December 7, 2011 § Leave a comment

By George Daniels

Numerous companies are now using or have been introduced to lean and/or six sigma concepts for improving performance. If you are not using them or are not familiar with them, then without a doubt you will be at a disadvantage to those that have.

There are now institutes and numerous resources available to assist in lean and six sigma programs, and the Plexius Group has a team of experts to as well. The first program implemented by our experts using both lean and six sigma was almost thirty years ago before it was even named.

However the critical issues not addressed by many of these resources is how to make these efforts a manageable and sustainable process, how to transition an improved process into a new innovative one, and finally how to insure the efforts are in sync with the business strategies and customers’ needs.

The following pictorial from The book “Staying Lean: Thriving, not just surviving” by S A Partners helps to visualize these points:

The  model suggests what in fact happens in most businesses. The experts, the consultants and the “six sigma belts” come in and tackle the cream off the top (above the water line).

As the manger you can’t help but be impressed with the results, feeling you got your monies worth.

If they have not left you with an organizational system of continuous improvement then the true bonanza will not be visible nor will it be worked on.

It is this effort that is the most valuable to your business today and every day after.

The objective is how to get below the water line. The Plexius Approach does just that and is only three steps:

1)       Alignment and Synchronizations of actions with Strategy

2)       A Management System that ties improvement efforts with business goals and customer needs

3)       A problem Solving Culture driven by the business goals and Customer needs

All improvement efforts must be aligned with your future direction and its needs in order to optimize their value. Our group is qualified through our unique “Life Cycle Methodology” to provide solutions to this issue. It is about the future product and service decisions relative to the market needs and technological trends. Thus the Plexius Group provides you with the critical business intelligence that allows you to create alignment with surety and minimize risk. The last thing you want is a major effort improving yesterday’s needs.

Next if you have numerous improvement projects going on, as the CEO you know how difficult and time consuming the management process is and how you are concerned that each project is focused, controllable and measurable to results. This becomes the second required element. The need for management reports that drive the improvement process. You cannot review all projects all the time in person. The reports we use today such as P&L’s, Balance sheets, Cash flow, project reviews and the like are insufficient at best.  A Management process that drives improvement, that ties improvement to business goals and that ties business goals  to customer and internal needs would be invaluable. It is invaluable and the Plexius Group will assist you in developing and implementing a proactive, improvement driven, results oriented management process. A simple Management Operating System (MOS) to drive your future.

The third step is to tie the MOS to the actions of each improvement team effort. This provides the structure for a continuous improvement culture, where each and every employee is bettering the performance of the company within their skills, measurable and verifiable. Not just the consultants and “belts”. The results are the water level recedes quicker allowing for new projects to be tackled and breakthroughs to occur.

If you are a Shingo Award or Baldrige Award recipient then this is probably not knew as the approach outlined above  is a prerequisite to being the Best and moving beyond just a Lean and Six Sigma project.

Answering the following questions is a good barometer and thought provoker.

  1. You do not know or are unsure of the number of improvement projects in your company.  True——   False——-
  2. The improvement projects are generally led by specialists.  True—–  False—–
  3. You have already done lean or six sigma.  True——  False——-
  4. Your cost reduction results per year are less than 5%.True—- False–
  5. The number of improvement projects is far less than the number of employees.   True—-  False—-
  6. Too often we seem to be fixing the same problem.  True—-  False—-
  7. Innovation is scarce or limited. True—  False—
  8. The number of improvement projects is limited by management’s time and the number of experts. True—  False —-
  9. You do not have a report that summarizes the improvement in business objectives and customer needs by project. True— False —

Every question answered “true” is an opportunity. If you would like more information or further the conversation please contact me at george@plexiusgroup.com.


Life cycle View on Shareholder Value

October 10, 2010 § Leave a comment

by Randall Atkin

The concept of shareholder value enhancement, also known as value based management, has the objective of assisting management in considering the interests of shareholders, typically their financial enrichment through earnings power and cash flow optimization. As shareholder value is difficult to influence directly by any one manager, it is usually broken down into components of so called value drivers. A widely used model comprises seven drivers of shareholder value[1], giving some guidance to managers: Revenue, Operating Margin, Cash Tax Rate, Incremental Capital Expenditure, Investment in Working Capital, Cost of Capital, Competitive Advantage Period.

Based on these seven components, all functions of a business can plan and demonstrate how they influence shareholder value. A prominent tool for any department or function to prove its value are so called shareholder value maps that link their activities to one or several of these seven components.  However, organizations that possess a singular focus on shareholder value are not without their critics. What can inadvertently be neglected are social issues like employment, environmental sustainability, or ethical business practices. These aspects of corporate accountability are typically referred to as stakeholder values, and will be the subject of a separate discussion by our organization.

“Time-Based Value Management”

Plexius’ principle of time-based value management (TBVM) comprehensively deals with the issues of shareholder enrichment, management accountability and the dimension of time.

