How Much Have You Budgeted For Improvement In 2023?

How Much Have You Budgeted For Improvement In 2023?

How much have you budgeted for improvements in 2020? How do you expect to achieve the desired operating results? Many organizations cannot answer these important questions, nor do they have a formal process in place to mine, plan, and execute budgeted improvements to their business. 

Stop wishing and hoping for your discombobulated improvement initiatives to deliver something by chance, and take a more deliberate approach to achieve new breakthroughs in operating performance. 

LEAN STRAIGHT TALK #6

What Is The Intent?

 

First let’s talk about your intent.  If you don’t have an intent around this topic, then don’t expect things to improve on their own.  Too many organizations are stuck in a mode of blindly clinging on to their failing improvement initiatives while expecting different results.  Our intent is to help you break this cycle and realize new breakthroughs in improvement and operating performance.

Some of our best performing clients have become great at defining and extracting strategic improvement themes and detailed implementation tactics from their business plans with the boldness and confidence to incorporate the expected results (growth, cost reductions, overhead savings, purchasing spend, human capital development, etc.) into their budgeting process . . . Right up front, before it happens.  They are highly proactive in their strategic and operating improvement initiatives, and do not wait to address problems after the fact.  Their thinking is open and right out of the box – “We need to get much better at (strategic theme).”

Some example strategic themes might include the following:

  • Time-to-Market: Improve velocity, robustness and reliability, and development costs of introducing new products, and increase market share and the ROD (Return on Development) metrics.
  • Sales Returns and Allowances: Understand the recurring root causes of returns, allowances, samples, credits and discounts, etc. and improve gross margins and profitability.
  • Excess/Obsolete Inventory: Why do we continue to have low turns, excess inventory, and continued write-downs for obsolete products and materials?  What are the recurring root causes of excess/obsolete inventory? (If you simply allocate financial reserves to cover these wastes, then you will never know the true answers – And the wastes will never go away).
  • Warranty and Returns: Understand the dynamics and reduce warranty and returns (e.g., customers, products, geography, root causes, corrective actions, etc.)
  • Sales and Operations Planning: Why are there so many repetitive mismatches in demand and supply that detract from customer service, inventory performance, and other supply chain costs and inefficiencies?
  • Cost of Quality and Compliance: What are the fully loaded costs of quality and compliance, and is there something that we can do radically different (innovation) to improve both while significantly reducing costs?
  • Procurement Spend: Have we optimized sourcing, supplier management, outsourcing vs. insourcing, administration and material overhead, and other purchasing costs?
  • Operations and Facility Rationalization: Are we sourcing and building the right products in the right locations close to our customers and markets? Are there any economies of scale and scope through consolidations and relocations?
  • Financial Performance:  Do we really understand the most influential drivers of our operating and financial performance, and are all of our people aligned and working on the right things?

Every organization can do a much better job in each of the core process areas above, representing millions of dollars in new opportunity.  However, tackling these strategic themes is extremely complex and challenging.  Leading organizations are not in the business of launching token improvement programs all over the map and then hoping that something sticks.  Their playbook approach is laser targeted with flawless alignment and execution.  They have flushed out the right causes and effects, and the above examples require multiple, well-orchestrated initiatives from many different fronts.  They also have a finely tuned, working business system approach to improvement in place to anticipate and mine for unknown/undiscovered improvements and efficiently evaluate and tee up their most critical improvement needs in near real time.

 

Budgeting For Strategic Improvement: Why Is This Best Practice So Important?

 

Budgeting for Strategic Improvements (BFSI) is critically important to business and operating performance. This solid best practice significantly increases the odds of success because the budget sets the stage for operating commitment and execution success.  BFSI drives a higher standard of expectations and ownership, a done deal rather than excuses for poor performance after the fact.

Most organizations don’t have a clue about what their improvement initiatives will yield in 2020 and beyond. One of the major reasons for this is their lack of a well operating business system approach to improvement.  Many executives claim to have formal improvement initiatives in place, but a closer look reveals that it’s a mish-mash of disconnected activities and knock-off efforts from some other organization’s improvement programs.  Some initiatives generate positive results initially, but sustainability is very questionable.  The benefits from many of these initiatives are more delusionary and funny money that real tangible value contribution to the business.

