The Practical Guide to Transforming Your Company

Daniel Plung, Connie Krull

• Publisher: Business Expert Press
• Year: 2020
• Print ISBN: 9781951527440
• eBook ISBN: 9781951527457
• Topic: Business
• Subtopic: Operations
• Index: Business

The Practical Guide to Transforming Your Company is a concise handbook for conducting business transformations—defining and implementing a redirection in the company's core business or in its strategic positioning.

Starting where such programs as LEAN and Six Sigma leave off, the text offers a well-proven methodology for conducting a comprehensive transformation (not a process-by-process efficiency enhancement). The book provides dozens of forms, figures, templates, and checklists the authors have developed through personal experience leading successful corporate efforts.

In a sequence paralleling the process of transformation, individual chapters are devoted to the roles and responsibilities of the company leadership, the workforce, and the board of directors. Principles are reinforced by illuminating key success factors by examining government and commercial projects from the United States, Canada, and the United Kingdom. Written by two individuals with proven track records, this book is sure to produce success in any transformation endeavor.

CHAPTER 1

Transformation—Getting Started

There is only one valid definition of business purpose: to create a customer…. Because it is its purpose to create a customer, any business enterprise has two—and only these two—basic functions: marketing and innovation. They are the entrepreneurial functions.

—Peter Drucker

The Practice of Management, 1954

Many types of changes can be implemented in a company in order to sustain and promote its economic stability. At one level there are the changes made to individual programs and processes. Broadening that approach to address essentially all the company programs—through such measures as enhanced performance monitoring, statistical analysis, and/or the development of tracking methods utilized in the observation of work—can bring about a redefinition of the operational basis for the company. In contrast, overhauling the very core of the company, committing to an enterprise-wide transformation, is a much larger and more involved voyage—challenging the company’s existing long-term strategy and essentially all the associated processes, programs, and protocols.

As a first step in deciding whether that level of commitment, a readiness to tackle the foundational elements of the company, is appropriate, a clear understanding is needed of the consequences and implications of undertaking a transformation. Being that all three redesign options—pursuing localized improvements in performance, operational redefinition, and transformations—arise from a common heritage, an abbreviated history of performance management is the best means to clarify the principal differences among these three courses for making substantive revisions to the company.

Placing Transformations in Historical Context

In the years between World Wars I and II, Joseph M. Juran, W. Edward Deming, and Walter A. Shewhart, all employees of Western Electric, became prominent voices in the development and implementation of quality and performance management. Shewhart ushered in the era of statistical process analysis with the introduction of the development of process control charts that detailed percentages of defective parts, supported projections of future system performance, and helped identify causes of and remedies for the defects. Juran, who worked as a chief industrial engineer, introduced a variety of quality tools (such as the Pareto Principle—also known as the 80/20 rule), but was most influential in institutionalizing the quality movement. In what is commonly referred to as the “Juran Trilogy,” he advocated: (1) quality planning, understanding customer needs and defining processes, products, and services to respond to those needs; (2) quality control, monitoring production with specific focus on identifying and correcting causes of defects; and (3) quality improvement, a continued pursuit of making products better and more responsive to customer needs.

Deming, in turn, synthesized the use of statistical process control, quality improvement, and engaging workers as agents in improving system performance into a single ethic. Encapsulated in his 14 points of management, Deming highlighted the need for re-examining work from a fresh perspective; continuous quality improvement; promoting customer loyalty and worker motivation; cultivating worker/management cooperation and collaboration; taking action on confirmed knowledge to improve processes; and aggressively reducing all forms of waste.

The Shewhart, Juran, and Deming lineage was born out of declining industrial markets, competitive economies, and the lack of advancements in disruptive innovation. With rising political and global economic pressures, as was made evident in a number of public laws passed by Congress in the latter part of the twentieth century, it was clear that:

1. American business and industry were beginning to understand that poor quality cost companies as much as 20 percent of sales revenues nationally and that improved quality of goods and services goes hand in hand with improved productivity, lower costs, and increased profitability.
2. Strategic planning for quality and quality improvement programs, through commitment to excellence in manufacturing and services, was becoming more and more essential to corporate well-being in a dynamic economy and to the ability to compete effectively in the global marketplace.
3. Improved management understanding of worker participation and involvement in quality was essential as well as the recognition that greater emphasis on statistical process control contributed directly to dramatic improvements in the cost and quality of products and services.

As the advancement of tracking metrics and total quality management were introduced into best practices among businesses, industry, and government, two predominant and enduring schools of thought regarding the preferred methodology for assessing quality efficiency and system performance evolved: (1) Six Sigma, principally aligned with Deming’s emphasis on statistical process control, and (2) the LEAN process, principally reflecting Juran’s quality trilogy. Each of the methodologies in its own way was designed to wage war on what were generally agreed to by the two competing schools as seven potential sources of waste in any process (Table 1.1).

