Breakthrough Objectives and Continuous Improvement: Closing The ...

Executive Briefing
Breakthrough Objectives and
Continuous Improvement:
Closing The Gap
A report for manufacturing leaders on achieving intelligent growth.
Sponsored by:

2 www.tbmcg.com I www.industryweek.com

Table of Contents
About This Report* 3
Introduction: Conceptions,
Misconceptions and Realities 4
Key Metrics: CI Companies Are Growth Leaders 6
Closing the Gaps: Increasing the Benefits of CI 8
Revenue Growth: Alignment, Execution
and Breakthrough 9
Customer Intimacy: CI Driving Forward-
Focused Planning 10
Assessing CI Effectiveness 11
*Percentages don’t always add to 100 due to rounding.
About This Report
This report presents the results
of an exclusive survey of select
IndustryWeek readers conducted
by Penton Research for IW Custom
Research and TBM Consulting
Group. The research objectives
were to determine the benefits
received from using operational
excellence/continuous-improvement
programs and to identify gaps
between program outcomes and
strategic goals.
Penton Research emailed invitations
to participate in the online survey to
a net 38,324 subscribers. By Nov. 8,
2011, Penton Research received 300
completed surveys, for an effective
response rate of 0.8 percent.
About IW Custom Research
IW Custom Research is an operating
unit of IndustryWeek magazine that
provides insight into executives’
opinions and manufacturing trends.
IndustryWeek connects decisionmakers
within manufacturing
enterprises to share ideas and tools
that inspire action. In print, online
and in person, the IndustryWeek
community is the leading resource
for manufacturing operations
knowledge. IndustryWeek is a
property of Penton Media Inc.
For more information, go to
www.industryweek.com.
About TBM Consulting Group
TBM Consulting Group is a global
operations management consultancy
helping manufacturing and service
organizations leverage business
excellence for significant competitive
advantage and value creation. The
company was pivotal in introducing
LeanSigma management principles
to the North American market 20
years ago. TBM consultants are
frequently retained for their ability
to help organizations execute and
achieve breakthrough results and
for leaving behind a framework and
structure for sustainment. TBM cofounder
and CEO Anand Sharma
has co-written two books, “The
Perfect Engine: How to Win in the
New Demand Economy by Building
to Order with Fewer Resources” and
“The Antidote, How to Transform
Your Business for the Extreme
Challenges of the 21st Century.”
TBM developed Dploy Solutions
(www.dploysolutions.com), a suite
of web-based SaaS products that
facilitate management processes
for effectively executing strategic
objectives, tracking key performance
indicators, managing a knowledge
base and for aligning continuous
improvement initiatives with critical
business performance metrics. For
more information call 800.438.5535
or visit www.tbmcg.com.
www.industryweek.com I www.tbmcg.com 3

Introduction
Conceptions, Misconceptions and Realities
In fall of 2011, IndustryWeek and TBM Consulting
Group collaborated to identify conceptions,
misconceptions and realities about the connection
between continuous improvement (CI) programs and
high-level strategic goals that achieve “breakthrough”
(i.e., transformative) change and intelligent growth at
global manufacturing enterprises.
This collaboration resulted in the following
conclusions:
Companies with CI programs are much more
successful at increasing revenues, operating
income and cash flow.
The ability to grow increases as a company’s
CI program matures.
To get more from their CI programs, leaders
should improve communications, speed up
problem solving, and have a better understanding
of customer demand.
CI companies are more likely to use forwardlooking
planning tools than non-CI companies.
While manufacturers have been using CI
programs (i.e., Toyota Production System, lean
management, operational excellence, LeanSigma) for
decades to improve productivity and remove costs,
many — we suspected — were not fully optimizing
their CI efforts for growth. We also theorized that
organizations with a focus on business excellence
create more value than those without such a focus.
These two theories became the basis for an
IndustryWeek reader survey of C-level executives,
vice presidents/directors, and managers (Figure 1)
at public and private companies (Figure 2) across
a variety of manufacturing sectors, the largest of
which were industrial machinery, aerospace/defense,
medical devices, food and beverage, automotive, and
consumer durables. Companies ranged in size from
less than $100 million to more than $5 billion.
TBM Outlook
Companies need to grow, but executives have
learned that growth without transformative
change is fleeting. As companies grow, they also
become more complex, and if this complexity
is not managed through ongoing continuous
improvement/operational excellence efforts, the
benefits of growth erode.
Intelligent Growth:
Occurs with “attention” to cost but not
a focus solely on cost.
Is driven by processes that achieve
intimacy with customers.
Requires an enterprise-wide
culture change.
Challenges leaders to be open to
looking at business structure
in new ways.
Source: TBM Consulting Group
We gathered baseline information on executive
priorities and the number of companies that use CI
programs. Although responses regarding executive
priorities were as expected, we were surprised
and pleased to see that 84 percent of responding
companies have CI programs of varying maturity
(Figure 3).
