Lean Organisational Development (LeanOD)™

OD/Change Management is not delivering in its current form based on the level of failures being recorded.

“....most of what’s been written about transformational change is too conceptual and therefore too impractical, too inspirational and therefore too vague, or too company specific and therefore too hard to apply to one’s own situation. We have been inept at transforming troubled organizations—or even at maintaining the vitality of healthy ones—because we have never before identified the factors that produce sustainable revitalization.” (Pascale et al., 1997)

“Despite some individual successes, however, change remains difficult to pull off, and few companies manage the process as well as they would like. Most of their initiatives—installing new technology, downsizing, restructuring, or trying to change corporate culture—have had low success rates. The brutal fact is that about 70% of all change initiatives fail” (Beer and Nohria, 2000)


If we take the never ending list of requirements that is required of a Change or OD practitioner as listed in the academic literature, it is perhaps no surprise that the literature on real world examples of Change and Transformation management is dominated by failures rather than successes.

From my perspective as a long standing practitioner of Change Management both incremental and radical, I feel a need to agree with the quote above from Richard Pascale and his colleagues above.

Leading academic text books on this subject such as Cummings & Worley's "Leadership And Change Management" or Richard Daft's "Organization theory and design" are valuable encyclopedic references but their extensive coverage of "what is required to successfully deliver a Change or Transformation program" is “too conceptual and therefore too impractical, too aspirational and therefore too vague” to slightly modify Richard Pascale’s quote above.

This may be why Professor John Kotter’s more practitioner approach (backed up with the evidence gathered through collaboration with consultants, Deloitte) in his books "Leading Change (1996)" and "The Heart of Change (2002)" have achieved more traction with practicing managers than other writers from academia.

The criticism therefore that “I have made this longer, because I have not had the time to make it shorter” (Blaise Pascal)) perhaps applies to the academic literature on OD & Change Management.

The dearth of “here is how to do it and you have a 95% probability of success” literature is either evidence that the complexity associated with understanding and managing the dynamics involved in effecting Radical Change is beyond managements current capabilities or, that some major cornerstones of Radical Change management has not been identified.

Failure to have such a model or framework may be the biggest challenge that OD and Change Management Practitioners face.

In a high performance organisation, OD knowledge, skills and practices could be combined with those of Lean Six Sigma and System’s Thinking to become a set of core “improvement competences” that every manager needs to have.

This “Continuous or Lean OD” would reduce or eliminate the need to have special “Interventionists” (OD or Lean) as the organisation would never drift sufficiently off-course to need “interventions”.

If we examine the range and scope of capabilities/competences required of an OD or Change agent, it becomes apparent that there are few people around who are fully competent across all these dimensions.

On the other hand, it is not unreasonable to expect that this range and scope of capabilities/competences would be present across an organisations full management team.

From my own experience in playing major roles in change programs at a wide variety of organisations, there is limited respect for the body of Change/OD knowledge amongst practicing managers.

It seems to me therefore that, rather than expecting a superhuman set of capabilities in the OD practitioner or Change agent, it is much more reasonable (and congruent with Lean Thinking) to expect that OD competences be present in all managers, thereby creating the opportunity to “do things right first time” rather than relying on “interventions” to fix what has gone wrong after the event.

The quality profession has long since seen the need to move from “fixing things afterwards” to building quality into the process. Is it time that OD learned the same lesson, is it time now for “right first time” or Lean / Continuous OD, could this be the reason why so many change programs fail?

I believe that moving OD in this “right first time” direction would create a greater opportunity for more successful change programs in the short and medium term. Additionally, such a shift in OD and management thinking would take the OD & management in general onto a new dimension worthy of the 21st century.

Managing in a High Peformance Organisation: Dell Computers

At Dell Computers, the General Manager (GM) of a business unit lives his/herworking life surrounded by some of the most sophisticated business processes and levers of influence available in any modern business.

At the end of a financial year the executive begins their process for putting in place a business plan for the following year.The process begins with the reception of the key macro variables handed down by the SVP of the business area, variables that will have come from the strategy developed at the office of the CEO. The usual key macro variablesare:

1) Planned growth inmarket share
2) Planned product mix
3) Planned revenue and margin growth mix
4) Planned P&L efficiencies.