Table 1.1 Seven sources of waste in industry

1.	Defects	Wasted effort involved in inspecting for and fixing defects
2.	Overproduction	Waste resulting from production exceeding demand
3.	Transport	Excess movement of parts, supplies, or products not required to perform the processing
4.	Waiting	Waste associated with waiting for the next production step: interruptions or disruptions in production
5.	Inventory	Inventory accumulated in excess of what is needed to complete production of orders
6.	Motion	People, equipment, or supplies moving more times than are required to perform the processing
7.	Processing	Unnecessary processing activity owing to poor tool or product design

The LEAN process, often referred to as the Toyota Way, focuses on improving the general flow of a process by eliminating these defects and sources of waste. An outgrowth of Juran’s approach of involving the workforce in the improvement process, LEAN embodies the concepts of quality circles (small teams or work groups formed to analyze and improve work practices) and the related concept of total quality management, a movement promoted by Armand Feigenbaum in the 1950s, which encouraged engaging entire organizations in quality initiatives and then charging workers with responsibility for continuous improvement within their respective workplaces.

Relying on this democratized approach to quality improvement and enhanced efficiency, LEAN can be said to be consisting of five essential principles accomplished through a select set of readily applied tools:

1. Challenge: establishing and assessing progress in achieving the vision and goals established for the organization
2. Continuous improvement: acknowledging that every process can be improved and that settling for the status quo or accepting a standard of “good enough” is not acceptable
3. Informed decision making: making decisions based on first-hand knowledge, which can only be gained by engaging with workers in their work environment
4. Respect: taking every stakeholder’s and worker’s problems seriously and engaging personnel as equal partners in promoting and achieving continuous improvement
5. Teamwork: developing individuals through collaborative engagement in problem-solving and by recognizing individuals’ contributions and capabilities

To put these principles into practice, LEAN relies primarily on a facilitator who assists a team in identifying and evaluating improvement opportunities using a limited number of easy-to-apply tools. Foremost of the tools and the heart of LEAN is having the team produce a process map. Each step in the process is recorded on a sticky note and then these notes are arranged on wall-mounted charts—first arranged to reflect the process as currently performed, and then, by adding, removing, or repositioning the steps to produce the proposed, improved process. By placing steps above or below a ruled line, the process map is also used to gain team consensus on which steps add value and which ones do not.

Once the new process sequence is determined, the LEAN team conducts a brief period of monitoring and data collection to confirm the effectiveness and improved performance (often calculated as cost savings) resulting from replacing the existing system with the new model. The final outcome of the effort is a redesigned process, ready for implementation, and—most valued by LEAN—a process that has been developed by and is “owned” by the people who run the process rather than a process that had been dictated to them by management.

In contrast, Six Sigma, advancing and predicated on the work of Deming, is a data-driven approach that seeks to drive out any process defects (essentially any condition outside the customer’s expectations) ultimately striving to reduce the number of defects to no more than 3.4 per million opportunities (an opportunity being any aspect of the process susceptible to performance weaknesses). Although the Six Sigma methodology is often described in simple terms as DMAIC or DMADV (define, measure, analyze, improve, control; or define, measure, analyze, design, verify), implementation is anything but simple, easy, or given to immediate results.

Having gained its momentum primarily from implementation at Motorola and General Electric (GE), Six Sigma analyses are rigorously executed by a hierarchy of extensively trained personnel. Simple assignments may be done by personnel referred to as “Green Belts”; more sophisticated analyses, often lasting months, are conducted by “Black Belts” under the tutelage of “Master Black Belts” (personnel who have received formal Black Belt certification). In addition to these practitioners, progress in all Six Sigma projects is monitored by “Six Sigma Champions,” generally senior company managers who have received abbreviated training.

In contrast to the limited training given to the Six Sigma Champions, training for Green Belts may require weeks; Black Belt training is on the order of 4 months. Or, alternatively, using the model introduced at GE in 1998 to engage the entire workforce in using the process, and not unlike Deming’s approach of giving all employees instruction in basic statistical methods, Jack Welch, the company’s chairman at the time, required all exempt employees to complete a 13-day, 100-hour Six Sigma training program.

