succeeding in the value stream with enterprise … roth... · 26/03/2008 · succeeding in the...

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Succeeding in the Value Stream with Enterprise Change Capabilities

George [email protected] 19, 2008

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Transforming My Space In2 OurSpace• Adapting to ever-changing external environments

• Managing increasing technological complexity

• Coordinating across multiple stakeholders and interfaces

• Working through collaborative networked enterprises

MOVING FROM THE PAST(vertically integrated) organizations

TOWARDS THE FUTURE(networked) enterprises

• Understanding different contexts of organizations & enterprises

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Good Leadership Practices

Survey: Which of the following good leadership practices do you find in your company?

1. becoming an outspoken and charismatic company and industry leader Y/N2. paying-for-performance to ensure results Y/N3. emphasizing good strategy and well articulated long-term plans Y/N4. creating a relentless focus on “what to do” (core competence) Y/N5. using technology to drive change Y/N6. letting your mergers and acquisitions ignite change Y/N7. focusing your mgmt team on managing change, motivating people, and creating

alignment Y/N8. using convincing names, tag lines, and launch events for change programs Y/N9. positioning yourself in promising, high-growth industries Y/N

Nine “good” management practices not found in great companies (from Collins 2001: 10-11)

What is your organization’s score? _____

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Collins’ findings11 out of 1435 public companies (Abbott, Circuit

City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo) changed into companies that produced sustained great results:

– Level 5 Leadership – First Who... Then What – Confront the Brutal Facts – The Hedgehog Concept – A Culture of Discipline – Technology Accelerators

http://lean.mit.edu © 2008 Massachusetts Institute of Technology George Roth 01/23/08 - 5

Boston Sunday Globe supplement, August 10 1969

Limitations of Planned Organizational Change

Focus is on single organizations:• Our opportunities are

broad and can not be addressed by single organizations

• Single organizations are:• Hierarchical• Highly organized• Tightly coupled

Sales Engineering Manufacturing Purchasing Research andDevelopment

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ProductDevelopmentTeams

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Vice PresidentResearch andDevelopment

Vice PresidentSales andMarketing

Vice PresidentManufacturing

Vice PresidentFinance

Vice PresidentMaterialsManagement

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PTMPTM PTMPTM PTMPTM

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Multi-organization enterprise form:• New organizational

forms correlate with high performance

• Enterprises are:• Poly-centric• Multiple relationships• Loosely coupled


Challenges of Enterprise Change

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• Enterprises are:• Poly-centric• Multiple relationships• Loosely coupled


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• Organizations are:• Hierarchical• Highly organized• Tightly coupled

• Different assumptions about organizational context

• Should not assume that we can bootstrap past knowledge

• Need a theory of change built upon premises of working both within and across organizational boundaries


Understanding Lean+Enterprise+Change

What can we draw upon?

• Books/documented studies• Toyota and “lean” – i.e. The Machine that Changed the World,

The Toyota Way, Remade in America, Collaborative Advantage• Management/leadership – i.e. Built to Last, Good to Great,

Execution, The Leadership Engine• Corporate/leadership – i.e. Jack, Who Says Elephants Can't

Dance?• Strategy/Change – i.e. The Innovating Organization, Leading

Change, Breaking the Code of Change, The Dance of Change• New case studies that develop and test

concepts – successful “lean” change

lean+change

change+enterprise

lean+enterprise+change

Research on

LeanResearch on

EnterpriseResearch on

Change


A New Theory of Enterprise Change

Based on:• Identification (need to be networked) – “tightening”

system• Directiveness – Providing direction and alignment (you

can’t “organize” a mess)• Crossing boundaries – looking across organizations for

improvement opportunities• Power and politics across organizations – setting and

managing boundaries, standards and plans• Developing performance – within and then across

• Intergenerational leadership to sustain changes through worse-before-better dynamic

Note: The enterprise change proposition is contrary to current organizational change practices of loosing up centralized control, developing collaboration, and looking internally to improve capabilities or value-added.


