LEAN SIX SIGMA and BEYOND!

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.

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“Organic Growth-A value Creation Engine”

July 13, 2011 § Leave a comment

By George Daniels

Creating an effective organic revenue generator within a business entity adds greatly to the value of the business whether it is in the multiples/evaluations for an acquisition target or the contributor to earnings per share. This has never been truer than now where we are coming out of a deep recession. During the recession much effort has been put into “rightsizing” and improving operational efficiencies, but at the same time many of the products and services have aged within their individual life cycles which were already becoming shorter. Thus, there is a greater need to replenish the pipe line with new products and services or expand into new markets in order to organically grow and increase the value of the entity. This is particularly true with private equity firms where holding times have extended to five to ten years on numerous acquisitions.

Effective “Organic Growth Engines” are not the everyday staple in business today, but those that have them do exceptionally well. Just look at one of the premier players today, Apple. It was just a little over a decade ago that they languished with flat revenues and stock price. Today their “organic growth engine” (new products and new markets) has propelled them to revenues and a stock price which have increased more than tenfold!

For those entities wanting to create value this is a model and strategy worth considering.

It is the famous Peter Drucker who may have said it best:

Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation.”

“Marketing and innovation produce results; all the rest are costs…”

There are numerous CEO’s that turn around finanicially ailing entities, but it is the next steps in which CEO experience is in short supply.

Getting the house in order is tough, but it is more difficult to decide what you want to be (the new products and markets and customers) and then even harder to define and execute getting there. If it were easy all companies would be successful and have longevity.

After spending time studying “the successful” companies only to find many do not exist anymore, The Plexius Group studied hundreds of companies to find why they fail. In the failing companies the poor portfolio management and the related decisions and execution were primary reasons for failure. Also important were poor operations not just in their efficiency, but in their misalignment with the portfolio needs. It is not just about lean or six-sigma! It is critical that your resources, no matter how efficient, are aimed at the products and services that support today and will also define your future.

Self funded organic growth is the diamond in the rough for business success, value creation, and longevity.

The Plexius Group’s recommended approach begins with improving business effectiveness to generate cash. This enables and reduces the risks of the new product introduction and marketing which is the driver of the “Organic Growth Engine”.

We provide unique methods to improve your marketing and the release and management of innovation and then execution of the development process.

If your firm is looking to improve its “Organic Growth Engine”  begin the dialogue by contacting george@plexiusgroup.com .

The Perfect Storm in Medical Devices

March 17, 2011 § 1 Comment

By George Daniels

Not long ago the medical devices industry was a darling of the investment community.  A wealth of medical innovation, rapid growth and profits were the attraction. Recently, the alignment and timing of numerous influences creates an ominous picture. With this post the Plexius Group intends to describe that picture and engage the discussion on possible solutions.

Our Industry research has uncovered a number of factors that combine to form an economic “Perfect Storm.”  First, there is a lack of profitability.  Putting the elite players aside, the majority of the mid range companies have not been profitable over the past few years and therefore cannot self-fund their development needs to stay competitive.

Second, this leads to shrinking investment dollars.  The investment community has almost totally retracted from the start ups in this space.  Recent discussions with investors and advisors show that now they look only for the end stage investments where revenues are imminent. The vast majority of investments made since 2000 are still waiting to realize return. The community is well aware of the external pressures from the FDA and the Patient Protection and Affordable Care Act (PPACA) that has injected near-term uncertainty into the industry’s economics and will almost certainly negatively impact the costs and profitability of this market. All of these things make finding cash less and less likely.

Thirdly, the governmental costs are rising in terms of actual regulatory costs and the uncertainty and variability in the interpretation and implementation of regulations[1].  The industry is well aware of the impact on the development process when the FDA’s 501K approval process is in change mode, resulting in longer times, moving demands and greater testing costs. The term “time is money” is very appropriate and approval is becoming far more costly due to the moving targets requirements.