With these macro variables established, the GM will begin to draft and shape their business plan by developing their forecasted end of year Profit and Loss (P&L) statement.

From there the GM works backwards developing individual quarterly P&L plans for the four quarters before finallybreaking the plan down into individual daily plans for each of the 63 working days in the first quarter, with allowances made for holidays and seasonality.

The GM works with his marketing and sales teams to develop these plans. Dells direct sales model requires developing sufficient customer traffic to its two main sales gateways, its website and its contact centers where their direct sales teams convert the incoming calls into sales.

This is necessary in order to determine the sales and order entry staffing levels required at the contact centers. A major effort is made to drive as much traffic to the web as possible, given the huge efficiencies that arise in using this channel.

The second step is to determine the number of website hits and inbound calls re-quired given the expected sales closure rates of the channels.

From here a daily marketing plan and budget is developed that will generate the number and mix of calls & hits requiredto achieve the necessary levels of sales volumes, sales mix, sales margin and product mix targets.

Together these combine to create the daily P&L against which the teams daily results will be compared. As each day goes by the GM and his team receive daily feedback on any variances from plan on the P&L.

Each Wednesday the GM meets with his fellow businessunit GMs, the SVP and the CFO of the business area. Each GM presents their resultsto date for the week explaining any discrepancies to the team and the plans they have to bridge any shortfalls that have occurred.

Where the GM is ahead oftarget, pressure is exerted to commit to maintaining the improved level of activity, particularly if one or more of the other business areas are lagging behind.

Dells Industrialised Sales Processes

The daily routine for a General Manager (GM) of a Dell business unit goes as follows:

08.00am

Arrive at work to see the closing sales figures for the previous day, available in real time from the managers dashboard on the intranet.

If all is well, go have breakfast, if not begin the process to identify where the numbers went wrong.The first thing to check is whether the deficit is on the web channel or the direct sales (contact centre) channel.From here the GM checks if the expected traffic (hits or calls ) were met on whichever(or possibly both) of the delinquent channels.

If the number of hits or phone calls is down he calls his marketing manager to check what happened and what the recovery plan for today is.If the hits and calls are on or above target then the next variable checked is the sales closure rates x product x channel.If the discrepancy is here then he calls the sales manager to check what the reasons were and what the recovery plan for the day is.

09.00am

Receive in his inbox the P&L for the previous day with variances highlighted in green(good) and red (bad). A quick management team meeting is held to discuss the variances and what the planned recovery actions are in the event of there being any “reds” on the P&L.

10.00am

First “daily pulse” arrives in his inbox showing the profile of the traffic that has arrived today indicating, volumes,conversion rates, average selling price by product line,the product mix achieved, the operating margin and any relevant variances.

11.00am

Second “daily pulse” received and first management“huddle” of the day to look at the Key Performance Indicators(KPI) and agree what if any actions it might be necessary to take today.These actions are not confined to addressing problems only. Situations may arise whereby volumes are up so much that there may be an opportunity to raise selling prices or drop incentives(free memory upgrades or home delivery) to improve the margin at the expense of additional volume growth.

12.00am — 4.00pm

The day continues much the same until the final pulse is received at 4pm by which decisions must be made as to what if any changes need to be made to any of the promotional or advertising material.Daily newspaper advertisements for the following day or any other advertising deadlines that close today will be reassessed in this light.Advertisements that are not meeting their hit or call rates,their close rates, or their target margins need to be pulled,increased, incentivized or generally adjusted.6.00pmBy now the daily figures are pretty well known and decisions are made on whether the following day starts with breakfast or phone calls.

Achieving Service Operational Excellence

Achieving Service Operational Excellence is simple but not simplistic. Any organisation that genuinely wants to, can do so within a timeframe of 3-5 years, with very significant localised improvements being achieved within 6 months.

For many organisations a timescale of 3-5 years or more seems way too long and much effort is often put into short term initiatives, Inevitably many of these short term initiatives deliver only short term improvements.

Unfortunately the long term negative consequences of these short term initiatives take time to come home to roost, with the link between cause and effect not always connected in space and time.

The following 10 steps, if followed with a passion, have proven themselves to deliver world class performance in both the short and long term because they build incrementally upon each other resulting in a sustained incremental improvements in the operational competence of the organisation over time.