We also asked all respondents what they believe
are the most important priorities for their executives,
regardless of CI program maturity level (Figure 4).
Revenue growth and cash flow were key priorities
for all respondents. In the sections that follow, we
describe what we learned by presenting research
results, interpreting and elaborating on the results
based on our shared knowledge and experience,
and incorporating real-world examples of companies
that have successfully used CI not only for internal
improvement, but for intelligent growth.
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Figure 1: Respondent Job Level
12%
17%
16%
31%
24%
■ C-Level
■ VP/Director
Figure 2: Company Ownership
Owned by
private
equity
10%
Privately
held
50%
Publicly
traded
40%
■ Manager with Direct Reports
■ Manager without Direct Reports
■ Other
Figure 3: CI Maturity Level
How would you describe your company’s operational excellence/continuous improvement programs?
Mature: Continuous improvement is the basis
of our company-wide culture and strategy.
26%
Moderate: We are in the process of or have
implemented strategy deployment and/or are
working extensively with suppliers.
Midcourse: We are starting to apply
operational excellence principles/programs to
non-production functions such as sales,
marketing, IT, finance, etc.
Early: We have started using tools such
as kaizen, one-piece flow, standard work, etc.
22%
23%
26%
other/No reply. 2%
Figure 4: Executive Priorities
Which of these will be priorities for executives at your company during the next 12 months?
■ First choice ■ Second choice ■ Third choice ■ Fourth choice ■ Fifth choice
revenue growth 25% 10% 9% 6% 8%
Improving cash flow 17% 13% 9% 6% 5%
Containing direct costs 8% 9% 12% 11% 10%
New-product innovation 8% 8% 7% 4% 10%
Improving productivity 7% 13% 15% 15% 8%
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Key Metrics
CI Companies Are Growth Leaders
The first area we studied was metrics — specifically
growth of revenue, operating income and cash
flow because these are the building materials of
transformative change and intelligent growth. Not
surprisingly, companies with CI programs fared better
than companies with no CI programs (Figure 5). What
we learned, though, is that this difference is dramatic.
Additionally, as CI programs mature, growth margins
increase (Figures 6, 7 and 8).
Figure 5 clearly demonstrates that companies with
no CI program expect little or no revenue growth, flat
or declining operating income, and flat or negative
Figure 5 : CI Companies Perform Better
Midcourse or Mature
No Program
➤ 50%+ expect revenue growth
5.1% or higher
➤ 61% expect operating income
growth 5.1% or higher
➤ 54% expect cash flow to increase
➤ 50%+ expect revenue growth
3% or less
➤ 49% expect operating income
growth to be flat or down
➤ 79% expect cash flow to be about
the same or down
changes in cash flow. On the flip side, over 50 percent
of Midcourse/Mature CI organizations expect revenue
growth of 5 percent or higher, operating income of
5 percent or higher, and increased cash flow.
align CI program activities to financial objectives to
ensure that the activities yield results that will create the
most value for the enterprise.
Mature CI companies have placed a heavier emphasis
on business process to drive growth, applying
continuous improvement to sales force effectiveness,
speed to market, rapid product commercialization and
other non-manufacturing areas of the value stream.
Furthermore, as these organizations reduce working
capital and generate improved free cash flow, they are
leveraging the liberated resources, their management
system and their improved ability to execute
strategically; acquire new businesses for growth;
integrate acquisitions quickly; better serve customers;
and capture market share from competitors.
As with revenue growth, operating income growth will
be greater for companies with CI programs in 2012,
and those with Mature programs expect the largest
gains (Figure 7).
Fifty-four percent of Mature organizations expect
an increase in cash flow (Figure 8). Early/Midcourse
varies based on where they are in the process. Still, 45
percent of respondents at the Midcourse level expect
cash flow to increase, while most of the companies
with no program expect cash flow to stay the same (45
percent) or decrease (34 percent).
Reductions in working capital enable organizations to
reduce reliance on short- and long-term debt, invest for
growth, and avoid having large amounts of cash tied up
in obsolete or excess inventory.
Why is all of this so important to breakthrough
transformation? Consider the following examples.
This supports the TBM concept of intelligent growth:
We believe there is a significant opportunity to better
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Figure 6: Expected Revenue Growth
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Figure 7: Expected Operating Income Growth
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Figure 8: Reported Change in Cash Flow over the Past Year
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
15.1% +
5.1% – 15%
3.1% – 5%
3% or less
Mature Early/Midcourse No Program
15.1% + 15.1% +
5.1% – 15%
3.1% – 5%
3% or less
Mature Early/Midcourse No Program
Increased
About the Same
Decreased
15.1% + 15.1% +
5.1% – 15%
3.1% – 5%
3% or less
5.1% – 15%
3.1% – 5%
3% or less
Increased
About the Same
Decreased
5.1% – 15%
3.1% – 5%
3% or less
Companies with no CI program growing slower.