Organizations are missing the deep leadership commitment and internal talent pool to adapt, identify, and align the right improvement strategies to their business plans, and at the same time develop the right capabilities to execute efficiently and achieve the desired results. So forget about budgeting for improvement in 2020 and beyond!

 

How to Budget for Strategic Improvements in 2020

 

There is no rocket science needed for this approach. However, there are some very imprint end efforts that are required to get a BFSI initiative underway and on the right track.  The first step in this process is a review of the business plan followed by a thorough, objective assessment of the organization’s current state operating infrastructure.  This includes:

  • A review of the operating budget, and recasting traditional accounting expenses into activity-based core processes, costs, and operating themes. For example, what are the fully loaded costs and value propositions of quality, customer service, maintenance and facilities, supply chain, sales and marketing, other support operations?
  • Mining, analytics, and decisioning to further categorize the lower level drivers of costs, wastes, time, and other inefficiencies in operating infrastructure (e.g., Process owner interviews, Pareto and ABC analysis, 5 Why drill downs, attribute mapping, clustering and activity-based metrics, gaps between current and desired performance, etc.)
  • Developing and prioritizing the key strategic themes and detailed implementation tactics in the operating The playbook explodes the strategic improvement themes into many actionable execution plays.
  • Integrating and aligning all budgeted improvement initiatives into the organization’s formal business system architecture. The business system incorporates best practices and operating standards for planning, deployment, execution, and sustainability of all improvement activities.
  • Adjusting the operating budget to reflect the benefits expected to be achieved in the following year(s). This is the bold removal of funds based on the confidence and right planning and execution infrastructure to achieve success.  These benefits relate to growth, market share, margin improvements, cost and overhead reductions, human capital improvements, key operating and financial ratios, and all other benefits to the business.
  • Implementing the required plays (execution of the right improvement activities) concurrently in the desired timeframes to achieve the desired budgeted results. This is a much more aggressive approach with frequent performance monitoring and course corrections as necessary to meet the desired outcomes.

This is a simple explanation of how the BFSI process works. There is much more logic and science behind this approach, and it is much more effective than arbitrarily slashing the individual chart of account numbers.  Budgeting is also required for internal human capital development, related technology and financial capital initiatives, talent guidance from external sources, and acknowledgement of the major skills/competency detractors to success.  Otherwise, improvements are empty afterthoughts and not possible at all to achieve.

The reality is that it takes very seasoned people who know how to quickly understand your business and gaps in performance, mine for the right causes and effects, adapt a successful working approach to your business and organization, and develop talent to implement the required plays and continue to sustain the gains internally. Many executives are reluctant to admit that they don’t have this capability and capacity within their organizations.  BFSI also means budgeting for the right implementation resources and other spend requirements to achieve the desired results.  These incremental expenses are insignificant when dealing with breakthrough improvements and rapid double digit ROIs.

By the way, the answer is not hiring a brand name consulting firm. This is very costly, risky, and the results are unpredictable.  There is no correlation between consulting brands, fees, and success – It usually turns out just the opposite.  The answer is finding the right, experienced and proven talent that can transparently plug into your organization and provide know-how and value from day one.  Acquiring and engaging the right talent is the key to great results.

 

The Playbook Mindset And Approach Are Essential

 

Let’s talk about the playbook in greater detail. The knowledge and experience of going through the above mechanics are key core competencies in themselves.  Translating the findings, conclusions, recommended actions, talent needs, and all other execution details into the playbook is also a key core competency.  Finally, managing executives and their organizations through a major operating transformation process is the most important core competency.

 

 

As we mentioned previously the playbook explodes the strategic improvement themes into many actionable execution plays.

  • Playbooks align strategic improvement themes with the detailed, prioritized implementation tactics required to actually realize or exceed the expected benefits on time.
  • Each play includes a problem statement, baseline performance gaps between current and desired performance, objectives, execution plans, expectations, roles and responsibilities, metrics and timelines, milestones and deliverables, talent development needs, detractors from success. Benefits can be both hard and soft as long as they contribute lasting value.
  • The playbook is an important instrument for communicating a shared vision of improvement and the requirements and expectations for success. The playbook is a training aid in itself, helping the organization and participants by clarifying a uniform story about the why, what, who, where, when, and how of the budgeted improvements.
  • A playbook addresses detractors from gap closures such as current skills and capabilities vs. professional development needs, leadership strengths and weaknesses, competencies in guiding concepts, methodologies and tools, resource capability/capacity, and further education needed to execute the playbook assignments successfully.
  • Playbooks facilitate and drive best practices in planning, deployment, execution, and sustainability of the desired results.

