by Anne C. Graham, #1 Best Selling Author - Profit in Plain Sight. AME Director-British Columbia, Canada www.AnneCGraham.com
If I asked you to define enterprise excellence, how would you answer that?
We all “sort of” know what it is. But when discussing enterprise excellence as our goal for the new Vancouver Consortium, I found manufacturing leaders struggled to define it and couldn’t outline what it would really take to get there. Without a roadmap, its unlikely to happen, wouldn’t you agree?
This article is based on collecting thoughts from industry experts, looking at existing models, and my own experience creating high-performing and highly profitable companies. This month I’ll outline the 4 challenges to enterprise excellence that emerged from this preliminary work, and next month I’ll share the 12 tenets of organizational excellence that leaders can use to assess their current and desired state. Throughout this article, I’ll point you to additional resources.
These articles are not intended to be the be-all-end-all, but rather to serve as catalysts for further conversations to help AME-ers develop and refine a highly usable model. Please visit the AME Open Forum and share your insights in the existing enterprise excellence thread. My thanks to Michael Bremer, Ron Harper, Ailsa Carson, and Jim Whitman for their insights. Enterprise excellence is the theme of this year‘s San Diego conference so if you’re intrigued by this thinking, that’s the place you want to be.
Challenge #1: Operations excellence is not enterprise excellence
Many existing models and assessment tools focus heavily on evaluating operational excellence, which is a natural outcome of applying lean tools on the shop floor and throughout the supply chain and logistics. Those models place operations at the center of excellence, with limited references to the extended value stream.
Unfortunately, the average lean journey addresses only 30 percent of the value chain, lasts only 3 to 5 years, and often fails to crystallize significant financial results, although there is no doubt that lean can deliver productivity gains and quality improvements. If you’ve read the Manufacturing 5.0 Manifesto, you already know that conventional lean efforts are perfecting yesterday’s business model. This doesn’t mean that lean is dead, but instead highlights the opportunity to extend some lean principles and rigor throughout the enterprise, but without trying to 5S people’s staplers.
Supply chain, shop-floor optimization, and logistics are rarely seen as strategic and thus fail to engage the CEO, who takes a hands-off approach believing that lean is in good hands with the operations side of the business. In fact, the AME Lean Sensei tool is an excellent starting assessment for a lean journey, however as two-thirds of the points are allocated based on operations with the majority balance allocated to policy deployment, we need to look more broadly at how to define, assess, and deliver enterprise excellence.
Enterprise excellence means flipping the current models, so that we start by looking at the entire value chain and viewing operations as just one element of it. Let’s go out on a limb and assume that we’ve got supply chain, production and logistics well-covered with lean tools, processes, and assessments, outsourcing, offshoring, re-shoring, or right-shoring. In fact, for the purposes of this article, let’s create a black box for operational excellence and focus on the bigger picture of enterprise excellence, not just operational excellence. After all, it works for Apple, who many would argue is a leader in enterprise excellence, yet they do no production despite being known for quality products.
The images below illustrate how enterprise excellence expands our thinking to include the remaining 70 percent of the value chain, and that’s where the really big value is in a business. Apple is but one example of the hollowing out of the value chain that I see on the horizon, and underscores the need for the C-suite to get highly strategic about the future of their business and focus on excellence across the rest of the value chain.
Challenge #2: Enterprise excellence starts with the demand chain, not the supply chain
Peter Drucker introduced the value chain in 1985 and it became an instant classic. However, the past 30 years have highlighted a glaring error. The first “primary activity” in his value chain is inbound logistics, i.e. raw materials handling and warehousing! You’ll notice that’s not the case in the updated version above.
Instead, enterprise excellence has to start with what I call the “demand chain” – i.e. an intense focus on understanding customer pull (a central element of lean) and how customer value is created at every stage of the value chain and in every area of the organization, to eliminate inter-company waste (them) and intra-company waste (us). Without customer focus, we’ve missed the most important part of enterprise excellence, which is market relevance.
One of my favorite sayings is “Only Customers Create Cash Flow” and one of my favorite strategies is “Staple Yourself to the Experience,” which identifies points of friction (waste) and opportunities to create value at every point of interaction. When you start to question which support activities and which primary activities actually add customer value, you’ll see your business in an entirely new way. In fact, the Shingo Institute offers this as a core driver of enterprise excellence:
In order for an organization’s culture to focus on increasing value to customers
over the long term, certain types of behavior must be present.
The work that I do is all about small shifts in employee behavior to improve profitability and eliminate waste at every stage of the value chain, so the Shingo statement resonates with me. Can you see how focusing on value-add behaviors throughout your business would shift your focus beyond operational excellence towards enterprise excellence?
The Shingo Model
Challenge #3: Employees are your greatest source of value-add... or value-destroy
One of the foundations of lean is people-centric leadership. This maps well to the Shingo values above, but once again it comes down to embedding everyday behaviors that demonstrate the values, just the same way that lean principles have to show up in practice. Knowledge is power, but doing delivers results. Only the talent & ingenuity of employees creates value, not robotics, not AI, not lean tools unto themselves. People at every stage of the value chain need to be engaged in the continuous improvement of well-defined behaviors that deliver enterprise excellence.
I held a fun experiment last week, showing a group of CEOs a typical production-focused KPI report and asking them what action they would take next. Most could not devise a clear strategy for success, because so many of the numbers were conflicting. Was the goal to reduce hours per product or reduce rework? Was it on-time-delivery or quality? Was it efficiency or effectiveness? And we wonder why our employees don’t seem to “get it” and “do it”!
Then I showed them the football scoreboard below. Just about every one of them could identify what they needed to do next. They didn’t all choose the same next step… but each next step made sense in terms of winning because the scoreboard told a clear story. Look closely - what play would you call to win the game if you were the coach?
Clarity and alignment are challenges for almost every organization. Enterprise excellence will only be achieved when employees know what game they’re playing, where they stand, and how to win. Visual management throughout the value chain and throughout the organization are valuable lessons from lean that can lead an organization to enterprise excellence more quickly.
Challenge #4 - The need to crystallize gains
It’s critical to eliminate one of the downfalls of lean by having an effective system to crystallize the gains of enterprise excellence, because in many ways the behaviors and outcomes can be even less tangible than lean. There is a proven approach that I use which includes benchmarking profit-per-employee goals, implementing new behaviors, and crystallizing gains to steadily build towards higher goals on a monthly basis. I’ll share that in more detail when I release the Return on People Benchmark later this year. For now, think about how you would crystallize your gains, or reach out to me if you want to discuss it in the meantime.
Enterprise excellence IS the future of lean
Excellence is a timeless topic and an endless pursuit within business. It’s time to look beyond the shop floor and embed the principles of excellence into every area of the value chain to more fully engage the talent and ingenuity of our employees in providing value-add solutions and services to our customers.
Think about 1) how you have already started and/or can start to overcome each of the challenges outlined above, or 2) how you are stymied by these challenges. Then, add your thoughts to the online enterprise excellence thread at the AME Open Forum. Together, we’ll share, learn, grow, and figure out how to get there together.
Next month, watch for Part II, and we’ll start to create the assessment and the roadmap.