Most executives will agree that we have left behind those days when single-digit percentage improvements in performance were good enough. Even though industry has come through a protracted period of downsizing, consolidation, and the adoption of numerous improvement programs, many business leaders are still talking about their need for drastic cost reduction and substantially better service. If all the "low-hanging fruit" appears to have been picked and conventional tools do not seem to be able to find more or to reach high enough or fast enough, what can be done?

As it turns out, there is still plenty of low-hanging fruit out there and, besides, the conventional tools can get to all the branches pretty quickly...if you use them differently. We have found that the application of just four common-sense principles can dramatically improve your view, reach, and speed and thereby maximize your yield. At the risk of beating this metaphor to death, these principles work equally well for pruning (rationalization) and planting (expansion and diversification).

Our purpose in this working paper is to set forth these principles so that you may consider applying them the next time you need to make large and rapid improvements in your operating cost and/or performance. The concepts and approaches that follow are being used and refined daily in Rath & Strong's work with a number of large and successful companies across a range of industries. They reflect much of my personal experience, first in line and staff management positions, and then as consultant to senior managers.

Principle One: Establish Need-Driven Goals

Always Base Goals on Demonstrable Need Rather Than on Apparent Opportunity

When prices in a market are falling and a company determines that it must lower its product cost by 30 percent over two years to preserve acceptable profits, the goal and the need are clear. There may be heated debate about where and how to cut, or even if such radical change is possible, but there can be little argument that it must be done. The same applies when your biggest customers indicate that they will no longer tolerate 85 percent fill rates and will take their business elsewhere unless rates improve to 98 percent within six months. You may not know how to get there, but everyone knows that you must. Goals driven by business needs tend to align the organization and cause it to outperform expectations.

Principle 1 - Goals

Unfortunately, it is far more common for companies to set goals based upon what seems to be achievable in light of perceived improvement potential. Even when opportunity is estimated through careful analysis, both its size and the amount that might be realized are subject to argument. For example, a headquarters-sponsored study concludes that the company is utilizing only 33 percent of its production capacity and that it should be possible to reach 67 percent as the way to effect major savings in overhead. Invariably, objections are raised about such things as the way current utilization is calculated, the risks associated with trying to run at higher speeds or longer hours, the loss of flexibility, and the validity of the savings estimates. Because the case for action is based on the expected gains, it gets weaker as the challenges to the estimates grow stronger. You have probably experienced this sort of thing many times. Managers almost always consider large opportunities in their areas to be an indictment of their management ability. They tend to say things like, "If that opportunity were really there, I would have gotten it." Even if they accept the potential as being possible, they are likely to negotiate for "more reasonable" targets. More reasonable targets are seldom very aggressive and may not be adequate for the needs of the business. Finally, if aggressive goals are mandated, failure to achieve them may be blamed on "unrealistic" estimates. Goals based upon estimated opportunities tend to divide the organization and cause it to underperform.

Principle Two: Focus First on Improving Execution

When Speed and Certainty of Results Are Vital, Focus First on Executional Rather Than Structural Improvement

It is pretty standard management practice to give preference to those projects that appear to offer the largest return. In addition, many corporate cultures give the greatest respect and rewards to people who come up with the "big ideas," are not "risk averse," and consequently "hit home runs." This often translates into a search for the few big moves that will address the most critical business needs. Such structural changes as eliminating or moving facilities, adopting different and better technology, or developing and deploying major new information systems are attractive because of their apparent boldness and potential payoff. Unfortunately, structural change is usually slow, typically involving several years of planning and investment. It does not always meet expectations and can involve significant risk. Structural change is an important way to position your company for the future but not the way to address pressing needs to improve profit and performance.

