Ray Attiyah, Founder & Chief Innovation Officer, Definity Partners

Science fiction is clever, isn’t it? In this literary genre, authors expand their minds to captivate their audience, bringing topics that are seemingly impossible into the realm of possibility.  One such subject is artificial intelligence. Could humans really create machinery that surpasses the intellectual capabilities of humans?  Maybe, but we must not forget how these innovations come to fruition – people.  We must not sell the value of human capital short.

While the saying, “Our employees are our most valuable asset,” is trite, does that make it any less true?  In recent years, businesses have spurned that mantra and moved into cost reduction mode.  In some instances, this is the right move; not all jobs that were necessary in the past are needed in the New Normal economy.  However, it is the companies that realize the intangible values of people that position themselves for strength going forward.

Let’s use the technology companies as a measuring stick for this issue.  Last week, six of the most influential companies in Silicon Valley, Adobe, Apple, Google, Intel, Intuit, and Walt Disney Pixar, agreed to a settlement with the U.S. Department of Justice over allegations of collusion in their hiring practices.  Specifically, they were charged with antitrust agreements, stating they would not hire each other’s employees.  By reducing the competitive landscape, wages would remain artificially low, but the free flow of information, and thus, innovation, would also be constrained.  The settlement shows the confidence these companies have in their people because they trust the most talented and forward thinking minds will remain with their organization.

Only a strong company could be in such a position. Talented workers are not expendable; management must do everything they can to retain and attract the best talent – and attracting talent cannot be done without hiring. Going back to the cost reduction strategies that have dominated corporate planning in the post financial crisis world, one must ask how these organizations expect to grow in the future. Cost reduction is a short-term fix to a financial problem, but it is not the only answer. More so, what type of message does that send throughout the company? Cost reduction companies plan to survive, whereas strong companies plan to win.

So why hire? Why can’t strong companies produce with current talent? In the short term, they can. In a world devoid of complexity, they can; but the real world is constantly moving, constantly changing. New talent brings new ideas. New talent breeds competition. Just as sports teams draft the next batch of superstars every year, so too should businesses. 

Luckily, new talents in the business world don’t cost the same as new talents in the NFL or NBA. Also unlike sports, the business world is not a fixed game. Management, the company’s forward thinkers, can create positions to strategically position their organization for future strength – and bringing in the most talented thinkers just adds to their bench. Stronger companies adapt to the changing marketplace. Their new talent and bench strength helps to solve these emerging problems.

Just like a person on a diet can achieve short-term goals through starvation methods, companies can do the same. Without adequate nutrition, growth is impossible. Every company’s nutrition is its people. Bring in the right group and expect to see results; neglect talent and prepare for a weak future. It’s pretty obvious which one generates confidence.

Lack of systems are highlighted in turbulent times.  Ever feel like you’re riding a rollercoaster in the dark?  The swings in customer demand are more frequent and more volatile.  You can’t see what’s around the curve.

Recent demand patterns are significantly more erratic than past years due to recent problems such as tightened credit availability for businesses, uncertain government actions, global financial concerns, and consumer housing defaults. 

It’s more difficult to apply prior forecasting models to accurately predict future demands.  Organizations who lack a flexible operational system will find themselves in one of two camps.  The first camp; comprised of organizations who are seeking to maintain high service levels and competitive lead times, will find themselves with excess underutilized costs during the valleys. In the other camp are the organizations seeking to maintain lean initiatives, the low cost operations will find themselves losing out on sales, fighting the high costs of overtime, expediting, as well as quality issues.  Imagine the stresses encountered in servicing these ups and downs.

Selecting the right model for your organization will vary with your contribution margins, switching costs of customers, and competitive position with other customer alternative solutions.  I wish it were simple to say which model is right for you.  However, what is simple to say is that the best organizations, the companies whose profits have grown rapidly during uncertain times are those who have a model that is more than “just lean”.

They have a nimble, flexible operating system that is both low in waste but can also adjust quickly and effectively.  One client ,who was in a very unpredictable crisis response business, developed a flexible operation which allowed them to increase capacity 500% in less than 3 months.  All while opening a new facility with a new product and then quickly ceasing the operation to secure a one-time major order from a long-time customer. 

The customer had planned on providing the work to many suppliers due to the quick need.  They didn’t realize that one organization was equipped to support such a major ramp-up and then having the discipline to end operations in a profitable manner.  Customers do not want to pay for their suppliers ramp-up expenses.

In order to develop a flexible and nimble system, the leader began by conducting mock drills to determine what facets of their organization were pliable and which ones are lean, but inflexible.  It is important to review both your operational system as well as your management capacity.  Can your team effectively handle a 500% surge in 3 months without much increase in fixed overhead or supervision?  Does your quality system, and training methods support a ramp-up of new employees that ensure your quality is maintained during the surge?  Does your team have the right visibility to make the effective ramp-down decision in a timely manner so you don’t hold on to excess resources “just-in-case” they are needed only to find out they were not needed after seeing your gross margins decline. 

