Many businesses were known to manage their activities by metrics (MBO). Metrics are a measurement of the effectivity to your strategic plan. They are a tool and not the driver to how to execute a daily business model. Metrics are useful in determining your whether your strategic plan is working but business practices should not change daily or weekly to compensate for metric improvement. We all know that metrics are reviewed and demands are flowed down to improve certain elements but we cannot not fall prey to changing our mode of operation and vary from our strategic plan. If metrics indicate that our plan is not executing properly or was mis-defined during plan development, then we may need to re-group and revise our plan. However, strategic plans are derived via multiple perspectives and with concurrence of our leadership team. It is unlikely that the plan is totally flawed but a redirection after repeating results don’t meet our expectations may be necessary.
Don’t over react to short term misses. There are times you must stay the course to redevelop your business even though metrics may state otherwise. Drill down into the data and if the metrics validate that the long term improvements and enhancements are being met, continue the path. It may indicate that the risks associated with the plan were not realized at its conception and the next time you formulate your yearly plan you will now understand some of the unrealized impacts. Stay the course if the plan is executing properly. While the world seems to recognize short time goal attainment heavily, you must drive the business to new levels by step changes and in the long term you will succeed.
Category: Leading an Organization (page 3 of 3)
There can never be a sustainable successful organization if is veiled in secrecy and mistrust. Employees have the right to work in an environment that does not but them on edge guessing, “What’s next?” That is old school management that has never succeeded for any length of time. Leaders owe employees the truth even if it is difficult. When confronted by employees, leaders must look square into the eyes and tell those people the honest answers. If you are not honest with your team, why should they excel at their activities? There are times when a leader cannot divulge the truth fully to an employee because of company strategies that need to be kept close to the vest. A true leader will tell the employee, “I can’t tell you now but when I can, I will”. Working for a company with executives that have a secret strategy and vision will never sustain any success. Besides the fact that employees will never trust them, they truly will not do what is necessary for the company to succeed. Be honest, ethical and treat employees, as you want to be treated. Finally, realize that karma is real and if you have a hidden agenda that hurts people, it will eventually come back and haunt you.
When we try to improve productivity and efficiency, seldom are sustainable results easy to enact. We can attack the specific problems on limited areas but we need to look at the possibility of systemic changes. Efficiency improvements are not gained on a long term basis by “block and tackle”. We tend to chase a metric and not the root cause of why we are not improving. Sustainable improvements can be only gained by culture, vision, strategic planning, employee enhancement, lean processing, standard work, mistake proofing, cross training, and employee recognition. That sounds too large to tackle at times but as long as we direct the business to attack each area in small bits, the long term gains will sustain for years to come. Management does some of these well but lacks in others. A vision needs to be shared and a strategic plan presented to the entire organization for inputs and confirmation. If we do not take those steps, culture will flat line itself. Engaging employees on the understanding of lean techniques and how they fit into a vision is essential for success. Many leaders know the tools to improve efficiency, but have we educated the workforce why we are doing things? Success comes easier when you have the entire workforce driving the business down the same path. The resistance and failure of most consultant companies is the lack of embracing, educating, taking input, and reacting to employee suggestions. Changing a business effectively comes in small steps that add up to a dramatic overall change. There are no easy answers and nothing in the text books that reveal a hidden secret. The answers are right in front of us and in the heads of our teams. We can teach them new techniques, but they already have the real answers to success. They will drive the change because they want to be part of success. Change the total package and you will attain double digit productivity improvements year after year.
The decision of re-shoring work to domestic suppliers and internal to your own operations can be a contrived and convoluted strategy. Many corporations have historically arrived at the conclusion that the short term savings from global outsourcing would benefit the company to extremes that were not realized for extended timespans. In addition, the quality from developing nations and low cost initiatives require a larger infrastructure to support in both the quality and logistic factions. The incurred costs for excessive quality checking and support infrastructure can undermine any potential financial savings and often substantially increase overall costs. Attrition is intensifying offshore, leading to inconsistent and unsettled operations. Combined with a rise in global salary demands, improper offshoring has driven overall costs to an uncompetitive state. This does not translate to a total de-globalization of supplies but has created a multifaceted solution for sourcing strategy. Approximately twenty to twenty-five percent of products that were outsourced globally over the last decade are projected to return to the United States in the next five years. Therefore, there is credence in re-shoring but logic must direct the operation.
There are several steps in the decision process. They include financial modeling, footprint optimization, site selection, production planning, supply chain selection, manpower needs (support and direct labor) and most importantly the implementation of lean. The process is one that will take substantial effort but developing your strategy is the most important faction of your justifications. The process needs to start with an efficiency and cost analysis of products procured and produced. You need to construct a model that takes the cost of the product, the cash conversion cycle costs, the cost of cash velocity, the cost of poor quality and its effects on customers and the required inventory costs that are required to offset longer delivery distance and delays. After that comparison is completed, you need to analyze the impacts of delivery delays and poor quality on customer retentions. While a subjective conversation will occur, there can be a valuable cost associated with outsourced product’s impacts on customers that can be quantified. The analysis will lead you to a pareto analysis of high cost and high pain products that are currently outsourced.
