Case Study: Tips for Making Your Business Management System More Effective

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The Key to Sustainability: An Effective Management System Is a Self-Reinforcing, Virtuous Circle

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You  might not recognize it as such, but every company has a business management system. It’s how things get done when they need to get done, or not.

How would you rate the effectiveness of your company’s business management system on a scale from highly effective to dysfunctional? At most organizations, there’s a lot of room for improvement.

An effective business management system is a deliberately integrated set of management processes and tools that help align the company strategy and annual objectives with daily actions, monitor performance and trigger corrective actions. It guides and empowers managers and employees to drive process improvements every day, and helps sustain forward progress.

The benefits of an effective business management system include:

  1. Well-defined and understood performance metrics
  2. Strategic objectives cascaded to all levels of the organization
  3. Cross-functional teams effectively working together on company-wide goals
  4. Increased management and employee engagement
  5. Faster achievement of top priority objectives.

To support some operational improvements and sustain forward progress at a fast-growing food manufacturer, TBM helped implement a more structured management system. We documented this and other improvements in a recent case study. What follows are some of the highlights.

At a cultural level, like at a lot of manufacturing operations, managers at the company’s two primary facilities had a tendency toward “firefighting.” They would respond quickly and “save the day,” fixing symptoms of problems without getting at root causes, and the issues would eventually come back.

In terms of immediate priorities, both food plants were struggling with capacity utilization. With a maximum availability of 80% because of equipment cleaning requirements, they were struggling to exceed 60%. One of the plants was also having trouble with ingredient waste.

In addition to addressing these issues, which is documented in the case study, we helped them strengthen their foundation for future improvements by re-emphasizing standard work and providing some in-depth training in problem-solving. We then coached employees as they applied these tools to top priority issues in their areas.

Our management system work included helping the plants set up and report performance on SQDC boards (safety, quality, delivery and cost), and then track specific issues on separate hour-by-hour boards. We coached site leaders and the area supervisors not just on using the boards, but on how to talk to people about the issues presented on them. Employees’ ideas for addressing issues need to be discussed gently and constructively. If not, people will disengage and stop offering any solutions.

Here, as at many companies, they struggled at first with doing the daily performance review element of an effective business management system. It requires a level of discipline that many managers aren’t prepared for or accustomed to. Eventually, however, it became part of how they work every day, as well as how they make progress on the organization’s improvement priorities. Let me know if you’d like to learn more about how to make the management system work more effectively at your company.

Interviews Don’t Predict Success When Screening Job Applicants

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 Here’s a Better Way to Screen Job Applicants

When screening job applicants for management roles, technical expertise is a baseline requirement, a box to check and verify during the interview process. Behavioral factors are the best indicator of a candidate’s potential for success. His or her personality and leadership style has to match the culture and immediate needs of the organization.

The standard job interview does not uncover personality strengths and weaknesses. It’s kind of like dating. Everyone gets dressed up and says what they know the interviewer wants to hear, and the go/no go decision comes down to “chemistry.” You only find out months or years later what someone is really like.

I recently wrote about the benefits of filling immediate openings with experienced interim managers. These benefits include proven expertise, more time to find the best permanent hire, direct support of the search process, and the opportunity to assess current resources and make changes.

Realizing those benefits depends on getting the right person in the position. Just because an interim management assignment has a predetermined end date (which are often adjusted and extended), it’s no less important to find a good match. When screening job applicants, you have to find someone who will continue to drive, and not disrupt, your organization’s forward progress.

In the old days talking to references was a good way to screen job applicants and find out more about a candidate’s personality and management style. Unfortunately, because of liability concerns, today most HR departments will only confirm that an individual worked for the company, not how well they performed or why they might have moved on.

To screen candidates for interim management positions we use psychometric measurement tools to identify the behavioral needs of the job and then find compatible candidates. We start by identifying the behavioral requirements necessary to succeed using a job activity rating (JAR). A JAR is similar to a skills-based job description but it focuses on behavioral traits. Desired traits may include the ability to persuasively influence people, approach difficult situations tactfully and accept constructive criticism. Identification of such traits can then be integrated into the screening and interview process.

