Developing new products and introducing the industrial production processes to support them is highly complex, especially when you’re at the limits of manufacturing technology. Increasing market demand only raises the pressure further, since each and every product manufactured can be sold. Also, demand for new product types was growing very fast. It appeared a toxic combination.
We had already worked with this business unit to solve its manufacturing problems and enable it to become a more reliable supplier, now the management team asked us back in to help them improve their innovation reliability and reduce their time-to-market for new products.
The situation in the innovation-to-market department was complex. There was strong demand for additional product types and the market was shifting from B2B to B2C, which meant a shift in product requirements. On top of that, additional resources were required to address problems in production, and the department was constantly hiring additional new product development resources. Competition was growing, so speed was of the utmost importance, and the improvement targets were extremely high.
APPROACH
Our analysis, which we conducted in close cooperation with the client, revealed three main problem areas:
1. Portfolio management
The innovation portfolio was too big, its content was inconsistent and the priorities were regularly changing. This situation had developed because of poor business and operations planning and, as a consequence, poor technology and product roadmap planning.
2. Resource management
a. The organisation had created a self-inflicted resource bottleneck. The problem was caused by trying to manage too many portfolio projects at the same time and by allocating too many projects to limited resources. The result was plummeting productivity.
b. The constant inflow of new hires was creating a skills issue. There was no time to train them, and knowledge was not readily accessible for the new hires because very little had been documented.
3. Project management of innovation projects
A project management process had been defined for only 2 out of 5 project categories. And because of time pressures, people were cutting corners in projects and tollgate discipline was poor. This behaviour was creating rework and thus project delays. Project quality was suffering, and this in turn was causing production problems and an increase in customer complaints.
We worked with the client to set clear goals to increase innovation output by reducing time-to-market and improving project reliability. The time-to-market target was a reduction from an average of 23 months to just 9 months. We set an aggressive 6-month timetable for achieving these goals and formed joint teams to drive the changes. Because the three main problem areas were very much interdependent and the lead time was short, we ran four workstreams in parallel: (1) single project management, (2) portfolio management, (3) business planning and roadmapping, and (4) knowledge capture and design rules. We selected six pilot projects to introduce the new ways of working and deliver actual results.
We set up a project governance structure, including a review team, a project team and several workstream teams, and established milestone deliverables. We used a combination of “waterfall” and “agile” approaches to get things done.
THE IMPLEMENTATION
Performance improvement programmes must carefully balance human and technical aspects if they are to deliver significant, sustainable results. A critical aspect for sustainability is the development of a deep local ownership of the solutions to the problems. Therefore, we approached the challenge by ensuring the solutions were found by a process of co-creation right from the start.
The developers just didn’t have any time to spare, but speed was essential, so we started by slashing the volume of projects in the portfolio. Next, we set priorities and reduced the number of projects allocated to the developers. This was a tough process as there were many invested interests. However, this reconfirmed the analysis finding that the business had to get its strategic and operational planning right.
During the project we identified five different project categories, ranging from large, complex innovation projects down to factory support (crash actions). For each category, we designed and implemented project process maps, which included the project management methodology with team meetings, tollgate reviews, tollgate criteria, along with tools relevant at each stage in the project.
We designed and implemented a portfolio management process and system with clear roles and responsibilities, set up review teams for various project categories, established criteria to allow / refuse projects into the portfolio and encouraged an attitude of “killing” projects as early as possible to eliminate waste and maintain a manageable portfolio. We also designed a process for allocating resources.
In parallel, we implemented five different business planning and roadmap processes, including a technology roadmap, a product roadmap and an application roadmap. To support the development of knowledge and skills, we established a process to capture and document learnings from all projects, regardless of whether they had been successful, unsuccessful or ditched.
The results were impressive. Time-to-market dropped from 23 weeks to 11 weeks within 6 months, with plans in place to meet the target level of 9 weeks. Equally important, the results were sustainable because the root causes had been identified and eliminated, and the solutions locked into the Performance Management Systems (PMSs) developed during the project. The PMSs also included key performance indicators to give managers and employees ready access to the quantifiable information needed to make fact-based decisions, both as teams and individually, and to take pro-active and predictive action.