Playbooks provide the structure and discipline required for flawless execution and achieving the desired results. Managing playbooks also involve leaving the door open to changes in how organizations improve, whether it be incrementally or through some other evolving technology or innovative breakthrough.  In other words, playbooks should not be executed as mechanical procedures or canned improvement practices that may stifle creativity and innovation.  Implementation is a journey of discovering better practices, setting higher standards, and uncovering even more new opportunities.  An effective BFSI process requires the continuous integration of people, process, equipment, and technology.

 

Playbooks Are Also A Business System Best Practice

 

Playbooks are part of the BFSI process, and they are also a critical best practice in the overall business system. The same basic steps in the BFSI process should be conducted throughout the year as new challenges and opportunities arise in the organization’s ongoing improvement initiatives. Defining and aligning initiatives with a clear purpose, implementation details, specific deliverables and timelines, and all other business system best practices will also result in better execution and better results.  Again, this is very different from how many organizations run their improvement activities today.

 

 

 

Commit to BFSI Now, Enjoy Higher 2020 Successes

 

There is a simple postulate about BFSI. First, executives need to embrace the concept and make a visible commitment to its success.  If organizations are unwilling to step up and take improvement to a higher level, then more of the same will produce the same disappointing results.  Improvement is a culture of being deliberate.  It’s a leadership choice, and you get what you expect.  Wishing and hoping that a dysfunctional improvement initiative will deliver the goods on its own is not a winning strategy in a fierce, competitive, and rapidly changing economy.

  1. Review the business plan, and complete an objective assessment of the organization’s current state operating infrastructure. Be bold enough to acknowledge and define the broader operating and financial gaps between current and desired performance.
  2. Develop the general approach to budgeting for improvement, and communicate plans with the organization (e.g., the why, what, who, when, where, and how plans to budgeting for improvement). Let the organization know what you’re doing and their stake in the game.
  3. Engage the right external/internal resources in the mining, analytics, and decisioning to further categorize the lower level drivers of costs, wastes, time, and other inefficiencies in operating infrastructure. Also engage the right resources in the development of critical improvement themes and detailed implementation tactics. Make sure that there is a direct linkage between plays, and P&L performance and other organizational goals
  4. Develop the BFSI playbook of themes, detailed tactical plans, objectives and expectations, teaming structures, and all other issues/detractors to success. These detractors must be addressed and resolved right up front. Token participation is not the way to success.
  5. Share the BFSI playbook with the organization. As we stated above, playbooks are a great instrument for communication, awareness, and commitment-building around the BFSI process.
  6. Commit to the adjustments in the operating budget which are directly related to the successful execution of the playbook. Make sure that everyone is committed to the revised budget and understands the implications of failing to meet budget goals.
  7. Implement the desired plays in the playbook, monitor weekly performance to improvement plans, and make the right course corrections to guarantee success. Failure is not an option. This is an oversimplification of improvement.  The most critical factor with implementation is people on the same course, hungry for the same outcomes.
  8. Use the playbook to drive other related and more aligned improvement efforts in the organization. Playbooks can be used in the BFSI process, and they can also be used in daily work.  It’s never too late to mine, define, and implement the right desired improvements to the business.

 

Summary

 

Many of the core business processes we mentioned earlier are very complex in that there exists many fuzzy and multidirectional causes and effects in space in time. Stated a simpler way, problems are often viewed and defined based on the position and angle that people are looking at things in their complex network of business processes.  The result is very often finger pointing and symptomatic improvements, where people end up working on the wrong things and achieving disappointing results.

BFSI is not some new fad approach to improvement. Take a closer look at the process.  It’s a very logical, data-driven, fact-based, and proven approach to mining for much larger unknown and undiscovered strategic improvement opportunities.  If you are not satisfied with your current results to strategic and operational improvement, then modify the approach.  Quickly scaling up to annualized improvements equal to 2% – 10% of revenues are very doable, but it’s your leadership choice.  Develop a higher order business system approach to improvement.  Budget your expected improvements in 2020 and get what you expect.  Aim higher, engage people where they work, and get more!

