A Lean Success Story

Don Thompson, Director of Operations for this $45 million dollar furniture manufacturer, arrived early in his office. He knew that the 30 year old air conditioning unit, making a feeble attempt to keep the humidity at bay, would lose the battle shortly after mid-morning, quickly turning his office into a sauna.

“I ought to get some gym equipment and market this as a spa,” thought Don as he organized his thoughts for the day.

To say that the report Don looked at was depressing would be an understatement. Although it ran 65 pages, the message was simple; Don’s company had problems. Lead times were long, defect levels were too high, productivity was low, and worst of all, it was clear that the company’s prices and delivery performance were no longer competitive.

“It’s a perfect storm,” thought Don irritably. “But unlike a storm, I can’t run for cover, I have to figure out what I’m going to do about it?”

As he reflected, Don realized that he had made a mistake 9 months ago when he first started seeing these issues but decided to take a wait-and-see approach. He remembered thinking, “Perhaps it’s just a minor blip on the radar screen. I’ll just keep an eye on expenses and maybe this boat will right itself on its own.”

Unfortunately the opposite had occurred. “Damn, I wish I had those 9 months back,” said Don to the empty chair in front of his desk. What was even more disconcerting was that the report, extensive in its review of the problems the company faced, was unbearably light on solutions. Don knew the internal team he had assigned to look into the problems was well intentioned and motivated; they just didn’t have anything close to a real strategic solution. He didn’t either.

“Bunch of band aids,” Don muttered as he re-read the recommendations section. “Maybe some of these ideas will help a little, but that’s not what I need. We’ve got to come up with a strategy that will have a real impact.”

Don’s thinking was interrupted by a knock on his door. Smiling pleasantly was Stan Bradshaw, a VP of Operations from a nearby company who is part of a peer group that Don joined eight months ago. Don arranged a meeting with him in order to pick his brain. Stan had shared some pretty impressive stories of a major turnaround that he and his CEO had been leading for the last few years.

“Good to see you Don”, said Stan as he stood in the doorway. At 6’4’’ with a lanky frame, spiky red hair and a shirttail that refused to stay tucked, Stan hardly resembled the change leader that Don knew he was.

“Hey, come on in. I really appreciate you taking the time to see me.”

Stan shook Don’s hand and folded his frame into one of the molded plastic chairs in front of Don’s desk and attempted to get comfortable.

“I assume you remember me talking about this last week,” said Don gesturing to the report that lay like a hunk of kryptonite on his desk.

“Sure do,” replied Stan.

“Good,” Don continued, “so here’s what I wanted to talk with you about. Our performance isn’t what it needs to be and my management team and I don’t have a viable plan. We just keep kicking around the same old tired ideas. Nothing that we’ve discussed, or documented in this report, will do squat to improve our cost or competitiveness. What I really need is a new perspective. You’re the only one I know who’s actually faced these same kinds of problems and turned things around.”

“Actually, if you can believe it, the situation was worse at my company. We really thought we might go under there for a while,” replied Stan.

“So tell me, what happened? Obviously you figured it out,” said Don referring to Stan’s numerous success stories.

“Well at first we tried to ignore it, hoping for the best.”

“That’s what I’ve been doing for the past 9 months,” said Don.

“How’s that working out?” asked Stan.

“I think you know,” replied Don, “So what did you guys do next?”

“We put together an internal task force to look at cost reductions, but it became clear real fast that we just didn’t have the perspective that was needed to change the long-term picture. I mean, we were a great team for making sure that the day-to-day operations ran smooth, but when the wheels came off the wagon, we were lost. Our plans looked just like those in the report on your desk. Plenty of busy work that might make us feel better for awhile, but realistically, there was nothing that was going to make any real impact.”

“So what’d you do?” asked Don.

“We had been talking for some time about starting some sort of continuous improvement program. You know, lean, six-sigma, and all that stuff. After some soul searching and frank discussion we decided it was probably what we needed to do,” Stan explained.

“So what happened?”

“Well, we didn’t think we had enough money to go to the outside for help and even if we had, we wouldn’t know where to start looking. So we bought some books and sent a few people to training to learn about Lean Manufacturing. We even trained a few engineers to be Six Sigma black belts. We figured we were smart enough to learn how to turn things around. We even made one of our managers a full time champion of continuous improvement.”

“How did it go?” asked Don.

“We never got any traction,” replied Stan. “Looking back with 20/20 hindsight, it’s really easy to see what went wrong. Devilishly difficult to see that when you’re going through it, but looking backwards, you wonder why it wasn’t obvious.”