Unless amended, the new health care law will add an excise tax on manufacturers and importers of certain medical devices in 2014, while capping payments for all Medicare and Medicaid services.

However laudable on a national basis the intent of the law to reduce medical costs means there is no room for the industry’s customers to pay a higher price for new products and pressures to reduce price and frequency of use (demand) of products already on the market.

Fourth, exit alternatives are few.  The two main avenues for investors to recover are either an IPO or a sale to another company. This market is not IPO attractive due to the uncertainties and the historical lack of profitability. Acquisition by one of the elite players in most cases has already been cherry picked, but there may still be some but not enough.

Fifth, on a product life-cycle basis the industry is out of sync.  Due to the governmental factors the industry market is having major discontinuities. It is uncertain that new technology products will replace the older ones due to cost pressures. It is uncertain that even better technologies will be adopted for the same reason.  The strategy of technology and growth leaves numerous products in the market that are in their mature product phase and yet have not produced returns. Thus they are unable to support funding their replacement.

These factors combine to form a “Perfect Storm” for any industry or business.  Although all jobs and all industries are important Plexius believes the US can more easily afford to lose, say, the hot-dog industry than medical devices.  It is too important to the health and welfare of our citizens and too crucial to maintaining a vibrant participation in the scientific and technical industries that dominate future economic success.

The way to survive this storm is not to follow the movie and press on with the course already set but to think and act differently.  While awaiting for help from the market and regulators medical devices companies need to find ways to make money now. The three areas that need innovation and reinvention now are:

1.   Go to market more effectively and for far less cost

2.   Develop products that do more, cost less and cost less to develop and how to more effectively manage the FDA approval process

3.   Make current products profitable now and new ones profitable at the get go

Plexius would like to hear from readers about this industry diagnosis.  We have some ideas on how to better go to market, develop new products, and increase the profitability of existing products.  Let’s not lose one of the great industries created in the USA again.

If you have ideas or comments, please share them.

If you want to discuss it directly e-mail me at george@plexiusgroup.com.


[1] At a recent seminar it was shown that FDA analysts require different tests on proposed devices when shown the same application and often over-rule approved test plans if the supervising FDA analyst who made the initial approval moves on and is replaced.

Do Products Die? or, Product Development and Management through Life Cycle Analysis

October 1, 2010 § Leave a comment

By Ken Morton

Products, like human beings, have their own life cycle. They are introduced (born), grow, mature, decline and often “die.”  Each phase in the cycle poses significant management challenges, involves many professional disciplines, and requires broad skills, tools and processes. Within this context, there are four key principles:

  1. Products have a limited, predictable life
  2. Sales/Revenues pass through distinct stages, each with different challenges, opportunities, and problems
  3. Profits rise then fall throughout the different stages
  4. Success requires different marketing, financial, manufacturing, purchasing, and human resource strategies and planning horizons in each stage

Successful managers must challenge themselves constantly to know if they are making the right decisions: Do I have the right product, at the right time, exploiting the right resources, to generate the right profit?

A life cycle strategy helps you plan, understand and structure your product development and management activities to ensure that you are.

(source: “Managing Products and Brands”, Rohan, SDSU)

Business success combines allocating scare resources and balancing needs.  Knowing where you are in the product life cycle allows you to manage your risks to achieve the optimum marketing mix – Product, Price, Promotion, Place, and guides your actions to ensure success- at every stage.

What Management Should Do

Begin by evaluating your entire product line showing life cycle stage, and analysis of price, promotion, place (distribution), as well as competition and consumers.  The individual maps consolidated to create a full product/market strategy.

(source: “Managing Products and Brands”, Rohan, SDSU)

At this point you must ruthlessly analyze where you are in the life cycle vis-à-vis the competition and take action to ensure that scarce management, operational, technical and financial resources are being properly managed and developed – both now and in the future.  In this way you will match your Investment, Development, Planning and Profit horizons synchronized within the field of competitive actions.

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