Implemented Results Blog

5 Ways to Increase Your Plant’s Production Efficiency

Mark Follows — Mon, 11 Jan 2016 19:16:00 GMT

Production efficiency is not easy and studies show most companies are squandering 50% of their key resources—labor and equipment.

Based on 250,000 hours of observation of businesses in a variety of industries, the real overall equipment effectiveness (OEE) is approximately 60%. This performance level has an immediate impact on labor, which typically runs at 50-55% productive. It’s not that people aren’t working. The problem is that they're toiling away on non-value-added tasks—looking for information, fixing errors and fighting fires.

While it’s not reasonable to expect 100% production efficiency, the best performing companies achieve around an 85% OEE. But how do you do that? Here are five ways to get started on the road to efficiency. Use them to gain a measurable advantage, become more competitive and fatten your bottom line.

1. Build the Foundation

Your foundation for production efficiency needs to address processes, planning and management behaviors.

You need Sales and Operations Planning (S&OP) that aligns finance and operations, tying revenue and cost targets of the financial world to the activity-based measures of operations. Why is this so important? Because it’s how you translate sales forecasts into resource requirements. It also sets the stage for effective production scheduling.

To ensure smooth running processes, you need to take the time to understand and observe the downtime that occurs at the constraints. You’ll see where the bottlenecks occur, when machines jam and workers stray from the line, seeking information or parts. Production, of course, does not work in a vacuum. Support functions will have similar process issues that tend to slow or degrade information that keeps OEE front and center. So, focusing on process and removing operating problems at the constraints enables them all to work together with reduced incidents of downtime.

Lastly, you need managers who actively manage. After all, they control most of the resources that your company consumes, and the decisions they make are critical. Active management includes developing a superior plan, setting clear expectations and direction, and following up to ascertain variances and performance issues. In thousands of studies, we have observed that managers spend less than 2% of their time actively managing their process. Instead, they spend most of their time reacting to unplanned events (fighting fires), performing administrative tasks or plowing through work they should be delegating.

2. Match the Schedule to the business plan

Most companies already have a schedule. The problem is they often don’t work and fail to match the revenue or cost needs of the business. Businesses’ MRP and ERP systems, for example, will be handicapped by inaccurate data, whether that be poor inventory accuracy, inaccurate lead times, bills of material, yield or order quantities. These challenges can and will lead to over production or under production which will quickly lead to excessive schedule changes, which is a major cause for downtime.

If the parameters are right, the next task is to ensure that the schedule expectation (typically in units) matches the revenue expectations of the business in dollars. In turn the schedule must also match the costs that the business has committed to consume in the form of material, labor or equipment.

3. Make the important measures visible

Businesses the world over have more and more data to measure their business. The downside is that it is often difficult to see which data point is the one that is most important. To address this, you need to get clarity on the key drivers of profit, things like downtime at the constraint, yields and schedule attainment. Once you are sure that you have the right measures, make them visible. At the point of execution, visibility will be in the form of operating values. At the leadership level, visibility may be in the form of dollars but they need to be a translation of what is seen at the point of execution. When you make the important things visible it is understood to be important. When you make everything visible the important measures disappear.

4. Manage Downtime with better Management Behaviors

Once you’ve systematized your schedule and made it visible, you will find that there’s downtime to tackle. A manager that actively manages the schedule will find positive and negative variances to scheduled output. Positive variances need to be understood so that they can be duplicated and built into the planning process. Negative variances need to be analyzed and problem solved. Problems may be related to skills deficiencies, which triggers training events. Problems may be related to faulty or cumbersome methods that will trigger observations or a sigma or lean event. Problems may be related to employee behavior, which will trigger a communication event between manager and staff. Lastly the problem may relate to planning or upstream or downstream processes that will trigger an escalation to a more senior level.

5. Get an Objective Viewpoint

You may know that you have operational problems. When you work in an environment daily and are eyeball deep in the pressures of meeting production requirements, however, it may be hard to determine the root causes. That’s why it’s good to bring in a third party who can take a fresh look at the situation. Not only do they view things from a new perspective, but they also have experience with other organizations that help them to identify problems and solutions more rapidly.

Food for Thought: Production Efficiency Gains

A food processing technology supplier was experiencing excessive machine downtime and had little visibility into scheduling and productivity measures. Production suffered, and labor costs rose.

To combat the issue, they asked us to offer the outsider’s perspective and dig into our knowledge base to steer them in the right direction. With our guidance, they streamlined processes in engineering, sales and purchasing, improving information flow and materials management. These front-end changes enabled production to schedule operations efficiently. They installed tools to schedule jobs and increase the visibility of capacity and constraints in manufacturing. Then, they managed actively, taking daily walks around the production floor to review results and take action as necessary.

Management also addressed downtime. Recognizing setup as a major component of lost production time, they pre-staged upcoming projects during machine runs.

With these changes and many others, production efficiency and utilization both increased by 12%. Also, overtime and temporary labor costs reduced by 50%. Now that’s food for thought.

This example shows the rewards available when companies take a proactive, strategic approach to addressing production efficiency.

Out of Alignment: How Organizational Alignment Issues are Killing Your Productivity

Bill McGinley — Fri, 11 Dec 2015 16:46:00 GMT

At a consumer goods packaging plant employees gathered every morning and waited for the Production Manager’s signal to begin their shift. This wasn’t a matter of overly earnest workers arriving early to get a jump start on a day’s work, but was the result of the overnight sanitation crew taking longer than their allotted time to clean the facility for the morning shift. This morning ritual of arriving and waiting had been practiced for as long as most employees could remember, to the point where it was an accepted part of a typical work day. The sanitation crew was allocated four hours every night to clean the plant and turn it over to production in the morning. They typically exceeded this allotted time by 45 minutes to an hour.

Out of Alignment

Sanitation’s primary requirement was to make certain the plant was clean and met or exceeded Federal Regulations. Production was designed and planned to operate the remaining 20 hours in the day to achieve the revenue plan. Unfortunately, production routinely started their day behind plan with little chance to catch up through the day.

Due to a lack of organizational alignment, the sanitation and production departments could work in conflict to their respective requirements, even though they shared the same customers. Resolution would require all parties to be mindful of not only meeting their specific objectives (e.g. quality and cleanliness), but to do so in the context of an overall business plan that included meeting customer demand. A “quality only” mentality by the sanitation shift manager translated into behavior whereby adherence to a schedule and the exploration of process improvements become secondary. The supervisor’s attention was focused elsewhere; the problem was never addressed and therefore persisted.

