Adapting to Technological Changes

The fastest growing part of our organization is our ecommerce unit. By enabling us to sell many items for substantially more than they would sell for in a Goodwill store, our ecommerce operations enable us to be better stewards of the goods people give us. The growth of our ecommerce operations has also created a lot of jobs, as we currently have nearly 100 employees at clickgoodwill.com – over twice as many as we had at the beginning of this year.

Down through the years, technological changes have eliminated some jobs and created new ones. At Goodwill, for example, when I started my career we repaired radios and television sets. Doing so wasn't too difficult in those days. The sets used vacuum tubes (younger readers, look it up on Wikipedia), and we had a tube tester. Check the tubes, replace the bad ones, and many of the sets would work just fine. Vacuum tubes were eventually replaced by solid state electronics, and this effectively put an end to our repairing radios and TVs.

During those same years, we also repaired toasters and other small appliances. Over time, though, technological improvements in the manufacturing processes and increased sophistication of the products, coupled with rising labor costs, made many new small appliances less expensive than the cost of repairing broken ones. Fortunately, in more recent years, technological improvements have also helped create recycling and secondary markets for many products that can no longer be repaired economically.

Another example: From 1974 till 1992, we manufactured high quality oak file boxes for 3×5 and 5×8 cards for the federal government. For quite a few years we had 18 employees – most of them people with disabilities – who produced an average of 50,000 boxes a year. But over time, as the use of personal computers rose, the use of file cards fell and, consequently, the government didn’t need as many of the boxes. Eventually, the volume declined to the point where we exited that business.

Our involvement in online retailing began very slowly about twelve years ago after Goodwill in Orange County, CA created shopgoodwill.com. The Orange County Goodwill continues to maintain that 7-day auction site, which is designed to enable any Goodwill organization to post items on it. About five years ago, we began to increase our use of shopgoodwill.com, and we also began posting some books on several book-selling Web sites. We subsequently added CDs, DVDs, video games, and jewelry to the array of items we could effectively sell online. Better software and packaging equipment have improved our efficiencies to a remarkable degree, and we believe there is enormous additional growth potential in that part of our organization.

Of course, as is the case at most relatively large organizations, new technologies have created other entirely new departments at Goodwill. Known in many companies as IT (Information Technology), in our organization it’s TS (Technology Solutions). Composed of bright, talented people, TS keeps us connected, helps develop and optimize uses of technology to improve our effectiveness, and helps us be good stewards of our resources. As the organization continues to evolve, so too do the services of the Technology Solutions department.

While we’ve come a long way, we can be sure that technological changes will continue to create new challenges and opportunities for us. We can also be sure that if we do not adapt well enough to those changes, we will be left behind – less effective, perhaps irrelevant, and in a worst-case scenario maybe even extinct.

Newton’s Laws and Goodwill

In high school and college physics, I became well acquainted with Sir Isaac Newton’s Laws of Motion. After nearly four decades as a CEO, I’ve concluded that the concepts underlying at least two of those three laws apply to organizations – actually, to institutions of all kinds – as well as to the physical world.

For example, Newton’s First Law of Motion – the Law of Inertia – is often paraphrased as “A body at rest will stay at rest until acted upon by an external force.” How can that apply to organizations? It’s been my observation that the more an organization is removed from day-to-day competition (a powerful external force), the slower it is to adapt as its external environment changes.

When you are subject to competition on a day-to-day basis, there’s more of a sense of urgency, more of a drive to improve. You know that if you don’t improve, someone is going to take your customers (or in the case of a school, your students) away from you. For organizations that lack strong competition, the faster the rate of change on the outside, the more they tend to lag. They might survive, but they are likely to become increasingly ineffective.

This is not generally as much of a problem in the for-profit world as it can be in the public and not-for-profit sectors. In the for-profit world, if you don’t successfully adapt to external changes – including new or stronger competition – in most cases you will become extinct.

Newton’s Third Law of Motion – or a reasonable facsimile thereof – also applies to institutions. This law is often stated, “For every action there is an equal and opposite reaction.” A Corollary might go something like this: “For every excess there will be a proportionate reaction and correction. The greater the excess, the greater the pain associated with the correction.”

