These gun to the head stories are a staple of

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These “gun-to-the-head” stories are a staple of corporate life. If you don’t think any good middle manager can come up with several of them, you are fooling yourself. Consider just two: From a financial manager: “We have $40 million of excess receivables on which we pay $140,000 of interest every year. I could get the receivables down to $20 million, but I need another clerk to do it. The basic problem is paperwork; sometimes our invoices don’t match our customers’ records, and we have to work the phones to get them to agree to pay. I know I told you seven clerks was enough. But if we hire one more at $30,000 a year, we can cut the uncollected receivables in half, saving us $70,000. It’s foolish not to make the hire.” From the engineering manager: “We generate annual revenues of $20 million with this particular chip. Our final-test yield is 90%, which means we’re throwing away $2 million a year. If you let me hire two more engineers (they will cost us less than $100,000 a year combined), we can get yields up to 94%, saving $400,000—a four-month payback. It’s foolish not to make the hires.” The moment senior executives buy into the tunnel vision of their middle managers, they’ve lost control of the company. If that happens, it’s not the middle managers’ fault; they’re simply doing their jobs as they understand them. Our resource-allocation systems are designed to prevent middle management myopia by forcing collective thinking at all levels. Every quarter, based on our revenue projections, we establish total corporate allowances for new hires, capital investment, and operating expenses. We then allocate this overall target by departments and force critical trade-off decisions down to the middle management level. We get these people into the same room at the same time, with a computer model that allows us to conduct resource negotiations on- line, and cut the deals that would otherwise lead to memo wars and special pleading. Our resource-allocation systems also address a second source of waste and inefficiency: the false confidence created by prosperity. The seeds of business failure are sewn in good times, not bad. Economic reversals have a wonderful way of concentrating minds and encouraging groups to overcome long- standing differences. During times of prosperity, however, danger lurks everywhere. Growth masks waste, extravagance, and inefficiency. The moment No Excuses Management https://hbr.org/1990/07/no-excuses-management 14 of 28 6/14/2018, 2:27 AM
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growth slows, the accumulated sins of the past are revealed all the way to the bottom line. At Cypress, our annual revenues have grown 40% or more per year since we founded the company in 1982. We’re proud of that record, but we’re even more proud of our consistent quarter-to-quarter profitability. Even in 1986, when the semiconductor industry was in the midst of a crippling downturn, we maintained industry-leading operating margins of 20%. And we did it on revenues of only $50 million.
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