So, what does it take?…beyond basics: consistency, people, training & metrics

•Rethinking organizational boundaries• View own organization with suppliers and customers as a contiguous value stream• extend the domain to include organization’s environment

Successful Enterprise Change

An ‘enterprise’ is a set of connected organizations

oo

o

ooo

o o

o

o

o

ooo

o o

x o

o

o

ooo

o o

1950 20001900

Small, local businesses

Centralized hierarchical organizations

Complex networked enterprises

Source: Thomas W. Malone, 2001 “Inventing the Organizations of the New Economy”

Value

Value

Value

Value

ValueValue

Value

Enterprise Value Stream

• A portrayal of the relationships of the organization in its external environment

and the general ordering of high-level processes across that organizational environment

Modular(Mass)

Enterprise

SupplierMarkets

CapitalMarkets

LaborMarkets

ProductMarkets

Modular(Mass)

Enterprise

SupplierMarkets

CapitalMarkets

LaborMarkets

ProductMarkets

Integral(Lean)

Enterprise

SupplierMarkets

CapitalMarkets

LaborMarkets

CustomerMarkets

Modular(Mass)

Enterprise

SupplierMarkets

CapitalMarkets

LaborMarkets

ProductMarkets

Modular(Mass)

Enterprise

SupplierMarkets

CapitalMarkets

LaborMarkets

ProductMarkets

Enterprise thinkingWhat is outside my organizational (or functional)

boundaries is not beyond my influence… or improvement ability!

… rethinking organizational boundaries

Enterprise thinking…… evolving from lean improvement

efforts

Raytheon Warner Robins ALC Rockwell Collins Ariens

agenda ~ illustration ~ where ~ what ~ how ~ why ~ who ~ summary



• Installing sets of organizational innovations• Complementarities of practices• extend the scope to include sets of changes as coherent programs


Use Less, Offer Greater Variety, Higher Quality, and More Affordable Products in Less Time

• Best Japanese auto companies developed a fundamentally different way of making things

• Goals in manufacturing systems --combined benefits of craft and mass production

• Improved quality• High productivity• Efficiency at low volumes• Production flexibility• Rapid, efficient development cycle• Product mix diversity

• Lean production contrasts with traditional mass production paradigm

• Systemic principles are transferable

19891990

“Lean” as a system that extends beyond organizational boundaries

MacDuffie (1995):• Combination of HR practices (bundles) and flexible production

system technology (organizational logic) that explains economic performance• Bundles: elements in an internally consistent HR system• Organizational logic: combination of use of buffers and work

systems for mass, transition, or flexible production systems

MacDuffie & Helper (1998):• Honda’s supplier support system (“BP”) at Capitol,

Progressive, Tower, Donnelly, SEWS & GTI:• Developing lean suppliers to support their lean production system• Consistent with internal practices and philosophy• Encourage fresh thoughts and engagement• Gather data and keep records of production system changes• Root cause (5 why’s) method• Develop contextual knowledge (“go see”)• Smooth flow and eliminate waste

Dualities in changingDualities in changing•• Living with hierarchies Living with hierarchies andand networksnetworks

•• Greater performance accountability upwards Greater performance accountability upwards andand greater horizontal greater horizontal integration sidewaysintegration sideways

•• Empowering Empowering andand holding the ringholding the ring

•• Centralizing strategy Centralizing strategy andand decentralizing operationsdecentralizing operations

•• Standardizing Standardizing andand customizingcustomizing

•• Discipline to identify knowledge Discipline to identify knowledge andand the good citizenship to share the good citizenship to share knowledgeknowledge

•• Balancing continuity Balancing continuity andand change change ““to change the world one must live to change the world one must live with itwith it””

•• Continuous innovation requires platforms of relative stabilityContinuous innovation requires platforms of relative stability

•• Delivering a complementary Delivering a complementary andand appropriate set of innovations (not appropriate set of innovations (not latest fad)latest fad)

* Based on work by Andrew Pettigrew, University of Bath

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Changing structure

Source: Whittington and Pettigrew 1999

19

Changing processes


20

Changing boundaries


21

Systemic change: Systemic change: Europe, Japan and US, 1992Europe, Japan and US, 1992--19971997

The 3 DimensionsThe 3 Dimensions

Structure (Structure (SS))

Processes (Processes (PP))

