Exclusive: Secret Sauce

In 50 years, the Costa Group, Australia’s largest private wholesaler/distributor and exporter of fresh produce, hasn’t suffered a single industrial dispute.

Managing director and panellist Simon Costa told the 2008 Supply Chain Business Forum panel on leadership, vision and innovation that while staff turnover in the sector can be as high as 30 per cent, Costa remains below one per cent.

“Productivity and service levels are high in any week,” he says, “with staff consistently averaging 0-3 errors per million cartons.”

Costa believes the key to achieving supply chain execution excellence is a reversal in the traditional ‘systems, process, people’ model.

“There’s a fundamental difference in the way we run our business,” he told the invitation-only Forum, an initiative of international supply chain expert John Gattorna.

“Through our Character First program, we focus on developing the right people. Systems and process follow.”

“The resulting service levels have prompted our current growth into grocery, freezer, dairy and meat distribution.”

Visitors to Costa sites often find it difficult to believe a performance above industry standards has been produced without financial incentives.

“Our staff receive normal hourly rates of pay,” Costa says.

“It’s all about feeling part of a team that’s really achieving results. At the end of the day, people work for money but pride in doing a good job comes equal first or close second.”

So important is the Costa Group philosophy of Character First, that it has become a company campaign. Every month employees across the business stop work for close to an hour to talk about character.

Qualities such as dependability are discussed in relation to life and the workplace. People who’ve benefited the company by demonstrating a particular trait are recognised and awarded.

“There were managers who questioned the cost of stopping work each month, because they couldn’t predict the savings,” Costa says.

“The costs of inefficiencies and rework simply fell away. Once the culture was right, profit took care of itself. But without leaders living it out front, Character First could never have taken hold.”

Current research bears this out, according to panel chair and Emeritus Professor, Macquarie Graduate School of management, Roger Collins.

“The most successful companies are those where senior leaders communicate with their people at least 30 times a year, be it face-to-face or through video conferencing,” he says.

“They talk to staff about the purpose of their organisation. ‘Why do we exist? And furthermore, what are our goals and what’s our strategy? How are we going to achieve those goals?’”

“And finally, as Simon Costa suggests, they discuss the values that guide company behaviour.”

“Senior level management must also communicate performance,” Collins adds.

“For example, how are we going against our objectives? What’s the gap?”

While the role of corporate leadership in setting the context within a business is essential, Collins says it isn’t enough in itself.

“I think we’ve now reached a turning point in our understanding of leadership,” he says.

“More organisations are moving away from the concept of leadership as an individual contribution. They’re now thinking of it as collective behaviour — or ‘distributed leadership’.”

According to Collins, distributed leadership functions at two further levels beyond corporate management.

“Local or ‘direct’ leadership occurs at middle management level with managers who have responsibility for staff who touch either suppliers or customers in the supply chain,” Collins explains.

“At the local level, we know that the role of the leader is more productive if managers pay attention to what staff members do right rather than what they do wrong.”

“They’ve got to find ways of giving positive feedback at least three times more frequently than negative feedback if they’re going to win the hearts and minds of their people and create high engagement.”

“Staff engagement creates the third level of distributed leadership; that of self-leadership,” Collins says.

“This is where staff engagement at all levels of the organisation allows for decision-making that’s consistent with where the organisation’s going.”

“Engaged employees not only talk about their organisation in a positive way, opening opportunities for future talent attraction, but they’re also less likely to leave.”

“In terms of turnover, we find people are more likely to leave a job if their manager’s no good, not because their job isn’t challenging.”

“Finally engaged employees will give you more than you ask; they’ll go over and above what’s expected of them in their work.”

“Essentially, distributed leadership starts with senior leaders who then engage local leaders in a way that leads to self-leadership.”

“It’s about having employees that don’t require supervision or direction because it’s clear to them what they have to do, and they have the engagement and the commitment to be willing to do it.”

Clearly, recruitment forms a major component of this process.

Roger Collins says it’s critical to hire people whose values are aligned to those of the organisation.

The Costa Group takes this philosophy further.

“Management literature often says ‘People are the company’s most important asset, look after your people’,” Simon Costa says. “That’s wrong. It’s the right people who are essential to a business. The wrong people will bring you undone every time.”

“We believe there’s nothing about the industry that can’t be taught,” he explains.

“As interviewers we’re the slowest in the world, incorporating numerous character based questions. Whatever it costs, we get it back – with the right employees who don’t leave.”

Panellists recognise a very intimate link exists between strong leadership and the innovation required for global competitive advantage.

Macquarie Graduate School of Management Dean and panellist Roy Green argues that knowledge creation and diffusion are at the core of economic activity.

“Innovation is a complex, non-linear process with multiple sources,” Green says.