“What do you mean?” asked Don.

“Just because a process works for one company doesn’t mean you can overlay it onto another and expect the same results. I’m of the belief that companies are living, breathing organisms. Each has its own uniqueness that’s comprised of the people who work there, the leadership, and the unique culture.”

“For example, compare this company to mine,” Stan continued. “On paper we’re pretty much the same. Same types of machines, similar size, heck we’re only a few miles apart. On the surface we look like we’re twins, but I can tell you that the two companies couldn’t be more different in terms of style, communication and how you go about doing the day-to-day business.”

“So what’s that got to do with the lack of traction?” asked Don.

“When we first got started, everything seemed pretty simple. We did a lot of training which went fine. The problem was when we tried to implement it.”

“What happened?” asked Don now totally fascinated with Stan’s story.

Stan took a deep breath. “We decided to put our engineers in charge of the changes. After all, they’re the process experts. It all seemed so logical and looked great on paper, but we couldn’t believe the pushback we got from the employees when we changed their workstations and put in the flow lines. Again, in hindsight we should have seen it coming, but it caught us by surprise.”

Don looked like he wanted to ask a question but Stan went on.

“And that’s not all, once some of the managers realized the impact the changes would have on them, they started to question the direction. Some even tried to derail the program behind the scenes.”

“As I look back now, it’s obvious that we simply tried to take a tool approach and totally left out the human factor. We believed that this was technical and we could just provide some training and resources and good things would happen.”

“What did you do?” Don asked.

“Well that’s where things kind of fell apart,” continued Stan. “We didn’t know how to react to the resistance and our management team was divided. We had a few meetings and decided that we hadn’t communicated enough so we wrote a memo explaining that change was good and we needed support from everyone.”

“And?” asked Don.

“We lost all credibility,” said Stan with a level gaze. “People just scoffed at us because we didn’t deal with the real issues behind the resistance. We vastly underestimated how much attention this was going to take from the leadership team. We treated it like a program and that’s exactly how people labeled it-the program of the month. Sad part was that many people actually believed that changes were necessary. The problem is that we completely messed up how we approached it.”

“So what happened next?” asked Don.

“We didn’t do anything for about six months. It was even hard to talk about it.”

“I can understand that,” said Don with a sympathetic smile.

“But the underlying problems didn’t go away. In fact, the pressure for change grew.”

“I know you got on the right path, how’d you do it?” asked Don.

“Yes we did eventually get our act together,” replied Stan. “The first thing we had to do is come to grips with the fact that we didn’t know what to do. We’d been trying to take a shortcut but what we needed was an organizational change. None of our leadership team had any expertise or experience in this sort of thing. We decided to get help.”

“That makes sense to me, how did it go?”

“We interviewed about a half-dozen consultants. They came across pretty much the same; they spoke the same language and promised similar results. The problem we had was that all of their presentations were mostly technical in nature. They looked like what we had already tried to do. When we asked questions about culture and employee buy-in, things got a lot muddier and the presenters did a lot of talking in circles.”

“So then what?” Don asked.

“Well, we were getting discouraged and were wondering if we’d ever find the right consultant. But we knew we needed help and were committed to press on until we found a partner who understood our needs. Finally, after months of interviews and proposals, we found the right group.”

“How did you know?” inquired Don.

Stan sat straight up in his chair and leaned forward slightly.

“They knew all about the technical systems and processes, so it wasn’t as if we had to throw everything we’d learned out the window. But their approach was completely different, with an emphasis towards the people side of the equation. They also talked a lot about our role as a leadership team and the skills we would need to be successful. I don’t know why we didn’t think of this initially, but you really need to have a plan to get the whole organization involved when you’re making these large wholesale changes. They had an entire system for doing that.”

Don’s sweaty brow wrinkled as he tilted his head slightly to the side. “A system for involving the organization, that’s interesting, can you tell me more?”

“Well specifically, they talked about five areas of focus that were required for an organizational transformation.”

Don picked up a pen and opened his notepad. “OK, I’m all ears.”

Stan said, “I may not get these in exactly the right order but I know what they are because we talked about them all the time.”

“No problem,” Don seemed anxious.

“OK, well the first focus area was leading the change process. We worked through eight steps that really caused people to sit up and take notice. The first step in the process was creating discomfort with the current situation.”

“That had to be pretty easy. After all, you guys were in tough shape,” Don said.

