An issue that is commonly raised and discussed at networking and OpEx industry events is how the support of senior leadership is vital for Operational Excellence roll-outs. Without this support the rest of the organisation perceives OpEx as ‘extra’ work and the continuous improvement (CI) managers are fighting the battle of resistance alone.
While leadership support is crucial, there are two roles in particular where the support and commitment will be the difference between producing transformational results or just ordinary results – the general manager (GM) and the chief financial officer (CFO). The following is a case study that I was involved with that demonstrates how OpEx can be a powerful vehicle to deliver business strategy and extra-ordinary results.
This is a business that has been around for many years as a well established household brand. The business was going through a huge growth phase - well at least in terms of the volume that went through the plant. This growth was a strategic move to reduce the impact of depreciation costs of some major investments the business had made in recent years. The business also had idle capacity not being utilised at the time.
Figure 1: Volume Growth versus Net Profit Decline over 5 years
Figure 2: Gross Margin and Operational Margin over 5 years
While the growth strategy was well executed, the team lost sight of another key factor - net profit, which was rapidly declining. Although this may seem like financial management 101, the disruption of a few key organisational changes distracted the executive leadership team leaving the business in this situation.
When the margins were examined, it was clear that gross-margin was the main contributing factor. Operational margin was also in decline, but more or less it was parallel to the gross margin decline rate. So, at least other operating costs within the business appeared to have maintained appropriate margin points. The declining gross-margin was the root-cause and this business had a grave problem to solve – and they had to do it fast.
What would you do in this situation?
In response, the GM held multiple communication sessions, where the gravity of the situation was made clear to all employees.
The GM announced that the CI manager would hold multiple sessions to identify improvement opportunities. This is not a ground-breaking strategy. In fact, most would agree that this is the normal role of the CI manager. What made this scenario different was the clear alignment between the GM and the CI manager. The vision that these two came-up with was simple, “reduce the cost of goods sold” in order to increase the gross margins. The caveat was that safety and quality standards should not be undermined.
The CI Manager was in a pivotal position to help navigate this business out of the storm. Executing the GM’s strategy and implementing a good financial governance framework with the CFO, the business managed to turn around swiftly, saving the livelihood of nearly 1000 employees.
I remember reading about a similar case study where the head of exploration for British Petroleum in 1989 challenged the oil-well drilling team to increase their 20% success rate, which was considered to be the industry best benchmark at the time. By year 2000, they had increased it to 66%. He achieved this by creating a simple and clear vision called “No Dry Holes” [i].
The CI manger then worked with the CFO to define a governance framework. It is easy to improve processes where the benefits are either: theoretical; serves as a cost avoidance strategy; or increases capacity to increase future sales. The issue with these improvement initiatives is that none of them reduces the P&L costs immediately. So the CI manger and CFO identified specific gates where they would assess each initiative based on one major criterion – must provide immediate P&L relief.
I am happy to report that this story has a happy ending. The site made significant improvements and managed to secure the jobs of many employees.
I’ve seen many instances where the CI manager has to plead for resources and time. However, CI managers are in a pivotal position to deliver exceptional results. My advice to GM’s and CFO’s… make sure you get the most out of your CI manager.
If you haven’t partnered with the CI manager of your site, maybe you should have a chat. Let me know how you go…
We would like to offer a free “Lunch and Learn” session [ii], for the readers of this article. If you’d like to take up this opportunity or request a copy of our Efficiency Unlimited program guide, please contact Ishan at ishan@ops-academy.com.
Ishan is passionate about helping businesses to improve productivity/efficiency and unlock hidden capacity for business growth. Ishan has a distinct advantage to deliver transformational change with his experience in multi-national companies, working with teams in six different countries, for nearly two decades.
Ishan is a co-founder of The Operations Academy. The Operations Academy work with leaders in medium sized businesses to improve operational efficiency and effectiveness, delivering training and facilitated programs to improve business processes and get teams working together more effectively.
[i] Source: Chip Heath & Dan Heath, The Switch, Crown Publishing Group, 2010, pp. 87-93 [ii] Interstate travel and accommodation costs not included where if applicable.