Raising Visibility to Spur Action

Getting the sanitation manager and production manager on the same page required them to appreciate the interdependencies between their key business objectives. Without a clean plant, the business would violate regulatory requirements. Without a clean plant, production could not produce. In this case, four hours daily to clean the plant was stretching to almost five hours that took nearly 5% of the plant’s capacity away. Once the issue and its implication were made visible, the urgency to fix the problem became greater.

Using Observation to Determine Process Breakdowns

Managers often spend a good part of their days operating in “firefighter” mode, resolving issues that are urgent. Unfortunately, the firefighter skillset does not often work with issues that exist but are not immediately visible – they are not yet urgent, and therefore can exist for so long that they simply become “the norm”. Such was the case with the sanitation process that was nearly 25% too long.

We observed the overnight cleanup process and saw that the crew would start by sweeping and cleaning the first floor. As was established practice, they would next move to the mezzanine level, sweeping and pushing the piles of waste over the edge to the floor below. The crew would then return to the first floor and clean it for a second time. We flagged this basic “order of operations” problem as one of the key culprits contributing to the production start delays. By simply reversing the order in which they cleaned the floors – resulting in only cleaning the first floor once – they were able to reduce total cleaning time by roughly 20%. This translated into consistent on-time performance for the cleaning crew and an overall uptime improvement for the plant of approximately one hour gained in a 20-hour schedule.

Making Alignment Sustainable

As the above example demonstrates, making variances visible is an important step to aligning functional areas. Without this collective understanding, managers tend to stick with issues that are urgent and localized. By making alignment issues visible, managers must turn their attention to issues that are important and span the business process. This focus ignites problem-solving collaboration that reinforces the team environment and begins to reinforce the behaviors that continuous improvement requires.

Scheduling: The Key Driver of Process Innovation and Sustainable Improvement

Peter Follows — Thu, 03 Dec 2015 16:04:00 GMT

In your search for process innovation that will drive sustainable performance improvement, scheduling your business may not be the first thing to come to mind -- but it should be. Done right, it can help expose the delta between current performance and potential performance levels, and serve as a catalyst for bringing together separate functional areas and aligning them to a set of clear objectives.

A container manufacturing firm we worked with provides a great example of the importance of focusing on scheduling when facing persistent performance issues. We were working for a private equity client who had purchased an old 3M plant that made small containers. Despite many process and system changes we weren’t getting the improved throughput results we were looking for. One of the basic issues was that the production managers simply weren’t very accountable to the shipment schedule. There wasn’t any real urgency from anyone to meet the day’s shipping plan. The client was getting impatient with all of us, so he called together the plant manager, the sales manager, and the master production scheduler and told them, “I’m willing to pay you all a 40% bonus every week if you achieve a 95% delivery schedule. If you don’t, I will cut your pay by 20%. It’s voluntary.” No one wanted the challenge so he made it involuntary. (That caused a series of other problems, but that’s another story).

A fairly remarkable transformation in attitudes occurred very quickly. The Sales Manager started managing customer commitments, the production manager made equipment uptime a huge priority and the scheduler had to match production to requirements more closely. Within three weeks, on-time shipments went from 70% to 98%. Everyone was thrilled, except the client. On-time shipments were a tremendous success but weekly shipping revenue had dropped by 30%. We had improved on-time shipments by making accommodations such as extending lead times to customers and by scheduling less through the plant. The net result was that profit had dropped while the 40% bonuses were being paid.

So the client introduced a new criteria: 95% on-time plus the amount shipped per week required to hit the profit plan. This caused the scheduler to have to first understand what the true revenue output of a week’s schedule was (what would be shipped from either inventory or off the line). He also had to now pull orders forward to make up shortfalls (customers had to be asked if they would accept and many would). But this now left gaps in the second and third week that Sales had to fill (one unanticipated benefit was the shorter lead times resulted in some premium pricing opportunities). All three managers had to be in daily contact and there was a significant improvement in focus and concern for schedule attainment. The modification aligned the managers with the boss and soon the plant exceeded the throughput objectives and did so at a 97% order fill rate.

There were many fascinating lessons from this particular project, not the least of which was how careful you need to be with incentives if you truly want to align your functional teams. The most important one, however, was the need to properly schedule a business. It doesn’t matter which industry or market segment, or continent we work in, scheduling is the key ingredient for sustainable and predictable results.

Why is scheduling so important?

Unless your business has a truly sustainable competitive advantage, predictable results are derived from how well you are able to schedule all aspects of the organization. We see many otherwise thoughtful strategies and process innovations break down at the point of execution and we usually link it back to basic disconnects in how the organization is scheduled, and how well managers are able to maintain those schedules.

The critical concept is that scheduling happens before execution. It’s pretty simple, schedules either link your organizations’ processes, management systems and employee behaviors, or they do not. If schedules are built from inaccurate forecasts or outdated planning standards (two common issues we come across), it is very difficult to achieve your planned performance numbers. It's simply very hard for managers to react to off-schedule conditions effectively and nearly impossible in an ongoing sustainable manner. As a result, performance numbers either become inconsistent or organizations start to undermine their own objectives. They do this by either accepting lower levels of performance or modifying the goals and planning parameters to more closely reflect the current levels of achievement. This of course can end up causing “real” performance to go into a downward spiral where last year’s actuals become the basis for this year’s plan.

Scheduling is the key for sustainable and predictable results. Unfortunately, there is no easy short cut to fix scheduling in an organization. It starts with trying to understand what the true current levels of performance are, and what they theoretically might be. Somewhere in that spectrum is a logical performance goal and then it’s a matter of understanding what is actually causing the gaps between current levels and targeted levels of performance. Taking this approach highlights to management what needs to be fixed and starts the process of tightening and managing to schedules that will actually drive improvement.

How Inaccurate Labor Standards Impact Budgets and Hotel Profitability

Richard Scott — Fri, 20 Nov 2015 18:13:00 GMT

The budget is the property guide to revenue, cost, and hotel profitability requirements. The aim is to forecast revenue and cost taking into consideration such factors as seasonality, rate, and mix. The setting of labor standards provides a framework to identify the hours required to service demand. All too often, labor standards fall into the trap of process redundancy and lack of scientific rigor leading to inflated costs and/or service breakdowns.

