Good Honest Dollar $$

With a federal election scheduled for this coming Saturday, things are reaching a climax in the political climate in my home country of Australia.

One hot topic: plans of the current Labour government to require cigarettes to be sold in plain packaging from the middle of 2012 onwards.

With reservations, I support this plan. Governments do have a responsibility regarding public health, and this does include undertaking appropriate measures to curb cigarette consumption. 

Nevertheless, the proposal does raise disturbing questions about intellectual property rights and how far governments should go in terms of intervening in standard commercial practices.

 
About the plan:
Announced last April, the plan represents the latest development in efforts on the part of the Australian government to curb cigarette consumption.

Under the plan, which the governing Labour Party claims is a world-first, the following requirements will apply to the packaging of all cigarettes sold in Australia from 01 July 2012 onwards:

 • all cigarettes will be sold in plain packaging (the government will specifically develop and test packaging design that will make cigarettes less attractive – especially to young people);

• tobacco industry logos, brand imagery, colors and promotional text (other than brand names in a standard colour, position, font style and size) will not be allowed on cigarette packaging; and

• graphic health warnings displayed on packaging will be expanded and updated.

 
The positive side – reduced consumption
Contrary to claims by the Alliance for Australian Retailers (ARR), a lobby group for Australian retailers supported by the tobacco industry, the plan is likely to discourage smoking and help reduce overall cigarette consumption.

For one thing, the extent to which retailers and big tobacco have opposed the plan (the AAR was created specifically for the purpose of campaigning against plain packaging) does appear to contradict their claims. Indeed, the fact that they are so opposed to the idea indicates that they fear just how effective it might be.

Moreover, the idea of plain packaging resulting in lower levels of cigarette consumption than would otherwise be the case does make sense. For any given product, cigarettes included, cleverly designed packaging makes buying more attractive – vice versa for merchandise packaged in plain or unattractive colours.

That matters. According to the World Health Organization, smoking kills more than five million people worldwide each year, accounting for one in every ten adult deaths.  And this is not to mention the pain and suffering endured by those who contract smoking related diseases whilst they are alive. Nor does it account for broader economic costs associated with tobacco related illnesses, particularly in terms of health related expenditure and lost productivity.

 
The negative side:
Nevertheless, the proposal does raise two key areas of concern:

 
• Intellectual property rights.

In a submission to a senate enquiry, the Property Rights Alliance (PRA), a global organisation dedicated to the protection of physical and intellectual property rights, asserts that the proposed legislation would violate the intellectual property rights of tobacco manufacturers under two international treaties: the Agreement on Trade Related Aspects of Individual Property Rights (TRIPS) and the Paris Convention.

Without a legal background, I am in no position to make informed comment as to whether or not PRA’s assertion is correct.

What I will say, however, is that this is a serious matter. Without exception, all rights granted under international treaties, including those of cigarette manufacturers, must be respected and upheld. Any violation with regard to these agreements is serious, and before plain packaging is introduced, the government must obtain strong legal advice to ensure that any associated legislation is in full compliance with both of the above agreements.

 
• Unprecedented intervention.

The second area of concern relates to questions about the extent to which governments should intervene in standard commercial practices.

Cigarettes are a consumer product, and governments are right to intervene in some aspects of their packaging – mandatory inclusions about health warnings being a prime example.

But government intervention in packaging design is unprecedented. Labour’s plan to meddle in this area does raise questions about the freedom of companies to package merchandise using the design of their choice and whether or not government prescription of specific packaging design is going too far.

Close call. I support plain packaging, but with reservations.

Your thoughts?

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(Image by U.S. Coast Guard via Wikipedia)

It’s a pity when an otherwise impressive management performance is ruined by a disaster.

But that is exactly what has happened at BP.

Prior to the oil spill in the Gulf of Mexico, Tony Hayward and his team had done a tremendous job of improving practices and restoring the reputation of the previously poor performing and accident-prone multi-national.

But now, his credibility has been (rightly) damaged. 

 
A huge rebuilding effort …
As described by Guy Chazan in the Wall Street Journal, prior to recent events, efforts on the part of Tony Hayward and his management team to restore the fortunes of the BP had been exemplary.

After taking the helm in 2007 (at a time when the company had been plagued by poor management, allegations of impropriety and an appalling safety record), Hayward immediately set about turning things around. Operations were simplified, costs were cut, production levels were boosted and worker injury rates were reduced.