To further screen candidates we use activity vector analysis (AVA) to create behavioral profiles, identify each individual’s natural leadership tendencies and predict their workplace behaviors. These legally compliant assessment tools provide a distinct picture of how someone will perform in a specific environment, and will even indicate when someone tries to game the process. Using these tools to match an individual’s personality traits to a position’s behavioral requirements is the best way that we’ve found to screen job candidates and determine if an interim manager will be successful.

Please note: Having provided such support to our clients for years, TBM has formally launched an interim leadership service: TBM Leadership Solutions, LLC, an affiliate of TBM Consulting Group, Inc., to quickly fill critical operational and supply chain positions. See this overview for more information on how we can help your business make successful leadership transitions.

Does Double-Digit Productivity Improvement Seem Unreasonable?

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Think Again When Setting Targets for Annual Productivity Improvement

In the past we’ve written about the importance of setting higher productivity improvement goals. Most leadership teams set their company’s annual improvement targets too low. Somewhere between 6-8% is a good starting point. Anything less than that barely keeps up with labor cost inflation.

A double-digit productivity improvement target can really provide some breathing room and contribute to a company’s bottom line. That’s unrealistic, your people might say. The typical budget number between 2-3% is more “reasonable.” We’ve heard that before. Many times. But double-digit targets are not unreasonable, or impossible. Don’t take my word for it though.

Ken Snyder, executive director of the Shingo Institute, noted recently that two “benchmark” lean companies that he works with have recorded steady productivity gains of 10% or more over a 10-15 year period. That’s impressive enough, but here’s the kicker. Over the past several years, as he reports, their annual productivity gains have accelerated to 15-20%. Just imagine that!
One of the fundamental tenets of LeanSigma and a culture of operational excellence is that there is always room for improvement. That starts with leaders setting high enough expectations. Next comes focus and effort.

To shed some light on exactly what kind of focus and effort is required, we recently published a detailed case study about how TBM helped a manufacturer of plastic food packaging improve productivity 30% over six months . This isn’t a “low-hanging fruit” operation with easy gains waiting to be captured. It’s a high volume, heavily automated and engineered production process in a highly competitive market.

As we describe in the case study, achieving such gains began with detailed work observations and a phased implementation of process changes, combined with standard work and training to sustain their progress. The plant operations director was deeply involved throughout. He worked side-by-side with supervisors and participated in all of the training sessions.

In fact, it is this initial and ongoing training that drives long-term productivity improvements. Over time people become more adept at identifying and solving the issues that inevitably pop up no matter how well run an operation is.

Continuing to apply LeanSigma methodologies and tools to eliminate waste and make material flow better will drive significant and sustainable productivity gains year after year. Setting healthy targets and driving progress toward them is up to you.

 

When Outside Operational Expertise Makes Sense

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Private Equity Active Management:  Using Outside Operations Support to Complement Inside Leadership

For several decades now, as financial engineering opportunities fade and assets under management have grown, private equity firms have increasingly focused on active management to deliver the double-digit returns expected by investors. Even in the heady years leading up to the Recession, McKinsey research found that operational investments in portfolio companies generated superior earnings and value.

With a focus on both revenue generation and cost reduction initiatives, PE firms generally rely on a mix of outside expertise, operating partners and internal operations groups. The structure, responsibilities and day-to-day of involvement of these operating groups expands and contracts over the life of a fund.

Determining what capabilities to develop in-house and when to hire outside help is always a complex and multi-dimensional decision. In addition to availability, focus and ownership, having operations expertise in-house sends a signal to portfolio companies and investors that the PE firm is actively managing its investments. As is often the case, appearances don’t always translate into results.

Here are five instances when it makes strategic sense to complement in-house operational leadership with outside support.