15.1% +
5.1% – 15%
3.1% – 5%
3% or less
Companies with no CI program have slower bottomline growth.
Increased
About the Same
Decreased
Mature Early/Midcourse No Program
CI programs put more cash in pockets.
Milbank Frees Up Cash To Grow:
Milbank Manufacturing Company liberated
cash and space using lean process improvement,
and subsequently was able to pursue a
differentiated growth strategy. Milbank plays
in a very mature category of electric meter
sockets and needed to enter new markets for
continued growth and profitability.
The leadership team defined a vision and
drove that vision throughout the organization
by embracing operational excellence to rapidly
drive sustainable improvements in quality,
cost and delivery. They are now using the
freed-up cash and space to invest in a new
alternative-energy solutions business.
Milbank reduced lead times by 53 percent
and generated over $3.5 million from reductions
in work-in-process and finished goods
inventory. They were able to support their
growth initiative with existing facilities by liberating
100,000 square feet of floor space.
Improved Agility Beats
Low-Cost Competition:
One of the outcomes of lean continuous
improvement is faster responsiveness and
increased agility. These attributes enabled
WIKA, a leading international manufacturer of
pressure gauges and other critical measurement
instruments, to respond quickly to market
declines and grow significantly — even
during a global economic recession. WIKA
transformed from a high-volume, low-mix
producer to a low-volume, high-mix producer
in order to compete with low-cost competitors
abroad. By doing so, the company
doubled revenue in eight years. Profitability
grew by more than 10 times during the same
period. Market-based growth, operational
dexterity, superb execution, and committed
associates were behind the success.
www.industryweek.com I www.tbmcg.com 7

Closing the Gaps
Increasing the Benefits of CI
When CI initiatives are properly aligned to strategic
objectives and key performance indicators (KPIs),
it becomes easier to ensure that associates clearly
understand the organization’s challenges. This
is why CI should be a foundational element of a
comprehensive business system. Following are three
examples of how leaders can do this while addressing
the improvement opportunities listed in Figure 9.
Communication: Policy deployment helps leaders
to create a detailed action plan for achieving strategic
objectives; agree on KPIs; and assign individual
responsibility. It also establishes a process and
disciplined set of checks for monitoring projects
and progress.
The mistake that leadership teams often make without
policy deployment is to take a lot of time discussing
a five-year strategic plan and vision without defining
the details of how to execute. The policy deployment
process brings leaders to agreement on three to five key
breakthrough processes that they will collectively work
on and support during the next year.
Problem Solving: Monthly reviews for both policy
deployment and KPIs help leaders to quickly address
initiatives that are falling behind on objectives. As a
result, managers can drill down to better understand
root cause for the miss and ensure that the
countermeasures put into place will correct the problem.
Customer Demand: Companies that have
consistently outperformed the S&P 500 put the
customer at the center of all their decisions. They
embrace capabilities such as voice of the customer,
value selling, cooperative business planning, customer
segmentation and product commercialization to ensure
a better understanding of customer demand.
Figure 9: Upping Benefits From CI
Which of these would most increase the benefits your company receives from its operational excellence/
continuous improvement effort?
■ First choice ■ Second choice ■ Third choice ■ Fourth choice ■ Fifth choice
better communication and
planning among functions.
Faster problem solving.
A more concrete understanding
of customer demand.
27% 12% 11% 11% 12%
14% 19% 14% 11% 5%
12% 11% 10% 6% 10%
Better enterprise-wide understanding and
analysis of process and performance data.
11% 16% 10% 12% 8%
Faster new-product development. 9% 6% 8% 8% 10%
Faster adjustment to changing
customer demand.
8% 13% 11% 7% 11%
A long-term performance focus vs. quarterly. 7% 8% 8% 5% 8%
more/better operator training. 3% 5% 8% 11% 8%
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Revenue Growth
Alignment, Execution and Breakthrough
When we asked respondents what they should do
to increase their company’s ability to grow revenue,
their top choices were (Figure 10):
Improve ability and speed to introduce
differentiated products.
Improve ability to more quickly and efficiently
close sales.
Streamline product or service portfolio to
optimize sales and profit potential.
TBM Outlook
We are seeing that companies that are applying
process control and CI practices to address
challenges in functional areas, such as sales,
product management, and change management, are
emerging as leading competitors in their industries
despite escalating competition.
Here again, organizational alignment via a business
plan rooted in CI is key to achieving these improvements.
One example of a company that has successfully
done this is Trail King Industries, a manufacturer
of customized trailers used for transporting
heavy equipment and other oversized items.
