In the realm of geography, the Age of Exploration ended long ago. In the realm of work, the Age of Exploration has hardly even begun — nor is there any end in sight.
Beyond the well-traveled fields of business reporting, on which companies merge and split and on which CEOs rise and fall, men and women have been redefining work and success — building new models of competition and developing new ways to find meaning amid the confusion of the marketplace.
Thomas Petzinger Jr. has been exploring this previously uncharted region of business innovation for several years now. In a column for the Wall Street Journal, he has been sending dispatches from “The Front Lines” of the new world of work, reporting not on the people who mandate change but on those who create it. And in a new book, he offers case studies that illuminate the pioneering efforts of people at companies of every possible type — from mom-and-pop operations to big-name multinationals, from high-tech startups in industries that did not exist a decade ago to low-tech powerhouses in industries that seemed immune to change. Here’s a look at how three companies are lighting out for new territory.
This Promise is Set in Concrete
Adopting the customer’s point of view may be fine in banking, chip making, and medical care, but what if the customer is downright irrational? In a fast-changing world, sometimes even the customer doesn’t know the customer’s point of view. Consider the concrete business. Delivering concrete is a tough business anywhere, but imagine doing it in Mexico. The weather is wild, the traffic unpredictable. Labor disruptions erupt spontaneously, and government inspections target construction sites capriciously. Meanwhile, a load of concrete is never more than 90 minutes from spoiling in the rotating cylinder on the back of a truck.
Pandemonium — swearing, screaming, occasional fisticuffs, the oft-told lie that the truck is “on its way” — had long reigned at the central operations center of Cemex. In a second-floor office overlooking a lot full of trucks, dispatchers took orders for any of 8,000 grades of concrete and then forwarded those orders to a half-dozen regional mixing plants, each with its own large fleet of trucks. This complexity was exacerbated by the astonishing fact that more than half of all orders were changed by customers — often repeatedly, often at the last minute.
Cemex, based in Monterrey but with operations that extend across Mexico, was an old company (it was founded in 1906) and a successful one (its annual revenues come to $3.7 billion). It had tried to train its customers to stick with their orders by imposing financial penalties for changes and by demanding longer lead times — but such rules could not conquer the natural disarray of the marketplace. So Cemex could do no better than to promise delivery within a three-hour window.
Two internal consultants, Kenneth Massey and Homero Reséndez, studied the problem and concluded that customer chaos was an unalterable force. As they searched for coping measures, their thoughts turned to the miracle of Federal Express, another operation built entirely around the swift delivery of goods to any and all locations. In 1993, Massey, Reséndez, and their team paid a benchmarking visit to the FedEx hub in Memphis. They were awed by FedEx’s stunning efficiency and by its brilliant use of information systems. But nothing dazzled them quite so much as the FedEx marketing guarantee: “It’s on time, or it’s on us.” Applying the same offer to cement deliveries in Mexico seemed an impossible dream.
The Cemex team began to question the company’s entire approach to its market. Rather than punishing customers with penalties or enforcing long lead times, perhaps Cemex should make last-minute changes routine. Such changes, after all, are part of the unwavering culture of the marketplace. Team members began to call this new approach “living with chaos.” Then they scheduled another field trip, this one to the 911 dispatch center in Houston. The visitors sat rapt in a darkened room, transfixed by the utter poise with which dispatchers fielded calls reporting heart attacks, fires, and other emergencies. There always seemed to be just enough ambulances and just enough paramedics in just the right parts of town. That’s when it hit the visitors from Mexico: Though individually unpredictable, emergencies occurred in sufficient number to allow a pattern to be discerned and planned for. “It was a revelation,” says Raúl Prieto de la Fuente, a member of the Cemex team.
So Cemex resolved to embrace the complexity of the marketplace rather than resist it — to do business on the customer’s terms, however zany those terms may be. In 1994, the company launched a project that it called Sincronización Dinámica de Operaciones: the dynamic synchronization of operations. The customer would now set the tempo. Cemex liberated its delivery trucks from their zone assignments and set them free to roam an entire city as part of one big pool. The company also outfitted its trucks with transmitters and receivers connected to a GPS (global-positioning satellite) system, thereby giving its computer precise, real-time data about the location, direction, and speed of every vehicle in its fleet. The computer triangulates this information against order destinations and mixing plants, all while taking traffic patterns into account.
