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Operational Excellence is more important now than ever. Your customers demand it! However, evidence shows that traditional approaches to achieving Operational Excellence are not delivering the expected results. In this presentation delivered at the APICS Houston Professional Development Meeting on May 15, 2015, Chris Seifert, Manager at Wilson Perumal & Company, explains why traditional approaches to Operational Excellence are failing, and provides strategies you can use to make Lean and Six Sigma relevant in today's complex world.
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Opera&onal Excellence Ge#ng the most out of your Lean Six Sigma programs
Wilson Perumal & Company, Inc.
Agenda/Objec&ves
• Why a new approach is necessary • How to diagnose the real problem • Three things you can do to get the most out of your LSS Programs
Wilson Perumal & Company, Inc. 1) AlixPartners Survey2) 2010 Accenture Survey
A new approach is necessary
• OperaKonal excellence is more important than ever – customers demand it! – Increased compeKKon driving decreased
margins – ExpectaKons of customers, shareholders, and
society are higher than ever – News of poor performance travels far and fast
• TradiKonal approaches are not achieving expected results – Only 31% of companies were able to achieve
the results promised by LSS pracKoners1
– 58% of execuKves report conKnuous improvement programs produced minimal financial impact2
Consider the case of 1-‐800-‐Flowers
Leadership engagement is oFen blamed, but is that the real reason?
Wilson Perumal & Company, Inc.
The world has changed!
Volume
Cost
Pre-‐Industrial Age
“Individual producKvity”
Dominated by variable costs
Volume
Industrial Age
“Economies of Scale”
Dominated by fixed costs
Complexity
Post-‐Industrial Age
“Complexity”
Dominated by complexity costs
Wilson Perumal & Company, Inc. 5
TECHNOLOGY IS MORE COMPLEX PRODUCTS AND SERVICES MORE COMPLEX
PROCESSES MORE COMPLEX ORGANIZATIONS MORE COMPLEX
REGULATIONS MORE COMPLEX
MARKETS MORE COMPLEX
Complexity is stretching the capabili&es of most companies
X
X X
X
X
Wilson Perumal & Company, Inc. 6
Many companies are passing a complexity threshold
VALUE (diminishing returns)
COST & RISK (exponenKal growth)
Level of complexity you can support
$
#Items #links
1 0
2 1
3 3
4 6
5 10
…
10 45
Complexity
Opera'onal risk grows exponen'ally with complexity
Few companies are s'll here
Many companies are here
An increasing number of companies are here
Wilson Perumal & Company, Inc. 7
Tradi&onal approaches to Opera&onal Excellence are not effec&ve in the face of complexity
• They do not address strategy, which is o\en the source of complexity
• They take a “Bo_om-‐up” approach to improving results
• They can actually add more complexity
• They seek to improve before establishing control
• Complex environments require a different approach to leadership
Wilson Perumal & Company, Inc.
Complexity arises from the interac&ons between products, processes, and the organiza&on
• Complexity is a cube funcKon—as it increases on one axis, it mulKplies across the others
• TradiKonal approaches address individual processes—not interacKons between product, process, and organizaKon
Wilson Perumal & Company, Inc. 9
Example: The impact of product por^olio complexity on process complexity
Wilson Perumal & Company, Inc.
Tradi&onal approaches typically employ a “Boaom-‐up” approach, which doesn’t address complexity
Bo=om-‐up approach: Improving one process at a 6me
Top-‐down approach: Start with a framework
Wilson Perumal & Company, Inc. 11
The typical response is to add even more complexity, which compounds the problem
Complexity increases
Poor execuKon
Loss of process control
Poor business results
More people & processes Vicious
Complexity Cycle
Wilson Perumal & Company, Inc.
Tradi&onal approaches aren’t effec&ve in the face of complexity
• TradiKonal approaches a_empt to improve processes before establishing control: – Controls for individual processes are
created, but the underlying system necessary for sustainment is not
– Results in improving processes without knowing their real capability
• Establishing control is the necessary first step: – Ensures sustainment – O\en produces greater
performance improvements faster and with fewer resources
Wilson Perumal & Company, Inc.
Agenda/Objec&ves
• Why a new approach is necessary • How to diagnose the real problem • Three things you can do to get the most out of your LSS Programs
Wilson Perumal & Company, Inc.
