Stream Theory: An Employee-Centered Hybrid Management System for Achieving a Cultural Shift through Prioritizing Problems, Illustrating Solutions, and Enabling Engagement

By Dmitriy Neganov

Managers' decisions and priorities can make or break a company, as shown by the collapse of industry leaders such as Circuit City and Westinghouse Electric Company. This is because managers aren't really there to manage, but to

• Language: English
• Publisher: Houndstooth Press
• Release date: Feb 28, 2023
• ISBN: 9781544538365

Dmitriy Neganov

Dmitriy Neganov, MBA, is a management consultant and leader dedicated to helping companies plan and implement complex changes. Dmitriy specializes in guiding organizations through risky and urgent projects such as business transformations and mergers and acquisitions. He offers traditional and custom solutions to client problems and ensures they deliver measurable and lasting value.Dmitriy designs, plans, and manages change across enterprises. He has deep knowledge of operations, finance, HR, IT, and PMO functions and has attained PMP and Agile certifications. His background includes mechanical engineering and information systems, with a career spanning more than sixty successful projects across a dozen industries.

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Introduction

It’s All Management’s Fault

On March 29, 2017, Westinghouse Electric Company filed for Chapter 11 bankruptcy, sixty years after it supplied the nation’s first commercial pressurized-water reactor for a nuclear power plant in Shippingport, Pennsylvania. It was a tragic end for a company with many firsts. Their downfall was not sudden but rather the result of long-term issues that plagued the organization for some time. These issues caught up with Westinghouse as it was building two nuclear power plants, one in Georgia and one in South Carolina.

Long manufacturing and construction lead times and regulatory approval delays led to an estimated $13 billion cost overrun, putting two projects on hold, leaving their future in doubt. Blame for the failure was thrown around between Westinghouse, Shaw Group, who manufactured the components for the reactor, and the Nuclear Regulatory Commission. Poor and constantly changing requirements, new and stringent regulations, inadequate manufacturing controls, and poor management were all cited as reasons for the problems.

Westinghouse was hoping to revolutionize the industry by introducing a new process for building nuclear reactors, which was centered on the idea of standardization through the use of prefabricated parts. Reduction in cost and speed were the main selling points of the new approach, topped off with increases in safety. The end result was anything but the expectations. One of only a few companies in the world with technological know-how and manufacturing capabilities to complete such large-scale complex projects with clean energy in high demand, with a nuclear industry going through what some called a renaissance, this company went from the desire to revolutionize the way nuclear plants were built to filing for bankruptcy.1

Circuit City, one of the great success stories of American retail, started its story in 1949. By the year 2000, the company had over 600 stores with sales north of $12 billion and earnings reaching over $300 million. In 2001, it was featured in the famous business novel Good to Great. In 2003, it climbed to number 151 on the Fortune 500 list. On November 10, 2008, Circuit City filed for Chapter 11 bankruptcy. It was a devastating story that impacted thousands of employees and many communities, showing a rapid decline from its peak in just a few short years. At the same time, its main rival, Best Buy, not only survived the Great Recession but was able to transform itself to effectively compete in the new era of online retail.

A lot has been written about the rise and fall of Circuit City, and the primary reason for its demise was attributed to poor management. The company, despite record performance, was under heavy pressure from Best Buy, which caused management a lot of angst and led to various actions that ended up backfiring, including a poor product mix offered to consumers, termination of top salespeople, as well as distracting projects such as CarMax and the DIVX technology launches. The constant search for cost efficiency led to the elimination of a key product line and top talent and negatively impacted the overall quality of service, ultimately leading to Circuit City’s failure.2

Best Buy, on the other hand, despite surviving the worst period of the Great Recession, was also heading down the same hole, showing a loss of $1.7 billion at the end of 2011. The company realized a major change was needed. A new chapter started with the arrival of a new CEO, Hubert Joly, in August 2012. The transformation took the company’s stock from less than $12 per share in December 2012 to over $120 per share in November 2020. Best Buy needed a change and needed it fast, or it would end up like its former rival.

There were many things Hubert Joly did to turn the company around, but the most surprising and powerful change was in how the company started viewing its employees. Instead of treating employees as costs to be minimized as his predecessor did, Joly saw them as an asset to be cherished. He started by prioritizing the creation of meaning for his employees. Specifically, one of Joly’s first changes was to describe the company’s purpose and to encourage Best Buy’s managers to listen to employees’ dreams and help connect their dreams with Best Buy’s purpose. It was viewed by many as a controversial idea, but it turned out to be the most powerful one.

In his November 2018 interview for Twin Cities Business magazine, Hubert Joly said, Making money is a company’s imperative…but it’s not the purpose. I believe the purpose of a company is to contribute to the common good: its customers, its employees, and the community in which it operates. If you can connect the search for meaning of the individual with the purpose of the company, then magical things happen.3 Comparing the cost-cutting approaches of Best Buy and Circuit City, it is easy to see the difference.

In Alan Wurtzel’s opinion, who was Circuit City’s CEO from 1972 until 1986 and a board member until 2001, it was economically essential to reduce the cost of sales and to reduce commissions as a percentage of sales.4 This strategy, out of the gate, positioned itself in conflict with employees and their interests. On the other hand, when Joly was looking to cut company costs, he first looked to make business processes more efficient, gaining approximately 80 percent of the $2 billion savings from nonsalary expenses. The rest came from eliminating roles not essential for customer experience, such as various middle-management positions.5 As seen in the Best Buy example, there are ways to manage expenses while empowering your employees and creating loyalty. All you have to do is put your people first.

In both cases, Westinghouse and Circuit City were driven first and foremost by profitability, achieved specifically through cost reduction. When a decision had to be made, it was made in favor of minimizing expenses, often starting with the largest expense-line item—the employees. This, understandably, had a negative impact on the workforce, their working environment, their attitude toward the company and its products, and ultimately, their relationship with the customer.

Best Buy, on the other hand, built its entire strategy around the employees. They were viewed as assets rather than expenses. Listening to people and applying their knowledge had become an expectation of management, and it required appropriate prioritization when it came to investment allocation. It was a new and even radical idea, as seen by many, but it turned out to be the best one. As a result, various improvements were made across the board, positively impacting supply chain, client experience, and employee turnover, leading to an increase in maturity of the overall market value proposition.

Having spent much of my career designing and implementing management systems as well as managing projects, I have come across many organizations that had a mentality very similar to that of Circuit City. In fact, one of the more common reasons for embarking on a merger or acquisition project is to achieve a certain economy of scale and reduce operational expenses by eliminating a percentage of the workforce. A lot has been written on the topic of cost-driven mindset and its dangers, yet the problem remains. Companies continue to prioritize short-term benefits, which can be attained by resource reductions, over long-term benefits, which would require a change in our definition of value and management’s role in creating