  1. Capacity and Speed – Following the Recession, the average time that PE firms held onto buyout investments rose steadily to almost six years, well outside the typical three- to five-year holding period. While that expansion was driven by a poor exit environment, and the holding period has declined recently, outside help makes it possible to implement operational efficiencies faster and realize earnings gains sooner.
  2. Independence and Focus – Because they are contracted to perform specific work, like due diligence, external advisors are less beholden to making a deal and less likely to be subject to any in-house cross functional conflict. They can focus 100% on the merits and weaknesses of a particular deal without being pulled in multiple directions, as in-house resources often are.
  3. Clear Cost Allocation – In recent years, the SEC has collected multi-million dollar penalties from PE firms that allegedly misallocated expenses. It’s more transparent to allocate the costs of a contracted 1099 resource to a deal and portfolio company.
  4. Industry and Operational Expertise – As a fund’s investments grow, the portfolio companies will naturally become more diverse. Internal operations teams often lack the specific industry experience that can drive change and generate value quickly. Take the automotive sector as an example. Even if an operating partner has some industry experience, and understands OEMs’ stringent demands, automotive suppliers are so diverse it’s unlikely that he or she will have the optimal technology and production expertise.
  5. Back-loading Expenses – Prior to the due diligence phase, a trusted outside partner can provide valuable advice while minimizing a PE firm’s costs before a letter of intent is signed. Trusted partners will often execute these pre-LOI reviews at a minimal expense. Such exploratory work can be executed by smaller teams that expand as needed when a deal is more thoroughly vetted.

Those are just five occasions when outside operational expertise can help PE firms evaluate potential deals and improve the performance of portfolio companies faster. As we like to say at TBM, speed always wins. In the case of PE company holdings, as noted above, the faster that the targeted operational improvements are realized, the sooner the primary focus can turn toward revenue and earnings growth.

Interim Managers: 4 Benefits of Using Them While You Search

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Fill Job Vacancies with Interim Managers

 

 

 

 

 

 

 

 

 

Interim Managers Can Help to Address Challenges Associated with Management Turnover

It’s a truism in business that on the flipside of every “challenge” lies an “opportunity.” While challenges have no problem presenting themselves, some opportunities are harder to see and embrace than others. Not surprisingly, most revolve around people.

Some people-related challenges masquerading as opportunities can be planned for and tackled with creative solutions. For example, manufacturers in many job markets today are caught between an entry-level labor shortage and a wave of baby boomer retirements. But as more people live longer they’re finding that they need to support their standard of living for longer periods of time. As a result, expectations around retirement are changing and companies are re-structuring management positions to allow for more flexibility and part-time work.

Other staffing challenges are harder to plan for and may even be self-inflicted. For example, to reduce operating costs a company that I recently heard from offered a voluntary separation package that was more popular than anticipated. The incentive plan opened up some unanticipated vacancies in key supervisory positions and created a big headache for the unit’s leaders.

As in this case, we’ve fielded many calls over the years from clients looking for people who could fill an immediate opening. We’ve learned quite a lot by placing these interim managers, many of whom come from the highly experienced but not-yet-ready-to-completely-retire ranks mentioned above. Here are some of the benefits of immediately filling an opening with an interim manager:

  1. Proven Expertise – First and foremost, temporary managers relieve the extra responsibilities that fall on other staff members when another manager leaves, which helps maintain current performance levels and forward progress. Smart organizations will also leverage the interim’s expertise to further streamline and improve production and business processes.
  2. Breathing Room – When any good manager unexpectedly moves on it always takes longer than expected for the HR department to find and screen viable candidates. Having a temporary manager in place reduces some of the immediate urgency, extending the search timeline, and thereby increasing the likelihood that you’ll find and hire the best candidate.
  3. Hiring Support – Interim managers offer a fresh perspective on the future needs of the position, as well as a personal network of potential job candidates. Incorporating their insights into the interviewing, hiring and on-boarding processes can dramatically improve the future hire’s probability of success.
  4. Run Interference – Temporary managers can evaluate current conditions and make some of the tough operational decisions, like workforce restructuring and facility closures. This gives the future permanent manager the opportunity to start off on a much more positive note.

Those are just some of the benefits that interim managers can bring to a temporary position. In closing I’d like to emphasize the many ways that interim managers can offer support during the search and interviewing process, which is fraught with risks and ineffective practices. I’ll explore some of the best practices in screening and evaluating management job candidates in a future blog post.

Please note: Having provided such support to our clients for years, TBM Consulting Group is formally launching an interim leadership service (TBM Leadership Solutions, LLC, an affiliate of TBM Consulting Group, Inc.) to quickly fill critical operational and supply chain positions. See this overview for more information on how we can help your business make more successful leadership transitions.

 

 

What’s Your 2017 Outlook? Here’s Ours.