Principle 2 - Execution Vs. Structure

Every company's improvement portfolio must be balanced by giving equal emphasis to the improvement of execution-increasing the effectiveness and efficiency of work. The only way to meet tougher objectives for the next 12 to 36 months is through an intensive and orchestrated attack on those things that can, in fact, improve significantly in the coming weeks and months. Specifically, rapid results can best be achieved by disciplined attention to reducing errors, time, complexity, resource consumption, and purchase costs. Your strategy should be to maximize the cumulative benefit of many small and rapid improvements all across the organization. You must identify and work for those gains that can be realized without extensive study, long lead time application of hardware or software, or major physical rearrangement. Within those boundaries, there is almost invariably more than enough potential to meet even the most aggressive cost and performance requirements. Improving execution is really the only way to meet heightened near-term objectives because its gains begin-and can be monitored to ensure adequacy- almost immediately.

Principle Three: Analyze and Implement in Parallel 
 
Whenever Possible, Implement Individual Improvements in Parallel with Ongoing Analysis Rather Than Taking a More Sequential Approach to Recommending and Implementing Bundles of Change

The classic, step-by-step approach to improvement goes something like this: Plan a study, gather data, perform an analysis, and then present findings and recommendations to one or more level of superiors for their approval. If recommendations are favorably received, then develop and submit a comprehensive implementation plan and budget. If the plan and funding are approved at all required levels, then begin implementation. During implementation, deal with new objections and unforeseen technical problems while trying to achieve the promised benefits as well as staying on time and within budget.

Principle 3 - Analysis & Implementation

This sequential approach has a number of shortcomings beginning with the fact that it tends to bundle many changes together. Typically, some of those changes are relatively easy and non-controversial; others are just the opposite. As a result, easy changes usually cannot be made until, and unless, the hard ones are also approved. The bigger and more complex the batch of changes, the higher the level of management that ultimately must approve it. The greater the distance between an operation and those approving its change, the less comfortable the approvers usually feel that all technical and political concerns have been identified and addressed. Also, the larger the project, the more the likelihood that it will have to compete with other big projects for resources.

Even if all goes well and the plan is approved and proves flawless, a long time passes from inception to benefit. Essentially, the sequential model of improvement can be needlessly complex and slow while also reducing the number of changes that ultimately get approved and implemented-major structural changes require this approach, most executional improvement does not.

Rath & Strong first developed its parallel model of improvement with a client who needed to achieve major and immediate reductions in administrative workload. We found that teams of managers were stalled after months of detailed process mapping and analysis. They had set out to find the one or two breakthrough changes that would eliminate the bulk of excess work and concluded that everything was intertwined with information systems. Because there was neither time nor funding for major systems changes, all their recommendations were rejected as impractical.

We quickly adopted a different and very pragmatic view. The first wave of improvements would take place within, rather than across, functions to ensure clear lines of authority for approval. A structured approach was used to scan work processes for apparent opportunities that were immediately classified according to ease of action. Any opportunity perceived to be easily actionable was assigned to a knowledgeable and respected manager for "sanity checking" with key stakeholders and for any required modification. Any needed notification of procedural change was promptly prepared, issued, and tracked to verify action. All the while, analysis to find and implement additional opportunities continued. After all the most actionable improvements were in place, the others were addressed in order of increasing difficulty. With each success, the entire organization learned more about its work processes, became more creative in its solutions, and gained confidence in its ability to improve. The rate and degree of improvement were startling and morale soared.

This fast track approach has subsequently been applied and refined in a number of industries and functional areas. It is as effective in manufacturing as it is in marketing. The parallel model of improvement works quickly because individual changes are small enough to be easily designed, validated, and deployed, and no single change ever represents an important risk or a significant expense. It is extremely effective because of the aggregated benefits from so many installed changes.

