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M A N A G E M E N T B R I E F I N G
THE LEAN PROGRESSION MODEL
Maximize the Returns from Your Operational
Improvement Efforts Over the Long Term
By Ken Koenemann
Executive Summary
This management briefing
by TBM Consulting Group
describes how recognizing the
maturity of your organization’s
operational improvement
efforts and culture—whether
you’re at the tool-driven,
system-driven or principledriven
stage—can ensure that
your process improvement
efforts continue to deliver
significant results year after
year. The briefing describes
the top priorities at each stage
of the lean progression model
that need to be targeted to
move forward.
To get from the tool-driven
to the system-driven stage,
for example, requires: a
leadership-driven method
for prioritizing improvement
projects, process improvement
work beyond the factory—
such as engineering and new
product development—and
a more thorough effort to
develop employee skills and
knowledge.
Most corporate-led, enterprise-wide business improvement initiatives
will fail. Observers put the failure rate somewhere between 50 and 95
percent. Recalling past grand initiatives and subsequent failures, it’s no
wonder that employees are always skeptical of any new acronym-riddled
improvement program promising to help them do their jobs better.
Understanding where your company is
in the lean progression model—the tooldriven,
system-driven or principle-driven
stage—is the first step toward avoiding
the improvement plateau and keeping
your organization moving forward.
For those companies that succeed though—for companies that make
the commitment, change expectations and change how they work—the
returns can be impressive. For example, companies that have adopted
lean manufacturing and Six Sigma practices (which TBM combines as
LeanSigma) frequently report double-digit productivity increases year after
year. They achieve cost savings that add up to millions of dollars annually.
Their revenue growth exceeds the industry average by a healthy margin,
and net income increases even faster. (See boxes, “How Operational
Improvements Can Add Up,” and “Long-Term Performance of Principle-
Driven Lean Businesses” on pages 7 and 8 for examples.) Many case
studies over the past 20 years or so have documented such performance
gains again and again in industry after industry. i
Why then do so many business improvement programs flounder and fail
to achieve anything close to their full potential? This TBM management
briefing describes how understanding where your company’s business
units and facilities fall within the lean progression model— the tool-driven,
system-driven or principle-driven stage—can help maintain momentum
and ensure that you realize the maximum financial returns from your
performance improvement efforts.
800.438.5535 | www.tbmcg.com

P G . 2
Fountains of Inspiration
Two primary schools of thought have influenced today’s
management parlance and business improvement
activities. Lean manufacturing grew out of the processexcellence
practices of the Toyota Production System,
which was inspired by Ford and evolved from the
material and capacity constraints that Toyota had to
contend with in the aftermath of World War II. Six
Sigma emerged from an engineering program that
Motorola launched in 1986 that unified decades of
quality improvement practices to eliminate product
defects by reducing process variations.
A long list of popular concepts, methodologies,
and well-known tools emerged from these two
complementary approaches: kaizen events,
spaghetti diagrams, DMAIC, rapid problem solving,
Pareto analysis, value stream mapping, policy
deployment, cause-and-effect diagrams, mistake
proofing, standard work, SMED, 5S, TPM, voice
of the customer, 5 Whys, and many others. These
process improvement tactics have been adopted
by two-thirds of manufacturing companies II , not to
mention many financial firms, state and federal
government organizations, and hospitals.
Over the years many of these tools have captured
popular attention and been promoted as the magic
bullet that would give companies a clear and
sustained competitive edge. Then, when the results
didn’t meet the heightened expectations, the tools
were discredited and leaders moved on to the next
hot tool.
“Companies start using a tool because their
competitors are using it, or because it’s the hot topic in
the business press, but if they do not fully understand
how and why to use it, the experience ends up in
failure,” confirm Darrell Rigby and Barbara Bilodeau
in Bain & Company’s annual study of management
tools and trends. iii
The fault isn’t with the tools themselves. An
increasing number of company leaders today
RATE OF CHANGE
recognize that such process- and qualityimprovement
methods are elements of a culture that
fosters superior execution and ongoing performance
improvement. Make no mistake. It’s still essential for
employees to know about and be proficient in these
practices, but the systems and culture that surround
and nurture them are more important for making
steady and sustainable progress. The following lean
progression model describes the evolutionary path
that leading companies have followed to move from
a tool focus to an embedded culture of operational
excellence.
The Lean Progression Model
1 TOOL DRIVEN 2 SYSTEM DRIVEN 3 PRINCIPLE DRIVEN
TIME
Year 1 Year 2 Year 3 Year 4 Year 5
After several years the outward rate of business improvement
often slows down because the easy wins have been captured.
But if the progress is sustained, the second and third years
are when accumulated financial gains (net income and cash
flow) really begin to kick in. Sustained focus creates a longterm
continuous improvement culture that constantly strives
to increase customer value, which drives industry-leading
revenue growth. Today, many organizations with experienced
leaders are striving for a rapid transformation in 24-36
months instead of the more traditional five-year period.
800.438.5535 | www.tbmcg.com