Boundaries (Boundaries (BB))

The 4 SystemsThe 4 Systems

System 1 (S+P+B)System 1 (S+P+B)

System 2 (S+P)System 2 (S+P)

System 3 (P+B)System 3 (P+B)

System 4 (S+B)System 4 (S+B)

EuropeEurope

30.3%30.3%

74.9%74.9%

44.9%44.9%

13.0%13.0%

25.1%25.1%

34.2%34.2%

16.4%16.4%

Very fewVery few companies adopting companies adopting whole system of changewhole system of change

JapanJapan

6.2%6.2%

53.7%53.7%

30.7%30.7%

1.2%1.2%

4.7%4.7%

18.7%18.7%

1.6%1.6%

USUS

16.5%16.5%

82.3%82.3%

57.0%57.0%

8.9%8.9%

12.7%12.7%

46.8%46.8%

11.4%11.4%

* Based on work by Andrew Pettigrew, University of Bath

22

One symbol, + or One symbol, + or --, indicates weak positive or negative significance; two symbols,, indicates weak positive or negative significance; two symbols, ++ or ++ or ----, , indicate strong positive or negative significanceindicate strong positive or negative significance..

Systemic change and performance*: Systemic change and performance*: Summary of regression resultsSummary of regression results

The 4 SystemsThe 4 Systems

System 1 (S+P+B)System 1 (S+P+B)System 2 (S+P)System 2 (S+P)System 3 (P+B)System 3 (P+B)System 4 (S+B)System 4 (S+B)

Pooled Sample of Pooled Sample of Western FirmsWestern Firms

++++----

UKUK

++----

--

USUS

++----

•• The adoption of a The adoption of a full set full set of changes (System 1) increases the of changes (System 1) increases the probability of probability of improvingimproving corporate performancecorporate performance

•• The adoption of The adoption of partial partial systems (System 2 and System 3) is likely systems (System 2 and System 3) is likely to to reducereduce performanceperformance

* * ‘‘HighHigh’’ performance companies are in upper quartile of sector adjusted performance companies are in upper quartile of sector adjusted Return on Capital EmployedReturn on Capital Employed

web.mit.edu/lean © 2005 Massachusetts Institute of Technology George Roth/032205 - 23

Rockwell Collins:complementary and cumulative sets of changes


Change in global enterprises

We need a system that • extends beyond our own organization (i.e.

suppliers, partners, and customers) and • manages improvement and change as a set

across our structure, processes, and boundaries

So… how do companies manage change, and what is unique in an enterprise context?

25

Three-stage Model of Change Process

Stage 1: Unfreezing: creating motivation and readiness to change through

1. Disconfirmation or lack of confirmation2. Creation of guilt or anxiety3. Provision of psychological safety

Stage 2: Changing through cognitive restructuring: helping the client see, judge, feel and react to things differently through

1. Identifying with a new role model, mentor, etc.2. Scanning the environment for relevant new information

Stage 3: Refreezing: helping the client to integrate the new point of view into

1. The total personality and self concept2. Significant relationships

John KotterLeading Change: Why Transformation Efforts Fail

(1996)

Effective Change involves eight sequential steps1. Establishing a Sense of Urgency2. Creating a Guiding Coalition3. Developing a Vision & Strategy4. Communicating the Change Vision5. Empowering Broad-based Action6. Generating Short-term Wins7. Consolidating Gains & Producing More Change8. Anchoring New Approaches in Culture



•Pushing and pulling change• Set in place the structure and process that enables virtuous learning and change• extend the tools to integrate the divergent change approaches



Breaking the Code of Change Michael Beer, et al.

HBS Research Grant: conference in summer of 1998: 50 academics and 25 consultants and 6 CEOs, debating the different perspectives on change.comparative cases: Scott Paper, Champion Paper, Asda, GE

Two dramatically different assumptions about the purpose for, and means of, organizational change emerged:

• Theory E – based on Economic Value

• Theory O – based on Organizational Capability

Consultants support process to shape own solutions

Expert consultants analyze problems and shape solutions

Use of consultants

Commitment leads and incentives lag

Financial incentives lead

Reward system

EmergentProgrammaticProcess

Corporate cultureStructure and systems

FocusBottom upTop downLeadershipDevelop capabilitiesMaximize valueGoals

Theory OTheory EDimensions of Change

What kind of change process?