The Ten Steps are:

1. Up-skill the front line teams and managers in the Fundamentals of Operations Management.
2. Up-skill the middle management in Lean Six Sigma (LSS) thinking and skills.
3. Establish an Operations Management Dashboard that monitors daily performance against plan.
4. Select key members of the front line organisation to be trained as Green & Black Belt LSS practitioners.
5. Create virtual end to end process teams to target end to end process improvements.
6. Appoint Value Stream Owners to formalize end to end process ownership.
7. Measure the operational performance of the business in terms of end to end process metrics with a particular emphases on process cycle time
8. Establish clear measurements for the Voice of the Customer and measure all performance in terms of meeting and exceeding their needs and expectations.
9. Use Value Engineering techniques to engineer cost out of the business
10. Develop a “Systems Thinking” competence in the business to drive unnecessary complexity out of the business.

We (http://www.mclaw.ie/) know from experience that these principles work when applied with a passion for excellence.

Nothing in these 10 steps is beyond the capability of the average service worker, knowledge worker or service industry manager.

Advanced Operations Concepts: Introducing Lean Six Sigma

Lean Six Sigma (LSS) is an advanced operations management concept and when applied properly can dramatically transform an organisations effectiveness.

Well constructed LSS programs typically deliver over 40% improvement in productivity and can shorten the product delivery life cycle from months to hours.

Unfortunately many implementations of LSS are poor and fail to take account of where the organisation is starting from. Furthermore, LSS is often implemented on a piecemeal basis using the tools and techniques in isolation of the whole. Short term benefits that are often easily realised are frequently mistaken for the true transformational benefits that come from a professionally implemented LSS program.

To successful realise the benefits from LSS, an organisation needs to commit to a minimum of 2 years to truly realise the benefits of this powerful methodology, although individual teams can see dramatic improvements within 4-6 months.

The reason for this is that LSS is a dramatically different approach to management and execution within an organisation. As such it requires the building of a new set of capabilities and attitudes from the front line staff up to the CEO and the Senior Management Team (SMT).

In the sections below we look at the two major components of LSS, Lean Operations with its roots in Ford & Toyota and Six Sigma whose roots are in Motorola, Allied Signal and GE.

Lean Operations
James Womack and Daniel Jones in their book, “The Machine That Changed the World” presented MIT’s global study of the automotive industry and in it coined the term "Lean Production" to represent the best practices in operations management as exemplified by the Toyota company.

Lean is a whole new way of thinking that includes the integration of vision, culture, and strategy to serve internal and external customers with high quality, low cost and short delivery times.

The core of Lean is based on the continuous pursuit of improving the organisations processes. It is a “whole systems” approach to creating a new culture and operating philosophy for eliminating all non-value adding activities from the organisation.

The essence of Lean is the compression of the end to end cycle time of a businesses core processes. The results of this time compression are increased productivity, increased throughput, reduced costs, improved quality and increased customer satisfaction.

A key enabler of this time compression is the elimination of waste from the process & business.
Adopting a Lean mindset requires taking an aggressive view of what waste in an organisation is. Simply stated, waste is everything that does not add value when viewed from the customers perspective.

An example of this might be a mortgage application process. In a case with which we (http://www.mclaw.ie/) are familiar, a bank examined the time it took them to process each and every mortgage application they had processed in the preceding 2 years.

They measured the process cycle time from the receipt of the application by them to the time the mortgage was implemented . Expecting to see a result with an average close to 14 days they were horrified to discover that the data showed an average of 47 days.

The enormity of this was further driven home when it was pointed out that the amount of value-added effort in the process ( from the customers perspective) was only 17 minutes, which was the average amount of time that the banks credit centre spent in making a decision on the
application.

Traditional operations methods would typically take the 47 days and target a percentage improvement of what might be thought of as an aggressive number, say 25%.

The Lean Operations approach takes the 17 minutes as the starting point and examines why everything else can’t be eliminated. It is this “targeting of excellence” along with the other key principles of Lean Thinking/Operations that have resulted in the extraordinary levels of improvement that organisations have achieved after the adoption of the Lean Operations methodology.

Businesses that have achieved an Operational Excellence capability typically also have excellent Business Strategy’s due to the powerful feedback mechanism's provided by the Operationally Excellent environment.

The adoption of “Lean Thinking” is now considered a basic requirement for achieving World Class Operational Excellence or Business Execution. Companies who aspire to excellence are seriously disadvantaged if they fail to adopt the Lean approach.

