Where does “know how” fit on the balance sheet?

Your most precious possession is not your financial assets. Your most precious possession is the people you have working there, and what they carry around in their heads, and their ability to work together.  ~Robert Reich

I was in a client meeting the other day talking with the Plant Manager of a large global manufacturing company.  He was showing me around their plant and all the new automated equipment they had recently installed.

Pretty impressive in many ways; the plant was clean, loaded with parts coming in, parts being machined, and entire systems being crated and shipped out.  He was also very proud of the work they had begun on Lean Six Sigma with visual display boards, 5-S workstations, daily production cell meetings.  All in all a well run factory.

As we were leaving the floor he turned and said something that I had to spend the next several hours thinking about.  

“Corporate supplies the capital for all the equipment, but what they don’t understand is that we have all the know how here in this one plant.  If they move the plant, they lose the real knowledge.  It’s in our know how.”  

He swelled up with pride at how competent his people were and how much experience they had in their years of long service in all areas, design, engineering, purchasing, and of course the actual manufacturing process.

As I left the plant the next day I couldn’t help but hear an ominous “ticking” sound in my head.  That plant is a time bomb and before long it will explode and corporate will have nothing but some great equipment. The time bomb I am talking about is the “know how” that is locked up in the heads and hands of the several hundred skilled and experienced workers in that factory.  

Yes they turn out great products and meet their numbers, but with a little digging and asking a few questions, the real size of the time bomb became evident.  There are at least three generations of product drawings and specs in the files.  In fact, much of the original product design drawings haven’t been digitized, they are still on paper, with scribbled annotations, in drawers spread out all over engineering.  Parts that were originally designed for one specification, say military with rigid requirements are being used in other applications where robustness, and therefore cost, is not the major concern.  

There are very few Value Chain maps of the important processes that move from customer order to customer delivery.  All that information is contained in departments which tend to act as islands, or silos when it comes to information sharing.

The capital equipment is on the balance sheet and being duly depreciated, but what about the “know how” in people’s heads?  Where is know how on the balance sheet.  Is anyone paying attention to the real value-added activities in this factory?

Until we start seeing beyond the numbers into the real value within an organization, the time bombs will keep ticking, and exploding.

Tight Lines . . . 

John R Childress

E | john@johnrchildress.com      T | +44 207 584 3774      M | +44 7833 493 999

About johnrchildress

John Childress is currently Visiting Professor in Strategy and Culture at IE Business School in Madrid and a pioneer in the field of strategy execution, culture change, executive leadership and organization effectiveness, author of several books and numerous articles on leadership, an effective public speaker and workshop facilitator for Boards and senior executive teams. In 1978 John co-founded The Senn-Delaney Leadership Consulting Group, the first international consulting firm to focus exclusively on culture change, leadership development and senior team alignment. Between 1978 and 2000 he served as its President and CEO and guided the international expansion of the company. His work with senior leadership teams has included companies in crisis (GPU Nuclear – owner of the Three Mile Island Nuclear Plants following the accident), deregulated industries (natural gas pipelines, telecommunications and the breakup of The Bell Telephone Companies), mergers and acquisitions and classic business turnaround scenarios with global organizations from the Fortune 500 and FTSE 250 ranks. He has designed and conducted consulting engagements in the US, UK, Europe, Middle East, Africa, China and Asia. Currently John is an independent advisor to CEO’s, Boards, management teams and organisations on strategy execution, corporate culture, leadership team effectiveness, business performance and executive development. John was born in the Cascade Mountains of Oregon and eventually moved to Carmel Highlands, California during most of his business career. John is a Phi Beta Kappa scholar with a BA degree (Magna cum Laude) from the University of California, a Masters Degree from Harvard University and was a PhD candidate at the University of Hawaii before deciding on a career as a business entrepreneur in the mid-70s. In 1968-69 he attended the American University of Beirut and it was there that his interest in cultures, leadership and group dynamics began to take shape. John Childress resides in London and the south of France with his family and is an avid flyfisherman, with recent trips to Alaska, the Amazon River, Tierra del Fuego, and Kamchatka in the far east of Russia. He is a trustee for Young Virtuosi, a foundation to support talented young musicians. You can reach John at john@johnrchildress.com or john.childress@theprincipiagroup.com
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