Stan shook his head, “Not at all. You see, we all knew there were big problems. I should say, the leadership team knew. The issue is that the employees had no idea how serious the problems really were. In retrospect, it’s not surprising. For years, we had been great cheerleaders, telling everyone that we were the best, the industry leader, and that our quality couldn’t be beat. It was nothing but happy talk.”

Don looked up from his notepad, “happy talk, that sounds familiar.”

“We learned the first thing we had to do was stop filtering information and help people see the truth. This was hard for us but we realized that if people didn’t know there was a problem it would be hard for them to understand why change was needed. In time, we understood that how well we engaged the hearts and minds of the employees would determine how much we would achieve.”

“That seems so simple,” Don said.

“Sure it does, but is creating discomfort or leading change in your report?” Stan asked.

“This is good stuff,” Don replied as he laid down his pen and pushed the report to the edge of his desk. “You said five areas of focus and eight steps of leading change, I’m a little confused. Are there five or eight?”

“Good question. There are five focus areas; the first is leading the change process which has eight steps. I’ll move on and I think it will make sense to you.”

“Good,” Don picked up his pen again.

“The second area of focus is leadership skill development. We were all experienced managers but we realized that we were missing many skills needed to change thinking, performance, and behavior. At first I thought this was pretty soft stuff but it wasn’t. In fact, everything we learned was specifically geared to influencing people and improving performance.”

“What kind of skills did you learn?” Don asked with a curious look.

“Things like how to be a better coach, you know, having the difficult discussions that really help people become better. What was great about this is that we learned how to impact the way people think. It was a little scary when I first tried to apply what I learned but I got results. Now coaching is almost second nature to me. Heck, I actually enjoy it; even the tough discussions aren’t so bad. Most important, we don’t avoid poor behavior and performance anymore, we have the courage and skills to deal with it.”

“That sounds powerful, what else did you learn?” asked Don.

Stan went on. “Let’s see; holding people accountable, flexible leadership, problem solving, dealing with excuses, just to name a few. We also focused heavily on the first level supervisors and middle managers. It took some time but they learned new skills and transitioned from firefighters to leaders. Today they run their departments like business owners. It’s pretty incredible, they measure their performance and get people involved in making improvements without being asked.”

Don took a break from writing and stretched his fingers. “So leading change and leadership skill development, have I got that right so far?”

“Yep, you sure do. Now I left out a lot of detail in those two but I think you get the drift.”

“Yes, I’m with you so far. Please keep going,” Don said.

Stan stood up. “The third area of focus was our internal change agent development. Our consultant insisted that we learn how to make significant improvements on our own. He helped us identify two people that would become our internal improvement experts. Then he went to work teaching them everything they needed to know about leading kaizen events, doing training, planning, coaching supervisors, etc. There wasn’t much classroom time for these two, it was almost all OJT. This was great because they learned while improvements were being made. This got us short term results while they learned the skills themselves.”

“So these two are your technical experts?” asked Don.

“Yes,” answered Stan “but they learned the people skills too. In fact, they were part of almost all of the leadership training. It’s really important that these folks use the right approach and influence people effectively. They’re leaders too.”

Don paused, “This is great Stan, I really appreciate you sharing this with me. I’m already thinking about things differently.”

“I’m happy to help” Stan replied, “now the fourth focus area is future state planning. This is where we used a number of tools, including value stream maps and policy deployment, to determine what activities we would be doing to improve our performance and achieve our goals.”

“Did your change agents do this?” asked Don.

“They were involved but the leadership team provided much of the input and we worked together to create the plans. You see, it’s extremely important that the leadership team continues to provide the direction. Otherwise, we’ll be making changes that may or may not achieve our business objectives. So now we have a roadmap and a plan that goes out 9-10 months. We know where we’re headed, when we’ll get there, and what we need to do in the process.”

“This sounds terrific, what’s the fifth area of focus?”

“Employee development,” explained Stan. “We learned that investing in people pays great dividends but it has to be the right stuff and they have to apply what they learned.”

Don looked at Stan over the top of his glasses, “We’ve done thousands of hours of employee training and I can’t say that it’s made any difference. I’m a little skeptical about this one.”

“I was too, Don, but not anymore. Adults learn best when the training is experiential and practical. They have to learn skills they can apply immediately to make something better. We also learned that people have to understand what’s expected of them and how they can contribute to the goals. In hindsight, most of the training we had done previously never got used. Mostly because people didn’t understand the need to change and were unclear about what was expected of them. Once people understood that change was necessary, they wanted to get involved. The expectations for improvement and the new skills allowed them to contribute and be part of the team.”

“What kind of skills did the employees learn?” asked Don.