Throughout the implementation, a balanced combination of human and technical aspects drove the successes, and solutions were added to the PMS to support sustainability. By creating and communicating the right culture from the very start, we helped the client establish and communicate roles and responsibilities for employees at all levels. As the project progressed, employees began to see the value of their own contributions and to understand how their own performance influenced that of others, both within their discipline and beyond. As this understanding grew, a culture of accountability and collaboration evolved. Clear goals were communicated in a common language that everyone could understand, and employees embraced the new systems, processes and ways of working as their own.
Digital transformation programmes, a new strategy, performance improvement programmes are all notoriously difficult to implement successfully. The vast majority change initiatives struggle to achieve and maintain the planned programme goals. In fact, only 30% are successful. Timely and complete delivery of a critical initiative is therefore the true determinant of competitive advantage for any company.
The vast majority of change initiatives stumble over the very thing they are trying to transform: the attitudes and behaviours of people at all levels of the organisation. Our Change Insider® (CI) measures people’s attitudes and behaviours towards the initiative and how they experience it. Based on these insights, the CI facilitates concrete strategic and tactical actions you need to take to make sure your change initiative is delivered successfully: on time, in full and in a sustainable manner.
HOW THE CHANGE INSIDER® ENSURES SUCCESS
The CI measures people’s perception of an initiative and how they experience it. This is done by asking a number of custom-designed questions as part of a short online survey that takes about 6 minutes to complete. The questions are created by collaborating with people from a cross-section of your organisation and cover the context, objectives, content and approach of your specific initiative. Therefore, the questions are tailored to your organisation and your change initiative. These are the crucial questions that live in your organisation about this specific initiative.
Everyone within the scope of the initiative answers these crucial questions. They do this in a confidential manner and can also add further comments. The survey results are then presented in practical, actionable reports for every relevant cross-section of your organisation.
The reports allow you to compare business units, departments, teams and levels in the organisation. You can see how your people are experiencing the initiative and how the chosen approach influences both the adoption of the change and the actual change itself. The feedback also highlights any differences between different levels or parts of the organisation. Therefore, you can carry out differentiated interventions and keep the entire initiative on track. The survey is repeated at fixed intervals. This way, the CI tracks the effect of interventions on the adoption of change, the actual change itself and the perception of the initiative over time. This provides information about what needs to be done when and where in the organisation to achieve the desired progress and sustainability of the change (see Figure 1).
Figure 1. An example from an CI report that demonstrates how people are experiencing the initiative by showing the development of answers to critical questions over two survey cycles.
The goal of the Change Insider® is very different to employee engagement surveys. The CI focuses on bringing about sustainable change with a specific initiative. Employee engagement surveys measure how dedicated employees are to their workplace or their employer.
THE DYNAMICS OF CHANGE
People’s ability to change their attitudes and behaviours is determined mainly by their perceptions and intentions. So we must first change perceptions and intentions before any change in attitudes and behaviours occurs. But how do we do this? The best way to influence people’s perceptions and intentions is to provide information and encourage people to gain new experiences.
Perceptions and intentions record people’s motivations and are indicators of how hard people are willing to try or how much effort they intend to put in to display the required behaviour. During a change process, people are confronted with two forces: first, a change tension (the perceived need and urgency of the initiative) and, second, the power to change (the willingness to support and adopt the change and the ability to contribute). Both forces are needed in a programme to bring about change.
The way people experience these forces is the most important indicator of people’s perceptions and intentions towards an initiative. The rating for these two indicators gives the best prediction about a person’s intention to adopt the attitude and behaviour that is required. In different parts and levels of the organisation, the two forces are likely to develop differently, as shown in Figure 2. This drives the need for specific interventions for different parts of the organisation.
Figure 2. An example from an CI report showing the survey results of three teams (A, B, M) and the development of the effects of interventions over two survey cycles. The teams and their development can easily be compared.
The Change Insider® provides fact-based guidance for precisely these differentiated interventions to enable the timely and complete delivery of your mission-critical initiative.
CHALLENGE
The company had an history of growth and earning good margins. However, for quite some time growth slowed down, margins were declining, some key customers started to leave and the number of new product introductions had declined.