Defining Opera&onal Excellence – the oFen overlooked first step
Leadership Alignment
Consistent Messaging
Employees Understand
Clear Roles and ResponsibiliKes
Increased Commitment
• Leaders must be united and share a common vision
• If leaders aren’t aligned, messages won’t be clear and consistent
• Unclear and inconsistent messages impede employee’s understanding
• If employees don’t understand vision, they will spend Kme trying to define their roles
• In the face of ambiguity, many employees take a “wait and see” stance
Wilson Perumal & Company, Inc. 15
Common defini&ons of Opera&onal Excellence are vague and lack the ability to be measured
• “Each and every employee can see the flow of value to the customer, and fix that flow before it breaks down.”SM -‐ InsKtute for OperaKonal Excellence
• Opera6onal Excellence is a philosophy of leadership, teamwork and problem solving resul6ng in
con6nuous improvement throughout the organiza6on by focusing on the needs of the customer, empowering employees, and op6mizing exis6ng ac6vi6es in the process. -‐ Wikipedia
• A philosophy of the workplace where problem-‐solving, teamwork, and leadership results in the ongoing improvement in an organiza6on. The process involves focusing on the customers’ needs, keeping the employees posi6ve and empowered, and con6nually improving the current ac6vi6es in the workplace. -‐ The Business DicKonary
• “The leveraging of the disciplines of Lean, Six-‐Sigma and Leadership as key to any Con6nuous Improvement ini6a6ve – towards the increase in performance of both individuals and the companies for whom they work and resul6ng an indelible and posi6ve impact on stakeholder value.” – LinkedIn OperaKonal Excellence Group
These definiKons contain components of the systems and culture necessary to achieve OperaKonal Excellence, but because they lack the ability to be measured, they are not useful for understanding how to achieve OperaKonal Excellence, or why it is important.
Wilson Perumal & Company, Inc.
Opera&onal Excellence delivers industry leading performance across 7 Value Drivers
Given two companies with similar strategies, the one that executes be_er will have be_er performance across all 7 Value Drivers.
Sound Strategy
Operational Excellence
Leading Performance
7 Value Drivers
1. Safety 2. Environment 3. Compliance 4. Quality 5. Produc&vity 6. Yield 7. Cost
Strategy
1. Product por^olio 2. Markets served 3. Distribu&on channels 4. Price point 5. Level of service 6. Partnerships 7. Opera&ng model
Opera'onal excellence is the execu'on of the business strategy more consistently
and reliably than the compe66on.
Wilson Perumal & Company, Inc.
Agenda/Objec&ves
• Why a new approach is necessary • How to diagnose the real problem • Three things you can do to get the most out of your LSS Programs 1. Address non-‐value added complexity that
arises from your strategy
Wilson Perumal & Company, Inc.
Technology
Strategic intent
Value chain processes Culture
Structure and
authority People
Sound strategy requires aligning decisions to allocate resources consistent with strategic intent
Make strategic decisions consistent with intent
1. Value discipline – Product innovator – Customer inKmate – Low cost
2. Markets to parKcipate in – Local – Global
3. Value chain – VerKcally integrated – Single segment
Processes and Culture must support the strategy
Technology, organizaKonal structure, and people capabiliKes must support
the processes and culture
Strategic Intent Components of the Opera&ng Model
Aligning the OperaKng Model to the strategy isn’t enough. We must also implement the management system processes necessary to execute the OperaKng Model.
Wilson Perumal & Company, Inc.
Agenda/Objec&ves
• Why a new approach is necessary • How to diagnose the real problem • Three things you can do to get the most out of your LSS Programs 1. Address non-‐value added complexity that
arises from your strategy 2. Simplify and standardize your Management
System
Wilson Perumal & Company, Inc.
Opera&onal Excellence is a func&on of the management system & culture
Effective management
processes and
procedures
Culture of Operational Discipline
Operational Excellence
Understanding this rela&onship helps cut through complexity to quickly iden&fy the real problem from the “top—down”
Sound Strategy
Operational Excellence
Leading Performance
Wilson Perumal & Company, Inc. 21
Understanding the different types of processes is an important first step
Acquire raw
materials
Convert to finished good
Store finished goods
Distribute finished goods
Collect payment
Pro
cedu
res
Roles a
nd Respo
nsibiliKe
s
Training
Risk Iden
KficaKo
n A Management System Process or Key Control is a process whose primary purpose is to ensure effecKve execuKon of a value chain process
Applied across each phase of the End-‐to-‐End Value Chain
The End-‐to-‐End Value Chain represents the core acKviKes a firm performs to deliver value to its customers
Wilson Perumal & Company, Inc. 22
The founda&ons of an Opera&onal Excellence Management System
Key Value Drivers
OE is defined by measurable business performance across specific value drivers
Safety
Environment
Compliance
Quality
Produc&vity
Yield
Cost
Wilson Perumal & Company, Inc.
