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Speaker A We saw the Australian mining industry in competition with low wage countries such as Brazil or South Africa, and with high productivity companies who were located close to the major markets in America or in Europe. And we wanted to be certain that we could be competitive with them. And we started by comparing ourselves with Canada and we found there was a big opportunity for improvement. I read a couple of hundred books about how you could improve organization to see if I could catch up with what the latest thinking was. And in this absolutely unreadable book that you've probably all heard of, I saw a graph on page 173. And there's the graph or put in a rather larger form. That's what it looks like.
Speaker B Sorry, can you just stop there?
Speaker A Okay, you can continue. And I thought, that looks like the energy levels of electrons going round a nucleus. And I said, this is the first time in any of the reading I've done that there seems to be some scientific analysis underpinning some suggestions to improve operating what. So I said, I've got to meet this man. And we got on to Elliot through Wilfred Brown and through Mark Turner in London, and that's where we started. What happened when Elliot came is we suggested he start by going to our iron ore business, Hammersley. And he did that for six weeks or so. And he came back and he said, you have to organize the whole of the CRA group in a different set of principles so that the people in Hammersley can improve their productivity. And so we started on a program for the group as a whole, but we started in a particular area and went on from there. We selected Woodlawn as the mine in which to start because there was a man called Mike Blackwell. He was a very clever man, a road scholar. He'd worked in the group for ten years and he wanted to make certain that everybody felt that Woodlawn was a good place to work. And Woodlawn was a very good place to work, and people wanted to work there, but it wasn't getting the output that was necessary. So we thought if we started to work there to see whether we could improve the productivity, that was a sensible way of starting. The first thing was to ask how do the managers add value to the people who are actually digging the ore out? And how do we make certain that the managers all add value? And that can only be measured through the productivity that's actually achieved and the progressive improvement in that productivity. Woodlawn was a lead and zinc mine, it was near Canberra, had about 400 employees, and that was where we started. And having worked out some principles, looked as though they would add value in Woodlawn, we then went and extended that within the lead and zinc group that at this time, Jack was running both in the smelter at sulfide Corporation and at the mine at Broken Hill. If you asked me what were the key principles that we learned, it seemed to me there were four or five. The first one was the definition of the manager and that the manager ought to have four authorities over all of his subordinates. First was the opportunity to select somebody onto his team. The second was the ability to remove somebody from his team after going through new due process. The third was the power and authority to assign the work that had to be done, what is to be achieved by when. And the fourth was to have the opportunity to differentially reward people on the basis of their performance for authorities. The manager had to have them. And those were absolutely fundamental as our starting point. Second, I think, principle was that work in managerial terms is the exercise of discretion focused around moving the international competitiveness of the business ahead. So that was a second principle. I think a third principle was a commitment we made as a group to training people to improve their personal effectiveness. And that meant a commitment of 5% of our wages bill to training. The fourth was, I think, a shared terminology, a common language used across the whole of the group so that we were able to communicate more effectively. One of the things which we found is that we had had a five year planning process where you plan for five years, et cetera. And we found that that was the last two years of those year. Four and five were really adding no value. So we cut that back to a three year plan and we found that that turned out to be much more realistic to all the general managers throughout the group who were really the people doing the planning work. And that laid the basis for the planning meetings with the managing director of the business unit, with the general managers, et cetera. True.
Speaker B Well, I was subpoenaed into the role because Mike Blackwell, whom you heard talk about as the GM at Woodlawn, reported to me as the managing director of that particular unit. Mike and I discussed the problems we were having in getting product out of the gate and I agreed with Mike's suggestion that he should contact McKinsey and see what could be done through them to improve our processes. Rod, unbeknownst to us, was talking to McKinsey at the same time about their views. And as soon as he heard he had a couple of willing bunnies, we were brought into the fray, and we were happy to agree to piloting the program. And we used McKinsey to help us in the analytical work and the principles that Elliot had brought, because Elliot came out with us. And although he wasn't working on site, he visited site. And then we worked with some of the Woodlund people under Mike's general direction to do a survey of what in fact was going on when people were managing. Well, when you see an organisation chart and you see one person reporting to another, you expect that the person doing the reporting will acknowledge that the superior is ultimately in charge and that he must carry out the orders that the superior gives. In fact, we found that there were will, I say, illegitimate lines of command where people who didn't appear on the organization chart were actually running the commands that were undertaken. And it wasn't a matter of union dedicated or anything of that nature, it was simple human nature that capability and leadership came into it. And because someone was appointed to a role that didn't necessarily make him or her able to fill the role and of course we had to be able to tell the managers what was expected of them for what were they accountable? And that hadn't been done before either. A lot of workshopping, the fellows who were succumbed onto the task went out into the field and just observed who was doing what, who was telling what and what happened. And after that was done they'd report the results not just to the GM but also to the people who were being surveyed and a general discussion came from that. And by going across the whole business, the whole site in case of Woodlawn, we permeated the principles on which we were evolving to the workforce and to the management particular.
Speaker A We had to get that clarified for Woodlawn and see the benefits in Woodlawn before we were confident that we would be prepared to go anywhere else.
Speaker B Of course, yes, Woodlawn was very much the test scheme and because we could see tangible results coming through, that gave us confidence to move on out. And we stayed within the Australian Mining and Smelting Group, the lead zinc arm, and we moved, I think, to Sulfide Corporation and Broken Hill immediately after we did Woodlawn.