The next step is analyzing the top ten to twenty percent of these products and determining if you have internal capabilities or will need to near source the products. Near sourcing may be more profitable if you do not have the capacity and capability to insource them to your facility. After the pareto is completed, your procurement department must then quote sources for external suppliers and the operations management within your company must analyze the internal production costs. This will allow a full comparison of price. There may be decisions that sway internal or near sourcing that have quality performance indicators in them. You may need to review supplier quality performance and customer satisfaction with peer companies. You will find that companies that are involved in the re-shoring of manufacturing are eager to share the data they have collected. Your internal operations may not be the best answer as your quality performance may be lacking in certain areas. Factor your quality into the equation and determine if you are indeed the best option for production. When all your data is collected you will have a list of products to possibly go forward with for insourcing efforts.
The next stage is the estimation of the strengths, weaknesses, opportunities and threats to your plan. This is the risk assessment that accommodates the financial conclusions. Weigh each element and create a numeric score for each category of risk and opportunity. Of course, risk to the customer carries the highest weight and discretion. The cumulative score then can create a cost factor to apply to the financial data. An example of this is a product that is significantly higher cost in the domestic market because of environmental, technical expertise, health and safety risks to employees and regulations, capital re-investment necessity, and supplier developed nuances that you have no knowledge regarding processes. This would carry a higher percentage factor that would be applied to insourced costs.
Finally, create a contingency plan for each part number. Do not assume that the current supplier will provide products expeditiously if you fail in your re-shoring efforts. You must create a sound contingency plan as this effort is not an easy one. You may also want to review your business strategy for a “Made in America” product line and a “Global Product” line. Many initiatives are in place to promote re-shoring efforts and customers may be willing to pay a premium for the “Made in America “line. There is so many intricacies in these decisions that they should be low risk, well analyzed, and be part of an overall vision and plan for your company.
It is the time to set next year’s goals and expectations. You should not wait until the first of the year arrives and attempt to set the plan and goals for new year. We all have completed our pro forma for next year and estimated our EBITs, but have we created our strategic plans that will yield double digit growth? Estimating the financials for the upcoming year will not suffice and allow success. Below is a short list of initiatives that we should look at for the upcoming year.
1. Set your goals for cost of poor quality. Understand how you are going to measure it. Are you going to include the rework, the loss of productivity due to poor quality, customer returns and investigation costs, and repair costs? Whatever you measure in the upcoming year, assure that you show a reduction and have projects with milestones established to begin in January. Do not set yourself up for the next year by having a bad first quarter and chasing the year’s goals to recover those costs. Make your goal a reflection of projects you will manage and not a wish list. Spell out the plan’s expectations month by month with start dates, cost realization dates, project completion dates, and determine who the leader is for each project. Set your report out dates for the next year and schedule the team’s calendars to assure that teams know when they are going to review projects with the executive team.
2. Create a process improvement team and set expectations. You should know where your efficiency losses are and establish which ones you are going to tackle and the order and timeframe for those projects. Set a reasonable amount of tasks. Many businesses will create a wish list that is too large for the staffing. Scheduling too many tasks for your workforce can only lead to frustration, fractured efforts, and a disengaged workforce. Strategically assign those tasks, determine reasonable expectations, and set a detailed review schedule for the plan’s events on a regular basis. Become involved as a leader because your workforce will prioritize their efforts by the attention and involvement your leadership displays in the upcoming year.
3. Assure that you have an active environmental health and safety plan to improve the safety and ergonomics of your operation. Remember, people want to be treated fairly and they will engage more if you are concerned for their well-being. Strive to improve the ergonomics in the workplace. Recordable and lost time injuries are bad for a business’s reputation and finances, but they also can disengage a workforce quickly. Care about your employees and make it a passion to evolve the workplace to a safer environment. Embrace their concerns as you would your family members. They are your livelihood. If you do not have a methodology to collect the employee’s risks, hold a “stand-down” for four hours to collect ideas from employees. Take those ideas, Pareto them by risk to employees and aggressively burn them down. Assure the plan attacks these on a monthly basis. Form subcommittees to address these ideas. Everyone in the organization can take ownership of a task as safety is everyone’s job.
4. Train your employees early and on a repetitive regular schedule. You should have already met with your employees and determined their training needs. Now you must schedule a plan to deliver on those internal and external needs. Do not leave this as a human resource task. It is a leadership responsibility that our reports are enriching themselves each year. You may want to look at your most unproductive weeks in the previous years and declare them training weeks. This allows you to write off the week from deliveries and profit based on poor historical performance. Typically, the first week of the year, the week of July 4th and Labor Day week are poor performers as the previous quarter has just ended and people include additional vacation days to long weekends. Put training into this week and declare the week as a non-production week. Planning this activity allows customer commits to be maintained by overproduction in prior weeks and planned delivery commits pushed out of these weeks where possible.