Process Redundancy within Standards

For instance, room attendants typically represent the largest labor spend and are instrumental in providing guest satisfaction. Through observation, we have seen that in a typical day, a room attendant can experience 25-50% of lost time. One simple example of lost time we regularly observe is making repeated trips between the cart and the supply room. Often this occurs due to lack of linen availability, linen quality issues and availability of supplies. Another contributor to lost time we see is the lack of a consistent sequence while cleaning a guest room. Not only do these situations inflate the time it takes to clean a room, they also introduce performance barriers for the team.

When barriers to performance remain, so does the inherent lost time required within the standard. Once identified, it’s easy to see how this results in additional cost and a greater risk for decreased guest satisfaction as rooms are not turned as quickly or supplied adequately.

Lack of Scientific Rigor

Labor standards are often developed based on historical performance, and in some cases, outdated standards are applied even after the process itself has been redesigned and improved. In the room attendant example, embedded lost time occurs when standard creation fails to account for the actual time required to complete value added cleaning activities. Such activities are influenced by room type, guest mix, cleaning sequence, and the workload disparity between stayovers and checkouts.

Depending on the mix of work, this inaccuracy can either contribute to planning less than a full shift of work, or conversely, set the team member up to require overtime to finish their assignments. The end result is not only in the form of excess cost, but also rooms not ready when needed, and team member frustration.

It is worth noting that the objective of creating a standard is not to achieve 100% productivity. The aim is to create an acceptable time in which to complete activities, with a buffer for variance that is likely to occur.

Removing barriers that create lost time in conjunction with a firm understanding of the time required to complete value added activities will improve the accuracy of standards, align budgets, and improve hotel profitability.

Translating Organizational Alignment Into Consistent Execution

Mark Follows — Thu, 19 Nov 2015 15:00:00 GMT

Costly alignment issues tend to reveal themselves at the point of execution, but the root causes can often be traced back to poor planning.

Here’s an example of how this plays out in a manufacturing environment: in a factory that produces industrial racking, the cost of production was higher than it needed to be. The financial analysis we conducted showed that the business was in fact, on plan, suggesting that there was either an issue with the plan, or the problem lay elsewhere. In the end, the issue could be directly attributed to the fact that leadership did not realize that the plan was incorrect, and the error fulfilled the prophesy that, “you are very likely to travel in the direction you look”.

The clearest example of poor alignment causing excessive costs was their use of paint. The financial analysis showed that paint consumption was on plan, however the factory actually consumed more than 2 times the required paint. This excess cost was equal to 2% of sales, or a potential 20% increase in EBITDA. Part of the problem was there wasn’t agreement across the organization as to an exact standard. Further, the actual amount of paint being applied on a daily basis varied substantially.

Planning Errors Manifest at the Point of Execution

Paint thickness on the racks was meant to be closely monitored. Too thin, the paint would not wear properly causing a quality issue. Too thick, the paint costs would be unnecessarily high. The paint operators were tasked with recording the thickness of paint applied to the racks. While observing these operators, we found that the recording of paint thickness appeared to be a loose approximation of averages from a number of separate records. The “loose” approximation showed paint application at about 4.5mils thickness. When asked what the standard was, the operator responded 2mils, but then added, “better too thick than too thin”.

Numbers Often Lie

When a thorough investigation of the actual applied thickness of paint was conducted, we found that the true average was closer to 6 mils of paint. When questioned as to the perceived standard thickness range, the answers depended on who you asked. The President gave the widest range at 2-4 mils. The General Manager was adamant that the standard was 3 mils. The actual standard as dictated by the customers was no less than 2mils and as much as 3.

Although the questionable readings, the weak operating standards, and the varied understanding of the requirements were eye opening, the real problem still sat unnoticed and hidden in the planning system. When the budgeted cost of paint was analyzed against the budgeted production, the implied “standard” for paint thickness was closer to 6 mils, which was almost exactly what they were getting.

When the leadership team assembled each month, they focused primarily on the variances rather than examine every cost and line item. In this case, and for many years, the paint costs were in line with plan and therefore did not present a variance to be discussed. Over the five years that could be analyzed, the business lost many millions of dollars EBITDA because their planning system was not aligned.

Conclusion

Lack of alignment is expensive. It tends to manifest itself at the point of execution, but often the alignment issues exist well before the front-line sees it. Implementing a planning system that aligns all levels of the organization is critical to more predictable and profitable operations.

How Workforce Analytics in Restaurants Can Help You React to Forecast Inaccuracy

Jenna Greenspan — Mon, 09 Nov 2015 19:38:00 GMT

Having a plan is great, but a plan is never perfect. Sticking to a pre-determined plan even when your assumptions prove to be wrong, or unforeseen external factors enter the picture, can result in operational challenges and unsatisfied internal and external customers. Planning and forecasting is not a discrete task that is ever really complete, but an ongoing process that requires constant feedback and intelligence. For restaurant managers, poor forecasting and planning can cause over or under staffing, which can in turn lead to service breakdowns, unsatisfied guests, disengaged employees and inconsistent profitability.

Identifying Forecast Inaccuracy

In creating a hotel restaurant forecast, many factors could be considered – including occupancy, arrivals, departures, banquet events, available guests, local guests, day of the week, seasonality and even weather. Some or all of these can be used to predict guest volume for the day, however doing this scientifically is beyond the capability of most existing systems. Shorter interval planning by meal period or hour can prove to be even more challenging. Because having an accurate forecast can be so difficult in the first place, having a plan to react to inaccuracy becomes even more critical in managing the guest experience and the operating performance.

Most restaurant managers have methods for identifying forecast inaccuracy but often this is done by observing a queue of guests out the door or an empty dining room. When forecast inaccuracy is this extreme, a manager’s visual gauge can be enough to make a determination on directionally how to react. But what happens when the forecast is off by only 10% in either direction? Without data to measure small variances, managers may not be prompted to make staffing adjustments.

Reacting to Forecast Inaccuracy

On any given day, staff may have seemed engaged and productive and guests were satisfied, but there may not be a clear understanding on the manager’s part as to how that translated to hours worked in relation volume in the restaurant. While staffing adjustments are often made throughout the day, the absence of specific metrics can lead to missing further opportunities to improve guest satisfaction and profitability. Small daily adjustments can have substantial, cumulative effects over time.