P G . 3
The Three Stages of a Lasting
Business Transformation, and
How To Keep Moving Forward
The Tool-Driven Stage
1 TOOL DRIVEN 2 SYSTEM DRIVEN 3 PRINCIPLE DRIVEN
Although the process improvements are obvious if
you walk through the factory—they include dramatic
inventory reductions and productivity improvements,
and cleanliness if 5S is emphasized—these efforts
may not have made a significant impact on the P&L
statements, at least not yet. Costs have certainly been
reduced, margins have been improved, and inventory
reductions have reduced working capital requirements.
But major financial benefits haven’t been fully captured
because the emphasis is still on operational issues.
To move to the system-driven stage, business
leaders should:
RATE OF CHANGE
TIME
Year 1 Year 2 Year 3 Year 4 Year 5
The initial tool-driven stage of an operationalexcellence
program is characterized by a
departmental emphasis on reducing costs. For
manufacturing companies this usually starts in the
factory. After some documented successes on the
plant floor, efforts move into office, engineering and
administrative areas.
People have learned about the process-improvement
tools by transforming batch operations into work cells
where work (i.e., material, information, procedures)
flows one piece at a time. Teams have developed
standard-work descriptions, implemented visual flow
systems and status indicators, and reduced work
changeover times.
At the tool-driven stage, problem-solving capabilities
are just beginning to be developed. A habitual
obsession with root causes and countermeasures has
not yet taken hold.
1. Establish a continuous improvement (CI) office and
a CI steering committee—made up of P&L owners,
the CFO, and operations leaders—who help
remove functional barriers and prioritize projects.
2. Deepen leadership’s commitment to strategy
deployment, which should begin to instill more
disciplined management processes and help the
organization focus on growth opportunities in
addition to the current emphasis on cost cutting.
3. Complete a thorough operational assessment
to identify high-potential areas of improvement,
leading to the creation of a continuous improvement
(CI) roadmap clearly aligned with business
objectives based on customer needs, such as
enhanced responsiveness and flexibility contributing
to superior service.
4. Capture cost savings through attrition, closing of
redundant facilities and warehouses, in-source
work, and leverage newly released capacity to
boost sales.
5. To speed deployment, expand associate awareness
training and skill development at all levels.
6. Begin to look at other areas of the business, such
as the new product development process, mapping
customer needs and expectations to deliver distinct
product offerings and services.
800.438.5535 | www.tbmcg.com

P G . 4
The System-Driven Stage
RATE OF CHANGE
1 TOOL DRIVEN 2 SYSTEM DRIVEN 3 PRINCIPLE DRIVEN
TIME
Year 1 Year 2 Year 3 Year 4 Year 5
With over half of managers and employees
participating on improvement teams and projects,
organizations in the system-driven stage have a
deeper understanding of the process-improvement
tools. A systematic approach to problem solving
and implementing changes has been adopted
in functional areas beyond the factory, including
shipping, administration, supply chain and
engineering. Based on project involvement and
results, people are beginning to understand and
accept that process improvement is a central part
of the company culture. Measureable improvements
include significant cost reductions, shorter lead
times, cumulative productivity gains of five percent
or more per year, better asset utilization and cash
generation. But significant opportunities remain.
At the leadership level strategy deployment efforts
should have a shorter list of critical objectives that
can be adequately resourced, and the company
is becoming more successful at hitting its strategic
breakthroughs. Monthly business review meetings
are driving corrective actions, which in turn is
dramatically improving results. Overall, improvement
efforts are beginning to have a noticeable impact on
overall financial results.
To move to the principle-driven stage—and make
faster progress—business leaders should:
1. Expand the focus of process improvement efforts
to product and service design, as well as sales
and marketing activities. If the bottom line isn’t
growing at least two times faster than the top
line, opportunities may exist in such areas where
it is more difficult to “see” the waste.
2. Work on the extended value stream, enhancing
relationships and information connections to
retailers, customers, distributors, and back up
the supply chain.
3. Develop a strategic focus on supplier
management, with key performance metrics
and partner-like relationships with suppliers.
4. Explore a value stream business management
approach, including demand segmentation
analysis, that drives service and fulfillment
process design strategies that maximize margins
and reduce working capital requirements, while
enhancing value for your customers.
At this stage the immense opportunities for
responsiveness improvements and cost reductions
deeper in the value chain become apparent. For
manufacturing operations, one-piece flow has been
widely implemented internally, but not in the supply
base. While work-in-process and finished goods
inventory turns have dramatically improved, many
raw materials are still purchased in bulk with long
lead times.
800.438.5535 | www.tbmcg.com