But just as information is meaningless without action, so technology alone is powerless to create a new company culture — a fact that millions of businesses in the United States and elsewhere still fail to grasp. “Technology,” says Reséndez, “is the great enabler. But in the end, the central concern in this business is the customer call.” Because customer-service quality corresponds to employees’ education levels, Cemex enrolled its drivers — who had an average of just six years of formal schooling — in weekly secondary-education classes that spanned two years. Meanwhile, onerous work rules were gutted so that nothing would get in the way of filling orders on time. (Unions assented on the promise that greater efficiency would lead to higher pay.) “Instead of delivering concrete, our people are delivering a service,” says Francisco Perez, operations manager at Cemex in Guadalajara. “They used to think of themselves as drivers. But anyone can deliver concrete. Now our people know that they’re delivering a service that the competition cannot deliver.”
Same-day service and free, unlimited order changes became standard operating procedure. The company introduced the kind of guarantee that Reséndez and Massey had been dreaming of since their trip to Memphis: If a load fails to arrive within 20 minutes of its scheduled delivery time, the buyer gets back 20 pesos per cubic meter — “garantía 20×20,” as the company’s advertising puts it. That amounts to a discount of roughly 5%. With reliability exceeding 98% and with a vehicle efficiency that has increased by more than 30%, Cemex could afford to offer a far more generous guarantee. But a rebate of 20 pesos is enough to swamp Cemex’s competition, while leaving room to offer an even steeper discount once the competition catches up — if it ever does so.
Few companies have absorbed the culture of the marketplace as thoroughly as Cemex has done. “My main concern used to be equipment efficiency,” says Perez. “Now my big concern is satisfying the customer.” Says Reséndez: “We are selling a promise.”
This Company Plays by its Book
Pat Anderson rolled into Dallas in the early 1970s with three daughters in her car, a cigarette in her mouth, and revolution in her heart. She had left behind a life in Oklahoma and had brought with her a drive to save the world. Now she was ready to begin graduate studies in clinical psychology. At age fortysomething, she was a bit of an anachronism. She hung antiwar posters in her home, wrote for the local underground press, and played the Animals and other 1960s rockers on her stereo. She also had a rough, skeptical side: In her new social circle in Dallas, she was known for her hatred of insincerity and for her brusque admonition to “cut the bullshit.” What she did more than anything else was read — serious fiction, literary trash, philosophy, humor. She always seemed to have a book in one hand and a cigarette in the other: the two calming vices in her life.
Before long, she hooked up with a fellow rabble-rouser named Ken Gjemre. At the peak of the antiwar movement, Gjemre had quit a successful career at Zale Corp., a jewelry-retailing giant, out of disgust with the corporate world. This was the era of the Santa Barbara oil spill and of the first Earth Day, and the environment had become a major cause of his. Another cause of his was First Amendment rights. One day, Gjemre told Anderson about his dream of starting a small business, one through which he might further those causes while also making a living. Together, they came up with an idea for a new company: It would be a recycling business, except that instead of recycling trash, they would recycle books. They envisioned a bookstore that would sell nothing but used books — not antiquarian books or collector’s items, but piles and piles of once-read textbooks, travel guides, and dime novels. They decided to make the business a joint venture. Anderson was especially enthusiastic: The prospect of “saving trees” while feeding her reading habit was more than she could pass up. So they leased 1,000 square feet inside an old Laundromat on Lovers Lane in Dallas and hung out their first sign: Half Price Books. People arrived with boxes and shopping bags overflowing with books. Some customers were tickled by the idea that books they had enjoyed might bring pleasure to someone else; others were delighted simply to be rid of the mildewy old things; all were grateful for the few cents on the dollar that Anderson and Gjemre paid.
The store’s first employee was Anderson’s youngest daughter, Sharon — known in the family as Boots. Then 14 years old, Boots took on the critical task of sorting by genre, which she accomplished quickly by scanning covers and feeling books for their weight: A woman running from a house meant Gothic romance; a cowboy meant Western; a big, fat volume usually meant history. Boots also distributed promotional fliers throughout the neighborhood, although her mother wouldn’t let her slip them under windshield wipers, lest they become litter. There was no book that Half Price wouldn’t buy at some price; if a book was too worn or too banal to sell, employees shipped it to a conventional recycling plant or gave it away.
