Charles T. Krueger, Ph.D.

People Process Culture Chair, University of Wisconsin-Stout

An edited version of this article was the cover story in the May-June, 1999 issue of

Precision Manufacturing magazine.

How does a company like Phillips Plastics Corporation maintain an average return on equity of more than 22% for 34 years? Certainly its capacity to focus on customers, innovate, take intelligent risks and manage its growth from 13 people to more than 2,000 are some of the reasons for its successful and profitable standing. Yet the people who built this high performing plastics organization are quick to advise that these admirable organizational characteristics are secondary to the real ingredient for its success-the organization’s People Process Culture!

Research at the University of Wisconsin-Stout about high performing people centered cultures, has identified some of the key characteristics that make up a high performing People Process Culture as found in Phillips Plastics Corporation. These key characteristics are easily understood by leaders, but difficult to put into daily practice.

• Meaningful Values
• Big Goals
• Walking the Talk
• Elevated Communications
• Long-term Survival Mentality
• Making the Tough Decisions
• Super Alignment
• Common Sense and Balance
• Nobody is Perfect, Let’s Learn
•  All People Benefit

High performing people centered organizations tend to have clear core values that relate to the importance of people. The core values are more than slogans; they are the way the business operates all the time. They are, in fact, the basic underlying beliefs that affect people’s behavior and their patterns of interactions. Bob Cervenka, a founder and the CEO of Phillips Plastics Corporation, continually communicates two primary core values, "When each of us understands, believes and practices that all people are important, and we, too, will realize that people working together will achieve more." These two core values permeate the organization. They are the foundation of the People Process Culture.

"If you stop and think about what’s involved with the whole process of taking someone’s idea and getting it through all those different phases of concept development, design, engineering, modeling, prototyping, tooling, manufacturing and then finally, customer sales and marketing-that whole sequence of events is tied together with people skills. If the people skills are good, we’re all going to be successful" (Cervenka). The successful daily practice of these people skills is highly dependent upon the culture. The foundation of an organization’s culture is its core values.

Leaders at Phillips Plastics speak and write about the core values more than a few times.

They also point out that core values also need to be widely communicated throughout the organization. At Phillips Plastics Corporation, posters, stationery, newsletters, the architecture and people constantly communicate the core values.

High performing people centered organizations like Phillips Plastics Corporation have vision. One way to communicate vision is to establish goals that are compelling and exciting. People see these goals as worthwhile to accomplish for themselves and others. Bob Cervenka uses the term "Humongous Goals." Phillip’s goals of a continuous average of 20% return on equity and 20% growth average per year, help to inspire and commit people to the future of the organization.

Leaders at all levels of the organization must always practice the espoused values. It may take months, even years to build a strong People Process Culture, but it takes only a few seconds of a leader’s behavior to destroy the belief people have in the values of the culture.

By "walking the talk," People Process Culture leaders at all levels create environments that foster open communication, build trust and facilitate teamwork. "Leadership is practicing respect for people," says Cervenka. Dick Stoltz, CEO of People Support Services, believes that the Phillips Plastics culture is captured succinctly in its "All People Are Important" core value. "The whole thing about the culture is that it is really a way of operating," he says. "Nobody has a private parking place and if you get here last, you park in the corner of the lot. We have different jobs but we don’t have privileges or perks that are different from anybody else’s." High performing people centered organizations work hard at reducing the status differences between people and departments. This includes the way bonuses are distributed. At Phillips Plastics, the executive level functions under the same bonus system as everyone else. An honest status reduction strategy like this is a signal that the company truly respects all people.

Some leaders just let the culture go off course. Many leaders are so preoccupied with the daily monster of running the business that they forget about the culture. We believe that leaders must spend time focusing on the culture, building and improving the culture. As an example, the Culture and Resource Team at Phillips Plastics Corporation includes the CEO of the organization, the CEO of support services, the vice president of marketing and sales and other executives. These leaders meet twice a month and spend time working on issues related to the culture.

High performing organizations like Phillips Plastics Corporation bring the communication process to a whole different level. There is an understanding that communication breakdowns damage relationships and effect the bottom-line. All internal communications are an opportunity to reinforce the core values. "One of the reasons Phillips has been so successful is because we have made internal communications a priority," says Leslie Lagerstrom, Phillips Plastics Marketing Services Manager. The planning, timing and quality of all of Phillips Plastics internal communication media and methods are indeed at a higher level than most organizations. "If all people are important, then all people deserve quality communication," says Lagerstrom.

Open communications mean much more than extolling "management’s sanitized version" of reality in the newsletter; it means telling the unvarnished truth and giving people access to the financial data the organization is using for its decisions. It also means providing access to people at all levels.

At Phillips Plastics Corporation, ongoing profit and loss statements are predominantly displayed in company lunchrooms and discussed openly in team meetings and in company publications. Debbie Cervenka, vice president of Marketing and Sales says, "the better we inform all of our people, the more effective each individual becomes in representing the capabilities and services we provide."

Open communications at Phillips also means that systems and processes are in place to capture and provide information on a "real time, as it happens" basis. Production statistics are posted by each workstation on the factory floor. This instant feedback tells everyone how well equipment and processes are performing

The Phillips communication methods also enhance the highly decentralized function of the 19 different locations. The core value of "working together" and communication are the glues that hold the structure together. "Decentralization makes us more competitive, but harder to sell, we have to understand each other’s businesses and focus on solving problems in order to communicate effectively with customers," says Debbie Cervenka.

At Phillips, listening is more important than talking. Truly listening to all people is "respecting all people." Communication is a shared responsibility. People are expected to proactively volunteer information and engage in communications. People take the initiative to "huddle up" to communicate ideas, deal with problems and learn about how to do things better.