Theories E and O approach the problem of organizational change from two different, but equally legitimate perspectives....

neither achieves all the objectives of management in most cases!

Consultants are expert resources who empower employeesUse of consultants

Incentives reinforce but do not drive changeReward system

Plan for spontaneityProcess

Focus simultaneously on hard and softFocus

Set direction from top and engage people from belowLeadership

Embrace paradox between value and organizational capabilityGoals

Theory OEDimensions of Change

What kind of change process?

We need to be both “pushing” (E) and “pulling” (O) change!


Long Term Cycle

Focus on the Value Stream

InitialLean Vision

Short Term Cycle

Create & Refine Transformation Plan

Lean Transformation

FrameworkFocus on

Continuous Improvement

Outcomes on Enterprise

MetricsImplement Lean

Initiatives

Enterprise Level

TransformationPlan

Develop Lean Structure & Behavior

Detailed Lean

Vision

Environmental Corrective

Action IndicatorsDetailed

Corrective Action

Indicators

!

!

Entry/Re-entryCycle

Adopt LeanParadigm

EnterpriseStrategicPlanning

Decision to Pursue

Enterprise Transformation

Frameworks for Lean Transformation: TTL

Strategic/Episodic Learning & Change

Continuous/Process Learning & Change

Challenge ofunderstanding, enabling & managingflow-down and feed-back



•Seeking growth opportunities• Project positive vision for continual renewal• extend the strategy to build in growth and development



Growth orientation

We repeatedly find that:• Team and organizational development will get people

engaged and committed to improvement efforts• People committed to improvements efforts can produce

dramatic results• Resources and opportunities to are needed to continue

to vitalize development (feed growth)

Long Term Cycle

Focus on the Value Stream

InitialLean Vision

Short Term Cycle

Create & Refine Transformation Plan

Lean Transformation

FrameworkFocus on

Continuous Improvement

Outcomes on Enterprise

MetricsImplement Lean

Initiatives

Enterprise Level

TransformationPlan

Develop Lean Structure & Behavior

Detailed Lean

Vision

Environmental Corrective

Action IndicatorsDetailed

Corrective Action

Indicators

!

!

Entry/Re-entryCycle

Adopt LeanParadigm

EnterpriseStrategicPlanning

Decision to Pursue

Enterprise Transformation

Strategic/Episodic Learning & ChangeStrategic/Episodic Learning & Change

Continuous/Process Learning & ChangeContinuous/Process Learning & Change


Growth orientation


Growth orientation

• Warner Robins ALC

Zero Sum Game(Competition-based focus on splitting the pie)

Employees/ Unions

Share-holders

Suppliers OEM

Employees/ Unions

Share-holders

Suppliers OEM


Thinking strategically & moving forward

Individual & organiza

tional tr

ansform

ation

Results

Innovations in Infrastructure

Theory, methods, and tools

Guiding ideas

Attitudes and beliefs

Skills and capabilities

Awareness and sensibilities

Domain of Action

(organizational architecture)

Domain of enduring change (deep learning

cycle)

Results


Growth Processes of Profound ChangeReinforcing loops

• Personal results

R1Enthusiasm &Willingness to

Commit

PersonalResults

Investment inChange Initiatives

R2People Involved

Networkingand Diffusion

• Networks of committed people

BusinessResults

Credibility

New BusinessPractices

DELAY

R3

• Business results Learning

Capabilities


Time !

Res

ults! The growth we

expect (and prepare for)

The growth that actually

occurs


Growth Processes of

Profound ChangeBalancing

LoopsNew BusinessPractices

BusinessResults

Credibility

PeopleInvolved

Enthusiasm &Willingness to

Commit

LearningCapabilities

R3

R1

R2

PersonalResults


Investment inChangeInitiatives

NotEnough

TimeChapter 3

“We don’thave timefor this stuff!”

No Help(Coachingand Support)Chapter 4

“We don’t knowwhat we’re

“We haveno help!”