When managers make decisions to cut the floor, they often do this by informally determining how many people to send home and when, or by soliciting volunteers. It’s very rare that a restaurant manager knows that he or she needs to shed a specific number of hours to get back on track to their required productivity, given their forecast trend for the meal period. And even if they have that data, managers can be risk averse to make adjustments out of fear that a sudden rush of guests will arrive. This can mean that many labor hours are paid over the course of the year just in case unlikely events occur – this can be very expensive.

If managers can explore more creative contingencies for the infrequent times that unexpected demand does occur, the impact on operating performance could be significant. In the long-run, this would be more effective than not reacting for fear of sudden demand increase.

Enabling Cultural Change Through Organizational Alignment

Mark Follows — Wed, 04 Nov 2015 15:42:00 GMT

A myriad of research studies and our own observation has demonstrated that culture is critical to corporate performance. Understanding the importance of culture to performance is certainly not a recent area of interest for leaders, as Peter Drucker observed years ago, “culture eats strategy for breakfast”. His point was not that strategy is irrelevant, but that culture can kill a great idea or strategy at the point of execution. We have found that the root cause of breakdowns in execution can be traced to a lack of organizational alignment, and that addressing alignment can be the starting point for turning the culture.

Getting Predictable Results

Alignment, in its simplest form, means the actions at the front line of a business accurately represent the priorities of the CEO. This begins with a clearly articulated vision and plan for the company that is understood throughout the organization. Expectations outlined in a plan can and do go off track, however a well aligned team will quickly identify off-plan conditions and course correct. The more aligned various levels of the organization are the more likely off-plan conditions will be identified and remedied – producing more predictable results.

Look where you want to go

Good organizational alignment begins with good vision. At a company outing several years ago I had the opportunity of experiencing firsthand the thrill and sheer terror of racing an open wheel car. Instructors didn’t just let us loose on the track – they put us through a disciplined training program to teach us key principles of race car driving. We would spend some time in the classroom and immediately apply our lessons on the track. The most memorable lesson related to cornering and a simple, but consistent mantra to “look where you want to go”. It seems that we naturally look where danger is and consequently can and do drive our vehicles into danger rather than out of it.

It occurred to me that the notion of looking where you want to go on the track seemed analogous to developing a company vision – the idea of intently focusing on where you want to go and not getting distracted. Often leaders do get distracted and focus on where they don’t want to go, which is reinforced through the organization.

Elements of Organizational Alignment

Of course, you can only take these analogies so far, as your operating environment is much more complex and varied than a race track. Dealing with complexity and change, and creating more predictable outcomes goes beyond articulating a vision. The vision identifies where you want to take the business. The next step is developing your business plan with a keen eye towards understanding the key drivers of profitability, and how they may differ than in the past. You don’t want to build alignment around a plan using assumptions based on past performance, as you simply increase the likelihood of making the same mistakes and achieving the same results. Since prior results were a byproduct of lack of alignment, you need to reset your budget and operational baseline in order to put a new stake in the ground to enable proper alignment going forward.

Alignment all the way to the front line means everyone is clear as to how their actions and behaviors impact profitability. Often employees are acting in way that is consistent with their understanding of performance expectations – which can be different. For example, a sales executive that over commits order or product changes to her customer may cause significant schedule changes and increase the cost of fulfilling an order. Although she delivered terrific service (which she is measured on), her actions do not fit a company with a vision to deliver their product with the lowest cost. Conversely, the operations executive who batches orders to reduce operating cost will likely do so at the expense of customer service. Although less costly (which he is measured on), his actions do not fit a company with a vision to deliver leading customer service.

Better alignment across functions will lead to a better understanding of the interdependencies. If not addressed, the disconnect at different levels can become more acute over time and help to create a culture with poor communication and coordination.

Changing the Culture

Addressing organizational alignment begins with putting in place the management systems that will reinforce appropriate planning, scheduling and coordination. This will lead to clearer expectations, better coordination at all levels and better execution against the plan. Regardless of how you refer to this new culture (accountability, high performance, results-oriented), what you should expect is more predictable execution.

Workforce Planning Basics: How Poor Front Office Planning Causes Guest Dissatisfaction

Amber Sherman — Thu, 29 Oct 2015 13:36:00 GMT

A guest’s first experience upon arrival at a property can set the tone for their entire stay. If there is no one to greet them and assist with luggage or a long line at check-in, you have immediately put yourself in a deficit situation that will require over-servicing to get them back to acceptable levels of satisfaction. Ensuring an adequate number of valets and front desk attendants is critical. As they must always be available for guest service, this inevitability creates downtime as guest volume changes day to day and even minute to minute. The challenging question is how much downtime is required and when does it become excessive? When is front desk agent waiting time costing more than it should?

Front Office Staffing Challenges

Having enough front desk attendants to effectively handle the volume of guest check-ins is an essential part of the workforce planning challenge for front office leaders concerned with maintaining guest satisfaction. When planning the schedules for staff, there are many factors that impact the guest experience and the productivity of the crew. Firstly, predicting traffic patterns can be challenging – most hotels do not have pre-arrival data to anticipate when guests will arrive and depart. Furthermore these trends may differ by day of the week or in different seasons. When a guest does arrive, hotels will often struggle with predicting how long their arrival steps will take – some guests may need more time than others. A family traveling on vacation may need a longer transaction than a business guest staying only one night.

There may also be process breakdowns that make the arrival process challenging to forecast – if there are issues with the reservation information or supplies that are not stocked at the front desk, the cycle time for some check-ins may become extended. With respect to guest departures, it can be difficult to predict how many guests will actually stop at the desk. Meanwhile for those who do, the process can vary based on questions with their folio and disputed charges. As a result of these unknown factors in workforce planning, hotels tend to compensate by over-staffing in these roles in order to mitigate risk of service failures.

Impact of New Technology

The ability to predict guest patterns is becoming even more complicated as industry technology changes. New factors include smart phone and kiosk check-in and in-room or key drop methods for check-out. In some cases this technology allows guests to skip the front desk altogether, so staff planning has to account for these variables. This may include completing a higher percentage of pre-registration steps and faster guest-facing activity.

Without clearly understanding the rate at which these technologies will be adopted by guests, and how that will impact the level of traffic at the front desk, managers run a greater risk of over-scheduling front desk staff. Conversely, by overestimating the expected utilization of self check-in services, understaffing could occur, resulting in longer waits and poor guest satisfaction. With new technology entering the picture, historical data on front desk traffic patterns start to have less predictive value.