 

 

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 Call us today to discuss your current business improvement situation and operating challenges.  We can help you immediately with your lean business system or broader business transformation process.  We do this for a living.

 

The Center for Excellence in Operations, Inc. (CEO) is engaged with many different clients every day, within a variety of industries, operating environments, and with different Lean/CI and cultural renewal challenges.  We can get your Lean/CI initiatives back on track and operating at a much higher order, daily business system model level. Contact one of the authors below.  We will be happy to discuss your current situation and needs.

 

Terence T. Burton is President and Founder of The Center for Excellence in Operations, Inc. (CEO), a management consulting firm specializing in strategic and operational transformation. Terry has four decades of extensive operations and supply chain experience as a hands-on practitioner and executive in private industry, and has led consulting engagements in a wide spectrum of industries, having consulted with over 350 clients in 23 countries on their strategic and operations improvement initiatives. Terry can be reached directly at burton@ceobreakthrough.com

Edward A. Fagundes is the West Coast Practice Director for The Center for Excellence in Operations, Inc. (CEO), with emphasis on serving clients in the West Coast, United States region. Ed’s career spans various leadership roles in general management and as a global business system executive. He has proven expertise and extensive experience with improving business processes, developing lean transformation strategies and plans, leading the implementation of business improvement journeys to address business issues, and implementing enterprise-wide continuous improvement applications. Ed can be reached directly at edfagundes1@yahoo.com.

 

 

The Future of Operations Due Diligence

The Future of Operations Due Diligence

A quick and inexpensive look at your organization’s operating model in greater detail identifies new opportunities for improvement worth millions of dollars in EBITDA.

What is the best way to improve M&A performance? Before we provide the answer, let’s step back and look objectively at the current state due diligence practices.  Traditionally, organizations do a thorough job on the strategic or commercial, financial, and legal/regulatory due diligence activities.  These are very detailed analyses of current conditions based on the standard, existing and available active data provided in data rooms.  On the other hand, the traditional operations due diligence is at best, a cursory analysis.  Operations is often assumed in the acquisition process.

Operating models have become increasingly complex with global competitiveness, rising customer expectations, disruptive innovation, and new possibilities through digital technology and cultural transformation. Operating model performance has the highest influence on strategic and financial performance, cultural development, and the total customer experience.  Yet it often gets the least attention in the overall due diligence effort.

So how do executives and their organizations change and benefit from the current dilemma?  The answer is simple and easy: With a breakthrough operating model.  This post provides new insights on how to beef up the operations due diligence, build a superior operating model, and cash in big time on these new operating challenges.

 

Brief Background

The operations due diligence is a small component of the overall due diligence process, where the intent is to scan operations  for something that is glaringly wrong.  Fact is, there’s a lot that’s usually wrong under the radar of operations when organizations choose not to look under the right rugs, ask the right questions to people performing the work, draw comparisons to external best practices and benchmarking data, and construct deeper analytics not found in the data room.  In the majority of cases, most of the current diligence work takes place remotely in a conference room.  In some cases the owners, banks, and VC people even restrict or provide limited access to the manufacturing facility and suggest that additional information be requested through the data room.

These due diligence activities provide confirmation about existing business conditions and abstract synergistic opportunities such as:

  • Facility and procurement consolidations;
  • Supplier price concessions;
  • Headcount reductions;
  • Common IT/ERP architecture platforms;
  • Increased outsourcing;
  • Finished goods rationalization;
  • Raw material consolidations;
  • Growth from new products;
  • Inventory reductions;
  • Capacity and throughput improvements, or
  • Through many other oversimplified and under-analyzed changes to the operations side of the business.