Think about that in light of the financial problems currently plaguing the U.S. and much of the rest of the world. For example, excessive spending (and related borrowing) by individuals, organizations, or governments will eventually prompt a correction. Sometimes the correction will come only after years of excess. But eventually it will come. And with the correction will come pain proportionate to the degree of excess.

Of course, excessive conservatism can also be a problem. Companies that do not spend enough to properly maintain their physical assets, develop and retain their human capital, and improve their productivity are jeopardizing their future. They can also jeopardize their future when they fail to invest in opportunities for which they are well-suited, thus leaving the door open for more aggressive, well-managed competitors to increase their strength.

Governments – cities, states, nations – that fail to adequately maintain their infrastructures will eventually have a huge price to pay – and you can count on a strong reaction from their citizens when the bill and the pain associated with it come due.

While we take nothing for granted, at Goodwill we’ve thus far been able to avoid the kinds of excesses that can jeopardize an organization’s future. Goodwill is also fortunate to have functioned in a competitive marketplace since its founding. From the beginning, we have operated a commercial enterprise that sells goods to the public as a primary means of accomplishing our mission. This has been a driving force in creating and sustaining the culture of our organization and is a major reason we’ve grown and evolved the way we have.

Goodwill and the Economy

Goodwill in central Indiana was founded in 1930 during the depths of the Great Depression. Since that time the organization has experienced the effects of several recessions, several wars, many changes in the political landscape at the local, state, and federal levels, and incredible technological changes.

During the recession of the early 1980s, it became apparent to us that nothing would help Goodwill or the people we assist more than a strong, growing economy. That continues to be the case.

Despite the economic challenges of the past several years, though, Goodwill has had some significant growth. At the end of 2007, we had 1867 employees in central Indiana. Today we have 2500, nearly 2/3 of whom have limited options because of disability, criminal history, or low education level. We weathered the most recent recession better than we had any right to expect. However, with continuing uncertainty about the economy, the toxic political atmosphere in this country, and a widespread lack of confidence that our elected officials in Washington will be able to agree on a course of action likely to lead to a renewal of economic growth , we wonder if we will be able to continue to grow.

Time will tell, of course, but at Goodwill we’re in a stronger position today than we were in 2007. During the last three years we’ve taken advantage of some opportunities that were a consequence of the slow economy and opened several new stores that have been well supported by our customers and donors of goods. We have also invested in and seen rapid growth in our e-commerce operations, which now employ 80 people. The success of these initiatives has helped further strengthen our balance sheet.

The largest customers in our Commercial Services Division, which employs over two hundred people with significant disabilities, are in sectors of the economy that are more stable than many, and funding for the schools we operate is likely to remain reasonably stable.

It’s not all positive, of course. The outlook for job opportunities for people who come to us for employment assistance is not likely to improve – and may even worsen – thus placing even more importance on Goodwill’s ability to provide jobs for a lot of people with limited options. That, in turn, is dependent on our ability to continue to grow our businesses in a financially sustainable manner.

Also, the amount of money we have to invest in new initiatives might be reduced by the negative effect of market declines on the endowment in the Goodwill Foundation. Fortunately, we do not rely on those funds for day-to-day operations.

The brightest comment we can offer about the gloomy economic outlook is that it will continue to be a good time for people to upgrade their education and skill levels. For those who lack a high school diploma, it’s a great time to return to school. The Excel Center, launched by Goodwill Education Initiatives in 2010, offers a viable option for many adults, and we’ve expanded the school this year in response to heavy demand. And for adults who have some college, but no degree, this may be a very good time to go back and finish.

We have no control over the economy. But we do have control over how we respond and adapt to the circumstances we encounter. At Goodwill, we will continue to take actions that we believe will enable us to have maximum mission-related impact while maintaining a financial position that will enhance our prospects for continued long term viability.

Learning from Others

Goodwill in central Indiana is part of a network of 170 locally-based Goodwill Industries organizations around the world.  There is a lot of information-sharing among Goodwills.  We learn a lot from many of our colleagues, and they learn from us.  Each year we host a lot of visitors from around the country who are interested in knowing more about some of our operations and services in central Indiana.  Invariably, they reciprocate when we want to learn more about certain aspects of what they are doing.  It’s a powerful network.