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2017-outlook

Three Priorities for Succeeding in 2017, or Any Year.

Over the years around this time I’ve authored many editorials and blog posts on market trends and what business leaders need to watch out for in the coming year. As prophetic as I’ve tried to be, unanticipated and improbable things always seem to happen. This year was no exception, as demonstrated most obviously by Britain’s vote to exit the European Union and Donald Trump’s victory in the U.S. presidential election. It’s kind of humbling.

While the positive or negative business impact from these elections remains unknown, the truth is that there will always be unexpected socio-political, economic and natural events in every corner of the world that will disrupt or create new opportunities for your business. That’s the conclusion we came to at a recent TBM leadership meeting when we were discussing what could happen in 2017.

This year we’re not going to offer any predictions. No one really knows when oil prices will go back up, or if there will be a dramatic increase in U.S. infrastructure spending, to name just two market trends that could have a big impact on manufacturers. Instead, based on our decades of experience running companies and advising clients, we offer three priorities for business leaders to consider and drive superior performance regardless of how next year unfolds.

Here’s Our 2017 Outlook:

  1. Stay focused on your management system and culture. This means setting the right KPIs and cascading them deep into your organization so people know if they’re winning or losing each day. It means establishing effective problem-solving methods and defining leadership roles consistently across the organization.
  2. Always focus on speed and agility. Improving speed and agility drives productivity. Set ambitious goals and develop detailed plans for how your company is going to leverage market changes and improve productivity next year. Today, in most cases, that requires an end-to-end perspective that extends beyond the four walls of any single facility. Then start strong in January. You can’t wait until the first quarter is over and managers realize they haven’t made much progress to start driving productivity improvements.
  3. New technology is a freight train. Get on board or it will run you over. Big data, small data and advanced analytics. Industry 4.0/Internet of Things, 3D printing, and advanced automation. These and other rapidly evolving technologies are creating a wide range of opportunities across every industrial sector.  Develop an explicit strategy for monitoring and incorporating these emerging capabilities into your operating model. If you don’t, your competitors will.

Obviously, these three strategic priorities are linked together. Management churn, for example, undermines a culture of continuous improvement more than most business leaders recognize. It is the primary contributor to the inability of many organizations to sustain performance gains. If only one member of the management team was around when a company began its operational improvement push, as we discovered on a recent plant visit, it’s exceedingly hard to maintain momentum. That’s why management systems are so important.

Successful management transitions require a robust management system that is continually reinforced at all levels. At Danaher and Toyota, for example, operational excellence isn’t an initiative. It’s an ingrown element of how the businesses are run. Such a culture relentlessly pursues both incremental and step-change productivity improvements, which includes experimenting with and adopting new technology.

There’s still a huge potential for improvement in many companies, even those that are growing and profitable. We recently completed a diagnostic project at a U.S. facility where we calculated a potential 40%-plus gain in productivity using traditional lean process improvement techniques. Then the client asked us to consider the impact of new automation. Factoring automation into our assessment pushed the improvement potential to more than 80%. That’s the type of gain that can transform a market, and allow a company to increase earnings significantly no matter what unanticipated challenges pop up in 2017.

4 Best Practices for Successful Acquisition Integration

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People putting the pieces together conceptHow to Ensure Objectives Are Achieved After the Deal is Signed 

Unfortunately, business acquisitions and mergers too often fail to achieve the targeted financial objectives. The root cause of such failures in many cases is that the justification behind the original deal thesis is not maintained during the integration process.

Here are four best practices that have helped TBM clients maintain that alignment and achieve their financial objectives after a deal is finalized:

  1. Involve the future operating team early in the deal cycle. In many cases the operations team is only pulled into the acquisition process in the very late stages. But if the future operating team members are involved in the strategy from the beginning, they can validate the accuracy of the deal thesis even before the due diligence, and then help set future growth objectives that are more likely to be realized.
  2. Keep members of the deal team engaged on some level during acquisition integration. After a deal is finalized, the finance team frequently moves on to the next target and the integration task is handed off to an entirely new group of people. Whether it’s a member of the private equity partner, or an internal representative, continuity of personnel throughout the integration process will help maintain the connection to the acquisition strategy.
  3. Develop a detailed and aggressive integration plan. In addition to keeping members of the deal team engaged on some level, a detailed integration plan and hand-off meeting will help maintain alignment with the deal thesis. Such a plan should lay the groundwork for future changes while communicating the vision and setting the tone that it’s no longer business as usual.
  4. Review progress frequently, and re-calibrate accordingly. The impact from major changes—such as facility consolidations and leadership changes—won’t begin to impact performance until 3-9 months after an acquisition is finalized. Regular reviews by senior management should maintain alignment with the acquisition strategy and prompt countermeasures when progress isn’t going according to plan.