Flexible operations have provided many organizations a competitive advantage and profitable business model during yo-yo demand periods.

I recently had the opportunity to have lunch with the president of one of our clients. The largest portion of this client’s customer base is located in the automotive industry; so, needless to say, the past year’s economic storm has had a negative financial impact on his company. However, very early into our conversation, I was struck by the positive and upbeat nature of his outlook for 2010.  Far from lamenting the lost sales and many cancelled orders in 2009, he was enthusiastic about the current opportunities facing the company. With genuine excitement, he shared with me that the altered landscape of their industry has put them in an optimal position to capture market share from their competitors. The reason their competitors have been weakened over the course of the year.

He proceeded to give me an overview of the new customers that they had been able to meet, which in normal circumstances would have been impossible due to long established supplier relationships. He credited the journey of sustained improvements begun two years prior that eliminated considerable operational wastes for these new business opportunities. As a result of confidence in front-line personnel that builds a culture of performance, the company has become vastly more competitive versus others in their industry. He even shared their plans to introduce new product lines into the marketplace and how their competition had nothing remotely as innovative on the horizon. He concluded our lunch with the statement that this year’s economic struggles were going to be one of the best things that ever happened to them.

Upon reflection of this discussion, I realized why this president was able to be so enthusiastic amidst the current economic malaise. It occurred to me that he, as the leader, is able to work “on” growing his business rather than “in” running his business. More importantly, he has not allowed the current market conditions to pull him deeper into the daily aspects of running the business. Rather as the leader he is able to dedicate his time towards growth initiatives that are currently yielding dividends for the company’s bottom-line.

In his best selling book, Leading Change, John Kotter’s first step demanded that leaders establish a sense of urgency for their organization. As our client pointed out over our sandwiches, if this economy is not creating a sense of urgency for you, then you must be dead. This successful leader reminds us to keep driving change to realize critical operational improvements.  Improvements that enable our companies to remain competitive while freeing management from daily oversight, allows them the time to implement growth strategies. Our client continues to adequately empower the employees to make the business operationally execute better, rather than simply maintaining the current status quo. This is due to his confidence, as the president of the company, in the people and systems, as validated through measurable outcomes. How many of us see the current, or any economic crisis for that matter, as an opportunity to generate the internal urgency to drive the necessary operational improvements in our companies?

Our client had already been working to establish a culture of continuous improvement throughout the organization long before the current economic downswing. He and his management team had worked hard to have the right people focusing on the right things for their business. They have thrived by maintaining management’s focus on their growth strategy, by communicating their performance expectations to the entire organization, engaging front-line employees to improve the operations without management’s daily oversight and properly rewarding their collective success. The business climate of this past year gave our client the opportunity to leverage the higher operational productivity that began years earlier.

The challenge that remains for business executives is to spend the majority of their time working “on” their business and not “in” it each day. It is never too late to begin the process of having the ability of management to primarily focus their efforts on growing the company. Do not wait for the storm clouds to completely clear in a couple of years – start today to achieve savings and confidence in your operations, thereby enabling you as the leader to focus on your company’s long-term growth.

The “New Economy” is the trendy new term for the years ahead. We are all trying to anticipate what that means for us and how can we position our companies to adapt to whatever that “New Economy” will mean. Obviously even the best of economists cannot agree to what the future holds for us — unemployment holding or worsening, capital restricting or freeing, health care expanding or constricting, taxes growing a lot or a little and for whom, energy costs raising or lowering, the stock market up or down, the dollar strengthening or getting replaced. There is more confusion than ever. So how do we plan for a future that will more than likely challenge us as business leaders like we have never been challenged before?

There are many unknowns and uncontrollables in our current marketplace. The key to leadership is having a system that is most able to adapt. The number one criteria for success in the “New Economy” is the ability to have the most agile system. You are already seeing that play out with the recovery starting.

In the Auto Industry, “Cash for Clunkers” is an incredible temporary boom that created a shortage of vehicles and cash flow issues for the dealers. The dealers that were able to react quickly to getting more autos on their lots and had managed their cash well through the tough times were able to gain radically more sales from this boom. The ones who had low availability to inventory or poor cash positioning did not benefit.

This boom at the dealerships will now expose the auto company who is most able to react to a shortage at the dealers with the right inventory. The auto companies gearing up to a shortfall will then bleed down to the suppliers. Whichever organizations can react to the demand the fastest (and then probably quickly ratchet back down to “normal” demand levels) will be the ones that prosper.

The lessons that can be learned from this microcosm of our economy are vast.