The 4 Sources of Risk
Equipment Processes People Inputs Acted on by
To produce
Finished Goods/ Services
The OperaKon
• Any failure of the operaKon to produce a good or service that meets the customers requirements is a result of 1 of 4 sources: 1. A person failed to do what they were expected to do. 2. A process failed to perform as expected 3. A piece of equipment failed to perform as expected 4. Un-‐managed change
Wilson Perumal & Company, Inc. 24
The founda&ons of an Opera&onal Excellence Management System
Key Value Drivers
Four Sources of
Risk
OE is defined by measurable business performance across specific value drivers
There are only four sources of risk for failure to perform against the
value drivers
Safety
Environment
Compliance
Quality
Produc&vity
Yield
Cost
People
Processes
Equipment
Change
Wilson Perumal & Company, Inc.
Each source of risk can be analyzed for the key causes of failure
People
Unaware of expectaKon
Unable to perform as expected
Chooses not to perform as expected
ExpectaKons don’t exist
ExpectaKons not communicated
ExpectaKons not enforced
Lack of knowledge
Lack of talent
Lack of virtue
Wrong incenKve
Wilson Perumal & Company, Inc. 26
Each source of risk can be analyzed for the key causes of failure
Equipment
Inadequate Design
Unplanned Failure
Improper OperaKons
Inadequate Maintenance Strategy
Inadequate execuKon of Maintenance Strategy
Personnel not allocated
People
Process
Insufficient tools/materials
People
Wilson Perumal & Company, Inc. 27
Each source of risk can be analyzed for the key causes of failure
Process
Process is not capable
Process not in control
OperaKng limits not defined
People
Equipment
Change
MOC process not capable
MOC process not followed
People
Change not idenKfied
Wilson Perumal & Company, Inc.
The founda&ons of an Opera&onal Excellence Management System
Key Value Drivers
Four Sources of
Risk
Common Causes of Failure
OE is defined by measurable business performance across specific value drivers
There are only four sources of risk for failure to perform against the
value drivers
The four sources of risk tend to fail for the same reasons regardless of the type of operaKon
Examples
ExpectaKons don’t exist
Lack of knowledge
Wrong incenKves
Equipment not capable
Personnel not allocated
Process not capable
MOC inadequate
Safety
Environment
Compliance
Quality
Produc&vity
Yield
Cost
People
Processes
Equipment
Change
Wilson Perumal & Company, Inc.
If the causes of failure are consistent across various opera&ons, the necessary set of Key Controls is as well
People
Unaware of expectaKon
Unable to perform as expected
Chooses not to perform as expected
ExpectaKons don’t exist
ExpectaKons not communicated
ExpectaKons not enforced
Lack of knowledge
Lack of talent
Lack of virtue
Wrong incenKve
Ops/maintenance procedures/policies/standard work
Core communicaKon strategy
Audits/assessments, org structure, performance management
Training/cerKficaKon
SelecKon process
Culture, selecKon process
CompensaKon strategy, performance management
Key Controls
Wilson Perumal & Company, Inc. 30
If the causes of failure are consistent across various opera&ons, the necessary set of Key Controls is as well
Equipment
Inadequate Design
Unplanned Failure
Improper OperaKons
Inadequate Maintenance Strategy
Inadequate execuKon of Maintenance Strategy
Personnel not allocated
People
Equipment
Insufficient tools/materials
People
CriKcality Ranking, FMEA, RCM
Engineering Disciplines
Gatekeeping, Scheduling
Planning, Parts Ki#ng, Parts Strategy
Wilson Perumal & Company, Inc. 31
If the causes of failure are consistent across various opera&ons, the necessary set of Key Controls is as well
Process
Process is not capable
Process is not in control
OperaKng limits not defined
People
Process
Change
MOC process not capable
MOC process not followed People
Process Engineering (LEAN Six Sigma Tools)
Process FMEA, Process Control Plan
Management of Change Program
Wilson Perumal & Company, Inc. 32
The founda&ons of an Opera&onal Excellence Management System
Key Value Drivers
Four Sources of
Risk
Common Causes of Failure
Specific Key Controls
OE is defined by measurable business performance across specific value drivers
There are only four sources of risk for failure to perform against the
value drivers
The four sources of risk tend to fail for the same reasons regardless of the type of operaKon
The set of Key Controls necessary to prevent
failures is also the same
Examples
Vision/Procedures
Training/CerKficaKon
Performance Mgmt
Engineering Disciplines
Planning/Scheduling
Design for Six Sigma
MOC Process
Culture
OrganizaKon Structure
Process Control Plan
FMEA
Examples
ExpectaKons don’t exist
Lack of knowledge
Wrong incenKves
Equipment not capable
Personnel not allocated
Process not capable
MOC inadequate
Safety
Environment
Compliance
Quality
Produc&vity
Yield
Cost
People
Processes
Equipment
Change
Wilson Perumal & Company, Inc.
