Improving Nearly Any Company’s �Profitability and Competitiveness �

�– a brief overview –

Presented by: Eric Ross

Agenda�- Improving Performance -

•  Why

•  What

•  How

Credibility Slide•  Examples of prior results

–  VP Operations and Quality, Dynisco Extrusion•  Enabled 24% sales and over 34% profit increases from prior year by improving

processes and coaching/reenergizing the team–  VP Manufacturing/Operations, Lee Engineering Co.

•  Reversed 3-year decline and increased output 15% in 2 months, turning a pending $238K loss into $70K profit in 4 months

–  VP Operations, Plasfab Engineered Systems•  Enabled 62% growth from prior year; modified engineering and production

processes, reducing 16 week cycle time to 9½ weeks–  VP Operations Management, TTI Testron, Inc.

•  Achieved 13% and 22% profit at 2 money losing divisions in 10 months via process improvement and management changes

–  Process Improvement Manager, USAF Air Logistics Center•  Saved and avoided costs of more than $124 million over 3½ years through

problem solution and process improvement/modernization

Why: A Premise - most good businesses can improve significantly �

�

(struggling ones can improve even more)•  Nearly every every business has substantial opportunity to

increase profit and sales, through improvement–  Often a significant portion of a company’s top line is often used to

cover hidden inefficiencies•  The costs of low efficiency usually appear to be part of the normal

cost of doing business, but they need not be so.

–  Most companies have significant effectiveness (meeting expectations) improvement opportunity

•  Low effectiveness = lost customers and/or high cost of retention

•  Growing companies can plateau or hit a wall–  An all-too-common result of growth significantly exceeding a

company’s “infrastructure”

How well are companies typically doing?�— the (not always obvious) opportunity —

!  The cost of waste in large organizations commonly is on the order of 20 to 40% of gross sales*.

–  U.S. Department of Defense, TQM Guide (draft), 1989

!  About 20 – 25% of technical and engineering time, in many industries, is spent looking for information.

–  Intergraph Corporation, Huntsville, AL, 1992

!  The cost of quality failure in most service industries can be as high as 30 to 35% of operating costs.

–  Philip Crosby Associates II, Inc., 1998

!  The cost of quality typically represents 15 – 20% of most manufacturing firms’ revenues.

–  Gartner Group (circa 1997)

!  Commonly, only 20 – 30% of work in industry is actually value-adding activity. –  Michael G. Tincher, High Velocity Manufacturing, 1996

–  William E. Conway, The Quality Secret, 1992

*rapidly growing companies often tend to be near the upper end of this range

What: Elements of a top-notch improvement program

•  Action planning–  The need (issues/problems, visible or hidden, and/or

the opportunities to get better)–  The priority (total impact)

•  Doing–  Components/integration

•  Issue and opportunity components

•  Solution components–  Systematic and

holistic

Initial Assessment�Finding Opportunity 1: Evaluating the Numbers

•  Follow the $–  Benchmarked processes–  High dollar processes

•  Follow the issues–  Quality

•  External failure•  Scrappage

and rework–  Timeliness–  Any quantified

problems–  Voice of the customer

Initial Performance/Effectiveness AssessmentXyz Corporation’s 12 Major Functions

Function 1

Function 2

Function 5

Function 3

Function 4 (This function was known to be in trouble)

Function 6

Function 8

Function 7

Function 9

Function 10

Function 12

Function 11 (This function was already under repair)

Excellent Strong, solid Weak, in potential jeopardy Flawed, failing

Finding Opportunity 2: Uncovering the Pain

Poor Quality

Traditional Quality

True Quality

External Failure

External Failure

Internal Failure Internal Failure

Appraisal Appraisal

Appraisal

Prevention Prevention

Internal Failure

Opportunity Example — Reducing the Costs of Quality(Not shown to scale – with True Quality, costs of failure should be much less than shown)

INC

REA

SIN

G C

OST

Opportunity Example — How much can we improve? �— Here’s the way U.S. companies typically work*

30% Rework

20% Value-Added

Work

15% Necessary, non

Value-Added, Work

15% Not

Working (authorized)

10% Not

Working (not

auth.)

Source — William E. Conway, The Quality Secret, 1992

Source — Michael G. Tincher, High Velocity Manufacturing, 1996

70% Other Cost-Added

Activity

30% Value-Added

Activity

*This is still generally true for most companies, today

Integrating the Components of ImprovementTop- and bottom-line decrement sources

Error, variance Unnecessary action, waiting, excess stuff, etc.