The Management Team wanted to turn the business around, had sharpened the vision and crafted a new strategy. Axisto was asked to support deployment of the strategy
APPROACH
Together with the Management Team it was decided to use Hoshin Policy Deployment to structure the deployment of the strategy. The process kicked off with a two-day workshop with the company’s Top30.
After sharing and discussing the vision and strategy, the ‘how to deliver it’ was explored in break-out sessions. The two days generated not only a clear sense of direction and alignment, but also a more connected and energised Top30 community.
In a series of follow-on worksessions involving more people objectives and targets were sense-checked. And the deployment was completed down to concrete break-through projects.
Massive change ahead
We’ve just had a long period of ever-increasing economic growth, but this has been halted in its tracks because of the Corona virus. The impact of the global lockdowns is huge, both generally, on the economy and society as a whole, and specifically, on companies, families and individuals. A major recession is a given. Consumer behaviour is likely to change in a fundamental way – and so are the ways in which business will be conducted in the future.
How will you navigate these current challenges and position yourself for new growth? Now is the time to review your company, the products and services it offers, the markets it serves and the way it conducts its business. Significant change is required to create the “new normal”. Your strategy needs to be reviewed. New (perhaps digital) operating models need to evolve. And all this needs to be implemented fast so that you can capitalise on new opportunities and build your competitive advantage.
The change challenge
Transformation, strategy execution and performance improvement programmes are notoriously hard to deliver successfully. Most change initiatives struggle to accomplish and sustain the initial programme goals – in fact, only 30 percent are successful. The delivery of a mission critical initiative on time and in full is, therefore, a real determinant of competitive advantage for any company. The vast majority of change initiatives stumble because of precisely the thing they are trying to transform: attitudes and behaviours of people at all levels in the organisation.
Successfully implementing change
The ability for people to change their attitudes and behaviours is primarily driven by their perceptions and intentions. These must be changed first before any change in attitude and behaviour occurs. So how can we do this? People’s perceptions and intentions change due to experiences and information. Perceptions and intentions capture people’s motivations and are indicators of how hard they are willing to try or how much effort they plan to exert in order to perform the required behaviours.
During a change process, people are confronted with two forces: first, change tension (the perceived necessity and urgency of the initiative) and, second, the power to change (the willingness to support and adopt the change and the ability to contribute effectively). Both forces are required in a programme to make change happen.
The way people experience these forces is the key indicator for people’s perceptions and intentions towards an initiative. The rating for these two indicators gives the best prediction about a person’s intention to adopt the attitude and behaviour that is needed. In different parts and at different levels in the organisation, the two forces are likely to develop differently. This drives the need for differentiated interventions for various parts of the organisation. Our Change Insider® provides insights and fact-based guidance for precisely these differentiated interventions to enable the on-time-in-full delivery of a company’s mission critical initiative.
Digital transformation programmes, a new strategy, performance improvement programmes are all notoriously difficult to implement successfully. The vast majority change initiatives struggle to achieve and maintain the planned programme goals. In fact, only 30% are successful. Timely and complete delivery of a critical initiative is therefore the true determinant of competitive advantage for any company.
The vast majority of change initiatives stumble over the very thing they are trying to transform: the attitudes and behaviours of people at all levels of the organisation. Our Change Insider® (CI) measures people’s attitudes and behaviours towards the initiative and how they experience it. Based on these insights, the CI facilitates concrete strategic and tactical actions you need to take to make sure your change initiative is delivered successfully: on time, in full and in a sustainable manner.
HOW THE CHANGE INSIDER® ENSURES SUCCESS
The CI measures people’s perception of an initiative and how they experience it. This is done by asking a number of custom-designed questions as part of a short online survey that takes about 6 minutes to complete. The questions are created by collaborating with people from a cross-section of your organisation and cover the context, objectives, content and approach of your specific initiative. Therefore, the questions are tailored to your organisation and your change initiative. These are the crucial questions that live in your organisation about this specific initiative.
Everyone within the scope of the initiative answers these crucial questions. They do this in a confidential manner and can also add further comments. The survey results are then presented in practical, actionable reports for every relevant cross-section of your organisation.
