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The ARC and Vero's excellent adventure

Friday 5th December 2003

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When the Auckland Regional Council got one of two silver level achievement gongs at this year's Business Excellence Foundation awards The National Business Review copped a call from an outraged ratepayer.

"How can they get an excellence award," the caller bellowed, "after what they've just done with our rates?"

While understandable, the reaction was somewhat missing the point. Rating decisions are made by the ARC's elected councillors. But the more efficient and less bureaucratic the organisation itself is, the less pressure there will be to raise them.

"It's a bit like making sure your car is properly maintained, that your tyres are pumped up. Then your car runs better and you know you're basically secure and you're going to get from A to B," ARC chief executive Jo Brosnahan says.

"It's a way of making sure all your processes are strategically aligned and as efficient as possible, that you've got good leadership, good information, good human resources processes and good customer focus."

It all sounds very fine. But in a nation of small businesses, who has the time for such things?

Foundation chief executive Mike Watson concedes the process at the national level is "incredibly rigorous" and says a streamlined version is being developed for the small-to-medium sized enterprise market.

Even so, "we provide a lot of services and audit and it doesn't take a lot of the CEO's time ­ perhaps half a day per audit plus time talking to management."

Nor does it cost that much. For an organisation with 50 employees, membership is around $1000 a year. The ARC's Brosnahan estimates this year's application would have cost $6000-8000.

Perhaps because of the number of buzzwords involved ­ the foundation's literature bristles with expressions such as "customer-driven excellence," "managing for innovation" and the now-inevitable "social responsibility" ­ chief executives report one of the first hurdles to overcome is internal scepticism.

"When we embarked on the exercise," says the chief executive of silver-level company Vero, Roger Bell, "some of our senior executive team assumed it would be a project run for political correctness reasons."

"Oh yeah, you do get that," agrees the ARC's Brosnahan. But she says the cynicism has melted away this year.

"Once people have realised the benefits it can bring to them personally in their area of endeavour, the light can come on."

Part of the cynicism stems from doubts the exercise will create shareholder wealth.

Brosnahan spent a year in the US studying leadership and recalls talking to a Baldrige-devoted CEO who had taken a private hospital company's revenue from $130 million to $1.3 billion.

If you get the people right, the values right and the strategy right, he told her, the bottom line will look after itself.

The foundation's Watson can produce acres of data showing the financial rationale for following the Baldrige criteria.

One study measured the share price gains of Baldrige national award winners against the S&P500 index over a range of dates from 1988 to 1996.

Basing the index at 1.0, the winner's prices rose to an average of 2.9 and "pure play" winners (the whole corporation as opposed to divisions or subsidiaries) to 3.45.

Given those data, Watson says, it's interesting that in New Zealand public sector organisations are outstripping the private sector in Baldrige programme participation.

Trade New Zealand (before it became part of New Zealand Trade & Enterprise) is a previous bronze winner, being joined this year by Whangarei District Council and the Royal New Zealand Navy.

Hutt City Council got a progress award and the Inland Revenue Department, the police and the Fire Service are participants.

Vero's Bell says the alignment of all of the company's functions gets results both in customer service and in profitability.

Product design, for instance, had traditionally been the preserve of a group of enthusiasts who thought "that's what the market wants.

"The criteria gave us a model to ensure [the product] meets everyone's needs ­ shareholders, customers, distributors, business partners, staff, finance, the IT department and the community."

One example was parts of the country that had been written off as uninsurable because of flood risk.

"The criteria require you to engage with that community and find out what it needs. We found they may not want to be insured for every item of their business or household contents.

"But they might need advice on loss prevention. We've got an army of surveyors who can give advice on how to minimise flood impacts."

In short, sharing knowledge and having everybody pulling in the same direction gave Vero the ability to offer tailor-made, not off-the-peg policies.

"The criteria are the only way you will ever know if you are world-class," Bell enthuses.

"I could go to New York or London and be in a world-class environment. But I want to be in a world-class environment right here."

Vero, like the ARC, aims to achieve gold status in 2006. There is, of course, a danger.

A former employee of Telecom Yellow Pages, one of only two gold winners to date, says an arrogance came over the organisation after it won.

"People would go out and see companies and come back saying, 'They're doing such-and-such all wrong.' But some of those companies were doing some things really well. After we got gold we stopped learning."

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