What are we actually trying to improve?

Peter Follows — Tue, 18 Aug 2015 22:04:00 GMT

"Boiling the ocean" is one of those phrases that can be quite accurate but is still slightly irritating to use or hear. It refers to analyzing something to death or tackling a problem with an impossible scope. And it's an easy trap to fall into when you are looking for opportunities. The usual reason for doing what inevitably ends up as a waste of time is the lack of a hypothesis. If you go searching for opportunity without some idea of what you are trying to determine, you may well have someone throw this phrase your way.

So the starting point for any opportunity hunt is a hypothesis. We use something we call "universal customer value" to begin to identify where to focus. Universal customer value is simply the recognition that four things are important to virtually every customer: speed, accuracy, cost and service. Any of these elements can be improved, but it's helpful to choose one on which to focus. To determine which one, you must assess which attributes are most important to your customers (or users), and then identify what the gap is between what the current and desired performance levels. Analytically, speed is cycle time; accuracy is error rate; cost is productivity; and service is schedule attainment.

Even if you don't know what the right number should be, you can identify the gap between what it is and what it could be. That difference is where all the opportunities lie.

Why happy customers aren't enough

Peter Follows — Tue, 07 Jul 2015 13:40:00 GMT

Over the years we've done a number of studies to try to help our clients find out what their customers think of them. These types of studies are often packaged under the term "voice of the customer." The idea is to survey customers to identify their key buying attributes and their priorities, and see how the company stacks up against competitors and alternatives. They are also quite predictable in many industries. Managers are also surveyed; they often score themselves highly. And so do customers. Companies often fare quite well with existing customers, and even with non-customers, on many important attributes. The problem is that competitors fare well too.

The problem that many companies face is that they exist in competitive industries where all the main players are pretty good. The big danger is that even when customers say that price isn't the most important attribute, which they often do, it sometimes becomes the most important one. If all the competitors are similar in terms of other attributes, price becomes a key factor in the decision– a point that is often leveraged by expert procurement departments. When price becomes the key focus, margins quickly erode.

It would be unfair to claim that it's a consultant's parlor trick, but the real point of the study is often to unsettle what is sometimes over-confidence in existing perceptions. The real opportunity to improve customer preference is to provide a key attribute that is significantly better, and provide it differently than competitors do. But this starts with recognizing that being really good, in your customers’ eyes, simply isn't enough anymore.

Spend a Morning with Seth Godin - Coming soon to Toronto!

Peter Follows — Fri, 15 May 2015 13:42:00 GMT

“All of us are smarter than any of us” – Seth Godin

Carpedia is proud to be a sponsor of the GREAT CEOs Speaker Series ‘Morning with Seth Godin’ taking place at the Toronto Congress Centre on June 18th 8am-12:30pm.

Seth Godin is the author of 18 best-sellers that have been translated into more than 35 languages and published worldwide. He writes about the post-industrial revolution, the way ideas spread, marketing, leadership, and—most of all—changing everything. Seth is a renowned presenter who is consistently rated among the very best speakers by the audiences he addresses. He has not facilitated an interactive Q&A in the Toronto area in almost three years and this will truly be an outstanding event!

During this exclusive three hour session, Seth will both challenge and inspire an audience comprised of hundreds of CEOs and senior executives as he shares:

the importance of finding, organizing, committing to, and communicating with a tribe and then creating a culture of what it means to be in that tribe
how to leverage the transition from an industrial economy based on obedience, to a connection economy based on coordination, trust, permission, and the exchange of ideas
how ideas spread, why the stories companies tell matter, why treating customers with respect pays off, and how these and other business decisions determine whether your business becomes invisible or remarkable
how letting go of our fear of failure, taking risks, and recognizing and embracing choices allow individuals to not just succeed, but to matter

Friends of Carpedia use promo code CARPEDIA to save! Register today!

Improving Organizational Performance: A discussion with Corporate Review

Peter Follows — Wed, 15 Apr 2015 13:40:00 GMT

Corporate Review Meets with Carpedia International to Learn About Improving Organizational Performance

April 15, 2015 - Boca Raton, Florida -- Many executives struggle to move their organization to a higher level of performance in a reasonable period of time. Carpedia International believes that they can help organizations achieve measurable and sustainable growth.

Carpedia is a consulting firm that provides executives with resources to help them find ways to move their company forward. The company works onsite with the client’s management teams to discuss exactly what the company would like to accomplish and the timeline that they would like to use to achieve it. Carpedia will then help the client develop tactical ideas and techniques to meet these goals.

Although many companies are hotbeds of new ideas and make operational changes regularly, when it comes to the broad scope that many companies are looking for, they begin to struggle. Carpedia has the experience and skills needed to help get people working together across various systems and departments to achieve change on a company wide level. This process can be time consuming and difficult, particularly when one considers the changes in outlook and behavior that is often required from everyone in the organization.

“Company-wide changes can be enormously difficult for organizations, but failure to do so can hold these businesses back from achieving their potential. When we learned about how Carpedia International helps companies make the operational changes they desire and move forward in their industry, we wanted to get them on the show to share their ideas with our audience,” says JL Haber, the Vice President of Programming for Corporate Review.

Carpedia International offers clients a distinct advantage because of their individualized approach for each company. They do not rely on formulas or predetermined mechanisms. Instead they will form a strategy from meeting with the company and guiding them towards their goals.

Those interested in learning more about Carpedia International and the work they do with company efficiency should watch this episode of Corporate Review.

About Corporate Review

Corporate Review is an award winning business and health program that is independently produced by MMP (USA), Inc. The show provides its viewers an in depth opportunity to find solutions to the industry problems from some of the top business leaders from across the world. With more than 5,000 companies participating on over 500 shows, Corporate Review continues to be the premier and targeted outlet for the latest business and health stories. Corporate Review airs on cable networks to over 100 million potential television households.

For specific market-by-market air dates and times, please email Moniqueh@mmpusa.com. For more information, please visit www.corporatereview.tv.