In essence, the resulting acquisition integration plan is a promising read, but full of unknowns and black holes about how operations will deliver the goods. The operations due diligence is more of a check-the-box, fly-by effort, almost as if operations doesn’t matter.  An organization’s operating model is a key competitive lever and should matter a lot – It’s the means of achieving the ends. The problem is that much of the data needed for a thorough operations due diligence does not exist in the data room and is hidden, unknown, undiscovered, institutionalized, or undisclosed.  Additional data room requests often return answers based on opinions, perceptions, or irrelevant information.  It takes experienced operations professionals to create the right narratives (passive data) that make meaning out of the operating jumble, and reveal hidden operating problems and potential disasters waiting to happen.

Passive Data Analysis is Missing

The operations due diligence does not include a vision or guidance about the possibilities of future-state operations.  Passive data is needed for this analysis, and it does not broadcast itself. One needs to seek it out, put clues together, conduct special modeling analyses and tests, and continuously ask Why? Why? Why? Why? Why?  Looking deeper into the details of What, When, Who Where, Why, and How of the above bullet points for example, is so obviously required to achieve acquisition success.  The bullet points above are “desired outcomes,” but the big mystery is always “What, When, Who Where, Why, and How will the operating model be changed to achieve these desired outcomes.”

Understanding how the inner workings of how these processes are actually functioning is often a transactional forensics exercise. Adding in digitization increases the complexity of how to leverage operations.  Some of the required changes might be a cake walk, while others may require a further analysis and/or a significant investment in time, resources, engineering development, technology pilots, and capital.  Some proposed opportunities may not be feasible based on Voice of the Customer expectations. There are no fixed one size fits all solutions anymore.  The devil is always in the details of execution, and prioritization is critical to success.  When organizations glaze over this operational deep core mining, they can’t possibly prioritize and execute upon the right required actions/changes to achieve the desired operating and financial results.

 

Solution: A More Holistic Operations Due Diligence

The traditional operations due diligence doesn’t provide innovative ideas, guidance, and a detailed acquisition integration and execution plan – The specific details of how the operating model must change from afunctional (people, process), social (culture), and emotional (talent, values) perspective to actually realize the benefits needed for acquisition success. Furthermore the operations due diligence provides no direction of how to integrate innovation and digital technology to create step function improvements in the current operating model.  Innovative organizations are adding major capabilities to their operating models in the form of instant visibility and response via remote access to operating status and real time performance dashboards, predictive and preventive analytics, live operations diagnostics, and interconnectivity between people, process, and equipment.  These capabilities are becoming more commonplace and are desperately needed in acquisitions to achieve the X + Y = Z2 effect.

In too many cases acquisition leaders assume that necessary massive operating changes will happen within the acquisition target with the same thinking, same people, same processes, and same information. Brute force and seagull management never works well.  This only produces the same results, more negative inertia for change, and operating performance far below expectations.  Not acceptable!  The answer is simple but not easy: Architect a breakthrough operating mode.

Go Deeper or Go Home

Operating models serve as a blueprint for how the company is organized, and how products and services, people, processes, materials, equipment, technologies, and information are deployed and operated to producebreakthroughs in operating performance. It encompasses decisions about the shape, size, and scope of the business, where to draw the boundaries for each line of business, how resources collaborate within and across these boundaries, how the enterprise will add value to the business units, what behavioral norms and codes of conduct are encouraged and expected, and how to measure progress and success. Operating models are end-to-end and include all operations of the business.

It takes the right seasoned professionals with deep operations leadership, core process knowledge, and broad industry experiences to work through an organization’s operating model in greater detail.  These people have a fanatical interest in improvement, creativity, and idea generation of To-Be best practices.

Organizations need to make the proper investment in a deeper operations due diligence conducted by the right experienced professionals.

A major critical objective of a deeper dive operations due diligence is to uncover hidden, unknown, undiscovered, and undisclosed problems that will have a severe impact on operating and financial performance.  You can’t improve what you can’t see or failed to uncover.  These issues can quickly add up to tens of millions of dollars . . . and they are not documented on reports and never show up in a data room.

You Can’t Improve What You Don’t See or Failed to Uncover

 

You just can’t do an effective operations due diligence with a two hour plant tour, inexperienced professionals, a few abstract benchmark metrics, the seller’s PowerPoint presentation, and recording off-the-cuff management opinions and perceptions. You also can’t rely on a data room lacking relevant operating scenarios, information, and facts.  You need to get under the hood and understand the What, Where, When, Who, Why, and How of the current operating model.  Getting under the hood also means listening to people who actually do the work every day.  So many acquisitions are commercially and financially feasible on the active data analyses, but everything falls apart in execution.  Why?  Because the traditional operations due diligence approach leaves too many critical operating questions unanswered.  Have you ever seen an obsolete inventory or unplanned downtime or design verification failure report in a data room?