Within eight months of its founding, Half Price Books was moving so much inventory that the former Laundromat was ready to burst. Anderson and Gjemre needed to store books in another location, and it occurred to them that they might as well do some selling there as well. So, in 1973, the second store opened in what had been an old meat locker, on McKinney Avenue in Dallas. Some months later, there was a third store; soon afterward, a fourth.
In 1975, Ken Gjemre’s son moved to Austin and began looking for a way to a make a living. Austin was a book town, a college town — say, why not open a branch there? A year later, Boots Anderson was ready to strike out on her own, so she opened a new location in the Dallas suburb of Richardson. When her sister Ellen married a coworker, the two of them moved to San Antonio and opened a new store there. Half Price Books was becoming a Texas-wide chain, fueled by little more than the genius of its concept and the eagerness of its owners to help their children find a way to make a living.
Despite paying meager salaries, Half Price Books managed to attract just the right kinds of employees: creative people, graduate students, struggling actors, aspiring poets, and other folks who enjoyed being around books. What they looked like or how they dressed didn’t matter a whit to the owners. Shoes became mandatory only as a worker’s-comp requirement. A few employees carried infants in Snuglis. The only rules of the house: Keep costs low. Waste nothing. Keep the books moving. Each department within each store assumed its own personality and its own look, complete with hand-lettered signs and custom-made display shelves. Sometimes conflict broke out among the company’s eccentric and strong-willed personalities, but Pat Anderson never failed to silence the combatants with her command to “cut the bullshit” and “carry on.”
Experienced employees were vital. Like family members, they became a touchstone of business strategy — that is, to the extent that the company had a business strategy. When Ed Szymanski, a key store manager, decided that he wanted to live on a beach, Half Price Books decided to roll into the coastal town of Corpus Christi, Texas. When Julian Reipe, another longtime employee, moved to Washington State for personal reasons, Half Price Books staked a claim there as well. The same went for Jack Darsnek, who relocated to his hometown — Madison, Wisconsin — and was soon running stores there and in Minneapolis.
The same down-to-earth approach shaped the leadership structure of Half Price Books. At one point, Boots came into corporate headquarters to serve as her mother’s second in command — not because of rank order (Boots was the youngest of three daughters) but simply because her sisters happened to live out of town at the time. “We did what made sense,” Boots explains.
Pat Anderson delegated almost everything, but she worked overtime to keep a grip on the company’s financial numbers. In fact, knowing the numbers freed her from having to know what everyone else was doing. Errors in isolation were no cause for concern, but recurring errors sooner or later showed up in those numbers. Every day, using each pencil until there was nothing left but an eraser, Anderson compiled a tally of store sales, making tiny, immaculate ledger entries by hand, watching for trends, spotting anomalies, and informing store managers and department heads whenever the numbers signaled an unwelcome change. Anderson, in short, kept her arms around her empire using little more than a pencil stub.
Otherwise, Half Price Books bore none of the usual trappings of corporate planning. Each store was different from the next. Each department bore the stamp of its employees. The headquarters was located in a Dallas strip mall. “We pretty much made it up as we went along,” Boots Anderson recalls. Yet by the mid-1990s, Half Price Books, with 53 stores in 8 states and more than $50 million in annual sales, had become the nation’s largest used-book dealer by far. (Today the company has 62 stores in 10 states; its annual sales come to $70 million.)
At age 63, Pat Anderson was still showing up for work every morning. So one day, when she failed to show up by 11 a.m., Boots grew concerned. Later in the day, Boots found her mother at home, dead from lung disease. At the wake, two musicians who had day jobs at Half Price Books sang a country-and-western tribute to their former employer: “If she were here today/She’d raise her glass and say/’Cut the bullshit’ and ‘Carry on’/I wish that I could stay.”
Pat Anderson was years ahead of her time. She recognized, to a degree that few others did, that a business must create benefits that radiate outward and into society. The benefits of her business: saving a few trees and spreading around a lot of books. She recognized that every business needs an organizing principle — and the simpler the principle, the better. Her organizing principle: providing a source of livelihood and career growth for friends and family. Finally, she recognized that management required tracking information rather than controlling people — and that the more playful people were, the better her business would do.