In many low performing organizations, short term financial numbers drive action and behavior. Often in these kinds of companies, new approaches are shot down because the short term "numbers" are lower than expected. Each time this happens, people begin to lose confidence in the organization’s commitment to innovative projects. Slowly, but surely, people are conditioned to conform to the expectations of short-term performance. This short-term mentality leads to fewer effective management practices. People are often looked upon as an asset that is expendable; especially when some of the short term financial numbers are not being met. The resulting reduction in expense reinforces the logic of the short-term mentality. Managers lay off people then breath a "sigh" of relief that they met the numbers and gained a 2% margin.

People Process Culture organizations like Phillips have a long-term survival mentality. They exist as more than an economic machine. They exist as an entity that brings value to many people. They know that besides producing a particular product or service, they must perpetuate themselves as a work community.

Long term survival thinking also includes your people strategy. Respecting people means that you provide long-term job security and a quality work life. This belief along with an outstanding culture provides the organization with another competitive advantage-the ability to recruit and hire the most talented people that "fit" the culture. Nevertheless, even organizations with high performing people centered cultures occasionally face the reality of reducing the workforce. They do this, however, in a way that preserves respect and the outstanding culture they have created.

When things are going along well, it’s easy to support and promote a people process culture, but what happens when some hard decisions must be made that may appear to be inconsistent with a People Process Culture? Decisions like firing an individual in a key position that has been exceeding the profit goals or a decision to reject a very profitable contract opportunity are typical examples that we have researched. In each case the leaders’ decisions to fire someone or refuse to take on a profitable contract stayed true to the core values. In cases like these, the leaders understood that profit is subordinate to the core values. Phillips Plastics Corporation profits by practicing the values, not violating them. Leadership style can be situational, but managing by core values cannot be situational.

There are many systems practices that help sustain an organization’s culture. In traditional organizations, management practices such as performance evaluation, compensation, policies, procedures and to some degree, training, are "cranked out" to help keep things under control. Often the attempts are half hearted. By contrast, high performing people centered companies are careful to tightly align many, if not all, practices and systems to the core values. In his book, "The Human Equation," Jeffery Pfeffer delineates seven practices connected to profitable people-based companies:

1. Employment security
2. Selective hiring of new personnel
3. Self managed teams and decentralized decision making as the basic principles of organizational design
4. Comparatively high compensation contingent on organizational performance
5. Extensive training
6. Reduced status distinctions and barriers, including dress, language, office arrangements, and wage differences across levels.
7. Extensive sharing of financial and performance information throughout the organization.

At Phillips Plastics Corporation great care is taken to ensure that all of the above practices, and more (such as performance measures and architecture) are tightly aligned to the core values. Organizations that do not design their practices to fit the desired core values and strategy will not likely build and sustain a high performing culture.

One of the hallmarks of Phillip’s success is its ability to apply common sense thinking to the implementation of new operational and human resource strategies. Instead of taking on the next "flavor of the month" management technique, the people at Philips are able to invent the need management technique before it is written in the next business best seller. Or, they are able to evaluate how a new technique or theory fits or enhances the culture and the business goals. In several cases of Phillips Plastics Corporation’s history, they invented the technique they needed to meet the big goals and to maintain the culture. In 1964, for example, Phillips developed a "just in time" inventory process as a way to survive in the early years, not because some guru told them to do it. Risk taking was needed to meet the growth goals. Teams and teamwork supported their early survival strategy and, of course, the core values. Decentralizing into business units and empowering managers at those sites made sense at the time it was needed. With the decentralization came the need to document procedures and practices to assure quality from site to site, long before ISO 9000 was on the scene.

There’s a point where too much decentralization may harm the ability of the business to coordinate resources. There is a point where aimless empowerment becomes a disadvantage and where too much consensus building erodes quick responses to major opportunities. Phillips Plastics Corporation has been able to find the balance that works for them. The core values and the big business goals help serve as the counterweights for balancing decisions.

Companies like Phillips Plastics Corporation are quick to point out that they make mistakes and that they are by no means perfect. People make mistakes in a People Process Culture, including the leaders. Honest mistakes that do not conflict with the core values are learning opportunities. How mistakes are addressed and dealt with provides a good example of how strong a people centered culture really is. Allowing reasonable mistakes to occur engenders an environment of risk taking. Phillips Plastics is always on the cutting edge of developing products and new businesses. An environment that enhances intelligent risk taking will more likely result in insightful and creative innovations. Several times each year Phillips engineers gather from all sites to share best practices and mistakes. The insights that are learned by "all people working together" at these meetings are applied back at all the decentralized locations.

Tuition reimbursement programs, incredible technical training and outstanding soft skills training are some of the formalized components of the learning process at Phillips. Even more impressive is the informal learning process. The layout of the facilities, the core values, leadership, and incentives all facilitate the informal learning process.

After 34 years, Phillips Plastics Corporation has and still is learning how to successfully apply all of these strategies. Doing these nine strategies well leads to the capacity to quickly galvanize people to accomplish goals and minimize threats. People think big and they think resourcefully. They believe in the culture and expend their energy to commit to their belief in the culture. Quality goes up while the cost of quality goes down. Learning is rapid and quickly shared. This superior culture creates superb patterns of human interaction. When this happens, people unleash their creativity and power. All people benefit: employees, customers, suppliers, families and the communities in which they reside.

Reference

Pfeffer, Jeffery (1998) "The Human Equation," Harvard Business School Press, Boston, Massachusetts.

For more information about the People Process Culture and seminars, contact Dr. Charles Krueger, People Process Chair, Room 321 Home Economics Building, University of Wisconsin-Stout, Menomonie, WI 54751, Phone 715-232-1137.

E-mail kruegerc@uwstout.edu