By just about any standard, Microchip Technology has been a business success story. Sales by the Chandler-based semiconductor firm have risen from about $78 million in 1990 to more than $1 billion in the current fiscal year.
The company has enjoyed more than 60 consecutive quarters of profitability. The stock has risen 6,000 percent since its initial public offering in 1993.
The secret of the company’s success has been recorded in a book written by CEO Steve Sanghi and former human resources director Michael Jones called “Driving Excellence.”
The book outlines what Sanghi and Jones call “the Aggregate System,” which serves as the guiding philosophy in the management of a company that has become the world’s largest producer of 8-bit microcontrollers — ubiquitous electronic devices used to control everything from toasters to automobiles.
The Aggregate System involves looking at the entire enterprise, not just trying to deal piecemeal with problems in specific categories such as marketing or manufacturing. It focuses on developing a culture in the businesses that institutionalizes continuous improvement across all segments of the operation.
“We think what we have accomplished here has been very substantial, and others can learn from it,” Sanghi said. “There’s nothing that says it can’t be applied to any business.”
The Aggregate System had its genesis when Sanghi arrived at the company in 1990. A spinoff from General Instrument Co., Microchip was losing $2.5 million a quarter and suffered from serious manufacturing and quality control problems. “There were so many problems, it was hard to know where to
begin,” he said.
Sanghi brought in consultants to study ways to improve the company. Their recommendations ranged from reducing cycle times for products to reach the market to closing factories and outsourcing manufacturing. Sanghi wasn’t satisfied because they focused on specific parts of the company rather than taking a bigpicture approach. Sanghi decided to focus on the basic foundations of the organization such as workplace values, leadership, customer service, quality workmanship, communication and planning.
“Microchip needed an approach and a system that efficiently and continuously improved all aspects of the enterprise and involved each employee in this quest,” he said.
Microchip executives, with input from employees, established a set of core values and built their policies, management practices and human systems around those values. Among the core values that Microchip chose: Focus on customers, quality first, continuous improvement, safety not compromised, professional ethics are practiced.
The book outlines ways to develop the Aggregate System, including how to select core values, how to improve employee performance, and how to overcome resistance to change.
The book can be ordered by visiting www.drivingexcellence.biz