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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 w<strong>here</strong> 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
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