The reports allow you to compare business units, departments, teams and levels in the organisation. You can see how your people are experiencing the initiative and how the chosen approach influences both the adoption of the change and the actual change itself. The feedback also highlights any differences between different levels or parts of the organisation. Therefore, you can carry out differentiated interventions and keep the entire initiative on track. The survey is repeated at fixed intervals. This way, the CI tracks the effect of interventions on the adoption of change, the actual change itself and the perception of the initiative over time. This provides information about what needs to be done when and where in the organisation to achieve the desired progress and sustainability of the change (see Figure 1).
Figure 1. An example from an CI report that demonstrates how people are experiencing the initiative by showing the development of answers to critical questions over two survey cycles.
The goal of the Change Insider® is very different to employee engagement surveys. The CI focuses on bringing about sustainable change with a specific initiative. Employee engagement surveys measure how dedicated employees are to their workplace or their employer.
THE DYNAMICS OF CHANGE
People’s ability to change their attitudes and behaviours is determined mainly by their perceptions and intentions. So we must first change perceptions and intentions before any change in attitudes and behaviours occurs. But how do we do this? The best way to influence people’s perceptions and intentions is to provide information and encourage people to gain new experiences.
Perceptions and intentions record people’s motivations and are indicators of how hard people are willing to try or how much effort they intend to put in to display the required behaviour. During a change process, people are confronted with two forces: first, a change tension (the perceived need and urgency of the initiative) and, second, the power to change (the willingness to support and adopt the change and the ability to contribute). Both forces are needed in a programme to bring about change.
The way people experience these forces is the most important indicator of people’s perceptions and intentions towards an initiative. The rating for these two indicators gives the best prediction about a person’s intention to adopt the attitude and behaviour that is required. In different parts and levels of the organisation, the two forces are likely to develop differently, as shown in Figure 2. This drives the need for specific interventions for different parts of the organisation.
Figure 2. An example from an CI report showing the survey results of three teams (A, B, M) and the development of the effects of interventions over two survey cycles. The teams and their development can easily be compared.
The Change Insider® provides fact-based guidance for precisely these differentiated interventions to enable the timely and complete delivery of your mission-critical initiative.
Strategies are hardly unique anymore. That is why their fast and reliable implementation gives the real competitive advantage for your company. You might want to master your change challenge on your own. But we know that 70% of such initiatives fail to deliver the intended results.
Therefore, we offer you the opportunity to work with our Operational Performance Builder®, which is our state-of-the-art practical method to make sustainable change happen fast and reliably. Our approach provides a high level of positive energy in the organisation and ensures:
significant improvements that last
a deep ownership culture
employees who are proud of what they have achieved
employees with plans and the skills to continuously improve
Nowadays, change management is a profession – and that is where the shoe pinches. Your team is well trained, but tackling a change initiative and accelerating it to real and lasting success is quite another challenge. They are not trained for this; they don’t have the experience.
Therefore, we will train and coach your team in skilled deployment of our Operational Performance Builder® to make your change initiative a great success.
CHALLENGE
A large global manufacturing company had over the years experienced a decline in performance at one of its sites – in production reliability, technical integrity of the equipment, efficiency and morale.
The site had recently made some improvements, but top management wanted things to change at a much faster rate. Because of its reputation to deliver fast and sustainable operational performance improvements, Axisto was invited on site to support the turnaround.
APPROACH
Our first task was to conduct a series of interviews with a cross-section of the organisation to get an initial feel for the culture and an insight into the issues the business faced. We found a lack of definition around the business processes and insufficient clarity of roles and responsibilities. As a consequence, performance management was inadequate.
Axisto and the client team worked together, first to develop a compelling vision, and then to create a well-aligned operating model with clear process flows, key performance indicators, roles and responsibilities, and an appropriate meeting and reporting structure.
By concurrently designing and implementing the improved operating model, things started to improve rapidly. People now had more clarity on what was expected from them – and also what they could expect from others. Quite quickly more effective behaviours started to develop, and with these came the desired improvements in operational performance.
WHY ORGANISATIONAL ALIGNMENT?