Not RelevantChapter 5

“This stuffisn’t

Walkingthe TalkChapter 6

“They’re notwalking thetalk!”

Fear andAnxietyChapter 7

“This stuff is______

(Am I safe? Am Iadequate? Can Itrust others? CanI trust myself?)

Assessment and MeasurementChapter 8

“This stuff isn’t working!”

TrueBelieversand Non-BelieversChapter 9

“They don’tunderstand us!”

“Wehave theright

“I have noidea whatthesepeopleare

“They’reacting likea cult!”

GovernanceChapter 10

“They won’tgive up the

“Who’s incharge of this

DiffusionChapter 11

“We keepreinventingthe wheel!”

Strategyand PurposeChapter 12

“Where are we going?

What are we here for?”


Growth orientation


Outline of LEAD Finance case

1. Lean leadership, developments and successes at Letterkenny Army Depot (“LEAD”).

• Proposed case(s) build off of foundational case already under development: Lean’s introduction into the Patriot missile programs at LEAD.

2. LEAD’s context: its value streams and the Army’s budget process.

3. LEAD’s finance innovations.4. Extended enterprise

implications of LEAD’ssuccesses and innovations.


Lean Change meets “Enterprise” challenges

• Depots including LEAD work principally on fixed price contracts.

• Efficiency savings usually have been reflected in lower “prices” charged in later years through the HQ budget mechanisms.

• Col. Guinn saw opportunity to abbreviate this mechanism and benefit his Warfighter customers during current FY.

• New approach affects other commands up and down his value streams.


Lean Savings = “Refunds”to Customers

• Lean reduces Utilized Labor expenses below their fixed-price allocations.

• Depot offers through MIPR* to perform Additional Work during current FY, at no added cost to Customer, which endorses and hands back its “refund check”.

• Additional work adds current FY labor demand and reduces its excess NOR.

* Military Interdepartmental Purchase Request, DD448Lean Savings Returned to Customers = $5.8MLEAD has changed the business by giving money back!



•Distributing leadership practices• Recognizing interdependent roles in a system of leadership• extend the leadership to all levels of the enterprise


Leadership Begins at Home

“Leadership is about capturing the imagination and enthusiasm of your people and turning that energy

into action.”

Daniel Ariens

“Make that action impress and astound your customers.”

What is it?• Based on Lean Manufacturing principles• Accurately specify value by product• Identify the value stream for each product• Make the product flow• At the pull of the customer• In pursuit of perfection

What did it result in?

Is This Enough Motivation?

Leadership Must Motivate Change

USA - $31.47/Internal

China - $19.30 + Freight

APS/Lean - $15.72One Piece Flow Cell

China Differential

5% = Value Added

95% = Waste

$0.53 = China

$20 = USA

Value AddedWork

Wage AvgComparison


Leadership for Learning & Change

Applying learning disciplines……is leadership in learning organizations

different from the leadership needed in organizations with other goals?

(The Dance of Change, 1999)

Building an Ecology of Leadership

What do we mean by leadership?

CEO who drives changevs.

Human community capable of shaping its future

Fundamental Issues

… observers confuse the toolsand practices … with the system itself.

… activities and processes are constantly being challenged and pushed to a higher level of performance, enabling the company to continually innovate and improve.

… paradox of the system…activities…are rigidly scripted, yet at the same time operations are enormously flexible and adaptive.

Artifactsstories people tell,

visible organizational behavior, processes and structure(hard to decipher)

Valuesstrategies, goals, philosophies

(espoused beliefs and justifications)

Basic Assumptions (mental models)

unconscious beliefs, habits, perceptions, thoughts, and feelings(ultimate source of values and actions)

Organizational Culture, Effectiveness and Learning

from Schein, 1996”Three cultures of Management: the key to organizational learning” Sloan Management Review

Organizational Culture Model

Artifactsstories people tell,

visible organizational behavior, processes and structure(hard to decipher)

Valuesstrategies, goals, philosophies

(espoused beliefs and justifications)

Basic Assumptions (mental models)

unconscious beliefs, habits, perceptions, thoughts, and feelings(ultimate source of values and actions)