Paying attention to these four practices from the early stages through the integration of your next acquisition will help maintain alignment with the deal strategy and increase the potential for achieving the operational synergies and targeted cost savings.

 

Effective Acquisition Integration Requires Focus and Speed

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When It Comes to Acquisition Integration, Make Changes Quickly but Don’t Lose Your Focus on the Business Strategy.

STAY FOCUSED! message on the card shown by a manEveryone knows, when a private equity firm buys a company, there are going to be changes. I recently attended a PE Operating Partners conference in New York where several on-site polls underscored this point.

Of the roughly 300 operating partners in attendance, 9 out of 10 said the first two years offer the best opportunity to generate new value, which starts with major organizational changes. And 8 out of 10 said the incumbent executives at acquired companies typically aren’t capable of driving that value creation, and a new leadership has to be brought in.

While this wasn’t a scientific sample, it’s both intuitively true and borne out in my experience. To paraphrase the popular saying, doing what’s always been done with the same people and expecting different or better results is the definition of insanity.

While structural and leadership changes are often necessary following an acquisition by a PE firm or by any company, strategic consistency must be maintained during the integration process. Too many companies lose focus. One reason is that the acquisition team is typically working on multiple targets. That’s their lifeblood. As soon as they close one deal, they hand everything off and move on to the next one.

Outside of PE firms, individual companies make comparatively few acquisitions. As a consequence, the integration process is not a core competence of the business or of managers, making it more likely to drift away from the original purchase objectives.

For example, acquisitions are often justified as an opportunity to expand market share. In such cases it makes no sense for the transition team to go in and start shrinking product offerings by focusing on demand segmentation and trimming dead SKUs. I’ve seen this happen in large part because the integration team thought their mandate was to focus primarily on costs.

Similarly, if the objective is to integrate the acquired operations into your company’s existing footprint, there’s no point in spending time trying to improve processes where they currently are. The focus needs to be on moving the production operations into your business as quickly as possible.

Unless the due diligence was flawed, to achieve the anticipated returns the integration process must stay aligned with the rationale and strategy that drove an acquisition in the first place. In my next post I will share some real-world practices that can help maintain this strategic alignment.

Get in Position to Make the Right Calls in 2017

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Guidance for Setting KPIs

Football RefereePro sports move so fast today that officials can’t always get a good view of the action, so we rely on instant replay to verify or overturn the calls on the field. I paid for a good chunk of my college expenses officiating for softball, baseball, football and basketball games. Speaking from those experiences, without the benefit of slow motion and multiple camera angles, making the right call was always a matter of being in the right position.

Likewise, as a business leader there’s no instant replay or official review to help you make the right call, which is why being in the right position is so important. Not only does being in position allow you to see what’s happening in your business, it establishes a common viewpoint that helps everyone know if your company is winning or losing each day.

Here’s what that means in practice. One of the responsibilities of operational leaders is to select and reinforce the company’s key performance measures. Establishing and tracking these KPIs is akin to being in the right position. These measures must mirror leadership’s view of what success looks like.

When setting KPIs, these metrics must:

  1. Provide a clear understanding of the current health for your business, not where it was at the end of last month.
  2. Be aligned with both past and emerging customer expectations, and not compared too closely against industry standard or historic data
  3. Reflect the mantra that “good is never good enough.”

Take on-time delivery. You can play it safe and measure performance based on your customer commit dates or promise dates. That’s not a bad starting point. Your people’s performance and bonuses may even be linked to such metrics. But if that’s how your competitors are also measuring their performance, from your customer’s perspective the best you can do is only be as good as everyone else.

