Astute Planning, Flawless Execution,
Delighted Customers

Issue #144

Tuesday, March 10, 2009

Thriving in the Hardest of Times - Bata Shoe Company (Part 1 of 2) by Stewart Nash, Questback Boston, LLC

The Bata Shoe Company of Zlin, Czechoslovakia (today's Czech Republic) during the great depression is a remarkable story of success in hard times. Bata Shoe thrived during a time of deflation, social un-rest, international protectionism, financial collapse and ultimately war. Without external financing, during the decade of 1930 to 1939 Bata Shoe grew from a large Czech business with 16,500 employees into a trans-national enterprise employing over 100,000 people in 40 countries.

  • Given the circumstances - how was Bata able to grow so much and so profitably?
  • What lessons can we learn and apply to our businesses today?

Bata Shoe has been the subject of academic study with a number published articles and books available. This two-part article attempts to describe key ingredients of Bata's success and their relevance to businesses today.

Background

At the turn of the 20th century Bata Shoe was a small family owned enterprise. The company began to grow just prior to World War I after the introduction of modern American shoe manufacturing techniques. WWI provided a major boost to business (manufacturing boots for the Austrian army). WWI's aftermath brought on a major recession as war spending ceased, deflation set in and the national government changed to Czechoslovak from Austro-Hungarian.

At this point in time Bata Shoe became a really successful business. In response to deflation, in 1922 Bata reduced retail prices by roughly 50%. The company's unit sales growth and profits continued. Bata' leadership, management system, financial structure, alignment to customers and alignment with employees allowed everyone to "win." Customer's with a better value proposition, employees a better standard of living (even after salary cuts), society a thriving business and communities, and lastly profits for the enterprise.

Bata understood that in a time of deflation it was critical that their shoes become less expensive, both on a nominal and relative value basis, while maintaining quality. Bata believed the company should be perceived as contributing to higher living standards through both its employment activity and its lowering of footwear prices. "Service to the public" was a famous Bata slogan of the time, and they followed through, with a pair of Bata shoes costing 75% less in 1931 vs. 1922.

Core Principles

Two principles guided everything Bata did:

  • Enterprise alignment with the Employee
  • Enterprise alignment with the Customer

Bata's success had other important contributing characteristics including a unique cost accounting system and high vertical integration from production through to retail distribution. They also had visionary leadership in Tomas and, after 1932, Jan Bata who envisioned the company as the trans-national enterprise it subsequently became. But Bata looked first to their customers and employees for the competitive advantage that allowed them to achieve major, profitable and organic growth.

Note: Many competitors of the day had varying degrees of vertical integration. And Bata's unique (for the times) cost accounting system is a subject for study in and of itself. This article deals with Bata's focus on Customers and Employees as growth drivers. We touch upon Bata's cost accounting system, but only in the context of aligning employee's individual interests with those of the customer and the enterprise.

Enterprise Alignment with the Employee

"Buildings; they are just piles of brick and concrete. Machines; they are a lot of iron and steel. Only people can give life to it all." - Tomas Bata

Bata believed that removing "barriers to focus" would let associates concentrate effort on improving their standard of living through smart and hard work. Bata associates had high standards of living but were paid mediocre salaries. Rewards came from profit sharing, bonuses, subsidized housing, subsidized health care, continuing education and even payments to employees who had had a baby. Each associate's path to higher standards of living was visibly within his control yet also very closely tied to company success. As associates worked to improve their department's profits, Bata also profited. The enterprise was "aligned" with the interest of its employees.

"I want every worker to be the first book-keeper in the factory. I want him to know in figures all there is to know about his job, and I want all the workers to know in figures how they fared each week. It is no use for these figures to be known by the managers alone, or to know them only once a year." Tomas Bata

Bata's profit sharing was unique for the times. "Profit" was accounted for at the department level and each department was a profit center. Every employee knew his department's inputs/costs and outputs/revenues on a weekly basis as well as for all other departments. Internal pricing was completely transparent. And, managers were rewarded based on the same profits as were workers. The system unleashed a torrent of innovation and productivity as associates worked to decrease costs and increase revenue across their departments. Bata associates worked hard and "smart" to maximize profits in their departments. They were "engaged" to a degree that companies today only dream about.