Six Sigma & Voice of the Customer (VOC)
Sigma is a statistical measure of variation about a mean (average) and is measured on a scale of 1 to 6, 6 being the better score. A process that exhibits a 6 Sigma score is said to so predictable that less than 3 in a million transactions fail to meet the same consistent level of performance.

We therefore say that a process achieving a Sigma score of 4 or more is deemed to be “under control” and that the “mean” or average performance achieved is predictable and reliable.

Note however that being consistent is only one measure of performance. If our local Pizza company were to proudly declare that they operated to a 6 Sigma level of performance guaranteeing to deliver their Pizzas in a reliable 90 minutes we probably would not be impressed.

Another key measure of performance therefore is how well the process meets the requirements (voice )of the customer.

In our Pizza example, if customers need/want a 30 minute delivery time and competitors are consistently delivering in 30-45 minutes then our 6 sigma capability will not stand for much.
Conversely, if another Pizza company promised an average delivery time of 30 minutes ( the VOC target) but its actual performance ranged from 15 minutes to 2 hours then customers would arguably view this as worse service.

The Six Sigma methodology is a powerful toolset in its own right for bringing consistency to the performance of a business process.

When combined with the Lean methodology however the 2 in combination create a powerful frame work for dramatically improving the performance of a business. For Six Sigma to be effective however their needs to be sufficient data available on the constituent components of the processes and there needs to be a basic operational and statistical level of competence in the management team.

Service Operations Fundamentals
These are often some of the major hurdles to be overcome in deploying a Six Sigma methodology, particularly in service organisations.

To this extent we (http://www.mclaw.ie/) have developed a Service Operations Fundamentals program for businesses that are "Pre-Lean". With its focus on building the basic skills and operational models necessary to control and manage the effectiveness and efficiency of the business, it provides the foundational competences and data necessary for successfully deploying a Lean & Six Sigma program.

With these fundamentals in place it becomes much easier to select the right people for the more advanced Yellow, Green & Black belt training which is eligible for a recognised industry certification (American Society for Quality http://www.asq.org/ ) on completion of an appropriate projects and exam.

The Discipline of Operations Management

Ireland posted productivity growth of 63% between 1995 and 2002, making it the best performing economy in Europe. In retail banking however, Ireland posted a 3% growth in productivity in the same period, with the other service sectors not doing much better.

Most of the productivity increase achieved came from the manufacturing sector and primarily, foreign-owned companies. By 2004, value added delivered by the industrial sectors was twice that from service sectors. So why was this the case?

One answer is that service industries have ignored (and have been ignored by) the discipline of Operations Management. This same discipline has been a major driver of improvements in productivity, customer service and quality in the industrial sectors.

The evidence of our practice (www.mclaw.ie) and our many years experience is that the key to improving the productivity, quality and service levels of an any organisation is to develop, in depth, the discipline of service operations management.

Historically this has been difficult for service organisations to do for at least four reasons.

1. Firstly the discipline itself, due mainly to its roots in engineering, developed a form of snobbery at the professional, practitioner and academic levels. This manifested
   itself in service organisations and service managers being treated as 2nd and 3rd class entities due to the lack of hard product focus.
   
2. Secondly, managers in service organisations found that traditional operations professionals had no empathy or indeed understanding of the different challenges that come from the intangibility and complexity that service organisations are faced with.
   
3. Thirdly, the traditional operations management frameworks and toolsets have been heavily product focused and failed to take into account the needs of service organisations.
   
4. Fourthly, service professionals and in particular knowledge workers, adopted a form of their own professional snobbery, ignoring the industrial and manufacturing sectors as sources of expertise and know-how, taking the view that such “hard” industries were alien to the complex and agile world of the service sectors.
   

Fortunately this is no longer the case and service operations management, although still in its relative infancy, has become a respected and highly regarded branch of management in its own right.

For many service organisations and managers however, the legacy of alienation has been hard to overcome. Those service organisations and managers who have embraced the service operations management discipline however, have been rewarded with the same dramatic improvements in productivity, quality and service levels that their colleagues in the industrial sector have enjoyed for the past 50 years.