Ope

rato

r sub

-cul

ture

Eng

inee

ring

sub-

cultu

re

Exe

cutiv

e su

b-cu

lture

"occupational communities" generate cultures that cut across organizations

$$$


6

5

4

3

2

1

7

1 1

2 2

3 3

CEOExecutive Board

Conversion

Environment

OutputInput

Approaches to Managing Organizational Effectiveness

Goals to Set to Approach Description Measure Effectiveness

Evaluates the organization’s ability to secure, manage, and control scarce and valued skills and resources

• Lower costs of inputs• Obtain high-quality inputs of raw

materials and employees• Increase market share• Increase stock price• Gain support of stakeholders such as

government or environmentalists

• Cut decision-making time• Increase rate of product innovation• Increase coordination and motivation of

employees• Reduce conflict• Reduce time to market

Evaluates the organization’s ability to convert skills and resources into goods and services efficiently

• Increase product quality• Reduce number of defects• Reduce production costs• Improve customer service• Reduce delivery time to customer

Internal systemsapproach

Technical approach

External resource approach

from Organizational Theory by Gareth Jones, 1997

Evaluates the organization’s ability to be innovative and function quickly and responsivelyInnovation, learning and OD

Strategy, Analysis & Planning[Executive culture]

Lean, 6!, TOC, re-engineering & CPI

[Operator culture]

[Engineering culture]

New BusinessPractices

BusinessResults

Credibility

PeopleInvolved

Enthusiasm &Willingness to

Commit

LearningCapabilities

R3

R1

R2

PersonalResults


Investment inChangeInitiatives

NotEnough

TimeChapter 3

“We don’thave timefor this stuff!”

No Help(Coachingand Support)Chapter 4

“We don’t knowwhat we’re

“We haveno help!”

Not RelevantChapter 5

“This stuffisn’t

Walkingthe TalkChapter 6

“They’re notwalking thetalk!”

Fear andAnxietyChapter 7

“This stuff is______

(Am I safe? Am Iadequate? Can Itrust others? CanI trust myself?)

Assessment and MeasurementChapter 8

“This stuff isn’t working!”

TrueBelieversand Non-BelieversChapter 9

“They don’tunderstand us!”

“Wehave theright

“I have noidea whatthesepeopleare

“They’reacting likea cult!”

GovernanceChapter 10

“They won’tgive up the

“Who’s incharge of this

DiffusionChapter 11

“We keepreinventingthe wheel!”

Strategyand PurposeChapter 12

“Where are we going?

What are we here for?”

Leadership for learning

Premise 4: Successful change from

learning requires at least three forms of

leadership.

• Executive leaders - defining the organizational

environment, offering permission, protection,

evaluation, and context.

• Local line leaders - developing changes in ways that

produce results, galvanizing activity around a project,

and managing accountability.

• Internal networkers - building community and diffusing

experience, making sure that the line leaders do not

act alone.

Three Types of Leaders

Local line leaders• Innovation at the front lines• Establishing new practices and processes

Executive leaders• Shaping an environment for innovation• Dealing with structural impediments to innovation

Internal networkers• Connecting innovators with one another and with new ideas

and practices• Developing social networks that naturally diffuse innovation

…all are needed in order to initiate and sustain deep change


Distributing Leadership

Who are your leaders?• What tools and methods do they use?• How are they empowered?• How do they facilitate learning and change?

Executive Leaders Line Leaders

Network Leaders

MiddleManagement

How are leaders aligned and their efforts integrated?



Rethinking boundaries

Installinginnovation sets

Pulling & pushing change

Seeking growth

Distributing leadership

The system of change

~ leads to a ~

lean enterprise system

Implications for Executive Leadership:Architecting an enterprise through a change system

• Strong, competent, and enduring leadership at all levels• Bridging occupational communities to foster learning• Managing the contention in roles of executive, local,

middle and network leaders

Improving, learning and changing their organization and enterprise through these five capabilities:• Enterprise thinking• Complementary approaches• Pulling of change• Growth orientation• Distributed leadership

Sharing authority by establishing principles and modeling practices that executives adhere to and expect from all other leaders


Questions?

Discussion

succeeding in the value stream with enterprise … roth... · 26/03/2008 · succeeding in the...

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