High burden Unfocused people

The old fashioned (manual) way, tedious repetition Rigidity

“Ad hocracy,” tribal knowledge

Cost reduction/perfor-mance enhancement

TQM/6σ

Lean practices

Asset optimi- zation

Incentivization, deli-

gation, leadership

Automation/ technology,

ERP

Agility

Standards, pro-cedures, metrics

© 1996, Eric Ross

Focused

Strategic application •  Driver - company objectives and needs

•  Nature/type of payoff to the company •  Enablers - the “To Be” definition and approaches used

•  Determine payoff levels achieved •  Metrics - provide the focus and control

Achieving a Systematic, Holistic Approach

© 1996, Eric Ross

Performance, Process, and

CultureAssessment

How: Implementation•  Organization•  Using the initial assessment, define the initial “To Be” and

the approach–  Transformation – requires more up-front

“To Be” functional definition

–  Evolution

•  Continuing assessment–  Includes continuing

“To Be” refinement

•  Execution•  Lessons learned -

avoid built-in failure

Outside or Inside Expertise? �(Both work, although the mindset is different)

•  Internal expertise within the leadership team:–  We need to do what will help us perform better and be

able to sustain the changes–  We created and own it–  We will live with it and build upon it

•  External expertise – consultants:–  We need to deliver what our clent wants–  When we leave we want our client to be happy–  Mid- and long-term results are the up to the client

•  Internal expertise within the leadership team:–  Can be costly if new talent added just for this–  Least costly if strong expertise is within functional management–  Level of effort may be lower if using inside leadership–  However, inside leadership can help expedite implementation–  Focus is on results, not near-term gratification

•  External expertise – consultants:–  Generally low total cost as limited contracted effort–  Do not have “no-longer-wanted experts” to be released or refocused–  Much of the ownership leaves with the consultants–  Would need to re-engage if problems surface–  Focus is on client satisfaction, not necessarily on results.

Outside or Inside Expertise (Part 2)?�(Ramifications and Considerations)

Organization �(For internally-led and guided improvement)

•  “KISS 2” (Keep It Simple and Small)–  Keep as small as possible, ideally within a normal management

structure, without compromising on the necessary resources to perform•  Get the right leader - an absolute key

–  Must be strategic planner but a tactical implementer–  Should have strong improvement credentials, in multiple settings

•  Program should be a direct report to the top–  Necessary to ensure full organizational focus and early credibility

•  If small company - add no additional burden–  Function should be responsibility of “operations” leader

•  If distributed or large organization - new internal organization–  Limited satellites in key subordinate groups–  Direct responsibility to improvement leader

Defining the “To Be” �Develop a Functional Model or User View of the “To Be” �

(Note: This is a future view, keep it reasonably simple and use the matrix only as a guide)

BASIC FUNCTION-ALITY, LIST OF IMPORTANT BUSI-NESS INFORMATION ENTITIES, KEY ACCESS NEEDS

Strategic Modernization Planning FrameworkCATEGORY

PERSPECTIVE1 SCOPE (VISION)

– WHAT IT IS –

OVERVIEW2 BUSINESS

(FUNCTIONAL DESCRIPTION)

– WHAT IT DOES –

OWNER'S VIEW3 SYSTEM (SYSTEM SPECIFICATION)

– HOW IT WORKS –

DESIGNER'S VIEW4 STRUCTURE

(ASSEMBLY SPEC.) – HOW IT'S MADE, HOW AND HOW WELL PARTS WORK TOGETHER –

BUILDER'S VIEW5 CONTENT – WHAT IT�S MADE OF,

HOW COMPONENTS AREMADE –

COMPONENT VIEW

MISSION STATE-MENT; BASICGOALS, OBJEC-TIVES, & REQUIRE-MENTS; BUSINESSSRATEGIES

LIST OF PHYSICALRESOURCES

MAJOR FUNCTIONS,CLASSES OFMAJOR PROCESSES,KEY FUNCTIONALINTERACTIONS

OPERATING LOCA-TIONS, FACILILTYFUNCTIONALLAYOUT

BUSINESS ORGANI-ATION KEYS, AP-PROACH, & ISSUES;CORPORATECULTURE

WHEN GOALS MUSTBE ACHIEVED,BASIC STRATEGICAND OPERATINGPLANS

OPERATINGDIAGRAM(FULL PERFOR-MANCE MODEL)

ENTITY/RELATIONDIAGRAM, USERINTERFACE RQMTS,DATA SORTING &CALCULATIONS,ETC.