It can be defined as the analysis of external, or non-controllable, and internal, or manageable business cycle components (e.g., product, technology, regulatory, etc.) and the proper alignment of management processes and decisions to the activities that form a company’s strategy and execution plans. Interrelated to the cycle analyses are the elements of people (skills, knowledge, accountability, etc.), process (design, efficiency, cost, etc.) and technology (leverage, investment, alignment).  Combined, these assessments drive decisions regarding the key dimensions of competitive design that a company embraces.  These inputs are all used in suggesting a properly balanced portfolio of products, development initiatives, operational processes and investment plans that will optimize shareholder value interests.

What Management Should Do

Begin by measuring your current life cycle position by product/service offering.  This includes evaluating external life cycles: the market, competitive offerings, regulatory changes, and the underlying technologies driving the market.  Do the same for the controllable cycles.  This should be done for each of your current offerings, your planned next offering and for the 2 to 3 previous offerings.

The competitive design aspects (operational excellence v product excellence v customer intimacy) vary by life cycle stage.  For instance, one competes in a mature market more with operational excellence than with product superiority.  Misalignments of these relationships can be damaging shareholder value.  Look for these misalignments between the life cycle you are in and how you are competing.  Devise plans to eliminate them.  Within markets, make sure that pricing, promotion, and product development plans are aligned with the current life cycle.  For instance, it is during the growth phase that the next product must be planned and initiated, not before and not after.  With these analyses in hand examine each offering for its impact on shareholder value and how it could be improved.

[1] See: “Corporate Financial Strategy”, Ruth Bender, Keith Ward, 3rd edition, 2008, p. 17

Life Cycle Perspectives on Managing Capital Expenditures

September 24, 2010 § Leave a comment

By George Daniels and Doug Brockway

The key questions of need and by when are central to the allocation of capital dollars.  Does the business in fact need this resource?  Is there an alternative or better way to get to the needed result in the time window required?

A perfectly tuned business will spend money on resources and capabilities when in the right amount and at the right time.  They will not have capital, people, plants, facilities, or technology idle in anticipation of a new business not yet launched.

All too often expenditure requests are poorly or incorrectly defined or timed.  Need as a core and critical element of analysis is too easily dismissed by many as non-essential.  Timing is frequently “yesterday” – in reality, too early or too late. Even when evaluating legitimate or reasonable expenditures, no business continuously fires on all cylinders – sequence and timing are rarely perfect.   Good management must continuously tune their decision making processes.

Life cycle analysis and methodology is most powerful when evaluating the timing of capital expenditures.  Products and services each have their own interconnected market life cycles and must be managed as such. As a given market matures, the next market ramps up, with its own four life cycle stages, and well running businesses are ready to participate.  The chart below illustrates this process.

During the Embryonic phase, the business makes preparatory investments.  These involve getting the production processes defined, establishing the skills and resources needed for support, testing marketing and sales value propositions, offers and approaches.

In the Growth phase, the business is aggressively garnering market share.  As this phase matures, life cycle savvy companies begin preparing their next offering.

The Mature phase requires a different management style to closely manage and nurture incremental opportunities through improved cost structures and revenue optimization.  Organizations must be careful not to miss significant late revenue opportunities (e.g. plastic handcuffs) but must avoid long term capital expenditures in a failing market (e.g. non-HDTV).

During the final (Obsolete), phase existing customers are appreciated, but encouraged to move to the new offering.  At this point, a decision to exit is often made and no additional expenditures committed to marketing or sales efforts.

A properly managed life cycle methodology generates maximum profitability. Yet, profitability can be less than optimal if a product is brought to market too early or too late.  Too early creates idle resources, unrecoverable costs as well as lost opportunity cost due to the underutilized resources.  Offerings brought to market too late show phantom initial cash savings early because investments were made when as margins were declining and the product was becoming a commodity.

As the business tries to play market catch up, the same investments are made late and often at a premium and with inefficiency.  Those who dominate market share garnered it during the late Embryonic or early Growth phases.  Consequently, late comers have fewer pickings as the really profitable customers are no longer available.  The remaining customers bring in much needed revenue, but at a cost, with depressed profitability.

What Management Should Do

The fundamental requirement is to establish a life cycle baseline by product/service offering.  This includes evaluating external life cycles: the market, competitive offerings, regulatory changes, and the underlying technologies driving the market.  With this picture, management has a framework to determine if internal resources, expenditures, processes, infrastructure and products/services are in alignment with the needs and timing of the markets.

In terms of Capital Expenditures, the required timing of new products and services adds critical information to the approval and allocation decision process.  This incremental, yet valuable, information is used to determine the ‘right’ programs to generate long-term, sustained success.

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· Capital spent too early[1]

Idle resources

[1] Assumes no early production build

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