The reason for such extensive training is that unlike the approaches in LEAN that rely on tools requiring minimal training to apply, Six Sigma utilizes sophisticated analytical tools. Beyond such basic tools as process mapping and control charts, Six Sigma’s tools require extensive training and computational resources to apply and interpret correctly. (For example, one commonly employed tool is an Analysis of Variance used to test hypotheses to determine whether or not an event or defect is a function of random variation.) Stated as a simple comparison, Six Sigma is predicated on an engineered solution to eliminating waste; LEAN, on the other hand, is predicated on the use of a teamed approach to developing a consensual agreement on implementable process enhancements.

However effective these two methodologies are in producing more efficient processes, they may not serve a company well if, indeed, the need is for a more dramatic change to the business’s core in order to ensure sustained profitability. Localized process enhancement, whether the result of Six Sigma or LEAN, has a limited impact on the company as a whole:

1. Localized process enhancement often emphasizes and secures enhanced efficiency or quality improvement for the sake of quality improvement instead of tying improvements to the corporate bottom line.
2. Localized process enhancement tends to focus on improvements within departments or business functions, not among them.
3. Localized process enhancement is most often performed independent of and unaligned with any articulated vision of the overall goals or ambitions of the company.

In today’s extremely competitive economic environment, survival and corporate prosperity may demand more than localized process enhancement: it demands not merely a process-by-process set of enhancements but, rather, a more global overhaul, that is, an enterprise-wide transformation.

To prepare against market turbulence, Huron—a firm devoted to assisting corporations in anticipating and responding to industry disruptions—suggests five activities, the last three of which diverge from the underlying assumptions of scientific management, Six Sigma, and LEAN:

1. Pay attention to new trends, products, and services
2. Focus on changing customer behaviors
3. Assume that tomorrow may not resemble today
4. Assess the cost of inaction
5. Embrace transformation (Anthony et al. 2018)

Further, as explained in a 2012 article in the Harvard Business Review, changes in companies, as we noted, take three distinct forms: operational enhancement, transformation of the company’s operational model, and strategic transformation (Gilbert, Evring, and Foster 2012).

Operational enhancement, which is a clear descendent of all the efficiency and quality initiatives just discussed, involves doing what the company has already been doing but doing it better, solving performance problems, and reducing inefficiencies. The goal is to lower costs, increase profits, and increase customer satisfaction.

Transformation of the operational model introduces a fundamental change in the core business: While remaining in the same industry, the company reinvents itself. Strategic transformation, in contrast, represents a total rethinking of what the company is, what it does, who its customer base is, and where it is going. For example, in an operational enhancement, a newspaper firm might automate production tasks previously performed manually. Relying on those types of changes and some realignment of markets, an operational transformation of the newspaper might entail broadening its services to add online multimedia capabilities.

As compared to the operational enhancement and the operational transformation, a strategic transformation redefines the foundations of the corporation. In such a case, the newspaper might consider transforming itself into a producer of fine art imprints—a rebranding achieved through retooling the production lines, introducing new technology, retraining the workforce, and acquiring companies already well positioned in the art reproduction market.

These differing forms of enhancement and transformation are not, as evident, of equal impact on the company and its workforce or equal in challenge as regards the demands of implementation. Operational efforts focus on creating parity with competitors. The operational model involves committing to a redefinition as regards what constitutes successful corporate performance. Strategic transformation, in comparison, requires wholesale reorientation of the core business.

Depending on the current circumstance of the company and industry, complemented by knowledge gained using the five steps Huron advocates for assessing and surviving potential industry disruptions, a company can choose among the three forms of change or can combine efforts to achieve a step function adjustment in operation followed by a more global transformation.

Preliminary Planning

As a first step in starting to think through a transformation, a core review process, assigned to an integrated team of management and workers, should be used to fully understand the implications. This understanding begins with reassessing a number of factors: what is the source of requirements that define the work processes and products; whether those requirements are externally imposed (i.e., regulations) or they represent engineered and administrative controls developed by management and the technical staff; where do opportunities exist for improving performance; where are the most common and most consequential process problems; and what is the perceived sense of customer satisfaction with the company’s products and services.

This core review not only is important from the standpoint of gaining perspective that will be invaluable in determining a path forward; it also is the initial message to all employees that it is...

Table of contents

• Cover Page
• Halftitle Page
• Title Page
• Copyright Page
• Abstract
• Contents
• Acknowledgments
• Introduction: The Three Predicates of Our Transformation Model
• Chapter 1 Transformation—Getting Started
• Chapter 2 Previewing the Transformation—Paving the Road to Success
• Chapter 3 The Mechanics of Transformation—A Leadership Perspective
• Chapter 4 The Mechanics of Transformation: A View from the Shop Floor
• Chapter 5 The Final Set of Transformation Mechanics—Oversight
• Chapter 6 Delivering the Transformed Company
• References
• About the Author
• Index