% of sales. A year later the figure was just over 1%; through May of this year it was .5%.
But the indirect effect of Connor's unusual system may be even more dramatic: just as Harvard's Zuboff might have predicted, it is altering the way the company operates. Information is now both widely available and easily accessible, so employees all over the organization have begun to ask questions and to learn more about matters affecting their own jobs. Then too, the company evidently welcomes initiative -- so plenty of employees have begun to propose new ways of doing things. Consider four examples:
* Javier Castro, a setup man working the second shift, has begun making it a practice to consult the computer about upcoming jobs. Noticing that a part for Hughes Aircraft was being done in two steps, he checked the price, then calculated that he could do it more cheaply in one step on his computer-numerical-control machine. So he proposed the change to his supervisor, Ron Washburn. "Within three days I had the job, with no secondary operations," says Castro. "We saved probably 200 hours of secondary operations per order."
* Judy Quinn and Jan Morgan, who handle most of Connor's customer service, always knew they were spending a sizable chunk of their time handling change orders on jobs, but couldn't figure out where all those changes were coming from. Earlier this year they asked Quarrey if the new system would allow them to track the orders. It would. Pulling up the reports, the two women found that roughly one out of every five change orders was internally generated -- and that a significant fraction of those were caused by initial errors in entering an order. "So we developed a purchase-order checklist," says Quinn, "a list of items to be checked to make sure we didn't miss anything. That's cut down on the internal change orders significantly."
* Karla Penalba, in charge of purchasing, was hearing from top management that raw-material quality was key to Connor's manufacturing quality. Yet she realized she had no systematic information on individual vendors' performance in such areas as on-time delivery. So last February she and Quarrey set up a spreadsheet-based program to track every shipment; since then she has produced reports rating Connor's suppliers. Later this year new purchasing software will be integrated with the shop-order system, making it possible for anyone in the building to learn the status of raw-material deliveries.
* Jeff Applegate, an outside sales manager, asked for and got a laptop computer last January. Up till then he had relied on phone calls and occasional handwritten reports to keep the shop up to date about his customers' needs; since then he has been generating a flood of neatly printed memos, which are circulated to the appropriate people and posted on the bulletin board. "The more information people get from me, the more they understand the customer's needs," says Applegate. "Pretty soon the toolmaker and the production foreman and engineering are anticipating, not just reacting." Later this year Applegate and Connor's other salespeople will get high-speed modems allowing them, too, to tie into the shop-order system -- and to check a job's progress or enter comments from remote sites.
Sloss and Quarrey themselves have plenty of ideas for the future. The "quality alert" notices issued for troublesome jobs by Lopez's quality-control department will soon pop up automatically on shop orders. Late deliveries will automatically be flagged for later analysis. Most ambitious, each step in every job will soon be coded, so the corporate office can then calculate and produce a P&L statement not only by plant but also by department. That information, too, will be shared. The rationale? "We're taking the knowledge necessary for business decision making and giving it to people in the shop," says Quarrey. "That has been the philosophical objective -- to give people enough information to change their roles."* *
Introducing the new system in the Los Angeles plant cost close to $100,000 in computer hardware, plus maybe half of Quarrey's time over two years. Spreading the system to the other plants, a process that will be completed by the end of 1991, won't be so expensive, but some plants will have to buy PCs, and employees will have to learn the system. Connor's information mania is not coming cheap.
The payoff, however, is already plain, at least for the L.A. division. Late jobs have declined over the past two years, from 10% of backlog to less than 1%. Connor's scores in the annual quality ratings provided by many of its customers have climbed to near perfection. The company's service and quality record commands a premium in the marketplace. An Indiana customer hired Connor as the sole source for several items, even though Connor's price was considerably higher than the other bids. A Los Angeles County customer invented the acronym CDBWGDCS, for Cost of Doing Business with Goddamn Connor Spring. "That was my purchasing manager," chuckles Al Wentzell, materials manager for Anthony Industrial Products. "Every time I wondered why we were paying this much for a part, he'd put those letters on the board. But the quality and service they give us are phenomenal."
The information systems also reduce Connor's costs. In 1989, 14% of defective jobs had similar problems the second time around. By 1990 that figure was down to 4%. Credits issued to customers fell from almost 4% of sales, in 1989, to slightly over .5%, in 1990. The company's overall sales per employee have risen about 20% in the past two years.
There are other payoffs as well.
For the employees and managers of Connor, there's the knowledge that they own 42% of a company whose stock value rose 35% last year -- and that increased earnings will be reflected in fat bonus checks. Arguably, it's that financial interest in the company that makes the information system work. There's a tangible reward for making the kind of improvements the new system encourages.
For Bob Sloss, the payoffs are both tangible and intangible. His family's 55% interest in Connor is worth as much as its 100% interest was worth when the ESOP was started, in 1985. His company is once again profitable and seems to be weathering the national recession well.
Maybe more important, he has the satisfaction of accomplishing at least part of that original mission to revive American industry. Spring making as a whole hasn't done too well in recent years. But Connor has taken on all comers and won its share of victories.
"We're competing with the best house in Japan, and the best in Germany, and the best in Korea," says Sloss. "And we're still in the game."