Hard Times; Tough Choices

Deployment planning and execution for any Continuous Improvement effort is critical to the viability of the deployment. Even when economic times get difficult.

It is times like these when we see the results of decisions made or not made in former times when business was better. In industry after industry, in companies large and small, management teams are forced to focus on “what’s important” – the day-to-day operational issues to keep cash flowing. As a result, fat gets trimmed and perceived luxuries like Continuous Improvement are curtailed. Streamlining Continuous Improvement to preserve cash flow can be an outstanding decision or it can be the start of a vicious decline in company performance.

Take the example of Company X. Prior to the recent economic downturn this organization had a healthy Continuous Improvement effort underway: over 200 people were trained in 2007 in the basic tools of Lean and Six Sigma. Superficially, things looked great. A fully-staffed Continuous Improvement department was in operation with an entire reporting structure managed by the Corporate Quality function. Over 10 training classes were conducted in 2007, each filled to capacity of 20+ students who were each certified based on an exam score and examples of practical application of tools learned in the class. Master Quality Consultants were certified and acted as internal resources to teach classes, organize training logistics, update training content, and help students practice the tools they learn. Everyone involved in the Continuous Improvement program at Company X was excited about the accomplishments they had made with their program.

Then came “The Crisis”. Most of 2008 continued in the same manner as 2007 until the 4th quarter when sales, revenue, and profits plummeted. This is when the survival instinct kicked in and difficult decisions were made. In addition to the reduction in the hourly workforce, operating facilities were closed, and salaried employees at corporate headquarters were laid off. All training was halted and the Continuous Improvement department was dissolved. No more lean. No more Six Sigma. Black Belts and Master Black Belts either assumed functional roles or disappeared in the corporate down-sizing. The longer-term strategic focus on waste reduction through education of the workforce had been completely discarded. This strategy to ensure short-term survival through a focus on immediate cash flow proved to be myopic as expenses were cut but customers became less satisfied with reduced performance. The vicious cycle had been initiated and market share was lost.

Contrast this with Company A which, in 2007, did not train nearly as many initiates as part of their own Operational Excellence program. Their focus was not on training. The focus was on project execution and justification through financial benefits resulting from the elimination of waste in the value chain. In Company A, the strategy was to drive culture change and innovation through projects, not training classes, though the training was a necessary prerequisite to effective project execution. In 2008-9 Company A experienced similar economic adversity and was forced to “lean-out” its operation. But Operational Excellence did not go away. Because it established itself as a value-add contribution to financial performance in good times, the Operational Excellence initiative simply changed its focus. During the downturn, career development switched to career preservation. The training valve was switched off; but the project valve was turned on high. Volume reductions meant that operational (variable spending) waste became less prominent since it reduced naturally with the volume. But overhead (generally fixed spending) waste became critical, so this area became the focal point for the continuous improvement efforts. This resulted in shorter lead times for product development, fewer staff doing the same (often more) work, and - in many cases – closing facilities and rationalizing the remaining capacity. But the need for Operational Excellence remained because the reduction of fixed cost meant that waste needed to be eliminated from administrative as well as operational processes. For Company A, Operational Excellence flourished as it continued to provide a strategic contribution to financial performance and both long- and short-term survival.

But the differences between Company X and Company A go beyond a focus on training versus projects. For Company A, Operational Excellence is a strategic initiative for operational performance, not a quality initiative. This means that for Company A, Lean and Six Sigma are part of a single enterprise-wide strategy that is more about what people do to eliminate waste in the value chain, not how they do it. In Company A, people were trained as part of their development plan so that the best leaders had skills to apply the tools in daily practice. Furthermore, the application of the Lean and Six Sigma tools were part of a larger Annual Operating Plan (developed annually, reviewed monthly) to drive financial performance through waste reduction.

This is in contrast to Company X’s deployment where people were chosen to ensure full classes and tools were practiced only for the purpose of achieving certification. In Company A, Operational Excellence was part of a management system, not simply a training program. And this Operational Excellence culture in Company A did not come by accident. From the beginning the deployment was designed to drive financial performance. Company A created methods to capture, track, and report financial benefits. Roles of Lean and Six Sigma experts were designed to fit into the organizational structure, operating models, and geographic organization of the facilities. Furthermore, a project lifecycle management system was developed to ensure that the right mix of process improvement projects was applied to current strategies and that all projects were on track. Because of this strategic focus on Operational Excellence, Company A was able to actually replace reduced volumes due to economic conditions with market share gained from competitors like Company X who are on the brink of bankruptcy – having lost a focus on waste elimination.

A model that mixes projects of different types (transactional, operational, Black Belt, Green Belt, Kaizen, Workplace Organization, etc.) and tracks financial benefits ensures that your Lean and Six Sigma efforts maximize value to your company. This model, as shown in Figure 1, must be planned and designed into a deployment from the beginning. Yes these approaches can be integrated into an existing deployment but significant effort must be taken in any case to ensure that the deployment is supported by a solid foundation of management discipline. Strong deployments that deliver true value and financially measureable results don’t happen by accident.

At CS International we have enabled several companies – just like company A – make the best of a tough economic environment, increasing market share as they improve growth opportunities. Our deployment model, with a general chronology shown in Figure 2, establishes an Operational Excellence strategy based on the unique corporate culture of each of our clients, yet one which relies on measurable – auditable – financial benefits to justify its existence. This model - effectively planning deployments with project execution for financial benefit – has been proven many times over as CS International’s clients have won multiple awards for deployment excellence and the integrity of the results have been recognized by independent financial auditors. Award winning deployments and financially auditable results are hallmark outcomes of CS International’s focus on effective deployment design, planning, and execution. This is how business improvement is facilitated in good times and hard times too.