Principle Four: Collaborate on Rapid Deployment 

Ensure That All Parts of Your Organization Collaborate to Prove and Rapidly Deploy a Selected Set of Improvement Tools Rather Than Micromanaging or Expecting Each Organization to Find Its Own Way

Large organizations go about major change efforts in a number of ways depending on their individual cultures and the nature of the situation. One way is to say something like, "Here is the outcome we need from each of you. We do not care how you do it. Just get it done." At the opposite end of the spectrum is this approach, "I have decided we can meet our profit objective only if you do exactly as I say. Report on your progress weekly and tell me immediately about any problems." Still another way says, "We think this company really needs to adopt a new way of doing business (Total Quality, Reengineering, Self-Directed Work Teams, or whatever). We want each of you to apply this new way in your own organization. We will be checking and adjusting your compensation accordingly, so do it."

A variation of this approach goes, "There is a tool out there (Process Mapping, Statistical Process Control, Activity Based Costing, or the like) that we think is key to more efficient operations. Over the next six months, we will train you and all your personnel." Of course, there are other approaches to change but most, like the examples above, leave out one or more important components.

Obviously, the "I don't care how, just do it" approach offers no guidance on the tools to use or how they may be employed to reach the mandated outcome. Managers will succeed or fail as individuals and even the successes may be at the expense of the organization overall. The other side of the coin is the micromanager or "control freak" who seizes on a solution and does not leverage the knowledge and capacity of his organization. The other two examples specify tools and one of them even provides for learning. However, neither ties the tools to explicit business goals nor does it create a structure for their coordinated application. In summary, most managements seeking major performance improvement either abdicate their responsibility to guide, and/or fail to provide effective tools and support, or instead try to control every detail.

We have found that a more structured and complete improvement campaign is far more effective. It works for centralized colocated management environments and is particularly critical for those that are decentralized and geographically dispersed. The steps are pretty straightforward.

1. The highest level of managers with line responsibility for achieving the goals are brought together as a task force to fully understand the nature, magnitude, and timing of the improvement need. They should be a peer group of functional or unit heads as dictated by the situation.
2. The task force conducts or sponsors an analysis to identify the most promising places and ways to reach objectives. Because the analysis is only to identify the biggest buckets of cost or trouble, it need not be exhaustive nor time consuming.
3. Based on the analysis, the task force decides which tools will be most effective. For short-term objectives, the tools will almost invariably include cycle-time reduction, error reduction/yield improvement, process simplification, and resource cost reduction.
4. Task force members delegate high-potential managers from their organizations to work on a selected set of interorganizational teams. Each team is focused on the application of a single tool in a location that seems to offer early payoff.
5. The teams are given expert technical training and support while they work to achieve important results on an aggressive timetable (usually about 90 days) and collaborate to tailor the tools for their company's needs.
6. Members of the interorganizational teams return to their own operations to launch and support teams that deploy the tools to meet business targets. They also remain part of interorganizational networks for mutual help.

This collaborative rapid deployment model accomplishes two very important ends. First, it  works on many fronts to get the job done quickly, and, second, it builds an organization's capability for ongoing and rapid change.

In Conclusion

We urge you to adopt the foregoing principles as the fastest and most certain way to achieve operating gains. To recap:

Principle One: Establish Need-Driven Goals

Principle Two: Focus First on Improving Execution

Principle Three: Analyze and Implement in Parallel

Principle Four: Collaborate on Rapid Deployment

You have undoubtedly noted that the four principles are so interconnected as to form a set. Over time, a number of protocols have been developed for applying these concepts and many case examples can be cited to illustrate and support them. We recognize that our ideas go against some common thinking and practice, but they have been proven to achieve some uncommon results. Although we believe that these guidelines have sound theoretical underpinnings, it is important to remember they have been empirically derived and thoroughly tested in the real-world laboratory of business operations.

About Rath & Strong... 

Rath & Strong is a management consulting firm headquartered in Lexington, Massachusetts. Founded in 1935, Rath & Strong helps clients achieve desired change by providing consulting services in four main areas: process and operations management, organization development, counsel to leaders, and customer connection. The firm specializes in helping clients address issues relating to these four areas simultaneously from a systems perspective.