And that’s it. That is the entire sum and substance of the “strategic planning” that created Half Price Books, the leading U.S. firm of its kind. Anderson’s methodology — or rather, her lack of methodology — is more apt today than ever. Obviously, people still plan their days, they plan for the change of seasons, they even plan their planning. But these days, there’s too much happening in the present to justify devoting very many resources to the future. Play — the spontaneous exploration of the present — is now taking its place alongside planning as a vital element of corporate strategy. It may even be the more vital of the two.
Credit Where Credit Is Due
Control is anathema to exploration, which often flourishes far from the center of an organization — in an outlying division, during the graveyard shift, at an overseas operation. So it is with all living systems: Evolution is most rapid on the periphery of a niche. Innovation tends to occur at the fringes of a system, because that’s where people have the most space in which to explore new possibilities. Innovation requires not only freedom but also safety — the kind of sanctioned failure that large organizations have historically been unwilling to provide. But some are beginning to. Consider, for instance, the transformation of Mercedes-Benz Credit Corp. (MBCC) and the story of a leader named Georg Bauer. A native of Germany’s Bavarian region, the son of a Bürgermeister (town mayor), Bauer grew up loving music and art. But he also breezed through business studies and through apprenticeships in finance. In the early 1970s, that record of stellar performance won Bauer a position in the Stuttgart office of Citibank. Practically from day one, he had lending approval well into the six figures — a degree of authority that it would have taken him 8 to 10 years to earn at a German bank.
Bauer drew the notice of Stuttgart’s leading business, the venerated and conservative Daimler-Benz AG, maker of Mercedes-Benz automobiles. Bauer was nervous about joining this hidebound behemoth, but join it he did. The company put him on a fast track and eventually sent him to Portland, Oregon, home of Freightliner, a major truck manufacturer that Daimler-Benz had just purchased. Bauer’s U.S. years were glorious, exposing him to the glimmerings of a new, postindustrial age in management. Though still oriented toward command-and-control principles, American management was using methods that were practically anarchic compared with those that held sway in Germany. Eventually, in 1992, Bauer became president of MBCC, a Daimler-Benz subsidiary headquartered in Norwalk, Connecticut, with 500 employees and a portfolio of $9 billion in vehicle loans.
By all outward appearances, nothing in Norwalk needed fixing. The operation had enjoyed years of solid growth: By 1992, it provided financing on about 60% of all Mercedes-Benz cars that were sold and financed in North America. Employees could not imagine that their new president would tamper with such success. Yet not only was Bauer eager to experiment with change — he actually saw the need for it. He was convinced that Daimler-Benz and other big automakers would one day have to cut back on the generous financing subsidies that they provided to car buyers. Such a move would thrust MBCC onto a level playing field with every bank and credit union in North America. To compete effectively, the company would have to cut costs while improving customer service. Such change, Bauer reasoned, required tearing the organization apart and reassembling it. But what, employees wanted to know, would the new organization look like? He couldn’t tell them. They would have to reinvent MBCC through trial and error.
By keeping what worked and eliminating what didn’t, they would allow a new organization to emerge. “Let’s let the people in the organization find the weaknesses in the organization,” Bauer told his fellow managers. “Let’s let things grow from the bottom up.”
The rules were few but firm. People would attack the service issue in teams, because customer-service problems cut across multiple departments, and only cross-functional collaboration would allow people to analyze those problems from start to finish. Another rule involved cutting waste: The headquarters was rife with duplication and full of processes that slowed down service and drove up costs. Yet another rule involved the eradication of sacred cows: Every job, every procedure was fair game for change.
The next rule was the clincher: No fear.
Bauer knew that he needed to tap the deepest, wildest creativity of everyone at MBCC. But the employees were used to an organization that had discouraged risk — where planning was supreme and mistakes were to be avoided at all costs. Only by breaking down fear, only by encouraging experimentation, risk, and sheer play, could Bauer hope to attain the near-impossible. “The future is all about risk taking,” he says. “You can’t be a faster organization if people aren’t taking risks. It’s not good enough just to say, ‘We encourage risk.’ Leaders throughout the organization have to support people who take risks and make mistakes. If the leaders don’t do that, you’re only halfway there. You have to have a fear-free environment.”