These efforts paid off. Last October, the company announced a $4.7 billion third quarter profit – well above analyst expectations. And in January this year, BP’s market capitalisation overtook that of Royal Dutch Shell for the first time in three years.

 
… but Deepwater changes everything
Alas, much of that has now been undone, and the credibility of Hayward and his team has been severely damaged.

Rightly so, too. And rightly so for a number of reasons:

 
• Magnitude of the disaster.

Consider this: eleven workers missing (presumed dead); seventeen injured; more than four-hundred species under threat; and an estimated financial impact of $2.5 billion to the fishing industry and $3 billion in tourism along Florida’s pacific coast (refer Wikipedia) – that’s a catastrophe by any standards.

To be fair, it must be acknowledged: that we do not know the extent to which (if any) these events were preventable; that some accidents do occur even where reasonable precautions are taken; and that the company does seem to be doing everything they can to stop the leak.

Nevertheless, no management team can preside over a disaster of this magnitude with their reputation intact.

 
• Previous assurances.

In a 52 page document which BP submitted to the federal Minerals Management Service in 2009, the company gave assurances that:

“… it was unlikely that an accidental surface or subsurface oil spill would occur from the proposed activities…” 

and that even in the event that an accident occurred;

“.. due to the distance to shore (48 miles) and the response capabilities that would be implemented, no significant adverse impacts are expected.”

You can’t go giving assurances like that without significant consequences to your credibility when damage of this magnitude occurs.

 
• Pre spill precautions.

Related to that are issues associated with pre-spill precautions.

Specifically, although the rig had a blowout preventer installed, it was not fitted with remote control triggers in case of emergency.

Apparently, though these devices are mandatory for offshore drilling in countries such as Brazil and Norway, this is not the case in America. Nevertheless, the cost of having them (approx $500,000 – refer Wikipedia) looks pretty paltry against both impact of the spill, both in terms of the direct cost to shareholders and (more importantly) the social, environmental and economic cost from a broader perspective.

 
• Lack of preparedness.

Judging by responses in a Wall Street Journal online discussion forum, most folks seem pretty satisfied that the company is genuinely doing all it can to stop the leak.

Still, management don’t seem to have much idea what to do, and questions must surely be asked about why they did not have effective procedures in place to deal with events like this.

 
Credibility rightly affected:
Hayward has made a pretty good effort, and it’s a shame to see the reputation of his team destroyed.

But you can’t preside over anything like this without severe credibility damage.

In a recent discussion, I highlighted some of the underlying factors which contributed to the recent debacle surrounding Toyota and problems relating to unintended acceleration in some of its vehicles.

Today, I would like to focus on the company’s response – where it was lacking and why.

 
A tardy response
Toyota’s corporate response to the crisis fell short in three key areas:

 
1) Belated nature of apology.

Given the dates of the first two recalls (November 2, 2009 and January 27, 2010 – refer Wikipedia), consumers have every reason to wonder why they had to wait until February 5 this year to receive an apology.

This delay was unacceptable, and served as a clear indication of just how far behind the eight ball management was on this issue.

 
2) Mixed signals.

In September last year, the public were told that the problem related to floor mats, and that 3.8 million vehicles would be affected.

Then, on January 21, it was the sticky pedals – an embarrassing admission (which came only after it was proven that some crashes weren’t caused by floor mats) given previous denials that mechanical problems had anything to do with it. This affected an extra 2.3 million vehicles in the U.S.  (The next day, a further 1.8 million vehicles were recalled in Europe and 75,000 in China – refer Wikipedia).

Finally, as a separate issue, consumers were told on February 09 about problems with the anti-lock braking system in the Prius hybrid model – apparently the result of a software glitch.

The inconsistent nature of these signals does not inspire confidence on the part of consumers or the general public.

 
3) How far back does it go?

But worst of all are lingering questions about how far back the problems go, what the company knew and why action wasn’t taken sooner.

According to FairWarning, Toyota noticed sticky pedal problems in August last year – months before the recalls. Worse, though they have continually denied problems in this area through eight separate investigations, a CBS News report indicates that the company was aware of electronic problems causing some cars to ‘surge’ unexpectedly as far back as 2005. And finally, according to Wikipedia, there have been 21 deaths believed to be associated with the pedal problem since 2000.

Why, the public asks, is action being taken only now?

 
Why the poor response?
The reasons behind the deficiency of the response have been the subject of a significant degree of media discussion in recent months.

No doubt a range of factors were at play:

 
• Human error.

First and foremost, let’s not forget the role of basic human fallibility in all of this.