5. Create production start plans that are visual and observable to all employees. Plan on Gemba walks daily and review these start plans. These plans are critical to success. If you start on time, you will finish on time. Don’t leave the plan’s execution to the planners and materials department to manage. All directly involved employees must understand the plan, discuss it daily at Gemba walks, and assure that procurement, operations, quality, and the materials department understands when the production starts for every job. This is critical for mixed model production. This plan is should not be in a notebook but must be displayed on some visual system that all employees can monitor. The more visuals you have in your company, the more self-managed it becomes.
Remember that strategic planning will assure 2016 will be better than 2015. Don’t wait until the year begins to invoke the plan as you will have an overly burden the last two quarters of the year. If you have not already shared your vision and plan with the entire organization, do it early in the year
Building the business on a path to success is sometimes difficult if you do not understand the basics and fundamentals of desirable characteristics. A leader must understand what it takes to earn the trust of the organization and what is necessary to possess in your inner self to be successful. A leader must be ambitious and adaptable to ever-changing business conditions. Your ambition cannot wear on your self-control and you must keep emotions in check during stressful times. Leaders must use common sense and cross check their actions with their ethics and values at all times. There are always times when your business will stretch your patience because your ambition to be successful will take control. Keep emotions in check and realize if this was easy, anyone could do it. You are a leader because you are competitive and temporary setbacks are part of any business. Surely you want your business to run dull, boring and without drama but usually that in not the case. You must use your resourcefulness to create a team spirit to resolve problems and setbacks and continue to possess the integrity to make correct decisions. Have faith in yourself and organization to be successful and be sincere in all communications with your team. A successful leader is patient with situations and understands that people will model his/her behavior. Every decision you make must be done with confidence, sincerity and honesty. Lead with passion and not emotions.
Running a successful business is much like an NFL Team. The successful team has its “A” player but the focus is not on superstar efforts. The team has a game plan and the methodology to succeed. When we look at the teams that just move the ball down the field play after play and appearing impossible to stop it is impressive. Performing in all factions of the game, defense, offense and special teams, is the only way to sustain a victory week after week. When all the factions of the team meet their objectives, they find themselves winning it all.
So what does that have to do with business? It is the same philosophy that is required to sustain success week after week. Business cannot jump to react to different metrics each week or month. Many businesses will sometimes look at sales and EBIT with little regard for quality and the costs associated with bad quality. Business will then react to an analysis that states the cost of quality is too high and place multiple assets in place to rectify those conditions. Then a metric will be reported that there is excessive inventory cost. Again, some businesses will react to those metrics and put teams in place to burn down that poor metric. This is the problem with management by objectives. Many times, people will manipulate the data so that the metric gets better without improving the system that is creating those metrics.
The businesses that will be the most successful set a vision on efficiency improvement and waste reduction. They will have a multi-faceted plan that will be built around a production or a service system that will assure all long and short term objectives are met and they will measure themselves to that plan. Metrics are merely a report card and a business should not react in haste to attain their goals. If you examine your current state, create a vision of what success look like, and then create a strategic plan that supports that vision, you will succeed. The metrics will tell you if you are executing to plan, whether your plan should change (because of continued poor performance) or whether it is only a short term deficit to the entire plan’s execution. We continually attempt to exceed each prior month’s performance but in reality that could create “knee jerk” reactions that destroy your long term strategic plan. Don’t discard the metrics but look into them to see if you are observing a short term effect of doing the correct plan execution. If your short comings are a result of a temporary complication to your strategy, don’t over-react. Examine the plan to see if it is executing properly and then make small adjustments to assure that a trend does not develop.
Finally, always keep a pulse on your employees and their opinions. We tend to think that we as management have the answers but many times the answers are in the minds of our employees. Always pursue an engaged workforce and treat their issues as a priority. Assure there are no ethical gaps in your organization and communicate with employees continuously. Never forget to reward employees for their actions and outstanding performance and thank them for doing their best.
The End of the Year is Here
Businesses will make serious decisions in the next few days. Some will decide whether to let their business run normally strive for the best outcomes, take small (not game changing) steps to improve and then finish the year using the same standard practices they have used during the entire year. Other businesses will look at the metrics for the year to date, change processes for short term results to manipulate the metrics, change their normal processing significantly for the end of year and manage the metrics. The first method of being “hands off” the metric management is the best way to lead an organization. If manipulation of the business to attain results is necessary, then the business is not adhering to standard processes or the processes are flawed and need improvement. One must take into account that year over year needs for improvements will not be documented nor will the numbers reflect the true business. Refrain from changing the business at the end of the year.
1. The true metrics will reveal strengths and weaknesses of your business
2. The results of this year will evaluate the success and weaknesses in your strategic plan
3. The shortcomings of the year will give direction to next year’s plan
4. The successes will give you opportunity to celebrate and realize your strengths
5. The year end results will reveal where your talent deficits are in your organization