Jim Thompson

Email Jim at jim.thompson@ipulpmedia.com

When we come to innovation month, I have tended to think along the lines of mechanical engineering, since that is my first love. However, these days, I think I have been selling innovation short over recent years. Innovation in our pulp and paper mills can take many forms. I will outline some of these forms this week and expand them over the rest of the month.

First, there have been attempts at financial innovation. Many of these attempts have been too clever by half and caused many problems. As you will see when I expand on this next week, I am very conservative when it comes to reporting results, while more innovative when it comes to acquiring assets.

Second, let's talk about finished goods inventory. Properly counting it is very important. Establishing its value is equally important. Back in the late seventies, early eighties, when inflation was really high (what we have seen lately is laughable when compared to those days), companies were constantly shifting from LIFO (Last In, First Out) and FIFO (First In, First Out), back and forth, just to get to the earnings number they wanted.

Thirdly, we constantly see the ignorant take over the management of capital projects, stumbling all the way. This has been going on for the entirety of my fifty-six-year career and there seems to be no signs of abating.

A subset of the third is the developers. There are many ignorant developers out and about who spends all their time being clever about capital finance and little of their time attempting to understand the engineering behind what they are proposing.

I wear a stainless-steel ring on the small finger of my working hand. Many, many years ago, I took the Oath of an Engineer to do honest work. In Canada, they have a similar ceremony, with an iron ring (in fact, I think they created it first). Somedays, I wish they had the same for other professional careers. It would make many of our lives much easier!

Innovation is very important; succeeding at innovation is even more important. Innovate but do no harm.

Be safe and we will talk next week.

For a deeper understanding, go here.

Study Guide: Industrial Innovation and Management Ethics

This study guide examines the multifaceted nature of innovation within the pulp and paper industry, as presented in Jim Thompson's "Innovation Month" commentary. It explores financial strategies, inventory management, the ethics of engineering, and the challenges of capital project leadership.

Short-Answer Quiz

Instructions: Answer the following questions in two to three sentences based on the information provided in the source text.

1. What is the author's primary professional background, and how has his view of innovation changed?
2. How does the author describe the outcomes of recent "financial innovation" within the industry?
3. What is the author's personal philosophy regarding financial reporting and asset acquisition?
4. During the late 1970s and early 1980s, why did companies frequently switch between LIFO and FIFO accounting methods?
5. What critique does the author offer regarding the management of capital projects throughout his career?
6. What specific deficiency does the author identify in modern developers?
7. What is the significance of the stainless-steel ring worn by the author?
8. How does the author describe the Canadian equivalent of the American engineering oath?
9. What does the author suggest would make professional life easier for those in the industry?
10. What is the author's concluding advice regarding the implementation of new ideas?

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Answer Key

1. What is the author's primary professional background, and how has his view of innovation changed? The author's background is in mechanical engineering, which was his initial focus when considering innovation. However, he now believes he has previously sold innovation short and acknowledges that it can take many forms beyond mechanical engineering within pulp and paper mills.
2. How does the author describe the outcomes of recent "financial innovation" within the industry? The author characterizes many attempts at financial innovation as being "too clever by half." He notes that these overly complex financial strategies have resulted in many problems for the organizations involved.
3. What is the author's personal philosophy regarding financial reporting and asset acquisition? The author describes himself as being very conservative when it comes to the practice of reporting financial results. Conversely, he takes a more innovative approach when it comes to the process of acquiring assets.
4. During the late 1970s and early 1980s, why did companies frequently switch between LIFO and FIFO accounting methods? During that period of extremely high inflation, companies constantly shifted between these two inventory valuation methods. They did this strategically to manipulate and achieve the specific earnings numbers they desired.
5. What critique does the author offer regarding the management of capital projects throughout his career? The author observes that for the entirety of his fifty-six-year career, capital projects have frequently been managed by "the ignorant." He expresses frustration that this trend of incompetent management shows no signs of abating.
6. What specific deficiency does the author identify in modern developers? The author claims many developers spend their time being clever about capital finance while neglecting the technical side of their work. They often make little effort to understand the engineering principles behind the projects they propose.
7. What is the significance of the stainless-steel ring worn by the author? The author wears the stainless-steel ring on the small finger of his working hand as a symbol of the "Oath of an Engineer." It serves as a personal and professional commitment to performing honest work.
8. How does the author describe the Canadian equivalent of the American engineering oath? The author notes that Canada has a similar ceremony involving an iron ring, which he believes was established before the American version. Both ceremonies represent a formal commitment to professional integrity and honesty in engineering.
9. What does the author suggest would make professional life easier for those in the industry? The author suggests that if other professional careers required an oath of honesty and a symbolic ring similar to those in engineering, it would make many people's lives much easier. He advocates for a broader application of these professional ethical standards.
10. What is the author's concluding advice regarding the implementation of new ideas? The author emphasizes that while innovation is very important, succeeding at it is even more critical. His primary directive for those seeking to implement new ideas is to "innovate but do no harm."

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Essay Question Prompts

Instructions: Use the themes and data points from the source text to develop comprehensive responses to the following prompts.

1. The Evolution of Innovation: Analyze how the author's definition of innovation has expanded from mechanical engineering to include financial and managerial practices. Discuss the risks associated with "selling innovation short."
2. Ethics in Engineering and Development: Compare the author's "Oath of an Engineer" with his description of developers and project managers. How does the lack of engineering understanding among developers represent a breach of the professional honesty the author advocates?
3. Financial Manipulation vs. Fiscal Responsibility: Using the historical examples of LIFO/FIFO shifts and "clever" financial innovation, discuss the author's argument for a conservative approach to reporting results versus an innovative approach to asset acquisition.
4. The Impact of Management Incompetence: The author notes a fifty-six-year trend of "ignorant" management in capital projects. Evaluate the potential long-term consequences of prioritizing financial "cleverness" over technical engineering knowledge in industrial projects.
5. The Principle of Non-Maleficence in Industry: Explore the author's final mandate to "innovate but do no harm." How does this principle apply to the various forms of innovation--mechanical, financial, and managerial--discussed in the text?

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Glossary of Key Terms

Term Definition

Capital Project A long-term, intensive investment project requiring significant financial oversight and engineering management, often involving the construction or improvement of mill facilities.

FIFO (First In, First Out) An inventory valuation method where the goods produced or acquired first are the first ones sold or used; used historically by companies to influence earnings numbers.

Financial Innovation New ways of managing capital, acquiring assets, or reporting results; the author cautions that these can often be problematic if they are "too clever."

Innovation Month A designated period mentioned by the author for focusing on and expanding upon various forms of advancement within the pulp and paper industry.

Iron Ring A symbolic ring worn by Canadian engineers, resulting from a ceremony similar to the American Oath of an Engineer, signifying a commitment to honest work.

LIFO (Last In, First Out) An inventory valuation method where the most recently produced or acquired items are the first ones sold; shifted between during periods of high inflation to reach desired earnings targets.

Mechanical Engineering The branch of engineering dealing with the design and maintenance of machinery; identified as the author's "first love" and his original framework for innovation.

Oath of an Engineer A professional pledge taken to ensure honest work, symbolized by a stainless-steel or iron ring worn on the small finger of the working hand.

Pulp and Paper Mills The industrial setting for the innovations discussed, involving the mechanical and chemical processing of wood into paper products.

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