Video: How operational leadership impacts financial performance - Ken Koenemann

The Transformational Leadership Trifecta

Improving your operational leadership is key to improving your company’s financial performance. But how do you become a more effective leader? How do you ensure that your leadership behaviors and process make an impact on financial performance.  

You do it by:

  • Using Policy Deployment to create strong improvement priorities that align with your organization’s strategic goals;
  • Improving project execution, engaging employees and eliminating waste using Lean practices; and
  • Implementing a management system for sustained improvement. Change is at the heart of every successful business.

Process improvements should be continuous and tightly aligned with your company’s strategic objectives across all business units. Ideally, change is so integral to your company that it’s a part of your culture. This kind of operational excellence requires focus, commitment, and the ability to seize opportunities for leveraging process improvements into positive financial results.

The benchmark for your process improvement efforts should be:

  1. Double-digit productivity increases every year;
  2. Bottom-line profitability improvements that are 2X your top line growth rate; and
  3. Revenue growth that exceeds the industry average and that of your nearest competitors.

But if you’re not there yet, how do you go about achieving this kind of superior financial performance? It starts with Policy Deployment.

Policy Deployment: Better Execution Through Alignment of Improvement Priorities and Overall Strategy

Companies that maintain a strong linkage between projects and business strategies and the rigorous follow-up discipline required to ensure success are more likely to make business changes that contribute to competitiveness, cost savings and revenue growth year over year. Oftentimes, the same few people are assigned to critical projects—often overloading the project owners and overlooking others who could contribute.

The Policy Deployment process helps to narrow improvement priorities to the critical few, ensures organizational alignment, and creates accountability for getting things done. A shining star of Policy Deployment is Danaher Corporation, known for acquiring businesses and then applying its Danaher Business System to them. (They’ve been using the Policy Deployment process since the late 1980s.) Danaher’s historical numbers confirm that their free cash flow to net income conversion ratio of 128% is in-line with its long-term trends—proof that its lean management system continues to provide accelerated and sustainable value creation.

For example, from 2005-2011, Jason Industries’ CEO, David Westgate, used the Policy Deployment process to set performance goals that some executives considered ludicrous—but few would argue that it paid off in the end. By using both Policy Deployment and embedding Lean throughout the organization, the company was able to increase profitability by 40% each year. They recovered over 200,000 square feet of manufacturing space, drastically reduced inventories, and added hundreds of millions in revenue.

By taking the initiative to establish aggressive stretch goals, push their employees and redirect the company’s resources into projects that align with their business objectives, value was rapidly created and the employees became passionate about what they were able to accomplish.

Policy Deployment helps leadership team members create a detailed action plan for achieving strategic objectives, agree on the key performance indicators, and assign individual responsibility. It also establishes a process and disciplined set of checks for monitoring projects and progress. It’s important for a leader to follow up, ensuring that the right projects are going forward and that improvement processes are becoming institutionalized.

It is easy for employees to lose focus and it’s up to you to keep them from backsliding into the old way of doing things. Once the right process changes are underway, keep your eyes open for opportunities to further improve your gross margin and earnings (EBIT or EBITDA).

Embrace Lean Practices for Better Execution

Lean is an efficient method for eliminating waste to achieve the shortest possible cycle time and lead time within any business process. The combination of Lean and Six Sigma, also known as LeanSigma, ensures responsiveness and process capability through the utilization of Kaizen events, statistical analysis of data verified with observations of live data, and a team-based process with buy-in. Organizations that embrace Lean are able to achieve dramatic bottom-line improvement in substantially less time.

This transformational approach to management engages employees’ minds, stirs their creativity, challenges them to learn, rewards their growth, and taps into their desire to improve.

One longtime Lean-focused client, WIKA Corporation, found that Lean manufacturing practices enabled the company to respond quickly to market declines during the recent recession without being caught holding excessive inventory. Cultural discipline and transparency enabled WIKA to maintain profitability during the global market downturn and then respond quickly when sales growth rebounded. The company has also been committed to developing Lean leaders through individual and team coaching and growth plans. Executives with Lean experience know how to adapt quickly to new situations and information. They can deal effectively with constant change and are able to ensure alignment between improvement priorities and financial objectives. Fully leveraged, the Lean methodology helps company leadership foster a superior culture that allows employees to serve customers better and leads to superior financial performance.

A Solid Management System for Sustained Growth

Relentlessly aligning projects to corporate objectives and moving a company with intention from tool-driven to principle-driven stages are necessary first steps for increasing profitability and gaining market share. It can take years to reap significant benefits from those initiatives. These improvement efforts can reach a plateau. It is therefore critical to develop a Management System to sustain improvement indefinitely. The goal is to implement a disciplined, systematic approach that helps an organization achieve its strategic objectives through enterprise-wide alignment and cross-functional problem-solving.

The management system leverages monthly, weekly, daily and hourly monitoring to increase employee engagement and provide real-time feedback and corrective actions. It offers organizations a pragmatic new way to align daily business activities with long-term strategy execution—cascading objectives and measures deep into the enterprise. In short, it instills a problem-solving culture throughout the company. Together, this trifecta of policy deployment for better alignment, Lean for better execution, and a management system for sustained improvement will position a company for enduring operational excellence and accelerated value creation.

The combination of all three helps managers to understand and deploy operational leadership behaviors that address under-performance within a systematic review process, encouraging employee engagement and decision-making throughout the enterprise. It offers business leaders a new ability to shift their focus from short-term firefighting to process improvement, proactive issue resolution and sustainable performance. A relentless approach to coaching and mentoring supports a company-wide culture of problem-solving and helps organizations achieve goals, accelerate change and sustain improvement.