• Response Times – Whoever can react the fastest is in a great position to get the business. We have a customer that used to take five days to get quotes to their customers. They have historically competed with China and have a great niche of filling orders that are running late. Because of improvements, they are now able to give quotes over the phone. Typically in these situations, the purchasing person wants to find the first person that can deliver to avoid a shutdown or shortage. They are often willing to pay a premium for getting product. It starts, however, with the ability to get the cost to the buyer. The first “reasonable” price gets the order.

• The “Right” Products – Meeting the customer’s ever changing needs are trickier than ever. Our R&D and new product development teams are racing to meet customer demands for new products. We still have an insatiable appetite for the latest and greatest, and companies who are able to quickly develop products, get them to market and obsolete them by introducing new products are going to thrive. That often creates some interesting dynamics in new product development. They like to use terms like “go, no-go,” decision gates, focus groups, milestone checking and the project plan. We are radically challenging the mindset of our new product development folks. The companies that innovate and the suppliers that can support them are going to be the successful companies of the next decade.

• Ramp Up/Ramp Down – The ability to staff to proper levels will probably be one of the top needs of the “new economy.” With shorter lead times and a fickle customer, we are bound to have wide swings in our business. This does not sit well with most organizations. We have not created systems that allow us to quickly shift or train labor. The most successful organizations that we work with have incredible training programs, great processes for sharing/transferring labor and a workforce that is very adaptable to the business needs. Long gone are the days of doing one job day after day in one department. Businesses need employees that are very adaptable, and they have to have systems that create the adaptable employees.

I do not know what our future monetary policies will be or what our new health care plan will look like, but I do know that it is imperative that we are setting our organization up to be more adaptable to the needs of the consumers. This includes our ability to lead an organization that can have incredibly quick response times in operations and new product development and also has the ability to react to all types of demand levels. The leaders that understand this are the ones who are going to lead the successful organizations in the 2010’s.

Current economic conditions are testing the leaders of many companies across multiple industries. We are hearing terms like “ride the storm out,” “hunker down” and “lay low.” The majority of executives are frustrated with their financial performance as businesses continue to cut their staff and ask their employees to do more.

Having the Right People Focused on the Right Responsibilities

I recently visited a client in the housing industry and talked with several employees from front-line operations to the president. A common theme emerged: managers should remain steadfast in allowing operational employees to oversee and be held accountable for improving production outcomes. This enables management to remain focused on overall process improvements and growth initiatives. This client previously had difficulty managing over 20 items with a four-week lead-time, where as today they are managing 350 items that are being shipped in a week. The management team consistently trains employees how to make day-to-day decisions to “run” the business, allowing the management team to look for areas of improvement and the leadership team to focus on growth into new markets, new products and new offerings. This client is now second in its market, closing quickly on becoming number one, growing in six years from $25MM to $170MM.

Another one of our clients is an automotive supplier. The company is down more than 50 percent in volume from the previous year. However, by having front-line personnel focused on operational improvements and executives being proactive in the marketplace, it acquired new business when its largest competitor was forced to close its doors. By previously aligning its production systems to handle complex products, this client was able to ramp up quickly to meet the new demand and deliver a high quality product. Being nimble in its operations has positioned it for projected record revenue levels this January, even in the face of the current automotive industry difficulties.

The Run – Improve – Grow Principle

“Run” is defined as the day-to-day activities that have to be executed consistently to effectively operate. If business systems are unproductive, executives have a tendency to constantly engage in “firefighting,” which keeps their eye away from potential opportunities or threats in the marketplace.

“Improve” occurs when companies instinctively challenge the status quo and realize it is dangerous not to constantly adapt. It is important for companies to continually examine their current operations in order to determine the best ways to eliminate waste and focus their time, money and energy on achieving better business outcomes.

“Grow” is looking outside your current business to areas of potential new markets, products and services to differentiate you from the competition. By becoming a solution for other’s problems and offering a unique selling proposition, your company can avoid simply being the lowest bidder.

Executives must spend the majority of their time in “Grow” and “Improve” activities.

Too often, when companies “hunker down,” the improvement and growth activities take a back seat due to fear of the unknown. Executives who cut only to control costs, or, worse yet, get involved with running the daily business activities, are putting their company’s long-term future in jeopardy. Successful business leaders are investing their time and energy in areas of improvement and growth to prosper, even in the face of a challenging business environment.

The leaders of the two highlighted companies are engaging their employees and eliminating to the obstacles that are preventing them from optimal job performance. They are empowering their employees to address issues before they become real problems and working to develop confidence in their employees by setting performance expectations and providing them the tools to achieve desire results.

Successful businesses continuously invest in leadership development and process improvement. For example, the housing industry client mentioned earlier had their changeovers go from six hours to 30 minutes. How? By listening to operators and involving them in the solution. The team was able to organize pre-build changeover kits and implement SMED techniques to make radical improvements, enabling it to now complete 12 times more setups without impacting production.