P G . 5
The Principle-Driven Stage
RATE OF CHANGE
1 TOOL DRIVEN 2 SYSTEM DRIVEN 3 PRINCIPLE DRIVEN
TIME
Year 1 Year 2 Year 3 Year 4 Year 5
For companies in the principle-driven stage
process-improvement concepts are thoroughly
embedded in a comprehensive business
management and performance system. Cost
reductions and productivity gains remain
important, but many improvement initiatives
directly support revenue growth.
Companies in this stage are able to leverage
their operational advantages—such as fast
order-to-delivery times (often 50 percent faster
than the industry average), responsiveness
to customer inquiries and superior product
reliability—to increase market share. An intense
focus on customers drives end-to-end value chain
alignment characterized by strong supplier
relationships and customer linkages.
These connections should boost new product
introductions as indicated by “product vitality,”
the percent of revenue coming from new product
sales over a 12- to 36-month period depending
upon the typical product lifecycle. In the high
tech or fashion sectors, for example, a product
vitality objective might be to have 30-50 percent
of revenue coming from products introduced in
the past 6-12 months.
Strong customer relationships also enable quick
responses to supply or demand disruptions, and
enhance the ability to capitalize on new market
openings. When such a culture is embedded
across the enterprise, individual leadership
changes do not affect the underlying culture or
performance trajectory.
At this stage, the process-improvement
knowledge and expertise of the organization can
drive acquisition opportunities. Management’s
intimate understanding of the potential for
operational improvement—coupled with strong
cash flow and enhanced margins—guides due
diligence, rapid integration of acquisitions and
post-integration activities.
Ongoing areas of focus for process improvement
efforts include:
1. Use of free cash to buy competitors or to acquire
businesses or technology in new markets.
2. A leadership development process provides
opportunities for talented people to learn and
gain responsibility quickly, often in newly
acquired businesses.
3. A core focus on innovation processes, starting
with the ability to clearly understand voice
of customer (VOC), translate needs into
meaningful product innovations, effective
process to design for manufacturability and
profitability, and an ability to improve speed
to market.
4. Support functions—maintenance, accounting,
customer service, and suppliers—are fully
integrated into the continuous improvement
mindset.
800.438.5535 | www.tbmcg.com

P G . 6
Maturity and Beyond
Regardless of the success that’s achieved, the
process and organizational changes required to
keep moving forward will always challenge the
beliefs, traditions, habits, customs, policies and
attitudes—the culture—that may have contributed
to a company’s present success. Researchers
have found that top performing firms—as defined
by superior sales growth, ROIC, shareholder
returns, innovation, customer satisfaction, quality
and other measures—tend to exhibit “high
performance cultures.” v
“I always viewed culture as one of those things
you talked about, like marketing and advertising.
It was one of the tools that a manager had at
his or her disposal when you think about an
enterprise,” Louis Gerstner, the former CEO of
IBM, once said. “The thing I have learned at IBM
is that culture is everything.” vi
Relatively few organizations manage to
become-principle driven. Fewer still maintain the
knowledge and management behavior needed
to keep such an advantage for five years or
longer, which by no coincidence is around
the average tenure of a CEO and leadership
team. vii TBM believes that fostering a deeper
understanding of the lean progression model—
looking beyond the current month’s projects and
priorities—will help more company leadership
foster a superior culture that allows employees
to serve customers better and leads to superior
financial performance.
How Operational Improvements Can Add Up
Jumping Off
Point
24-36 Months
Into Lean
Implementation
Improvement
vs. Jumping
Off Point
Sales $1,000,000,000 $1,150,000,000 15.0%
EBIT $70,000,000 7.0% $91,700,000 8.0% 31.0%
Inventory $200,000,000 20.0% $138,000,000 12.0% -31.0%
Fixed Capital $200,000,000 20.0% $180,000,000 15.7% -10.0%
Return on
Invested Capital
17.5% 28.8%
Total Debt $100,000,000 $40,000,000 -60.0%
Wealth Creation $665,000,000 $924,350,000 39.0%
Share Price $67 $103.18 54.0%
Key benchmarks for best-in-class operational excellence include 1) superior return on invested capital (ROIC), 2) revenue growth at
least 2X the nearest competitors, and 3) operating income growing at twice the rate of your top line. The sample financial summary
above shows how a 24-36 month investment in operational excellence can yield a 31 percent EBIT improvement, a 31 percent
reduction in inventory and a 10 percent reduction in fixed capital. The ROIC improves from 17.5 percent to 28.8 percent resulting
in a 54 percent increase in share price and significant wealth creation for the organization and its key stakeholders.
800.438.5535 | www.tbmcg.com

