Same lean song, different transformation tempo
Transformation
isn’t new to manufacturers—but sustained transformation is rare. It’s even
harder at today’s fast pace, which calls for a different transformation
approach.
The fundamentals of making products remain the same
now as ever. First, create something of sufficient value that customers are
willing to pay for at a price higher than the cost of production. Next, keep
pushing that cost lower while preserving—or, better still, increasing—value for
customers. Rinse and repeat.
Much easier said than
done, of course, especially over time. Companies may misunderstand what
customers value, so that a highly refined, high-quality offering finds too few
customers to become an economic success. Or the offering may be exactly what
customers want, but the company fails to deliver it at the right time or in the
right way.
Avoiding these outcomes
is a principle reason companies hire leaders and managers, and invest in
transforming themselves according to continuous improvement disciplines. Those
remain the same as ever, too, although our understanding of how they work has
deepened. There are the technical systems that help work get done: the
end-to-end process diagnostics, workload-allocation systems, and total-quality
measurements. Management infrastructure ensures that leaders spend time seeing
the work get done, that performance is constantly assessed and acted on, and
that problems get raised and addressed. And finally, there are the mind-sets
and behaviors, and the cycles of coaching, capability building, and feedback
that help people get better at what they do.
So the song is the
same. Unfortunately, so is the ending, with a key change from major to minor as
initial optimism fades to disappointment. In a 2015 survey, only 26 percent of
executives characterized their organization’s most recent transformation as
successful. That’s actually a
decrease from the famous “three in ten transformations fail” finding that Harvard
Business School professor John Kotter (now retired) published more than 20
years ago.
What has changed? The
tempo. New technologies, new customer expectations, and new sources of
competition—often from players that didn’t exist five or even three years ago,
and that follow entirely new business models—together are leaving companies
with less and less time to react. Not only must they change but they must also
do so quicker, faster, deeper, and with much greater odds of success.
The pace of change has quickened
Manufacturers are used
to change: the survivors have transformed themselves time and again. They
adapted to surging demand as economies boomed. They adopted production
innovations such as lean management. They built new, global networks to take
advantage of economies of scale and scope.
But those changes took
years—sometimes a full generation—to take hold. Digital technologies won’t
allow that luxury. Think of the contrast between an automobile platform, whose
basic mechanics may remain essentially the same for decades, with a
mobile-phone operating system, which changes every few months, if not weeks.
That’s the pace Tesla
is now nearing with its vehicles, whose software updates bring new features
several times a year. And that evolution represents only a small part of the
new digital landscape that is disrupting value chains everywhere. Even where
the competition is not yet visible, technology is changing customer
expectations so quickly that high performers have a hard time keeping up.
Manufacturers are
therefore having to rethink almost every aspect of the way they do business:
from what customers want and how offerings should be designed to where
components should be sourced, which manufacturing methodologies should be used,
and how products should be sold and serviced. It’s as if all of the changes
they previously made are all happening again—and at the same time. And they
must do so under enormous scrutiny, with activist shareholders demanding
dramatic action and proving perfectly willing to bring in new leadership in
order to get it.
What must change about change
Manufacturers must bring
everything they know about transformation to bear, and then some, given that
historically so few transformations have succeeded. They must begin by
understanding why the traditional approaches have fallen short.
Our work with clients
highlights three main problems. The first is a tendency to focus on the tools
that support change, rather than on the core disciplines that the tools are
designed to reinforce. The second gap centers on leadership, which too often
proves inadequate to support the demands that transformation requires. And the
third—and likely most important—reason is that transformations are too often
thought of as projects with a clear timeline, including a beginning and an end.
In other words,
transformations fail because leaders and managers misunderstand what
“continuous improvement” truly means. It means that the improvement cycle never
ends and instead becomes core to the way the company operates.
What a different approach looks like
The alternative
comprises four major components. It starts with high
aspirations, with an emphasis on quantifiable ideas that can be sized with
some degree of confidence and that affect the bottom line quickly. Next,
a rigorous process governs all of the initiatives and projects
that come together in transformation. The third requirement is tighter
alignment, both among the leaders in setting the organization’s direction
and between the leaders and the rest of the organization, who must see that
direction turn into tangible goals they can work toward. Finally, there’s the
question of speed. Once an idea is sized and the risks assessed at
a high level, the bias must be toward piloting quickly and making rapid
adjustments as needed, rather than holding out for perfection.
No mountain high enough: Aspirations to give
inspiration
Few transformations
achieve more than the goals their leaders set—especially in a typical
risk-averse business context. That’s why high initial ambitions are so crucial.
The instinct among leaders and managers to underpromise and overdeliver is so
strong that only the strongest signals from the top can overcome them.
Moreover, there’s the
practical reality that fulfilling high goals is really difficult, typically
requiring leaders to shepherd hundreds, or even thousands, of initiatives through
to completion. Nevertheless, the experiences of several organizations show that
it’s possible, provided leaders plan for serious attrition rates. A recent
analysis of high-stakes transformations3found that on average,
initiatives lost about 70 percent of their value between the initial idea stage
and final tallying of the benefits. Accordingly, in order to reach a given
target, a company will need a set of initiatives whose estimated value is at
least three times the target amount.