We live in a time of unprecedented change and uncertainty. For a company to be successful in this day and age, it must stay alert to changing situations and always be one step ahead of the market. This is only possible if departments are properly connected and able to move quickly with each other in the event of necessary short-term adjustments – and do so without losing sight of the longer-term aims.
In this respect it is comparable to a flock of starlings. They fly close together, all at the same speed. Each starling keeps an eye on up to seven of its neighbours and reacts very quickly should any of them change direction. This allows the swarm to move quickly without collision and change direction as a unit to avoid problems.
Their short-term changes in direction are not a sign of opportunistic behaviour; they could be a response to an attacking bird of prey. The ultimate goal is clear and will be achieved.
WHAT IS ORGANISATIONAL ALIGNMENT?
Organisational alignment means that vision, strategic goals, targets, the operating model, behaviour and skills of the people in the organisation are in line with each other. This is shown in the figure below.
HOW TO ACHIEVE ORGANISATIONAL ALIGNMENT?
COMPELLING VISION
Alignment starts with a compelling vision – one that connects, inspires and appeals to the different populations within the company. It is important that everyone in the organisation feels as if they own the vision.
This sense of ownership will not come about simply by organising a few sessions with the leadership team and company-wide communication. Instead, it is a journey that starts at the top, but then goes through all levels of the organisation. At the end of that journey is a vision that everyone has contributed to, recognises and wants to go for.
Incidentally, a vision is not static and will continue to evolve in line with developments in technology, the market, society, amongst other things. The people in the organisation do need sufficient stability. That is why an appealing vision consists of a fixed part that always remains and a variable part that always develops.
STRATEGIC GOALS
However appealing a vision is, it is relatively worthless if it does not translate into a set of strategic goals with targets (Key Performance Indicators, or KPIs) – not just at the top of the organisation, but at all levels including the shop floor.
This process of cascading goals and targets is a delicate one. The goals and targets at the top of the company must be achieved, while department heads and team leaders must accept their derived goals and targets. Good insight into the current performance, the formulation of SMART goals (Specific, Measurable, Achievable, Realistic and Time based) and a careful dialogue support the acceptance process. There must be strong ownership of the goals and targets for them to be realised.
ANCHORING IN THE DAILY RUNNING OF THE BUSINESS
Subsequently, the plans and targets are anchored in the day-to-day running of the organisation. This requires transparency of actual performance against the KPI targets as well as attitudes and behaviours that drive the actual performance towards the targets.
An operating model that is aligned with the vision and strategic goals provides this transparency and supports the development and maintenance of effective attitudes and behaviours.
ORGANISATIONAL ALIGNMENT – A KEY TO SUCCESS
If vision, strategic goals, targets, operating model, behaviour and skills of the people are aligned, the organisation can quickly and adequately navigate changing circumstances without losing sight of its longer-term goal and realise its ambition.
In November 2020, McKinsey published an interesting paper entitled “Value creation in industrials”, a survey of the US industrials sector. The purpose of the analysis was to gain insight into the factors that determine performance in the industrials sector. Value creation was used as an indicator, measured as annual growth of the total shareholder return (TSR). The research covers the period 2014–2019. So, what are the conclusions on how to create value in Industrials?
CONCLUSIONS
The industrials sector is broad and diverse. In order to compare companies in a meaningful way, McKinsey divided the sector into 90 so-called microverticals. More on that later.
The main conclusions about how to create value in Industrials:
Even in good times, TSR performance across and within microverticals is highly variable.
Despite the tailwind or headwind, companies ultimately determine their own destiny.
The TSR performance gap between the best-performing and worst-performing companies within a microvertical is substantial and growing.
Companies with strong balance sheets for 2019 have, on average, outperformed their competitors: the COVID-19 pandemic has widened the gap between the best and worst performers.
Operational performance, and in particular margin improvement, is by far the most important factor in value creation.
HOW CAN WE COMPARE COMPANIES IN SUCH A DIVERSE INDUSTRIAL SECTOR?
While the manufacturing sector performed well at an annual growth rate of 11 per cent between 2014 and 2019, performance varied widely between the ten subsectors. Now the diversity between and within the subsectors is very great. In order to properly identify the factors that determine the performance, the study worked with 90 groups of companies that carry similar products and that focus on a similar end market: the so-called microverticals.