Trail King needed to augment sales and improve
cash flow. Company leaders agreed a key breakthrough
objective was elimination of bottlenecks in
the new-product-development process in order to
get new designs and customized products to customers
quicker. They embraced a LeanSigma design
process that introduced early collaborative planning
to prevent downstream disruptions in the design
process. As a result, Trail King reduced the design
phase of the customization process by 12 weeks,
cut production costs, and increased quality and customization
options. Before this breakthrough, product
development from concept to rollout took oneand-a-half
to two years. Afterwards — nine months.
Figure 10: Getting Better At Revenue Growth
Which of these would most increase your company’s ability to grow revenue?
■ First choice ■ Second choice ■ Third choice ■ Fourth choice ■ Fifth choice
Improving the new-product-development process to
more quickly and efficiently fulfull unmet customer needs.
25% 19% 13% 8% 9%
Improving sales and processes to more quickly
and efficiently close sales.
22% 10% 11% 9% 9%
rationalizing products/product families to concentrate
on those with the greatest sales/profit potential.
17% 15% 13% 14% 11%
becoming a more flexible supplier to
meet variable customer demand.
13% 17% 13% 11% 9%
Improving both horizontal and vertical
alignment around strategic goals.
8% 10% 13% 10% 6%
better supplier performance. 5% 12% 10% 17% 14%
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Customer Intimacy
CI Driving Forward-Focused Planning
Because planning is so crucial to performance,
we wanted to find out what tools companies
used for planning.
TBM Outlook
While “looking-back” sales and profitability data has
its place in planning, it is not as effective at providing
guidance on what to do today to be successful tomorrow.
The challenge for leaders is to apply CI tools to get closer
to customers and better understand markets.
We found evidence that Mature CI companies are
making progress toward using more “real-time”
market indicators such as market-focused business
Figure 11: Too Much Looking Back, Not Enough
Looking Ahead
Mature CI Program
LOOKING AHEAD
➤ 70% using competitive
analysis
➤ 68% using market-focused
business analytics
➤ 54% using information
about forward-looking
customer strategies
No CI Program
LOOKING BACK
➤ 36% using competitive
analysis
➤ 21% using marketfocused
business analytics
➤ 28% using information
about forward-looking
customer strategies
analytics and information on forward-looking
customer strategies (Figure 11). One such company
is Vermeer, which picked up on subtle differences in
customer preferences for its products though voiceof-the-customer
research.
Customer Insight Prompts Targeted Design:
Vermeer, a global producer of heavy equipment for
construction and agriculture, used the CI principle
of voice of customer to identify a potential misstep
that could have occurred when it began selling a
new trenching machine in China. The machine had
been designed to deliver labor savings, which is
highly valued by Vermeer’s U.S. customers. In China,
however, labor savings is less important while other
attributes are more valued. Vermeer learned this by
taking a custom-focused, forward-looking planning
strategy and subsequently created a modified design
for the Chinese market.
Vermeer’s story illustrates the urgent need for
manufacturers to apply process excellence in all
elements of the value stream. The company decided
not to sell current products overseas but instead opted
to delve deeply into the minds of their customers.
Growth in a global economy is becoming more difficult
to achieve. Manufacturers will need to transform in
order to stay competitive. If Vermeer had introduced
a product developed for the American market, for
example, it would not be as successful in China.
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Looking Forward
Closing the Gaps
Assessing CI Effectiveness
Success such as that achieved by Vermeer requires
a leadership-supported connection between CI
priorities and strategic priorities. Vermeer is a Mature
CI company (practicing for more than 10 years) and
uses strategy-deployment and an ongoing cycle of CI
projects to intelligently grow.
One of the hallmarks of a company operating at this
mature level is that CI practices and tools are both
customer-centric and process-centric:
If your company has been practicing CI for a number
of years and has not achieved the corresponding
growth depicted, this could be because of a gap
between your CI priorities and your strategic priorities.
As this report demonstrates, closing this gap is a
worthy effort for global manufacturing leaders because
as alignment improves, CI learning and application
mature, which opens the door for transformative
change and lasting growth.
Customer Centric
Accessing the customer mind-set
Organizing around value streams
Process Centric
Converting ideas to innovation
Product commercialization
Strategy execution
Talent development
The case studies we presented illustrate some of
the promising opportunities that are waiting to be
discovered. In order for leaders to realize these
opportunities, though, they will need to change their
thinking on CI programs as our case-study companies
did. This will mean being open to entirely new business
structures, but the resulting benefits will enable leaders
to differentiate their companies in the increasingly
crowded global marketplace.
Cooperative business
planning
Operational excellence
Figure 12: CI Progression
Business performance
metrics
Acquisition integration
Outcomes of such a
strategy are speed to market,
product vitality, free cash flow,
consistent earnings growth,
and a sustainable competitive
advantage.
Where is your company
on TBM’s lean-progression
matrix (Figure 12)?
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