That may not be
possible at the very start. Instead, leaders will likely need to plan to “go
back to the well” periodically to find additional opportunities. The
consumer-products company, for example, set a goal of almost half a billion
dollars in savings, and had to go back to the well several times in the first
year to meet its goal successfully.
Rock steady: Rigorous structure for
continuous improvement
Of course, meeting an
initial target—even an aggressive one—is only “improvement.” As important as
that is, over time, what matters even more, is continuous.” That takes rigor, a
combination of processes and tools that constantly reinforce a culture that
seeks out ways to get better.
Some of this
infrastructure is built as the organization progresses toward its initial goal.
A survey of executives published in 2015 asked
about 24 practical actions that support organizational transformation, ranging
from open communication by senior managers about the transformation’s progress
to capability-building programs for employees. The crucial finding was that the
more actions an organization took, the better its odds of success in its
transformation.
More specifically, the
organizations that succeeded in transforming themselves were those that planned
in advance for continuous improvement. At these organizations, employees
understood how their work related to the organization’s overall vision, everyone
was actively engaged in identifying errors and defects, best practices were
systematically shared and improved upon, the organization actively developed
its people, and everyone was fully engaged in meeting targets.
But once the most
intensive period of transformation is complete, progress may start to erode.
Often the proverbial low-hanging fruit have been gathered, meaning that further
improvement opportunities are harder to see and to achieve. Leaders may be
tempted to reclaim time for problem solving, coaching, or best-practice
codification to meet short-term goals. The unintended message: the changes we
made were only temporary. Now things are getting back to normal. Before long,
so does the organization’s performance—to its pretransformation levels, or even
lower.
Avoiding this vicious
circle requires organizations to adhere to several interlocking disciplines. At
a large state-owned enterprise, for example, performance metrics now focus not
only on what people achieve but also on how—meaning
how well they adhere to the organization’s new way of working. Achieving good
numbers the wrong way is not a career-building move.
Other organizations,
such as a food manufacturer with more than 100,000 employees, have adopted
easy-to-use tablet-based tools that guide leaders and managers through their
workdays, so that they can analyze data to ask good questions at morning
huddles and make sure to complete their process-confirmation meetings in the
afternoon. And a financial institution’s senior executive sends video updates
to all employees sharing his calendar and celebrating when people eliminate
resource-wasting meetings.
Everyday people: Align, energize, and upgrade
leadership capacity
The 2015 survey
confirmed what many leaders intuit: a transformation must center its efforts on
helping people change. For example, communication is critical. Transformations
where senior leaders communicate openly about progress, success, and
implications for individuals in their day-to-day work were between roughly four
and eight times as likely to succeed as transformations where there was little
or no communication.
Accordingly, the role
of the leader is crucial, and not just for official communication. What leaders
do in their day-to-day work lives matters at least as much: for example, role
modeling expected behaviors, demonstrating commitment to developing their
teams, and even simply spending sufficient time on the transformation all had a
major impact toward success.
On the other hand,
leaders must be more than simply visible. A 2016 survey of more than 1,600
transformation participants found that even in failed transformations, more
than half of CEOs were very or at least somewhat engaged—suggesting that the
CEO’s role is necessary but not sufficient. It turned out that that
an even more critical differentiator than the engagement of the CEO in a
transformation was the engagement of the front line. In successful
transformations, 73 percent of respondents reported visibly engaged frontline
employees, compared with just 46 percent in failed transformations. Engaging
the front line is notoriously difficult, though, and it shows: of all
respondents, frontline employees and line managers were the least likely to
report transformation success.
Signed, sealed, delivered: Balance speed and
discipline
Keeping up the pace is
an essential element of the successful high-stakes transformations studied earlier this
year. Leaders maintained an aggressive pace of weekly reviews so they could
oversee progress. Each initiative passed through a series of well-defined stage
gates, with implementation keyed to a schedule of milestone reviews. Finding
the right balance of setting milestones was essential: too many risked
micromanaging initiative owners, who would spend too much time preparing for
milestone assessments; too few, however, meant owners might not reveal problems
until it was too late for leaders to provide support.
The happy medium took
advantage of the weekly meeting cadence. Even between milestone reviews, every
initiative was expected to make at least some progress each week, which the
owner would report on briefly at the meeting. That encouraged owners to discuss
signs of potential problems when they were still happening early enough to be
fixed relatively easily.
In the end, the winners
will be those who are able to adapt their technical systems to changing
consumer demands, leverage their management infrastructure to drive both
top-down and bottom-up innovation and mobilize their work force around common
business objectives.
By David Beaumont, Joël Thibert, and Jonathan
Tilley September 2017
https://www.mckinsey.com/business-functions/operations/our-insights/same-lean-song-different-transformation-tempo?cid=other-eml-alt-mip-mck-oth-1710
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