The no-fear principle also involved a promise from Bauer: Despite his eagerness to cut costs, he would not lay anyone off — no matter how many new efficiencies were introduced. It was an easy promise to make. For one thing, Bauer wanted the company to undergo dramatic growth, and he foresaw that such growth would create advancement opportunities in new areas. For another, he recognized that no one knew better how to find waste than the people who had helped to create it. Thus, people who found ways to eliminate their own jobs would be rewarded with new positions. Bauer wanted people to be playing in a safe sandbox.
One team threw itself into writing a mission statement for the new organization, spending months on the task and drawing more than 200 employees into the process. Mission statements hang on lobby walls all over corporate America. Usually they’re stuck in a wood frame or etched into a brass plate. And usually they’re full of insipid platitudes that inspire employees to do precisely nothing. Nobody buys into a mission statement unless it has an edge, unless it’s slightly dangerous — which the MBCC statement certainly was.
“We encourage a restless spirit of inquiry,” the statement reads. “Free-flowing communication is the lifeblood of our organization, an information-rich environment where communications flow freely and in all directions.” In other words: no management secrets, no confidential numbers, no hidden agendas. Everyone, the document pointedly notes, has the right “to speak frankly without fear of reprisal.” It goes on: “We must accept and embrace risk-taking at Mercedes-Benz Credit Corporation.”
The mission statement, in turn, helped guide teams as they figured out ways to alter the company’s day-to-day operations. Ultimately 19 teams organized themselves around various initiatives. Computers were installed on desktops (where few had existed before) and then lashed together with email systems, so that team members could continually volley ideas. The entire office was transformed physically: To reflect the company’s new values, Bauer opened up office space, tore down walls, and lowered cubicle partitions. In the Norwalk facility, he built 10 new conference rooms and encased them in glass so that everyone would always be able to see who was meeting with whom.
By 1996, the basic outlines of a new organization were in place. Four of the company’s eight layers of management had been wiped out. Executive names were peeled off the plumb parking spots. Every employee became eligible for a leased Mercedes-Benz. New bonus programs compensated people not only for individual performance but also for the performance of their teams and for the output of the entire company. MBCC expanded boss-to-subordinate performance reviews to include the views of both fellow teammates and members of other teams. It instituted a gain-sharing program that paid teams bonuses equal to 10% of the value of any cost-saving measures that they had identified. Employees stripped the Norwalk office of its “corporate headquarters” designation and gave it a name that emphasized collaboration rather than control: the North American Support Center. In the building’s lobby, they installed a glistening, rotating, avant-garde Mobius strip, which they chose because the look of it — like the look of their organization — seemed to change continuously.
Indeed, the principal outcome of the change process was to ensure that the operation would never stop changing, particularly as market conditions shifted. Margaret Brayden, for example, who had spent years as the company’s records-retention coordinator, came up with new processes that effectively eliminated her own job. After she stepped down to become group leader of office services, she continued to cut costs, ultimately wiping out her entire department. Her direct reports were all reassigned, and Brayden herself was rewarded with an assignment on a change-management team. (Bauer, for his part, recently moved on to become head of worldwide financing operations outside North America for the newly created Daimler-Chrysler AG.)
By 1998, the firm had swelled its assets to $23 billion, and MBCC had been ranked at or near the top of its industry in several major customer-satisfaction surveys. Thanks to the constant experimentation of Bauer’s employees, the organization had diversified into the financing of aircraft, boats, and other products. His employees had also instituted real-time financing services, in which a car buyer can apply for financing, receive a credit approval, and drive away with a car in the span of a few minutes. “That sort of thing is possible only when people stretch,” Bauer says, “only when they’re willing to step out of their key functions and step into uncertainty.”
Thomas Petzinger Jr. (email@example.com) writes a column, “The Front Lines,” for The Wall Street Journal. He is the author of Oil & Honor: The Texaco-Pennzoil Wars (Putnam, 1987), Hard Landing: The Epic Contest for Power and Profits that Plunged the Airlines into Chaos (Times Books, 1995), and, most recently, The New Pioneers: the Men and Women Who are Transforming the Workplace and Marketplace (Simon & Schuster, 1999), from which this article is drawn.
Copyright © 1999 by Thomas Petzinger Jr. From the forthcoming book The New Pioneers, by Thomas Petzinger Jr., to be published by Simon & Schuster Inc. Printed by permission.