“However, recent data shows that investment in research and education is a key driver of scientific output internationally — an area where historically, Australia is found wanting.”

“We’re seeing a reversal of the decades-long deterioration in Australia’s terms of trade, but for how long?

Currently in Australia a paltry 4 per cent of GDP is invested into higher education, research and development.

Compare this with over 6 per cent in Finland and close to 7 per cent in Denmark.”

As a country increasingly losing its manufacturing base, Green believes it’s pertinent to compare Australia’s corporate and governing mindset with that of Ireland, which has turned a similar predicament into an advantage.

“Ireland currently has the largest global percentage of high technology industry exports,” he says. “At close to 60 per cent this is higher than the US and the OECD.”

“Australia, by contrast has less than 20 per cent high technology exports.”

What is causing this gap?

Roy Green quotes the Irish National Development Plan of 2000 for a hint: “There is a strong link between investment in the research and innovation base of the economy and sustained economic growth.”

“The accumulation of ‘knowledge capital’ will facilitate the evolution of the knowledge-based economy.”

“It’s also clear that developing the knowledge required for innovation requires successful partnerships through strong leadership,” Green says, “which evolves through structured collaboration, networking, spill-overs, and diffusion within and between organisations.”

“According to research by Ecotec, the top critical success factors for global innovation include networking, innovative technology and human capital respectively,” he says.

Roy Green describes high performance management and work systems as ‘clusters of effectiveness attributes’ which release creativity.

“While our institutions are essential components of global innovation and economic performance, technological adaptation and workplace learning depend on human capital and organisational effectiveness which Australia is yet to fully develop.”

Panellist Dina Oelefsen, Principal of Leadership Development (SA), concurs, pointing to still prevalent misalignment within our institutions as a major cause of cost, uncertainty, reluctance to make capital investments —and ultimately as an inhibiter to innovation.

“Where relationships are weakening and there’s increasing conflict between teams, it’s a sure sign of gaps in the leadership,” she says.

“Misalignment occurs in two main forms. Where structural incompatibility exists, slow decision making, double messages and communication break-downs contribute to diffuse work levels and red tape.”

“Where values are incompatible, power imbalances, lack of transparency and perceived hoarding of value can result in a lack of trust which erodes effective functioning and the ability to be innovative.”

Roger Collins believes the ‘ground up’ approach common in supply chain businesses sometimes works against them.

“Organisations go through many stages of growth from start-up to maturity,” he says. “Sometimes you need different leaders at different stages in the lifecycle of the company.”

“The very person who starts the company may not be the best person to grow it or manage it in difficult times.”

An extension of this idea is that supply chain leaders are failing to delegate tasks they once performed to make room for strategic thinking.

“Anxieties rise when we move outside our comfort zone or areas of competency, and no-one wants to look stupid,” Dina Oelefsen says.

“Leaders need to stop meddling and focus on thinking long-term, rewarding contribution rather than output and contracting clearly to empower their people both inside and outside the organisation.”

Like Roy Green, Roger Collins argues that successful supply chains require the kind of collaboration and coordination that can’t be achieved without high levels of trust and communication.

“I think too often we assume that somebody who’s good in one industry will be good in another but the evidence suggests that’s not the case,” he says.

“Unless a chief executive understands the unique demands of good supply chain management, they probably won’t make it work.”

But what are the hallmark qualities of leadership? Is there a secret sauce?

“We tend to think of attributes like intelligence and personality as critical to strong leadership, but this doesn’t stand up under the research,” Roger Collins says.

“The qualities that are cited most frequently are authenticity and humility.”

“People really want to know if their leader is genuine,” Collins explains.

“They ask themselves ‘Does this person do what they say? Are they fair dinkum?’ And if they’re not humble, the risk is that they’ll eventually destroy themselves.”

Panellists agree successful leaders realise supply chains are built around people and interpersonal relationships, rather than computer systems, trucks, trains, boats and planes.

“Supply chains are very vulnerable because they’re so complex and systemic,” Roger Collins says.

“Under these conditions success comes from the day-to-day consistent commitment of people working together in the interests of the customer.”

“You don’t achieve that sort of behaviour from management; team work comes from leadership and that’s the difference.”

“Management will help you plan and control things, but leadership engages the hearts and minds of your people.”

Says Simon Costa: “My sense of pride in the Costa Group has nothing to do with turnover or growth.”

“When I visit company sites, the number of people who want to thank me and talk about opportunities provided by our business is incredibly encouraging.”

Held at the Sofitel Hotel in Werribee, Victoria, the 2008 Supply Chain Business Forum was hosted jointly by the Institute for Logistics and Supply Chain Management at Victoria University, Melbourne, and Macquarie Graduate School of Management, Sydney.

The next Forum is scheduled for February, 2010.

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