Belated as the response was, any ideas about foul intentions or the deliberate placing of driver safety in jeopardy are not credible. Instead, Toyota simply failed to grasp the significance of the problem – a basic error of judgment.

Toyota is not the first company to suffer from misjudgment of these proportions – nor will they be the last.

 
• Expectations and pressure.

Notwithstanding the above point, the momentum associated with expansion of the magnitude which the company experienced over the past decade (it replaced GM as the world’s top selling automaker in 2008) created a great deal of expectation regarding continued growth in sales volume.

The resulting pressure undoubtedly made it difficult to be open with the general public about safety issues and mechanical problems, less an overly candid approach in this regard jeopardise sales momentum.

 
• PR Strategy.

Another factor, according to PR Week, may be a general lack of awareness on the part of many Japanese firms, including Toyota, about the whole concept public relations.

I don’t think this is particularly significant. Whilst it is true that the company’s handling of this whole affair has been less than exemplary, any problems relating to PR management are merely scratching the surface.

The real issues and underlying problems go deeper – much, much deeper.

 
• Cultural issues

As they did with the cause of the problems (refer previous discussion), cultural issues no doubt played a part in the company’s poor response.

Traditional Japanese culture places a lot of emphasis on the concept of ‘face’, whereby any loss of public face strikes at the heart one’s identity and must be avoided at all costs, especially for those in a position of seniority or authority. For senior management of such a revered organisation, the embarrassment associated with public acknowledgement of mistakes or problems of this magnitude (which would be bad enough for anyone) cannot be underestimated.

Reluctance to speak openly about these kinds of problems extends to middle and lower level employees as well – lest they cause embarrassment to their seniors (not to mention their corporate identity, to which their own personal identity is so closely tied).

Moreover, deep down, it may have been difficult for Toyota management to acknowledge that they really had a problem. Problems associated with denial in this regard are not limited to Toyota or Japan in particular, but the Japanese do seem to experience a particular degree of difficulty in this regard.

Perhaps this is partly a function of the Japanese obsession with craftsmanship and quality (and the subsequent embarrassment when things are not up to scratch). Or possibly it could spring from their drive to avoid confrontational situations – with a resulting temptation for uncomfortable matters to be swept under the carpet.

Whatever the reason, this sense of deep-down denial could well go some way toward explaining why Toyota management failed to grasp the magnitude of the situation.

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(Image provided by Mytho88 via Wikipedia)

Just a year or two ago, Toyota was a model case study in business management.

Recognised as a leader for quality, safety and reliability, and modeled by rivals for its ‘lean production’ system, the Japanese giant was arguably the most respected car maker in the world.

Nowadays, the company still features in case studies – but for all the wrong reasons.

In this series, I would like to look at what exactly went wrong.  In the next post, I will talk about what lay behind the company’s poor response to the crisis.

 
Where did it all go wrong?
Problems associated with unintended acceleration are well documented, as is Toyota’s sluggish and poor response.

But to attribute the current crisis to any one singular cause is over-simplistic. More likely, a combination of contributing factors was at play:

 
• Expanding too fast.

Back in 2002, the company set a goal to expand its global market share from 11% to 15% (refer article).

Sensible and manageable though that may sound, commentators such as James Womack, one of the authors of “The Machine that Changed the World”, a prominent book about Toyota’s innovations in manufacturing, believe that this almost certainly contributed to current problems.

For one thing, management focus became consumed with the relentless push for growth, causing traditional considerations such as safety and customer satisfaction to take a back seat.

In addition, a by-product of this was a massive expansion within Toyota’s supply chain, with the company being forced to place increasing reliance on newer suppliers outside of Japan. Reports suggest that unlike traditional Japanese suppliers, who share an intimate working relationship with the automaker, many of these new suppliers were not familiar with Toyota’s methods, nor was expansion of the supply chain itself matched by sufficient effort to integrate new suppliers into the production process or to ensure that quality control was not compromised in the process.

 
• Complexity.

Coupled with growth came increasing complexity, both of the cars themselves and of Toyotas rapidly expanding production system.

As the Taiwan News puts it:

“In an average Toyota, there are about 24,000 inputs and outputs, with as many as 70 computer chips processing information and sending it on to other chips to operate the engine control units. It is a very complex system.”

Added to this are the company’s sprawling global operations – it now has more than 50 plants outside Japan and more models on the road than any other carmaker (same article). To manage all of this effectively would require an almost superhuman effort. The associated complexity almost certainly contributed toward current problems.