P G . 7
Long-Term Performance of Principle-Driven Lean Businesses
Danaher Business System Drives Value Creation
Revenue EPS Free Cash Flow
2002 2010 2002 2010 2002 2010
Danaher Corp., a $16 billion conglomerate based in Washington, D.C., is the pre-eminent U.S. practitioner of lean business
practices. The company has reported a five-year annual growth rate of 10 percent or more, and dividend growth of 18 percent. Today
more than half of the company’s revenues come from outside of its home country. The company has delivered a 25 percent annual return
to shareholder over the past 20 years, better than GE (16 percent), Berkshire Hathaway (21 percent) and the S&P 500 (12 percent).
Hubbell Performance Transformation
Revenue Net Income Inventory Days
Lean Launch
Lean Launch
Lean Launch
1996 2010 1996 2010 1996
2010
Hubbell Inc., a global manufacturer of electrical products for construction and utility applications based in Shelton, Conn.,
reported 2011 revenues of $2.9 billion. After company leaders made a commitment to lean, establishing a lean steering
committee to align improvement priorities, the company doubled sales over a seven-year period, and quadrupled net income
and EPS. Reductions in inventory and other assets generated over $240 million in cash over the first five years of the initiative.
WIKA Leverages Lean for Competitiveness & Growth
Revenue Operating Income Inventory Per Day
Lean Launch
Began inventory
reduction work
Lean Launch
2000 2010 2000 2010 2000
2010
WIKA Alexander Wiegand SE, (Klingenberg, Germany) sells over 40 million gauges, thermometers and other measurement
instruments annually. Over 10 years the 60-year-old, family-owned company has slashed manufacturing lead times and delivery times. It
now ships high-quality, customized products in just three to five days. Sales have doubled over the period, and earnings have quadrupled.
800.438.5535 | www.tbmcg.com

P G . 8
Acknowledgements
The author wishes to express his
appreciation to the insights of TBM
staff members and the experience
of many of our clients who have
contributed to the lean progression
model. Specifically, he would like
to acknowledge the contributions of
Bill Remy, Anand Sharma, Angela
Scenna, Gary Rascoe, Carl Deeley
and David Beal.
About the Author
Ken Koenemann, a Vice President
at TBM Consulting Group, has over
20 years of leadership experience
in manufacturing and supply chain
operations. He concentrates on
operational performance improvement
through LeanSigma ® deployment in
manufacturing, supply chain and
project management across various
industries. He also specializes in rapid
deployment of improvement initiatives
in private equity and public owned
companies. He publishes articles
regularly, is quoted in the national
media, and speaks at industry and
supply chain conferences.
Lean Progress Assessment Scores Businesses
in Four Key Areas: Culture, Tool Mastery,
Partner Alignment and Revenue Generation
A new online assessment tool based on the lean progression model from TBM
Consulting Group helps organizations understand how to better leverage
continuous improvement initiatives for growth and improved financial results. It
scores organizations on their cultural attributes, management knowledge of which
tools to use and when to use them, how well the companies use lean tools to serve
customers and suppliers, and their ability to leverage improvements to achieve and
support growth initiatives. Such characteristics are then be plotted against revenue
growth, operating income and cash flow to determine if financial results are
aligned with their performance improvement efforts. To participate and receive your
customized lean progress assessment report, visit www.tbmleanassessment.com.
About TBM Consulting Group
TBM is a global operations management consulting firm that maximizes enterprise
value and accelerates growth by working with clients to leverage operational
excellence. We work side-by-side with our clients to immediately improve
EBITDA, accelerate organic growth, integrate newly acquired businesses, and
generate immediate and long-term balance sheet improvements. Our subjectmatter
professionals average 15-25 years of operational, management and
executive experience, and none of them are career consultants. We leave behind
a customized framework and structure for lasting change using our proprietary
LeanSigma ® approach, which has been continuously improved since its introduction
over 20 years ago.
i. For specific examples see IndustryWeek magazine’s Best Plants winners (going back to 1990), and Shingo Prize winners (going back to 1988).
ii. 2010 Manufacturing and Wholesale Distribution National Survey (RSM McGladrey, June 7, 2010).
iii. Rigby, Darrell and Bilodeau, Barbara, Management Tools &Trends 2011, (Bain & Company, December 13, 2010).
iv. Henderson, Bruce D., The Boston Consulting Group, Inc., 1968.
v. Denison, Daniel R., Corporate Culture and Organizational Effectiveness (John Wiley, 1990).
vi. Lagace, Martha, “Gerstner: Changing Culture at IBM,” Harvard Business School (HBS) Working Knowledge (2002).
vii. Kaplan, Steven N., and Minton, Bernadette A. , “How Has CEO Turnover Changed?” (International Review of Finance, Sept. 2011)
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04/2012