Green and red time opportunity

Peter Follows — Tue, 14 Apr 2015 15:54:00 GMT

When we look for opportunity, we categorize time into green and red components. Green time is the current productive part of a process, while red time is the non-productive waste. Green time typically takes up 50-60% of a process, which means red time usually takes up between 40-50%. It surprises most managers to learn how much time falls into this red component. This is in part because people often equate productive time with effort, but the two aren't necessarily related. Non-productive time can take as much or more effort than productive time. It's also a little misleading because this somehow implies that a process could or should be 100% green. But some red (or non-productive) time, is actually required to allow some flexibility of operations. Other factors can also have an impact, such as machine versus people-driven processes or union verses non-union environments. Even so-called world-class processes generally have 10 to 15% red time due to real-life variability.

Improving either the green or red components of a process requires different types of problem solving. Improvements to green time require changing the process as it is designed. This was called "re-engineering" until the term fell out of favor and is now more popularly referred to as "innovation". Improvements to red time require eliminating or reducing waste that is inherent in the process. This is where "lean" and its numerous variants are commonly applied.

The hunt for opportunities

Peter Follows — Wed, 11 Mar 2015 15:45:00 GMT

"Opportunity" is one of those euphemisms we use instead of "problems." It's arguably a better word, because most operating problems are, in fact opportunities for an organization to improve. Before we take on a project for a client, we do what we call an "opportunity analysis," which is like a financial and operational due-diligence. A key purpose of the analysis is to identify opportunities that exist in the current process and, more generally, the magnitude of the total opportunity. But given the complex nature of many organizations, where do we look for opportunity?

To help structure our thinking, we break down organizations (or specific functions or processes) into four separate, but interrelated areas: product, process, management systems, and organizational behavior. Within each of these four areas there are a number of things we look for, and a range of studies we can apply. One of the things we've learned over the years is that although organizations are complex and can differ significantly from one another (even within the same industry), there are a number of operating problems (i.e. opportunities) that are quite common.

In this era of hyper-competition, managers are constantly being asked to improve the productivity or effectiveness of their area of responsibility. This series is designed to provide insight into some of the more common opportunities we see across many diverse types of organizations and industry sectors. While not everything will be applicable to all organizations, we are sure you will find many ideas that can help you in the never-ending hunt for opportunity.

In search of opportunities

Peter Follows — Mon, 23 Feb 2015 19:19:00 GMT

Observation #52

Opportunities exist everywhere in organizations, because businesses are constantly changing in both subtle and not-so-subtle ways. We spend a lot of time observing organizations of all shapes and sizes, and it is truly fascinating to see how they operate. Hospitals, wineries, hotels, transportation firms, production plants: they are all remarkably complex. So while opportunities may exist, they are often not obvious. Unfortunately, competitive reality demands that companies never stop improving their performance and, in turn, that managers never stop looking for opportunity. But where and how do you look for these opportunities?

To answer the "where" part of this question, we ask ourselves four questions:

Are there any gaps between what your product or service provides and what customers (or users) actually want?
Can the process be made faster, more reliable or with less cost, without impacting quality?
Are the management-system tools effective and used properly by managers?
What do managers actually do with their time and is it what the organization needs?

The "how" part can be a little trickier. When you spend as much time as we do looking for improvement opportunities, you start to create mental checklists of both what you should be looking for and where you're likely to find them.

What are specific management behaviors?

Peter Follows — Fri, 19 Dec 2014 02:14:00 GMT

Observation #51

In the previous Observation, we discussed how everyone agrees that management behavior is a critical issue in organizations. However, the meaning of the term itself is often a little fuzzy. What behaviors are we actually talking about? If we look at the specific behaviors that most organizations would like their managers to possess, we can group them into four broad categories, which aptly reflect Deming's PDCA model: plan, do, check, act.

Plan (planning behaviors)

Strategic planning
Sales and operations planning (S&OP)
Improving performance
Managing change
Communicating

Do (execution behaviors)

Scheduling
Assigning work
Communicating expectations
Following up and actively listening
Giving performance feedback

Check (analytical behaviors)

Monitoring activity volume
Tracking key performance indicators
Identifying variances to plan
Improving processes
Problem solving for root causes

Act (improvement behaviors)

Prototyping possible solutions
Making decisions
Persuading others
Training to improve skills
Coaching for improved performance

We use this list when studying and observing managers, evaluating skill levels, and for training and development programs.

What does changing management behavior really mean?

Peter Follows — Fri, 12 Dec 2014 15:07:00 GMT

Observation #50

We often say it's tough to change management behavior. Universally, executives nod their heads in agreement. But when we all say it, what do we actually mean? What specific behaviors are we all talking about? What does changing management behavior really mean?

Like all of us, managers tend to repeat the same behaviors over many years, and in time those behaviors become deeply entrenched. Behaviors help form individual management styles and are the basis of familiar, comfortable work routines. Changing management behavior means getting managers to actually act differently from what they have done in the past. This could be setting clear daily expectations for staff, following up on planned work, actively listening or giving feedback. While these behaviors may seem very basic, they are not always common practice. Interestingly, they're actually more common in production environments than they are in office environments. When a behavior isn’t performed by a manager currently, it will be hard for him or her to start doing it in the future. Furthermore, not only does the manager not know how to do it, employees don't know how to respond to it.

Another aspect of changing management behavior is to modify the "style" of management that people use. We are strong believers in an active management style that is controlled, collaborative, and focused on results. On the other hand, we are not fans of management styles where an aggressive manager bullies subordinates, or a manager feels the need to flatter someone in order to get something done. We also are not fans of what we call "passive management" styles, e.g., where managers shy away from issues and avoid confronting poor performance. Nor are we fans of the management style where a manager asks an employee to do something but is apologetic and does not accept responsibility for giving the assignment -- or blames it on the company.

It's a lot easier to modify specific behaviors than it is to modify a person's management style. Behaviors are usually the result of doing something over and over again, which can often be tweaked or adjusted. Management styles tend to reflect both the social style of an individual and the culture of an organization. Some organizations are aggressive and some are passive; this often mirrors the styles of key executives. On their way up through the ranks, executives tend to hire and promote similar kinds of people, which over time creates a corporate management style. It's one of the reasons why corporate mergers can be so difficult: two similar businesses can have very different management styles.

Management styles can -- and do -- change over time, but from a practical perspective it's far easier to focus on modifying specific management behaviors.