On occasion, the knowledge-sharing crosses borders.  Nine years ago, we agreed to help train persons who were working to establish Goodwill Industries in South Korea.  Since then, we have conducted training in various aspects of our work – mostly in retail operations – for a total of 35 Koreans who have come to Indianapolis for periods ranging from a few days to a few weeks.  The Korean Goodwill leaders have persevered through numerous startup difficulties, adapted U.S. Goodwill methods to their culture and economy, and are now growing at an increasingly rapid rate.

I recently had an opportunity to accompany Goodwill Industries International (GII) CEO Jim Gibbons and three other members of the GII team to Korea to see the work being done there and meet with leaders of Goodwill Industries of Korea as they enter into a new, stronger membership relationship with GII. I was impressed with the substantial progress they have made, the high caliber, talent, and dedication of their leaders, and their ambitious plans for the future.  It was gratifying to see firsthand some of the influence of our Indiana operations nearly halfway around the world, and it was particularly heartwarming to see the vocational opportunities the Korean Goodwills are providing for people with severe disabilities – people who in Korean society have few employment options.

Goodwill in Korea uses the slogan “Not charity, but a chance.” It’s the same slogan Goodwill has used to varying degrees since its early days over 100 years ago, and the oldest and still an immensely significant part of the mission is the same – namely, to provide employment opportunities for people who, because of some significant barrier, have limited options to work.  That was the reason Goodwill was founded in Boston at the beginning of the 20th century, established in Indianapolis during the Great Depression of the 1930s, and launched in Korea during the early years of the 21st century.

As the pace of change in our world continues to increase, it’s worth noting that some things remain constant – among them, the need for people to have the opportunity to develop their talents and be productive, contributing citizens.  Such opportunities are often appreciated most by those who have had them the least – whether they live in Indiana, other parts of the United States, or other parts of the world.  That, too, is a lesson worth remembering.

An entrepreneurial culture

“Continuous improvement,” one of our Five Basic Principles, has become so ingrained in our organization’s culture that our people implement countless relatively modest, incremental improvements throughout Goodwill each year. Cumulatively, those mostly small improvements make an enormously positive difference in the quality, effectiveness, and productivity of our work.

In addition, though, we have an entrepreneurial inclination that has been a huge factor in how we have grown and evolved over the years. I recently compiled a list of 95 significant initiatives we’ve undertaken during the last 37 years. Some were completely new business ventures or mission-related services, while others were major variations or extensions of something we were already doing. The financial investments associated with those initiatives have varied substantially, and in several instances the risks to our reputation have been greater than the financial risks.

I classified the success (or lack thereof) of those initiatives in baseball terms. Here are the results:

  • 10 home runs (six with bases loaded)
  • 73 singles, doubles, and a few triples
  • 12 strikeouts (one with bases loaded)

I don’t know if there’s any real significance to the fact that the number of home runs and strikeouts have been approximately the same, but it might be a reasonable indicator of our tolerance for risk. Of course, the fact that we’re not only still around, but are doing pretty well overall, is evidence that we haven’t bet the whole organization on any of those initiatives. And the overwhelming success of the “grand slam” home runs has far outweighed the cumulative effect of all of the strikeouts.

The primary key to our ability to take this approach has been and remains our board of directors. They’ve not only given us the freedom to try lots of different ways of growing the organization and increasing its impact, they’ve also given us the freedom to fail at some of what we try and learn and grow from the experiences. Of course, it helps that our batting average over the years has been pretty good.

In a piece titled “Fail often, fail well” in the April 14, 2011 issue of The Economist, Schumpeter wrote, “The best way to avoid short-term failure is to keep churning out the same old products, though in the long term this may spell your doom. Businesses cannot invent the future – their own future – without taking risks.”

The same column noted that “there is no point in failing fast if you fail to learn from your mistakes.” We’ve been fortunate in having had a lot of continuity among people in key positions – especially at the board and senior management levels. This has blessed us with a strong institutional memory, which helps prevent us from repeating our mistakes. Of course, because we have strong entrepreneurial instincts, we’ll make new mistakes. But that’s OK as long as we continue to ensure that the risks we take are prudent and that we continue to learn and grow from our experiences.