In our next issue, we will conclude this article with a discussion of Bata's second guiding principle Enterprise Alignment with the Customer and a presentation of lessons from Bata's experiences that can be applied to today's troubled times.

Authors note: Jan A. Bata was my grandfather. At the age fourteen I began training as an apprentice shoemaker in the Bata Shoe factory in Batatuba, Brazil. The management practices discussed in this article and the reasoning behind those practices comes from direct instruction by managers and principles in the Bata system. To create this article I've relied on research published at Fordham University, the book Entrepreneur Extraordinary The Biography of Tomas Bata by Anthony Cekota, the public books and private notes of Jan A. Bata.

Get Your Serve On

On March 3rd, despite a day's delay due to a snowstorm, 12 people from the First Baptist Church of Hudson, NH boarded a plane for New Orleans to participate in a Habitat for Humanity project building houses in the gulf coast area of Mississippi. The team was comprised of: Craig Bailey, Ellie Cropley, Al Daigle, Bri Daigle, Torre Daigle, Pastor Jim Harrington, Clarice James, Mike Ledoux, Bruce Mostrom, Terry Mostrom, Tony Rice and Jessica Surro.

The team arrived at the worksite on March 4th eager to work alongside a team from Maryland, under the direction of Jamie Morton, the site foreman from Habitat for Humanity. The previous crew had framed and sheathed the house, which was now ready to receive a roof. The team of volunteers worked diligently throughout the week in great weather requiring sun block and bug spray. By the end of the day Friday, the house had a roof, a shed was erected and both were ready to be tar papered and shingled by the next crew.

Day 1 Wednesday March 4, 2009

 

Day 3 Friday March 6, 2009

 

The team's quick work put this build project ahead of schedule by 4 days! A key factor contributing to the team's productivity was the FANTASTIC leadership of Jamie Morton from Habitat for Humanity. Jamie had a great attitude, provided the direction needed and made sure that all the tools and materials were on the site in advance of when they were required.

The most rewarding part of the experience was meeting the Lyons family who is scheduled to move into the home in the July timeframe. The Lyons were forced from their home as a result of hurricane Katrina back in 2005. Until recently they had been living in FEMA provided housing but have since been vacated from that and are now living with relatives in the area.

The entire crew with Mrs. Lyons (in center of door)

 

Every person on the team recognized what an extremely rewarding experience this was. In addition, the local people were extremely appreciative of the efforts of volunteers who are continuing to stream into the area to help rebuild.

The team would like to thank a number of people, including: all those that donated funds for the trip completely covering all costs; Heather who hosted the team at Camp Victor, in Ocean Springs, MS; Loren Moylan, the Habitat for Humanity volunteer coordinator; and Jamie Morton.

If you haven't had the opportunity to do anything like this, it is highly recommended. Don't feel that you need to be a master carpenter to add value to these projects. There is quite literally something for everyone to do, from working in the kitchen feeding volunteers to swinging a hammer (which ANYONE CAN DO).

In closing, there is still much to do; the rebuild of the gulf coast area of Mississippi is ONLY 30% complete. As the team worked on the Lyons' new home, they could gaze around at the neighborhood and see boarded-up homes and inhabited homes that probably would be condemned if a strict inspection were conducted. Habitat for Humanity has a goal of building upwards of 800 more houses in the area in the next few years for people who are still without housing, as a result of hurricane Katrina.

The crew from First Baptist Church, Hudson, NH

 

Thanks for your support.

 

Contents

+ Thriving in the Hardest of Times - Bata Shoe Company (Part 1 of 2)

+ Get Your Serve On


 


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