The problem with management training

Peter Follows — Tue, 09 Dec 2014 20:25:00 GMT

Observation #49

In the relatively early days of our company, a few partners took a high-speed driving course on an old Formula 1 race track just outside Montreal. The conversation over dinner on the first night was not about how interesting or exciting it was to drive open-wheel race cars -- it was about how good the actual training approach was. In a nutshell, the instructors broke down racing into two things: driving in a straight line and driving around corners. To be a good driver, we had to master these two skills.

The instructors broke down each of these skills into specific steps. For example, driving around corners consisted of breaking on a straightaway, turning at a steady speed to the apex, then accelerating to the corner exit. They would teach one skill in the classroom and then take us out to the track to practice. Gradually we learned how to combine the skills.

Good athletic coaches use a similar technique to teach athletes where to position themselves and what to do while their often chaotic environment swirls around them.

The problem we have found with most management training programs is that they don't use this approach. They tend to overload managers with PowerPoint slides that tell them, in technical terms, what they should do and what to expect. They rarely break down management skills and get managers to practise those skills in pieces before trying to put them all together. One of the results is that many managers know what to do, but they don't always know how to do it. There is a lot of training about problem solving for example, but it's largely academic. It may instruct managers to identify the problem and look for root causes. But how exactly does a manager do that? Where and how do they learn about a variance? How do they look for root causes? What studies do they need to do? How do they do those studies? Who should be involved? What should they be trying to achieve? These are the questions that management training needs to address to be helpful.

The driving course left an indelible impression and made us go back and change the design of our training programs. We've still never achieved the clarity of the original course, but they are certainly more useful as a result of that experience.

A specific target is better than a range

Peter Follows — Sun, 16 Nov 2014 14:31:00 GMT

Observation #48

When we work for a company, we always do our due diligence upfront to pinpoint a specific improvement target for the project. Well, almost always. Sometimes we estimate the potential improvement based on our experience, and to be extra cautious we use a range, rather than a specific number. We peg the expected target number in the middle of the range. This is usually a mistake.

The problem with ranges is that there is often a strong gravitational force pulling the objectives of the initiative towards the lower end of the range. The range itself suggests that anything within the range is OK, otherwise the range would be different. Psychologically, this results in the midpoint becoming the effective maximum, and the "negotiated" objective falling somewhere between the midpoint and the low end of the range. This is really not surprising, and it’s the same phenomenon that plagues budgets every year. Despite the financial incentives that are sometimes introduced to encourage people to maximize the "reach," when it comes to performance improvement it's simply not in the best interests of managers to reach too far. From the perspective of the manager tasked with getting the results, it's a good idea to manage expectations, and over-delivering is always viewed in a better light than under-delivering. As well, in this world of continuous improvement performance, gains are expected each and every year, so why wouldn't you hedge? If you throw too much into this year, it will probably just mean that next year's "reach" will disappoint.

All of which is why giving ranges is a bad idea. It's better to spend time upfront and properly assess the true value of opportunity that exists within a process or function, and then target a specific percentage of that opportunity. This provides logic and clarity in terms of what the requirement should be. Over time, the actual realized success rate of the improvement project will establish what the right percentage should be. If, for some reason, you have to use a range, it's better to keep it fairly narrow.

How many managers does an organization need?

Peter Follows — Thu, 13 Nov 2014 17:22:00 GMT

Observation #47

Sometimes we do a study that we call the "Span of Control" analysis, where we look at how many subordinates report directly to each manager in an organization. It's a more difficult study than it sounds, because the way organizational charts are drawn is not always how they really are. Reporting lines are sometimes blurry and titles can be misleading (e.g., some managers aren't really managers). The numbers alone don’t reveal the full story, but the study does help one learn a lot about the organization.

The question of how many managers an organization needs is a by-product of how many people each manager should have reporting to them. This is an important decision because it ultimately dictates the number of managers, the levels of management, number of divisions, business units and so on. Every manager, in turn, creates additional incremental costs (e.g., travel, meetings, equipment, space, reports, etc.). All these things heavily influence the fixed overhead cost base. During a recession, there is usually a general thinning of management positions (through combining departments and delayering), but this is not always a good business decision. We've seen many cases where companies stripped out managers and supervisors only to see productivity subsequently suffer as a result.

The number of managers that an organization needs is a function of the management approach and style of the organization. As such, it can vary by industry – and even by company within the industry. Many organizations use span-of-control rules of thumb to determine how many managers they need, but this approach can become ineffective as job functions and technologies change. The right number should be analytically determined, similar to any situation where you correlate activity and time. Managers do specific "management" tasks (e.g., plan, train, administrate, review) as well as general in-process work. What an organization wants its managers to do determines how many managers they actually need.

The difficulty and importance of managing "shoulder periods"

Peter Follows — Fri, 07 Nov 2014 23:13:00 GMT

Observation #46

Many industries experience "shoulder periods." These are the time periods leading up to and away from the peak volumes. Figuring out how to manage these periods can be a difficult task for managers, but it’s also very important for realizing performance improvement gains.

When managers or performance-improvement teams try to "streamline" resource requirements (e.g., labor, equipment, space, etc.), they do this by figuring out what they have to do (activities); how much time it takes (time standard); and how often they have to do it (volume). Usually the biggest variable is volume. If the business has any kind of seasonality or variability, which of course many do, an average volume based on the total year could be too high one-half the time, and too low the other half. So companies build resource and production plans in order to forecast volume and determine their resource needs as they operate throughout the year.

Variability is tough to manage. If your peak volumes are in October and November, when do you add staff and when do you reduce staff? Or can you do this at all? What if the skills required are not easy to find? If you ignore the variability and carry a fixed staffing level, your productivity will be high for two months and naturally drop during the other 10 months. Will attrition take care of any of this imbalance? If you cut hours or lay off staff, will they go to competitors or get other jobs? What if you can't find enough qualified people when you need them and then miss your volumes and damage your service reputation? These are all very difficult questions that managers have to answer.

We've used "months" as a peak time period, but to make this issue even more complicated many functional areas have shoulder periods throughout the month (e.g., accounting), throughout the week (e.g., medical labs), or even throughout the day (e.g., restaurants). If you don't manage these shoulder periods carefully, it's very easy to see the productivity gained during peak periods offset by the productivity lost at other times.

What are your three key indicators?

Peter Follows — Wed, 05 Nov 2014 00:07:00 GMT

Observation #45

Over the years, one of the things we've noticed is that each new manager tends to create new reports, for whatever purpose they have at the time. Old reports are not eliminated, so over time there are a mountain of available reports – and a mountain of performance indicators -- in the system. But like a software program with too many features, this is not necessarily helpful. Sometimes it's just confusing.