 
• Focus on the parts, but forgetting the whole

Another contributing factor, believes Kenichi Ohmae from The Christian Science Monitor, relates to the company’s excessive focus on minute detail and a loss of the bigger picture in terms of the overall workings of the engine as a whole.

A large aspect of the world renowned Toyota Production System (TPS) revolves around the Japanese concept of Kaizen, which focuses on continuous improvement in the manufacturing process. These improvements, in turn, tend to be smaller and incremental, and to stem from a bottom-up type of focus upon individual aspects of the production process.

Whilst there is nothing inherently wrong with this concept as such, problems arise where it is taken to extremes and management loses focus on the bigger picture of the vehicle as a system and how all of the parts work together as a whole.

 
• Cultural issues.

Cultural issues no doubt played a part as well, as did management style.

As I understand it, Japanese culture is characterised by strict hierarchies and an emphasis on maintaining group harmony at all costs. Questioning a senior is virtually taboo, as is causing a senior to ‘lose face.’ In this environment, lower level workers are expected to tow the line and problems at an operational level are rarely reported to senior management.

Combine this with a management style which was said to be highly centralised and largely disengaged from operations on the factory floor, and one could understand the scope for serious problems to go undetected.

 
Conclusion
It is likely that Toyota’s current problems stem not from a singular cause but from a combination of contributory factors.

One might have thought that private security guards are supposed to ensure the safety of the general public on premises which they patrol.

Apparently not – at least not in the case of those employed by Olympic Security at the Seattle Bus Station, who just stood there and watched as a fifteen year old girl was beaten unconscious and robbed in a vicious assault last month.

Three parties share in the blame for this appalling incident: Metro Transit, the guards themselves and Olympic Security (the guards’ employer), which should certainly be stripped of its contract.

Taxpayers do not pay for guards to stand around and do nothing.

 
The incident
Footage of the entire incident can be seen here.

Shortly after the girl in question was seen talking to one of the guards (apparently pleading for help), another girl approached, launching a vicious assault in which the victim was knocked to the ground and repeatedly punched and kicked in the face. Meanwhile, a third person stole her bag, including mobile phone and iPod.

Aside from having one guard call for help, none of the three guards on duty did anything. They simply stood there and watched. Even after the victim lost consciousness, they did not bother to check if she was OK.

Their excuse: strict orders preventing them from intervening in any confrontation – a claim supported by both Metro Transit and Olympic Security, employer of the guards in question.

 
Three parties at fault
Pathetic.

All three parties involved had a duty of care regarding public safety. All three failed abysmally and share in the blame:

 
• The guards themselves.

To be sure, the guards themselves are not police and do not have the same rights or authority as members of the police force – especially in cases like these involving physical contact with members of the public. Furthermore, it should also be acknowledged that failure on their part to comply with strict orders could have serious legal and/or disciplinary repercussions, and that they themselves are not therefore in any position to disregard these orders willy-nilly.

Still, they have no excuse. There were three of them – surely their ‘orders’ would not have stopped them from either: (a) preventing the attack by simply standing between attacker and victim; or (b) bothering to check whether or not the savagely beaten victim was Ok.

(Moreover, surely there is a case where you abandon orders for blatant simple common sense when it is clear that the safety of a member of the public is in serious jeopardy)

No – their actions reflected blatant negligence for which they had no excuse.

 
• Metro Transit.

Bottom line: Metro Transit are responsible for public safety at any station or terminal under their operation, and cannot be absolved of responsibility when incidents like this occur regardless of any contributory negligence on the part of either Olympic Security or the guards themselves.

The buck stops with them – period. They failed miserably.

 
• Olympic Security:

Finally, Olympic Security themselves must share the blame, and it is pleasing to see that their contract is under review following this incident.

They can argue all they like about how their staff did as required under the contractual agreement with Metro Transit. But this is a weak argument. As a private security firm, they share in a duty of care, and should not accept any contract under which members of their staff are prohibited from doing what is necessary to protect the public. And given their expertise, it is their responsibility to ensure that these types of contracts allow for proper procedures to handle any security incidents that might occur.

They are also responsible for training their staff how to handle confrontations – and this does not include standing, watching and doing nothing.

Rather than miserably trying to justify their actions, Olympic Security should just come clean and publicly acknowledge a clear and simple fact – they, too, failed in their duty of care.

They should also be stripped of their contract. They are not paid to have their staff stand and watch whilst fifteen year old girls are beaten and robbed. If that’s what’s going to happen, then their services are not of a standard which is appropriate to meet the ongoing requirements of the travelling public.

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