Management System processes can be grouped into Elements to reduce complexity
Risk IdenKficaKon
Process Hazard Analysis
Failure Modes Effects Analysis
Risk Registers
The value of the 7 Elements
• Easier for people to remember than all key controls
• More efficient to organize around
• Creates common language that facilitates learning: – Between management and
employees – Between leaders – From site to site
• Encourages systems thinking – Ensures proacKve management of risk in development of new systems
– Used in root cause analysis, problems aren’t seen in isolaKon
Wilson Perumal & Company, Inc.
The 7 essen&al Elements of an Opera&onal Excellence Management System
Leadership
Employee accountability
Risk idenKficaKon
Risk miKgaKon
Knowledge sharing
Management of change
ConKnuous improvement
Leaders arKculate a clear vision of OperaKonal Excellence and create a culture of OperaKonal Discipline
Processes are in place to ensure employee’s are properly incenKvized and know what they are accountable
Risks are idenKfied , assessed , and prioriKzed for processes and equipment
Controls are put in place to miKgate the idenKfied risks
CommunicaKon and training systems are in place to share knowledge about the risks and their controls
Processes are in place to management changes of people, processes, and equipment
All processes are measured, verified, and conKnuously improved
Wilson Perumal & Company, Inc. 35
The founda&ons of an Opera&onal Excellence Management System
Key Value Drivers
Four Sources of
Risk
Common Causes of Failure
Specific Key Controls
OEMS Elements
OE is defined by measurable business performance across specific value drivers
There are only four sources of risk for failure to perform against the
value drivers
The four sources of risk tend to fail for the same reasons regardless of the type of operaKon
The set of Key Controls necessary to prevent
failures is also the same
Key controls are organized into
Elements to facilitate implementaKon and
management
Examples
Vision/Procedures
Training/CerKficaKon
Performance Mgmt
Engineering Disciplines
Planning/Scheduling
Design for Six Sigma
MOC Process
Culture
OrganizaKon Structure
Process Control Plan
FMEA
Examples
ExpectaKons don’t exist
Lack of knowledge
Wrong incenKves
Equipment not capable
Personnel not allocated
Process not capable
MOC inadequate
Leadership
Employee Accountability
Risk ID
Risk Mi&ga&on
Knowledge Sharing
Management of Change
Con&nuous Improvement
Safety
Environment
Compliance
Quality
Produc&vity
Yield
Cost
People
Processes
Equipment
Change
There is an “order” to implementa&on
Leadership
Employee accountability
Risk iden&fica&on
Risk control
Knowledge sharing
Management of change
Con&nuous improvement
Commi_ed leadership is the foundaKon
Employees must know their accountabiliKes
Once leaders and employees are commi_ed to prevenKng risks, idenKfying them creates value
Risks must be idenKfied and assessed before they can be controlled
Controls must be in place before employees can be trained on them
Processes must be clearly defined and controlled before change can be managed
Assessing a process that is known to be out of control o\en creates li_le value
Wilson Perumal & Company, Inc.
Agenda/Objec&ves
• Why a new approach is necessary • How to diagnose the real problem • Three things you can do to get the most out of your LSS Programs 1. Address non-‐value added complexity that
arises from your strategy 2. Simplify and standardize your Management
System 3. Leverage culture
Wilson Perumal & Company, Inc.
Opera&onal Discipline is necessary to achieve Opera&onal Excellence
Effective processes
and procedures
Culture of Operational Discipline
Operational Excellence
A robust OEMS alone will not lead to Opera&onal Excellence; Opera&onal Discipline – doing the right thing, the right way,
every &me – is also needed
Sound Strategy
Operational Excellence
Leading Performance
Wilson Perumal & Company, Inc. 39
Complex opera&ng environments require a different approach to Leadership
• In complex operaKons, leaders can’t possibly idenKfy all the situaKons that an employee will face.