One of the hardest things about management is knowing what you should be focusing on. What specific key indicators are most important to ensure that your area of responsibility is achieving its core objectives? As consultants, we are sometimes part of the problem: we can become enamored with "drilling down" into issues and have a tendency to build too many metrics into operating reports. This can overwhelm management and fragment their focus, rather than help concentrate it.

We generally believe that people are most effective when they focus on just three things. When looking at reports and key performance indicators, use this rule as a starting point. As a manager, if there were only three indicators that you could focus on, what would they be? Culling a lengthy list of indicators down to your critical three is not only very illuminating, it can also help you figure out what reports you need or don't need.

Tell us your three indicators in the comments section of our blog!

Grow with your customers

Peter Follows — Mon, 03 Nov 2014 20:35:00 GMT

Observation #44

Growing sales volume with existing accounts is sometimes referred to as "increasing your share of wallet," but it's actually not a very good description -- or even objective. We've found that companies are generally most successful increasing sales volume with existing accounts when those accounts are themselves growing, and they manage to maintain a share of that wallet.

Many companies are not great at increasing the "share of wallet" for three main reasons. The first reason is that this means taking business directly away from competitors. The harsh truth is that companies tend to think that their products’ (or service’s) advantages are more distinct than their customers do. The unfortunate result is that stealing business away from competitors often leads to lowering prices, which in turn damages profitability. The second reason is that customers often intentionally divide their purchases between alternate sources to optimize their leverage and reduce risk. The third reason is that sometimes companies try to increase their "share of wallet" by broadening their offerings, but this can confuse their customer. Unless your business is lucky enough to be some type of monopoly or oligopoly, where customers have little choice (e.g., a telecommunications company), it's difficult to get customers to believe you can be a leading provider in different, distinct categories. In the management consulting industry, for example, if you are known for operational performance improvement work, it's hard to sell strategy or IT consulting, even if you are capable of delivering it.

Despite the hurdles, the concept of growing sales volumes with existing customers is appealing because it's "friendly terrain." Your customers already know you and presumably like you. Salespeople usually prefer calling and visiting existing customers for the same reasons. To gain share from existing customers, you need very good intelligence about their requirements (e.g., a specific "inventory" of their purchases that you don't -- but could -- get), and a clear rationale for why your product or service adds value to their business.

It's possible to gain share of your customers’ wallets without just lowering your prices to "buy" the volume, but often it's a better bet to figure out which of your customers are growing -- and make sure you look after them well.

Don't raise your price, optimize it

Peter Follows — Wed, 29 Oct 2014 13:33:00 GMT

Observation #43

Pricing is the most powerful way to improve profit without the need for large-scale culture change. It is often said that a 1% improvement in price is worth a 10% improvement in productivity. Given that there is so much effort involved in trying to raise productivity by 10%, it's somewhat surprising that price isn't the first thing performance improvement groups focus on. But like the problem that many start-ups experience when they use similar math -- "All we need to be profitable is a 1% market share" -- getting that 1% gain can be very difficult.

Pricing is often something of a black art in many organizations. Many apply some kind of cost-plus-logic to determine their prices, but even the underlying costing methodology is a little cryptic (e.g., what costs are allocated). Many other companies set their prices based on what they believe the market can bear or based on what their competitors are charging. Actual negotiated pricing is often highly variable and can be significantly influenced by the size of the customer, what competitors do in bid situations, what procurement departments demand, the size and scale of the sale, future opportunities, etc. Prices are also influenced by personal relationships and even sales compensation plans. All of these factors result in a range in which prices for a certain product or service can vary.

Much like waste in a process, the opportunity in pricing lies in the variation. Raising prices is notoriously hard in many industries, so the key to remember is that the profit lever is average price. So focus on what we call "price optimization." The objective is to increase the average price, not to raise prices. If you can reduce any of your discounting, you can reduce the variation and improve the average price, all other things being equal.

The key question, then, is to ask and to study: Who actually controls pricing? Often, pricing control is distributed throughout an organization, and various people are allowed to discount from a benchmark. Identify where prices are discounted and try to understand what is driving that behavior. If you can tighten the parameters around who has the authority and how much can be discounted, you can reduce price variation and improve your average price. The more complex part for a project-based initiative is that the consequences are often felt at an aggregate level fairly high up in the organization, well after the price has been discounted. It's difficult to manage this gap between action and consequence.

Where are the Glengarry leads?

Peter Follows — Tue, 21 Oct 2014 13:46:00 GMT

Observation #42

There are only two basic ways to increase your sales volumes: find more customers and/or sell more to existing customers. There is a little more complexity when you dig into the numbers (e.g., market growth rate, customer churn, etc.), but they are basically the two ways to grow volume.

Therefore sales organizations generally require two types of salespeople, sometimes referred to as farmers and hunters. Farmers service existing accounts, doing their best to maintain or grow the base volume of business, whereas hunters have to find and sell new accounts.

Many sales initiatives are designed to increase volumes but, in practice, whether or not you are trying to find new customers or increase volumes with existing customers makes a big difference in the project approach. It's also worth noting that not many people are both farmers and hunters. They each have very different social styles, and trying to turn farmers into hunters (or vice versa) is usually not a recipe for success.

If you need to win new accounts, the key lever to focus on is lead generation. Where and how do you find the "Glengarry leads”? For those who haven’t seen the movie "Glengarry Glen Ross," these are the leads every salesperson wants, the top-prospect accounts. Many sales- improvement initiatives focus their energy on increasing the productivity of sales reps (increasing their calls per day for example), but this is not overly helpful for finding new accounts; it's actually better for the farming side of the business. We also often see a focus on the later stages of the funnel (e.g., proposal writing, handling objections, closing, etc.). All of these are important, but they tend to get attention because they are more tangible and immediate. The real leverage comes from the top end of the funnel. How can you secure quality leads and make sure they get into the hands of your best hunters?

The best way to grow new accounts is to make sure that your organization has a very clearly defined lead-generation process and to make sure those leads are carefully and deliberately managed through the sales funnel. The added benefit of this approach is that it’s also the best way to increase the productivity of your hunters (i.e., fill their schedule with quality leads). Growing volume with existing accounts requires a different focus, which we look at in the next Observation.