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  Current Issue: Volume 2 Issue 2 - The Mediocre Emergency
President's Column

CFO Citing:

Are you struggling
to improve 4%?

Reading this issue's article "The Mediocre Emergency" reminded me of a meeting I had awhile ago with the CFO of a privately held $1 billion company. I asked her about their financial goals, and she replied that they had an aggressive target to improve profits by 4% this year.

I felt their "aggressive target" was limiting, so I shared with her two facts that I hoped would shift her thinking:

1. Over 95% of her body mass consists of water.

2. Over 95% of her company's activities consist of waste.

She was gracious and accepted fact #1 as a truth, yet balked over fact #2, and didn't understand my overall meaning. So I explained:

"Pervasive waste in business is a fact, just like pervasive water in your body is a fact. Neither is particularly flattering, but does it make sense to deny they're true?"

"Acknowledging that waste is pervasive in your company is critical for breakthrough thinking. For example, you have a value stream with a 5% profit margin. Let's say that you reduce the waste in this value stream from 95% to 65%. What's the bottom-line impact?"

The CFO haltingly replied: "From a financial perspective, it would be huge. You just decreased my costs up to 30%, and increased profits by a factor of 6 or 7."

"That's breakthrough thinking." I acknowledged. "Now, we're willing to work with your team as a risk-sharing partner until you've reduced waste in this value stream by 30%. But to succeed, we need your commitment and involvement as the CFO. Are you in?"

At first, she couldn't decide if I was a lunatic or a godsend. But after spending some time with her discussing Lean thinking principles, and encouraging their executive team to talk with some of our clients, they began to see the potential.

And after the first few weeks of working with us, they shifted their thinking. Instead of struggling to increase earnings 4%, they now conservatively estimate reducing costs 30% and increasing earnings 40%.

So, are your company's goals encouraging breakthrough thinking?

Or are you still struggling with that 4%?

-- Mark Edmondson


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We hope you enjoy your complimentary issue of "The LEAN Executive". As always, your comments and suggestions are welcome- please follow the links at the bottom to send a note to the editor, forward this newsletter to colleagues, or unsubscribe to future editions.

Yours in success,

The LEAN Affiliates Team


Sense of No Urgency:
The Mediocre Emergency
by Seth Godin

Let's say you work at eBay.

Your site goes down. How many people will drop what they are doing and figure out how to get it back up and running?

Everyone from PR to server guys will be on the case.

Or let's say you work at Aetna. A fire rips through a warehouse and destroys a million policy records. How many people, from the CEO to the actuaries will get on the stick and make something happen?

Now, imagine you work at GM. I know, it's hard, but imagine.

For years, you've been designing, making and marketing stuff in a mediocre way. No one dropped what they were doing to fix the problem. It's not an emergency.

Of course, it is an emergency. It's a bigger emergency than the things you can buy insurance against, because it's endemic, hard to measure and ultimately fatal.

When you get back to work, figure out where the mediocre emergency lies and stamp it out.

Start today.


Note from the Editor: I want thank Mr. Godin for sharing this profound message. I also recommend Seth's Blog as an ongoing source of fresh ideas about business.

What do you think? Is there a "mediocre emergency" at corporate America?

Post your comments about this article on our Lean Thinker's Blog.


The Consultant's Diaries
Rapid Assessment
or Quick Guess?
by Mark Edmondson

Recently a couple of our Affiliates and I visited a client's facility during a "Qualification Interview" (or "QI"). QIs are an intense part of our rapid assessment process that includes one full day touring the client's site while interviewing management and employees. During this QI, we committed to reduce operating expenses for a specific value stream by 25% within 9 months.

During our debriefing with the client, one of the vice presidents asked:

"Our staff is struggling to cut costs by 5%. And yet, after spending only one day with us, you're telling us that we can reduce operating expenses by 25%? That's incredible.

He stressed the word "incredible" with the tone of "implausible" rather than "wonderful", so we clarified our thoughts. Our team highlighted specific examples of waste we observed, intimated why their production scheduling and materials delivery process did not respond well to changes in customer demand, and then showed how this impacted their labor productivity, agility, inventory turns, and delivery performance.

That's the logical "left brain" response that we shared with the client. And it's a plausible explanation.

But it's not the complete explanation how we reached our conclusions.

It's difficult to explain, but usually after the first few minutes at the client's site, we just know. Maybe it's because between all of us, we've led hundreds of Lean initiatives and learned to see waste differently than many. Or maybe it's because we know what's possible for the future state, and we mentally compare that with what we're seeing. In any case, we usually spend the rest of the day observing, listening, and then reconfirming our initial impressions.

But how do you explain this to the client? Where are the data? What calculations did we use?

My answer came from an unexpected source- while reading Malcolm Gladwell's book Blink. Gladwell reviews the research and cites examples about how our unconscious finds patterns in situations and behavior based on very narrow "slices" of experience. This is particularly true in situations we've encountered many times before, in other words, in situations we're expert about.

Gladwell calls this ability "thin slicing". Apparently, not only is thin slicing quick, but it's surprisingly accurate.

Thin slicing. Now I have a term for our rapid assessment process, and an explanation for why it's only one day yet reliably accurate.

Are you seeking a breakthrough? Wondering what's possible for your Lean initiative? Learn how our 1 day Qualification Interview creates an implementation roadmap tailored to your business with aggressive yet achievable milestones.


Lean Weblog
Introducing the
Lean Manufacturing Blog

Are you looking for an active forum about Lean Thinking Principles and the Toyota Production System? You're invited to visit our blog to learn about other's experiences, and to post your own comments.


 

Current Issue

Volume 3 Issue 5 :
Lean Consumption

Previous Issues

Volume 3 Issue 4:
Performance Measurement

Volume 3 Issue 3:
Organizational Innovation

Volume 3 Issue 2:
Looking Lean

Volume 3 Issue 1:
Lean Management Systems

Volume 2 Issue 4:
Peter Drucker Tribute

Volume 2 Issue 3:
Ranking & Right Sizing

Volume 2 Issue 2:
Mediocre Emergency

Volume 2 Issue 1:
Goal Obsession

Volume 1 Issue 2:
Enterprise Software

Volume 1 Issue 1:
Technology