Pre-due diligence planning will become more important. 

As we mentioned earlier, operating models have become increasingly complex.  The boilerplate operations due diligence doesn’t cut it, but the process can not cover everything about the present and future operations in one fell swoop.  We need to prepare for the operations due diligence and define the objectives and scope, what we’re looking for, what we want to accomplish, how operating model innovation and digital technology can create customer value, and the like.   The operations due diligence plan should highlight what is to be accomplished in different phases of acquisition integration.

The operations due diligence must go far beyond manufacturing and include a thorough evaluation of the professional, knowledge-based transactional processes.

This requires an incremental investment in the right operations resources, but the exposed benefits far outweigh the additional costs of a thorough evaluation.  The purpose is to flush out continuous improvement opportunities to the end-to-end, As-Is operating model, and generate new ideas about how to create the ultimate customer experience, achieve operating performance beyond all expectations, and dominate the marketplace.

A deeper dive operations due diligence includes but is not limited to:

  • Order Entry and Fulfillment;
  • Customer Service;
  • Sales and Operations Planning (S&OP);
  • Supply Chain Planning and Execution Systems;
  • Procurement and Supplier Management;
  • Physical Plant Layout, Work Flows, and Wastes;
  • Quality Management and CAPA Systems;
  • Facilities and Maintenance Management;
  • Warehousing and Distribution;
  • Transportation and Logistics;
  • Time-to-Market and New Product Development;
  • Long Term Capacity and CAPEX Planning;
  • Performance Management and Measurement Systems;
  • IT/ERP Architecture Effectiveness;
  • Talent and Human Capital Development; and
  • Leadership and Organizational Readiness.

The intent is not to conduct a long, drawn out study of the universe but to understand and focus on the vital few areas that matter the most.  This is the path to immediate fact-based quick-strike improvements and successful transformation initiatives.  Remember that your operating model is a network of the above interconnected operating processes that has an inherent capability by deliberate, accidental, or lack of design. People are performance bound by the operating model capabilities within which they work.  When executives choose not to examine these operating processes and their inner workings in greater detail, they undermine acquisition performance.  These missing details, and a realistic approach about how to improve business model capabilities are a critical element of a deeper dive operations due diligence – We all live in an Improve or Fall Behind world.

The operations due diligence requires an assessment of the executive leadership team and their organization’s abilities to lead and implement larger scale strategic improvement initiatives. 

 

The operations people who created these situations in the first place are locked into their immediate reasoning routines and management by short term, active data.  The naive precision of spreadsheets, charts, and multiple versions of the facts is easier to react and respond to with the same linear thinking, but it causes people to lose objectivity and creativity.  The same vicious cycle of workarounds and compensating behaviors is not the pathway to major change.  These folks are not usually the ones who are going to suddenly become the “high potentials” and rediscover totally new ways of doing things.  This often requires external injections of new thinking, ideas, and facilitative actions.  A deeper evaluation of functional (people, process), social (culture), emotional (talent, values), and enabling technology competencies, and in particular the detractors and barriers to success are all critical elements of the deeper dive due diligence.

Finally, the operations due diligence must produce an actionable and executable road map to continuously improve and/or transform the current operating model.

 

I’ve worked with hundreds of clients and never walked into one where significant opportunities for improvement did not exist.  It’s not that organizations are inefficient, the world changes on them while they are deeply rooted into daily routines.  Well to be candid, several are inefficient but it’s a leadership and process vs. personal matter.  Improvement and operating model transformation are leadership choices, where the limit is the self-imposed limit that the organization imposes on itself.

Look at the above bullet points again. There are millions of dollars of hidden, unknown, undiscovered, and undisclosed opportunities in all organizations. We have worked with many organizations who have realized annualized benefits equal to 1.4% to 9.6%+ revenues.  All organizations should be striving for the same results.  Bake these numbers into your acquisition plan and then ask yourself, “Is a deeper dive operations due diligence worth it?”

