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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 w<strong>here</strong> 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
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