Meridian Group - Company Culture Consultants

Take it From Warren Buffett:
Tap New Resources and Use Culture to Build Your Economic Moat

I logged onto Morningstar.com to check on one of my favorite stocks and saw the term "Economic Moat". Searching the web revealed that the term comes from Warren Buffett, the world's second richest person, who apparently got that way by successfully taking the long view. Buffett's favorite companies have a long-term competitive advantage that he calls their "Economic Moat", a unique barrier that keeps competitors at bay.

Morningstar describes six elements of this moat—quoted here with permission from the source Morningstar.com:

Few managers can affect Market Share, Patents, High Switching Costs or a Network. Fortunately the other two, Low-Cost Producer and Unique Corporate Culture, are highly manageable and closely related.

Be the Low-Cost Producer: Tap an unused Profit Source

In these tough economic times, capital is under the microscope, so you have to look elsewhere for leverage. Fortunately most people want to bring more of themselves to the job. But, many are jaded from past experience and know that management often doesn't know how to ask for this and certainly won't appreciate the extra effort if voluntarily delivered. So, they bring what they think is appropriate—usually around 20%. In any economy—but especially in this lean one, it might just be the time to go after that other 80%.

Creating a High Productivity Culture

A company that realigns its culture to truly engage its people in constant improvement stands out from the crowd and builds a wide and deep economic moat.

One of our clients changed their culture to deeply engage all employees in the overall production process. As employees focused on improving systems and reducing waste, costs dropped to one half of what they were when we started. When a visitor asked the Plant Manager how he did this, he modestly replied, "They (employees) wouldn't have it any other way."

How did they do it? The manager set the stage.

What Management Can Do To Create a Productive Culture

Our client's manager had worked very hard-leading his management team to change their ways from the usual top-down style to one of openness and true teamwork. The plant culture evolved from the usual fear-of-speaking-out to one where people felt safe to be open, bring their creativity, and take responsibility for not just their own job but for everything that came before and after.

With everyone actively analyzing and improving the overall system and production processes, it was no wonder that the plant soon became the outstanding low-cost producer in its field. Among the other benefits that came as the plant culture evolved were:

Turnover fell.

Lost time injuries fell.

Product waste was almost eliminated.

Fewer management and supervisors were needed and those who remained took on new, more consultative roles.

Product quality improved.

Sales rose.

Workers compensation and medical costs dropped.

Attendance improved.

Job applicants for vacancies rose from half a dozen to hundreds as the plant became the preferred employer in the area.

Employees noted that along with less stress at work came an improved home life.

Morale was striking-people obviously liked to come to work.

Suppliers and customers liked to visit the plant and work with employees to improve their part of the production process.

You don't have to be Warren Buffett to see that tapping into your people's unused 80% and developing a productive corporate culture are low-cost or no-cost ways to build your own Economic Moat.



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	A Better Workplace --- Meridian Group's Newsletter, Number 17, 3-16-03

	Take it From Warren Buffett: Tap New Resources and Use Culture to Build Your Economic Moat I logged onto Morningstar.com to check on one of my favorite stocks and saw the term "Economic Moat". Searching the web revealed that the term comes from Warren Buffett, the world's second richest person, who apparently got that way by successfully taking the long view. Buffett's favorite companies have a long-term competitive advantage that he calls their "Economic Moat", a unique barrier that keeps competitors at bay. Morningstar describes six elements of this moat—quoted here with permission from the source Morningstar.com: Huge Market Share: The firm enjoys economies of scale—tough for a competitor to catch up. Low-Cost Producer: Especially potent in commodity industries. Patents, Copyrights, or Governmental Approvals and Licenses: Protected products or services. Unique Corporate Culture: "There's no question it can make a difference." High Customer-Switching Costs: Make it easy to keep ratcheting prices up. The Network Effect: Benefits the first mover in an emerging technology, e.g. Microsoft and related software companies. The network's value increases as more people use it and makes it difficult for others to enter. Few managers can affect Market Share, Patents, High Switching Costs or a Network. Fortunately the other two, Low-Cost Producer and Unique Corporate Culture, are highly manageable and closely related. Be the Low-Cost Producer: Tap an unused Profit Source In these tough economic times, capital is under the microscope, so you have to look elsewhere for leverage. Fortunately most people want to bring more of themselves to the job. But, many are jaded from past experience and know that management often doesn't know how to ask for this and certainly won't appreciate the extra effort if voluntarily delivered. So, they bring what they think is appropriate—usually around 20%. In any economy—but especially in this lean one, it might just be the time to go after that other 80%. Creating a High Productivity Culture A company that realigns its culture to truly engage its people in constant improvement stands out from the crowd and builds a wide and deep economic moat. One of our clients changed their culture to deeply engage all employees in the overall production process. As employees focused on improving systems and reducing waste, costs dropped to one half of what they were when we started. When a visitor asked the Plant Manager how he did this, he modestly replied, "They (employees) wouldn't have it any other way." How did they do it? The manager set the stage. What Management Can Do To Create a Productive Culture Our client's manager had worked very hard-leading his management team to change their ways from the usual top-down style to one of openness and true teamwork. The plant culture evolved from the usual fear-of-speaking-out to one where people felt safe to be open, bring their creativity, and take responsibility for not just their own job but for everything that came before and after. With everyone actively analyzing and improving the overall system and production processes, it was no wonder that the plant soon became the outstanding low-cost producer in its field. Among the other benefits that came as the plant culture evolved were: Turnover fell. Lost time injuries fell. Product waste was almost eliminated. Fewer management and supervisors were needed and those who remained took on new, more consultative roles. Product quality improved. Sales rose. Workers compensation and medical costs dropped. Attendance improved. Job applicants for vacancies rose from half a dozen to hundreds as the plant became the preferred employer in the area. Employees noted that along with less stress at work came an improved home life. Morale was striking-people obviously liked to come to work. Suppliers and customers liked to visit the plant and work with employees to improve their part of the production process. You don't have to be Warren Buffett to see that tapping into your people's unused 80% and developing a productive corporate culture are low-cost or no-cost ways to build your own Economic Moat.