PHYSICAL CON-CEPT, PRODUC-TION/SERVICECONCEPT, FACILITYLAYOUT

BUSINESS PROC-ESSES AND CON-TENT, ENTERPRISEAND PROCESSBUSINESS RULES

INFORMATION/MATERIALS NET-WORK STRUCTURE

ROLES AND MIS-SIONS CHART, ACTUAL WORKINGRELATIONSHIPS

TASK PLAN,OPERATIONALSEQUENCEDIAGRAM

OPERATIONALMODEL(FULL FUNCTIONALMODEL)

INFORMATIONMODEL, DATA &WORFLOWMANAGEMENTCONCEPTS

PHYSICAL DESIGNOR SYSTEM MODEL,FACILILTY/EQUIP-MENT REQUIRE-MENTS

INFORMATION/MATERIALSFUNCTIONALFLOW MODEL

INFORMATION/MATERIALSPHYSICAL (GEO-GRAPHIC) FLOWMODEL

MANAGEMENT &DECISION MAKINGMODEL, KEY TEAMSTRUCTURES

DYNAMIC MODEL(SIMULATION)

OPERATIONALASSESSMENT,BENEFITS ANDIMPACT MODEL

DATA AND DATA/WORKFLOWMANAGEMENTSTRUCTURE

COST/RESOURCESMODEL, FACILITY/EQUIPMENTENGINEERINGSPECIFICATIONS

PROCESSRELATIONSHIPSTRUCTURE ANDFLOW CHART

COMMUNICATIONAND TRANSPORTA-TION ARCHITEC-TURE AND NETWORK DESIGN

ORGANIZATION &MATRIX MANAGE-MENT CHARTS

TIME/PHASECRITICAL PATHMODEL

IMPLEMENTATIONAND EVALUA-TION PLAN

DATA ELEMENTS,DATABASE DESIGN,DATA FORMATS,DATA MANAGE-MENT PROGRAM(S)

ACQUISITION,CONSTRUCTION, &EQUIPMENTFACILITIZATIONPLAN

PROCESSDETAILS/CONTENT,APPLICATION(S)PROGRAM(S)

COMMUNICATIONAND TRANSPORTA-TION NETWORKCOMPONENTS

POSITION RESPON-SIBILITIES ANDTRAINING REQUIRE-MENTS

OPERATION ANDIMPLEMENTATIONSCHEDULES, CON-TENT, AND MILE-STONES

APURPOSE

OPERATION

CINFORMATION

DATA

DSTRUCTURE

EQUIPMENT

BFUNCTIONAND FLOW

PROCESS

ELOCATION

NETWORK

GTIMING

DYNAMICS

FORGANIZATION

RESPONSIBILITY

Partially derived from, and significantly expands upon work by J. A. Zachman, �A Framework for Information Systems Architecture,��IBM Systems Journal, Vol 26, No 3, 1987c

Assessment•  Continually spot/find and evaluate candidates

–  Identify both needs and opportunities–  Keep the “To Be” in mind–  Prioritize by impact: payoff, difficulty,

and cost–  Plan the execution

•  Be flexible–  Include individual actions and

continuing processes•  Always use a synergistic and holistic

approach to each action, don’t just use the individual tools

•  Any “battle plan” changes drastically upon engagement

•  Implement the planning, per the Integration and Approach charts (the 2 charts with the yellow circles)

•  Apply an appropriate mix of the three key processes (strategic modernization, reengineering, continuous improvement)–  The often-pursued Heroic Way - think and do big things

–  Usually the best way, an appropriate blend of big and of low-risk small

–  Generally “do” bottom-up, based on the ongoing top-down assessment and planning

–  Transformation requires company- wide, top-down planning

Execution

Preclude Built-in Failure•  The top-level commitment must be there

–  Instant results are possible, but instant results with significant impact often are not

–  Really good results often take 6 - 12 months–  Maximum payoff is long term

•  Avoid initiatives – the “fad-of-the-year”–  Individual initiatives, which are good, are thought of as “easy” and are

popular (TQM, ISO 9000, 6σ, Lean, etc.)•  One size does not fit all

–  Without a long-term commitment and holistic approach, payoff is usually disappointing, at best

–  Don’t jump on the fad-of-the-year bandwagon•  Many do and get little or nothing in return

•  Top- and bottom-line growth•  A smoother running company•  Superb customer satisfaction•  Delighted (other) stakeholders

–  Owners–  Employees–  Business partners

The Payoff

3-D Line 30

100

200

300

400

500

3-D Line 3

The Next Steps?•  Decision to “do it” •  Determine approach: inside or outside expertise•  Find the right leader or consultant•  Design and plan the program

–  If using outside expertise, determine how to direct, manage, execute, and sustain

•  Implement/execute the program•  A commitment - you must stay the course

–  Otherwise, don’t get started….–  Sustained improvement ! increased profitability and growth