WHICH TRENDS ARE AFFECTING THE MICROVERTICALS?
Five categories emerge from the research: (1) regulation, (2) consumer and socio-economic, (3) technological, (4) environment, and (5) industrial structure and movements of players in the market. Any one of these trends can cause a tailwind or headwind – often both. Measured in revenue and margin growth, these trends predominantly work out well for the top-performing microverticals and negatively for some of the bottom microverticals.
COMPARING MICROVERTICALS AND COMPANIES WITHIN THEM.
First of all, the fact that the company is in a top-performing microvertical is no guarantee that it is a top performer. It can also be seen that the best-performing companies within a microvertical perform substantially better than the worst-performing companies within the same microvertical. The performance gap is substantial and growing.
McKinsey found a 2,600 base point difference in TSR between the best- and worst-performing microverticals. Approximately 30 per cent of companies performed significantly better or worse than what the performance of their microverticals would have predicted. So success depends not only on whether you are in the “right” microvertical; a company’s actions are also important. Individual companies can do a lot to determine their fate, even when headwinds and tailwinds affect microvertical performance. Furthermore, the survey found that, on average, companies with strong balance sheets for 2019 outperformed their competitors, meaning the COVID-19 pandemic has widened the gap between the best and worst performers.
WHAT CAN WE LEARN FROM THE BEST COMPANIES?
To determine which actions matter at a company level, the TSR performance of individual companies was analysed. To this end, the TSR was divided into three broad elements:
1. Operational performance
This element refers to how a company uses its capital to increase revenues and operating margins; this category also includes a company’s ability to generate value for its shareholders in a scenario with no growth and unchanged profitability. The latter is a measure of the starting position of a company.
2. Leverage
Leverage refers to how companies use debt to improve their TSR performance.
3. Multiple expansion
This element refers to opportunities to take advantage of changes in how investors see the future.
Figure 1 provides insight into the way in which companies secured their position.
Figure 1. The way in which companies secured their position.
Of the three elements of TSR, operational performance was found to be the strongest predictor of TSR CAGR from 2014 to 2019 for all quintiles (Figure 2). Operational performance had the highest correlation coefficient with TSR performance, at 50 per cent, followed by leverage (about 30 per cent) and multiple expansion (about 10 per cent).
At the top-performing companies, operating performance contributed to 18 percentage points of the 27 per cent TSR growth. And for the worst performing companies −6 percentage points of −11 per cent TSR growth.
Figure 2. Operating performance had the strongest correlation with the company TSR.
Within the operational measures, margin expansion was a major contributing factor and also the strongest determinant of the company’s TSR performance (Figure 3). With a 90 per cent correlation to business performance, the profitability extension (margin) adds an average of 8 percentage points to the 18 per cent operational performance of the top performing companies and takes 8 percentage points away from the lowest quintile companies, where the business performance is on average −6 percent.
Figure 3. From the operational statistics, margin expansion proved (often made possible by technology) the main determining factor for the company’s TSR.
Looking at the top-performing companies, it turned out that their success had depended mainly on taking three steps:
HOW DO YOU ENABLE SUCCESS AND HOW DO YOU MAINTAIN IT?
To further increase the likelihood of continued success, companies need good supervision. Executives must balance their time between creating and executing strategies, and periodically reassessing and rebalancing the business portfolio. Along the way, they should look for ways to improve earning power through rapid (two-year) cycles of margin transformation, leveraging technology wherever possible.
CHALLENGE
An electronic components manufacturer wanted to integrate two manufacturing sites, improve product quality and refocus the demand generation.
APPROACH
Four-week Analysis & Design to align the management teams of both sites, design a process and structure to manage the sites in an integrated way, understand how to tackle the product quality issues, design the steps to refocus the demand generation and design the change programme.
en-month programme to implement the new management process, structure and team. Improved product quality by applying 6-Sigma tools. Installed TPM and improved both maintenance productivity and equipment availability. Moved most of the quality assurance to the operators and took out related quality resources. Changed sales from product push to market pull and aligned the innovation portfolio.