What if you measured delivery performance based on the customer request date instead? Ignore for a moment your current capabilities, and your average order-to-deliver lead times. Regardless of how “unreasonable” your customer requests might be, it’s important to understand what they really want.

This is one of the foundational elements of the Toyota Business System: View your business through your customers’ eyes. Don’t view it from what you can do now or how you get rewarded today. Measure your business performance based on what your customers are asking for. Then leverage that understanding to build the necessary capabilities and deliver additional value.

What would happen if you could meet your customers’ crazy expectations, like two-day delivery instead of two weeks? What would you need to change to do that consistently? If you developed that capability, how would it strengthen your relationships with your customers and drive sales growth? Until you seriously consider such expectations, you won’t know what’s possible.

Inventory management offers another example. Many manufacturers are happy if their inventory turns are somewhere around the industry average. We frequently hear managers say something like, “My inventory turnover is in line or at the top of my industry group. Why should we do any better?”

Think about what such a viewpoint does from a cultural perspective. When a leader says the company is already at the industry benchmark and can’t improve, everyone goes into “status quo mode” and stops thinking about how to get better.

The expectations of many employees are blinded by how leaders view the business. Until you get in position and establish the right KPIs, everyone in your business won’t be able to make the best calls for your business in 2017.

TBM offers an easy-to-use, web-based KPI management tool to help companies stay focused on critical performance measures. Try Dploy KPI for free for 30 days.tbm-181_banner_ad_320x100_trackcontrol-2

Annual Productivity Improvements Can’t Wait Until January

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 Part 2 in a Series on 2017 Planning and Budgeting

act nowIn a slow growth economic environment, productivity improvements are even more essential for maintaining earnings growth. Unfortunately, when it comes to hitting annual improvement goals, most companies start too slowly and never catch up.

Detailed planning and implementation must begin during the budgeting process, months before January 1 rolls around. Here’s why. Even if your people work steadily and manage to get productivity improvements close to 5-6% by September or October, your average productivity improvement for the year will be just 2-3%. That’s barely enough to keep up with annual cost increases.

For example,the Wall Street Journal says that wages alone are increasing at a 2.5% annual rate and trending toward 3% next year. Add to that core inflation, which is around 1.6% this year and is projected to be closer to 2% next year. according to the Federal Reserve.

Achieving a net productivity improvement of 5%-plus for the year starts with setting the right targets.  A global corporation with multiple divisions and factories, for example, will have a high-level revenue budget and an operations budget. The operations budget will take regional wage inflation rates into account.

A business unit anticipating low or no revenue growth, might require 3% in productivity improvements to offset wage and benefits cost increases. Maintaining profit growth in a low growth environment would require an additional 2-3% productivity improvement, or at least a 6% gross increase.

For example, let’s say a $2 billion company has a cost of goods sold of $1.2 billion. It’s possible that roughly $250 million of that is some form of manufacturing and distribution labor. If they make no productivity improvements, a wage inflation rate of 3% will increase these costs by $7.5 million. To achieve a net 3% productivity gain, the firm will have to find total labor savings of $15 million.

Such calculations are easy to run through a spreadsheet during the budgeting process. The next step is for the operations managers at each site to identify and report how they expect to hit the targets. These targets cannot be spread equally across the organization. Some locations will be able to exceed the overall target while others might not match it.

Value stream maps can help pinpoint the greatest opportunities for productivity gains and other improvements. Those opportunities need to be detailed and prioritized. The productivity improvements plan must also drive the site toward a future state that is aligned to the company’s overall vision.

Most executives do not ask the difficult questions during the planning process to ensure that site leaders have a clear understanding of how they will drive productivity improvements to achieve the targets. Such vision is critical for regional and global leaders to allocate resources accordingly and not lose time in the most target rich areas.

Site leaders and value stream leaders must understand where the objectives will be achieved, by when, and how. Their action plans should state who’s responsible, where efforts are going to start, necessary resource requirements, the anticipated gains, and a timeline for implementation.  How good this plan is, and how well it’s executed, is what separates businesses that achieve 5%-plus net productivity gains and those that lose ground every year.

Moving from these productivity improvement plans to monitoring month-to-month execution is the next challenge. I’ll write more about that in the next post in this series on planning and budgeting for 2017.

Click Here if You’d Like to Read My First Post in This Series.