Speaker A Sulfide as a smelter with a 24 hours day operation around the seven days a week. And the very large mine at Broken Hill gave us an opportunity to see whether those same principles would extend out.
Speaker B Broken Hill was over 2000 employees at the time at the Zig Corporation new Broken Hill mines. It certainly took, I was going to say almost ten years. It's a long period and it's never finished because the ones you started out with, of course, drop back according to the developments you make as you go down the track with later business units.
Speaker A We would probably, I suppose, jack it'd be to say that by the time you extended to Kamalco, et cetera, we had 25,000 employees and so it was covered over and let's assume they were an average of 1000 people in a business unit. You're talking about 25 separate businesses on average and that sort of scale of operation. Some of them were smaller, like salt, and some of them were bigger, but it was a very big undertaking to improve the managerial effectiveness across the whole business over a ten year period.
Speaker B The other important point I want to add to what Rod said earlier. One of the commitments that he has made as CEO was to training, and the key principle was to what was called the General Managers Development Program. The general managers are operating at what we call level four, and they were in charge of the various operating sites across the group in exploration and the whole spectrum of CRA's activities. They attended a ten day residential course and we were able to use those people as a sounding board for the practices and principles we were developing using Elliot's work and our own observations. So one of the ways of disseminating, which is a key way, was in fact running the General Managers Development Program. I wouldn't use the word collegiate in the sense of the accountability of general managers. That was absolute and they were absolutely accountable to their superior, the managing director of the union.
Speaker A We had the feeling that people had to work together in a common language, but that was different from the accountability that a person had for his job and for his subordinates getting the output to work done.
Speaker B That's right, yes. One of the things that surprised me was the very vigorous debate we had about whether a supervisor was a manager and what was the first level of management in operating site. Many of our people who I regarded as very good managers had spent a lot of time and effort into building their supervisors into managers. They'd been to training courses and all the rest of it. But the difficulty we had, and Rod and I and Elliot talked about this endlessly, was when we used the criteria we developed for what is our manager veto selection to the team, assigning tasks, reward for performance and initiate removal from the team, which Rod stated in a different way. We had found we had never given these accountabilities or authorities to supervisors. They inevitably came to the next level up.
Speaker A It was a year before everybody was prepared to accept that decision that there wasn't a manager.
Speaker B It was a very vigorous and time consuming debate.
Speaker A Absolutely right. Yes. I think I'd have another one if I could suggest a thing that surprised me. It surprised me how difficult it was to get the manager once removed to take the accountability for the human development and promotion of the people who were his subordinates. Once removed.
Speaker B Yes. I think this is one of the most critical principles of all. In the work we did traditionally, the manager had been accountable for assessing performance and recommending or not recommending promotion. We getting the notion of capability levels accepted fairly early in the piece. That Elliott's thesis of a manager one removed being the best person to judge who could work at the next level to that manager. In other words, the question facing the manager one removed is could this person work effectively for me as my direct subordinate? That is quite a different mindset from a manager saying could this person take my job or work in the equivalent level?
Speaker A Let's assume that Jack, in his line management position, had 100 subordinates once removed. And let's assume that he was going to have an interview with everybody once a year for a minimum of an hour. Then he had probably with planning and thinking of it afterwards, he was probably committing 300 hours a year to the development of the personnel. And that's a very big commitment. And of course, it was not something that people had been used to doing and it was very difficult.
Speaker B Well, because they weren't used to doing it, they didn't value it. And so it had to be sold as something that was we couldn't just tell them to do it and expect them to do it. We had to get the manager one removed to say this is worth doing, and own it. So we put a lot of effort into this process in the general managed development programs. And by and large at those programs, we did win acceptance for it. The other thing which I want to add to what Rod said about, apart from the personal interview, say, lasting an hour, the manager one removed in the planning process is expected to consult with his or her immediate reports and their reports as a team. And in that context, the manager one removed is able to see how those subordinates one removed are inputting and their understanding of the issues being faced by the business unit. This gives a good idea of the quality of the leadership being exercised by the reports to the manager one removed with those subordinates, which is an important point in assessing the future of that particular manager.
Speaker A What were the improvements? And I think Jack will have a number of but there's only one thing that I felt I had to do, which is the competitive position of our business. And Hammersley put out a graph this year of showing the way in which their labor productivity had gone. And I just want to show this, and here it is over a long period, from 1970 through to a bit after the year 2000. And you can see that the productivity is flat until about 84 or five, when suddenly it starts to pick up, when the principles are in and we're getting the managerial effectiveness. And you can see the steady increase. And that wasn't from more investment in the business, that was because everybody was starting to work together more effectively. And so we believe that that sort of improvement is possible in every business on a sustained basis, that you can make five to 7% per annum systematic improvement as a result of handling the managerial effectiveness better.
Speaker B I could add to that, Rod, that one of the key things the managing director at that time put a lot of emphasis in selecting the right people for providing good managerial leadership at all levels and had a lot of leadership programs running right through the site down to the first line managers. And I think that that work he did in improving the quality of leadership was a major input into that productivity improvement we can see there.
Speaker A Thank you very much for giving us the opportunity to tell you a little about what we did. It's very hard to condense into a 20 minutes talk what took us ten years. Luckily, you're going to be hearing about from a lot of other people who are involved, such as Mark Kaminsky and Lee Clifford, and we will wish we were there to be able to talk with you as well. We hope that this conference leads on to a reexamination of Elliot's work and the way in which could be applied now. And thank you very much for giving us the opportunity.