“There have been many but the first three were teamwork, problem solving, and customer focus.”

“That makes a lot of sense,” Don said as he wrote a few more notes. “So let me see if I got this right. The five areas of focus are leading change, leadership skills, change agent development, future state project planning, and employee development. Have I got that right?”

Stan sat back down. “You got it, and the first thing I’d do when you start making money is replace this chair and that air conditioner.”

Don put his pen down. “Speaking of profit, what kind of results are you seeing?”

“Well,” said Stan. “We’re about three years into this and are really starting to build momentum, our productivity is up over 27%, and we’ve reduced our lead times from 4 weeks to 7 days. Our inventory turns increased from 4 to 11, which has freed up over $6MM in cash. Our scrap and rework is down just shy of 63% and our external defects are under 500ppm.”

“Impressive,” said Don.

Stan continued, “There’s more though. In the past, we had always thought of lean and six-sigma as cost cutting tools. Now we understand that what we really did was create additional capacity when we eliminated non value-adding activities. You see, we didn’t let people go when productivity improved, we had to find more for them to do. Fortunately, with our short lead time and improved quality we’ve been able to take market share from our competitors.”

“So you’ve been able to add sales?” asked Don.

“Yes, improving performance to increase market share was part of the strategy all along and we understood the impact this would have on our EBIT, RONA, and cash flow from the beginning.”

“Can you share more?” asked Don.

“I need you to keep this under your hat,” Stan explained.

Don nodded in agreement.

“I’m no accounting wizard but what we’ve been able to do is grow our sales from $65MM to $82MM without adding labor or overhead. Since material cost is roughly 40% of sales, we’ve added $17MM in sales with less than $7MM in cost. I’ve probably said too much already but it used to be a good year if we made $6MM, now we’re looking at almost three times that amount. That’s in addition to the cash we’ve made available from our inventory and scrap reduction.”

“Unbelievable,” Don said as he stared Stan squarely in the eyes.

Stan replied. “I can see why you’d say that, but it’s not magic, it just takes the right strategy, a sound approach, and a lot of hard work to change a culture.”

“Change a culture?” Don asked with a puzzled look.

“Yes, of course,” Stan added. “The five focus areas were part of the overall strategy to change the way people think and act. Our goal from the beginning was to get much more than buy-in, we wanted engagement and ownership. In other words, our mission was to get people to want to change. Create the mindset that continuous improvement is part of what we do. Combine the right mindset with some good tools, support, and direction, and you have a train that’s hard to stop.”

Don scratched his head and responded, “I always thought mindset was something that people brought with them to work. I never thought about changing it. Can you really do this?”

Stan answered solemnly, “Yes Don, we work on that all the time. We’ve learned that if we, as leaders, have the right mindset and apply the skills we have learned; others will change too.

Don leaned back in his chair and folded his hands across his belly. “Stan, are you telling me that by focusing on these five areas you were able to triple your profit and change your culture in about three years?”

Stan shook his head in agreement. “Yes we did. It’s been quite journey and we’ve all had to change but I feel like we’re finally in control of our destiny and we feel like winners. We’re still learning a lot though, we never stop learning.”

An hour had passed and the thermometer on Don’s wall reported 89 degrees. Any other day, Don would have been complaining about the heat while having the same meetings with the same people, all the while hoping for different results. Not today. Finally, Don knew what to do.

About PDG

“PDG’s mission is to help our clients create the internal ability to continuously improve their performance.”

To do this, we focus on five areas of organizational development.

1. Leading Change
2. Leadership Skills and Thinking
3. Internal Change Agent Skills and Thinking
4. Improvement Strategies and Plans
5. Employee Skills and Thinking

When we apply this strategy with our clients, they develop…

• The ability to set a direction, align their leaders, engage their employees, and accomplish their objectives

• The leadership skills and thinking required to influence and engage people, hold others accountable for results, and solve complex problems

• Change agents capable of teaching, applying, and implementing effective process tools and methodologies

• The ability to create future state visions and manage the plans to achieve them

• Employees who are engaged team members who support each other, solve problems, and strive to meet customer expectations

A note from Steve Lage, PDG President

Thanks for reading our leadership feature; I hope you found it valuable. If you would like to learn more, I encourage you to call me at 612-799-3844 to arrange a free, 60-minute Q&A session. I will do my best to answer any questions that you have and help you determine whether or not this approach is right for you. You have my word that I will not try to sell you anything during or after this call, I will only explain the next steps if we both agree it makes sense.

Steve Lage