Companies such as Toyota, General Electric and Dell Computers have invested heavily in building this operational excellence into their organisations with great success

At McLaw (www.mclaw.ie) we use the terms “operations” and “execution” interchangeably to emphasise that the historical, narrow view of traditional operations management, with its roots in manufacturing, no longer applies.

Today the discipline of Operations Management is a requirement in all areas of the business where world class execution and performance is required.

Using Practitioner-Mentors to Seed Service Industrialization

None of the tools or methodologies associated with industrialization are difficult to acquire for the average non-industrial sector manager or worker.

Where necessary many of the particular skills can be bought in in the form of experienced staff from organizations already proficient in developing an industrialized organization.

By far the biggest challenge to overcome however is the inertia that is associated with any change program.

For industrialization to work it must become owned by the majority of the management and staff, in particular the senior management teams.

Assuming that the appropriate level of ownership and sponsorship is available from the Senior Management Teams, it is my experience that the quickest and most sustainable way in which to deploy industrialization is to seed the business units with a small number of practitioner- mentors who are experienced in deploying and working in industrialized processes.

The role of the practitioner-mentor is to work 2-in-a-box with the team and team leaders so as to train and demonstrate the deployment and use of industrialized methodologies in the day to environment of the team.

As pioneers of practitioner-mentor deployment we (www.mclaw.ie) have achieved significant successes for our clients using this approach, significantly accelerating the deployment of industrialization while winning the hearts and minds of those involved in making the necessary changes.

Indeed by focusing on delivering immediate benefits to staff and managers in this new environment it becomes possible to create a sustainable platform of change agents who will act as advocates for the new approach to business.

This in turn creates a virtuous circle whereby staff and managers from other areas outside the immediate improvement zones seek out the opportunity to join the program and benefit in the same manner in which their colleagues are benefitting.

While this approach significantly shortens the industrialization process it still takes a number of years for an organization of any significant size to achieve industrialization maturity.

The Industrialization of Services

Recognition of the developing trend towards the industrialization of services can be traced back as far as 1972 and Theodore Levitt’s seminal Harvard Business Review (HBR) paper of that year, “Production-line Approach to Services” and his later HBR paper in 1976, “The Industrialization of Service”.

Indeed in these same papers he pointed out that this has actually been evolving since the beginning of the 1900’s as the effects of the leaps in technology and know-how, achieved during the Industrial Revolution of the late 18th and early 19th centuries, spilled over into the services sector.

This “industrialization” is following a form of Darwinian evolution, engulfing sectors and organisations where a form of “natural selection” is taking place (or not!) in the face of the changing economic and competitive environment.

It is a feature of this evolutionary process that the industrialization of the “products” sector, driven by the Industrial Revolution, developed sophisticated methods, tools, technologies and processes first and why together these best practices have become known as “industrialization”.

For the reasons above, some sectors have evolved sophisticated methods, tools, technologies and processes early, in evolutionary terms, in their constituent organisations while other organisation and sectors have lagged behind.

Industrialisation therefore brings to an organisations the capabilities and know-how required to provide to customers a set of defined services with high levels of effectiveness, efficiency, service and quality using the sophisticated methods, tools, technologies and processes that in the main are to be found in the best practices of the best organisations in the industrial sectors.

There are three main challenges in bringing industrialisation to a non-industrial organisation.

1. The first challenge is in developing the skills & competences that constitute industrialisation.
   
2. The second challenge is in adapting these skills & competences to suit the sector and organisation in particular.
   
3. The third challenge is the lack of exposure & experience of non-industrial sector management & staff in working with and applying these (modified) industrialisation methods and tools.

The tendency for non-industrial sector management and staff to have developed their careers within the non-industrial sectors exclusively, thereby having little or no exposure to industrialization tools and methodologies, has only served to exacerbate this.

t has taken the motor industry, regarded by many as the most one of the most advanced industries, over 100 years to achieve the heights of excellence. Toyota, its recognised leader in this respect, itself came new to the motor industry in 1933 but had extensive industrial experience developed in the automation of the textile industry going back to 1926 under its parent, Toyoda Industries.

There is no reason to believe therefore that sectors or organisations that have lagged behind those that have adopted industrialisation can acquire and embed these best practices overnight.

Equally however, sectors or organisations who fail to adopt industrialisation best practices and begin the journey are facing the unenviable position of being left behind by those competitors who adopt early and with commitment.