• A_empKng to create a laundry list of rules or tasks will not cover every possible situaKon.
• By idenKfying the fundamental behaviors of an OperaKonal Disciplined organizaKon, we can create a framework that helps employees determine how they should behave in a given situaKon.
U.S. Nuclear Navy—A High Reliability OrganizaKon (HRO) ‒ Remarkably low number of mishaps
‒ Highly complex and inherently hazardous tasks
‒ Consistently over a sustained period of Kme
Wilson Perumal & Company, Inc. 40
At an operator level, safe and reliable opera&on rests on the “Pillars of the Program”…
• Integrity • Level of Knowledge • Ques&oning Artude • Formality • Forceful Watch Team Backup
REACTOR SAFETY & CONTINUITY OF POWER
LEVE
L OF KN
OWLEDG
E
FORM
ALITY
QUESTIONING ATTITUDE
FORC
EFUL BA
CKUP
INTEGRITY
Wilson Perumal & Company, Inc.
The “Pillars” of Opera&onal Discipline • Integrity. Be reliable. Do what you say you are going to do, compleKng every task the right way,
every Kme, even if no one is watching.
• Level of Knowledge. Understand not just what you do, but why you do it. ConKnually seek greater knowledge about the systems, processes, and hazards in and around your workplace.
• Ques&oning Artude. Constantly ask yourself what could go wrong. Check for out-‐of-‐the-‐ordinary and learn to anKcipate potenKal problems. Don’t assume things are okay—verify.
• Formality. Treat your workplace and your role with respect, recognizing the seriousness of what we do and your role in that as a privileged trust and part of something bigger.Follow authorized procedures and expect the same from others. Do not take or tolerate shortcuts. If you think of a be_er way, follow authorized processes to review and improve the procedures.
• Forceful Watch Team Backup. Backup your co-‐workers by looking out for what they may have missed, and expect the same in return. Have the courage to care, intervening even when it makes you uncomfortable. If you see an issue, own it.
Wilson Perumal & Company, Inc. 42
Leaders need to understand basic concepts related to culture and human behavior
• Leaders play an essen&al role in shaping culture and changing behaviors
• A recent Booz & Company study1 revealed that 48% of execuKves “think, other than communica6ons and leadership alignment, they do not have the capabili'es to effec'vely deliver change”
• Understanding what culture is, and why people behave in a given way, will help leaders be_er understand how to lead the change
• Leaders – Cannot force people to change beliefs – Cannot force people to change behaviors – Can change the consequences
Beliefs
Behaviours
Consequences
influence result in re
inforce or und
ermine
Culture is the shared beliefs of the group
Wilson Perumal & Company, Inc. 43
4 Steps for crea&ng a culture of Opera&onal Discipline
• Need for the Pillars
• DefiniKon of the Pillars
• Approach for implementaKon
Align Leadership on the Pillars
Create the Case for Change
Internalize the Fundamentals
Embed in Management
System Processes
• Use case study like Deepwater Horizon to make case for change
• Create a sense of discomfort
• One-‐on-‐one conversaKons between leaders and employees using right/wrong framework to discuss behaviors
• Leader interacKons on the shop floor
• New hire selecKon
• OrientaKon/training
• Incident invesKgaKon
• Performance Management
Crea&ng a culture of Opera&onal Discipline must start at the very top of the organiza&on!
Wilson Perumal & Company, Inc.
Summary
• A new approach is required due to complexity
• First Step: Diagnose the problem using a “Top-‐down” approach – Is it strategy, management system, or culture
• Address non-‐value added complexity that arises from your strategy
• UKlize the 7 Element OEMS to break the vicious complexity cycle and regain control
• Remember that there is an “order” to things
• Define and create a culture of OperaKonal Discipline
Reducing complexity and regaining control of your opera&on will revitalize your Lean and Six Sigma Programs
Wilson Perumal & Company, Inc.
Email: [email protected] [email protected]
On the Web: www.wilsonperumal.com Blog: www.wilsonperumal.com/blog
Twi_er: @cpseifer @Wilson_Perumal
LinkedIn: h_p://www.linkedin.com/in/christopherseifert h_p://linkd.in/10BnH1i
Phone: (972) 800-‐3618 (972) 716-‐3930
Contact Informa&on