As the Run Improve Grow Principle takes hold in a company, the executive leadership team can focus on growth opportunities due to the high confidence in the operational process. They have time to think about what separates them from the competition. Too often, executives get distracted by working “in” the businesses instead of “on” the business. In order to achieve long-term success, business leaders must engage clients to understand their needs and anticipate industry trends. Business leaders must keep asking themselves these simple questions -

1. I have confidence in WHO ?
2. I need to let go of WHAT ?
3. I am going to do it by WHEN ?

After they are done, they do it again and again until the right people are focused on the right activities.  They also must insist that their direct reports do the same.

I recently met with a company struggling to adapt to today’s economic conditions. I had the company president participate in this simple exercise. We discovered that he was spending too much time settling disputes between a department manager and a supervisor.  This operational dysfunction was causing him to spend valuable time and energy on running the business on a daily bases rather than focusing on critical, future growth opportunities.

The market is on the side of the business leaders preparing for tomorrow.  So what are you spending your time on today? Are you running or growing your business? Whether you are a line leader or a president, you can take action today and start making a difference. By developing confidence in your team, you can meet the changing conditions of today’s economy and continue to grow your business.

Process improvement has traditionally been associated with manufacturing. Yet, most if not all businesses can benefit from looking at how they operate and finding new ways to increase productivity.

All industries can learn from manufacturers. Proven implementation methods and process improvement tools can be applied to any organization, in any industry or with operational and process functions.

Organizations in All Industries Can Learn from Manufacturers about Process Improvement.

If you have costs pressures while your revenue is going down, working on operational efficiency is a must. Global economic realities forced manufacturing to lead the way towards achieving operational improvement. To remain profitable, the majority of manufacturers have simplified, standardized and automated their operations. Now, other industries are employing lean principles, especially health care organizations.

As the national health care debate continues, health care organizations must streamline themselves to take costs out of the system. This is illustrated in a recent USA Today article, which discusses why hospitals must cut costs by improving efficiency and reducing waste by leveraging proven lean principles.

Additionally, technological advancements have caused several industries to begin working on their operational efficiencies. They are being impacted by innovation, creating another opportunity to evaluate processes and identify potential opportunities.

Even nonprofits can benefit from process improvement. With the current economic challenges, their revenue is going down while their costs are going up, and the number of constituents they are serving is increasing. By streamlining their processes, they can trim waste and operate more efficiently with fewer resources.

Involving Employees Drive Improvement Results.

All industries are realizing that getting their people involved is key to understanding process challenges on a daily bases. This perspective is key to understanding what is holding them back from being able to implement improvements. It does not matter whether you are in manufacturing or another industry, having your people involved is the key to driving and creating sustainable improvements.

Process Improvement Techniques in Service Industries.

Any activity involving the customer‘s experience must be evaluated. Think about what your customer wants – whether it is a manufacturing company looking to reduce product delivery time, a medical practice eliminating the time patients are kept in the waiting room or a nonprofit anticipating more service demand. If you start with the customer, you are going to be focusing on the right things.

A proven technique is our ‘run, improve, grow’ model. It is a way of understanding how your employees are looking at what they do on a daily basis. Are they working on making improvements in the business, and are they looking at ways to grow the organization? As you work on making improvements that can help you with the way that you are running, you start to remove waste in the process. This gives you more time to focus on improvements and organizational growth.

Determining When to Undertake a Process Improvement Initiative.

The challenge is that you always can find a reason not to begin an improvement initiative – you are facing new competition, market demand is changing, new products are being introduced or something else. With that said, the best time to initiate change is before you are forced to by market conditions. Being proactive in improvements is always better than a reactive response.

Take an example of merging nonprofits. They leveraged that opportunity to spend time improving their processes. It would have been very easy to say, ‘We should not do that now because we are merging and we are too busy.’ Instead, they looked at it the other way and said, ‘Now is as good a time as any. We are going to be making changes anyway, so let’s take this as an opportunity to look at our process, eliminate some of the waste in there and take the best of both worlds and bring them together.’

Do not wait until there are problems or only focus on the top of your organization. You really need to take every opportunity to involve your most valuable employees who are on the front lines to take your processes to the next level.

The Benefits of a Process Improvement Effort.

The number one key deliverable is that it needs to make financial sense. No matter what industry you are in, there is always an opportunity to address the bottom line. Focus on increasing productivity, cutting defects and/or reducing operational costs.

What often can be even more important and impactful, however, is creating that culture where you can continually drive and sustain process improvements. It is not just when you are working on a project; you need to create a culture where motivating employees allows you to continue to drive improvements throughout the organization. Success in measured on never being complacent to achieve better results.

In the end, it allows you to be more competitive so that you are not just reacting to the economy or the competition, but you are being proactive with the continuous improvement culture that you created to drive operational excellence.