 

Provide Guidance on Digital Technology and Operating Model Transformation

The traditional operations due diligence severely lacks innovation in operating model guidance. Too much of the content is active data and spreadsheets, throwing together the As-Is and making it work.  Operating model transformation must be fueled by innovation, a steady stream of ideas, and a culture that is willing to continuously invent and evolve.  Organizations can benefit significantly from additional guidance and whiteboard idea generation to experiment with unconventional concepts, enabling technologies, and for better ways of operating. There also exists a complicated alphabet soup of digital technology solutions that must be carefully evaluated, selected, and integrated into a future state operating model.  Operating model transformation and digital technologies can be very risky, costly, and disruptive with a slam-dunk approach focused solely on technology.  Understanding how these new operating narratives and advanced technologies fit into the operating equation is a missing link in the operations due diligence.  For additional information visit our previous posts on Operating Model Transformation and How To Integrate Lighthouse Pilots.

Small and Mid-Sized Clients Need More Guidance

Many smaller and mid-sized companies need help developing their operating model road map and phased implementation plans. They do not have the resources and capital of larger corporations, so operating model transformation requires a different, adaptive approach in these environments.  The outcome of an operating model transformation strategy is often a bold vision at a higher level of abstraction (This is great by the way), but the innovation ideas and and possibilities can be all over the map. The realm of digital technology solutions complicates things even further. Organizations cannot (and should not) try to do everything but where do they begin?

The operations due diligence must provide practical guidance about how to translate the organization’s abstraction of great ideas into real world breakthroughs. All organizations have difficulty converting their fuzzy operating concepts into real tangible breakthroughs in their business model.  The best way to go about this is through a formal screening and evaluation process focused on value creation, pain relief, and WOW factor identification.  Implementation requires experimentation and may need the use of lighthouse pilot efforts along the journey.

 

Summary

The big differentiator in great acquisitions is their ability to discover, harvest, and implement the real operating breakthroughs in their industry.  Some of these are more deterministic improvements in As-Is processes (Continuous Improvement), and the higher order breakthroughs require exploration into the realm of unknown and undiscovered possibilities (Strategically Focused Operating Model Transformation).  Organizations must learn to master both to achieve sustainable successes.

Having the presence of a Lean or Operational Excellence program, or mimicking the operating practices of Toyota is no excuse to skip the detailed operations due diligence.  We routinely find millions of dollars in new opportunities with clients who have been involved in Lean and other continuous improvement initiatives for decades.  A renewed perspective on the functional (people, process), social (culture), emotional (talent, values), and enabling technology competencies of operations makes all the difference in the world.  This is true whether it is an acquisition under consideration, a recent acquisition, or an underperforming company in the portfolio.

Radically changing operating models and transformation are words that conjure up fear, stress, anxiety, and something to postpone. But it’s all a matter of the right leadership perspective.  Operations is rapidly becoming a network of intelligent computers, devices, and objects that collect and share huge amounts of data via the cloud where it is aggregated with other data.  The cloud, mobility, data warehousing, business analytics, augmented reality, real time performance dashboards, operational connectivity, and many other applications are being integrated into operations to improve speed, efficiencies, costs, quality, and the customer experience.  IoT and Industry 4.0 are also givens in this competitive economy.  Those that learn to integrate the right digital technologies into their operations will be the new competitive leaders in their industry.

 

Waiting = Lost Opportunities.  Looking further into this is a “No Brainer” – High value/low cost, zero risk, and only requires 3-4 weeks of effort. 

 

If you’re ready to step up and benefit from millions of dollars of hidden, unknown, undiscovered, and undisclosed operations opportunities in your organization, contact Terry Burton at the address below or call our offices at 603-471-0300. 

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Terence T. Burton is President and Founder of The Center for Excellence in Operations, Inc. (CEO), a management consulting firm specializing in strategic and operational transformation.  Terry has four decades of extensive operations, quality, engineering, mergers and acquisitions, and supply chain experience as a hands-on practitioner, interim operations leader, and executive in several corporations.  He has led consulting engagements in a wide spectrum of industries, having consulted with over 350 clients in 23 countries on their strategic and operations improvement initiatives.  Terry can be reached directly at burton@ceobreakthrough.com