white paper | Policy Deployment Cracking the Code: How to Make Policy Deployment Work for Your Company By Gary Hourselt C reating a strategic plan for your business is like working with an architect to develop a set of blueprints for your dream house. Policy deployment is often portrayed as the general contractor who works to turn that vision into reality, setting project milestones and initiating corrective actions when the plumber doesn’t show up. The weakness of this analogy is that every house under construction has a set of blueprints and a more or less co mpetent general contractor, but every business does not have a good strategic plan let alone a disciplined process for making it a reality. “Your business is perfectly designed for the results you’re getting,” says Mark Kohler, who has worked on lean manufacturing and policy deployment initiatives since the early 1990s. Kohler was vice president of manufacturing for Snap-on Inc. (Kenosha, Wis.) through early 2008. “If leadership wants to achieve different or better results, they have to be willing to change the design of the business to get there. Policy deployment determines which business processes need to change and which ones need to be developed and improved to take you where want to go.” “ Your business or a change in market variables, not their inability to respond to disruptions in the market.” Kohler adds. “Company leaders may have a vision of where they want to go, but they don’t have a way of deploying that vision, or understanding the physical changes required by the business to achieve it.” Set Real Breakthrough Objectives As a disciplined process for executing a company’s strategic plan, policy deployment follows the Shewhart cycle—plan, do, check, act (PDCA)—named after Walter A. Shewhart and popularized by W. Edwards Deming. The “plan” phase encompasses the development of the strategic plan and the key business indicators that reflect those breakthrough objectives. The “do” phase is the rollout of the plan, when leaders assign resources and accountability, and pull together crossfunctional teams to drive operational or commercial breakthroughs. The “check” phase includes monitoring progress and monthly status meetings. And the “act” phase is the corrective actions required to stay on target. “If a business is out of control, getting it unis perfectly der control would be the initial focus,” says designed for the results Mike Heath. Heath spent 14 years at Danaher Kohler divides management activity into you’re getting. If leadership Corp. He was president of the Danaher Tool two categories, “working in the business” wants to achieve different or Group Asia and executive vice president of and “working on the business.” Working in better results, they have to the Danaher Tool Group before launching his the business is everything that has to be be willing to change the deown consulting company in 2001. Focused done to meet weekly, monthly and quarterly sign of the business.” on driving performance within public and commitments. It’s about making incremenprivate equity companies, the firm was actal improvements and doing all of the funquired by TBM Consulting Group in 2008. damental things that competent managers know will improve business performance. By contrast, working on the business is about changing how the company operates and shifting core competencies to achieve breakthrough improvements. As this white paper reviews, policy deployment helps organization leaders create an action plan for working on the business to achieve their strategic objectives, and establishes a disciplined process for making it happen. “A lot of companies are driven by an annual operating plan with incremental levels of performance improvement with incentive and bonus systems geared to that plan. Some years they do well. But in bad times they will blame the economy, “After getting the business under control, then you can focus on step function improvements,” says Heath. The top level, step function objectives will vary, but they tend to revolve around profitable growth and cash flow. In a slowing economy, when many companies are carrying a lot of debt, cash flow will often become the absolute top priority. One of the biggest challenges for many leadership teams is not where they need to focus, but what a step function or breakthrough objective actually looks like. “It’s not uncommon for companies to have a budget expectation for sales to keep up with market growth. That’s unacceptable. That’s not a step function improvement,” says Heath. pg.2 TBM white paper | Policy Deployment “You want to double the market rate or improve cash flow from 80 percent of EBITA to 120 percent of EBITA. True stretch goals will require the team to reevaluate and approach the business in a different manner than budget goals.” Breakthrough objectives require managers to stop doing what they‟ve always done and do something new. This pushes people out of their comfort zones, which is the whole point. Still, the breakthrough objectives must be within the realm of possibility. A popular example of a visionary but achievable breakthrough objective was U.S. Presi“Growing sales is too impordent John F. Kennetant to leave it up to marketing dy‟s challenge to put and sales. You need to involve a man on the moon the accounting people, the enand bring him back gineering people, and the prohome safely by the duction planning people, with different perspectives and less end of the 1960s. bias to help you see the possibilities.” “A breakthrough is not business as usual and should require a redirection of resources,” confirms Gary Hourselt, former president of Huck Fasteners. “If you can immediately articulate a plan for accomplishing something, that‟s not a breakthrough objective.” Hourselt offers the example of a 60-year-old company he has worked with that had been recording defective product and warranty claims of $1 million to $2 million every year. Managers had made sporadic attempts to reduce these claims, but everyone assumed that they were just part of the normal course of doing business. One of the company‟s policy deployment projects was to reduce these costs to zero. Having an opportunity to focus on that goal, and dedicating some resources to the problem, the cross-functional project team discovered that most of the claims were caused by internal process failures. Within a few months they had developed a plan of attack and were making significant progress toward eliminating all such costs. “When pursuing strategic objectives many companies try to work on too many initiatives at once,” Hourselt points out. This dilutes resources and diverts management attention. A critical element of policy deployment‟s initial planning phase is the “deselection” process. In this phase the leadership team rigorously eliminates any non-essential goals and kills any pet projects that will divert focus away from the vital few objectives. “Each project must be scrutinized to determine if it aligns with policy deployment objectives,” says Hourselt. “If it doesn‟t and it isn‟t regulatory—you have to do it or you go to jail—or it isn‟t required by the board of directors, it should be eliminated to free up resources. The companies that add policy deployment projects on top of everything else that they‟re doing are not very successful.” Freeing up resources is critical because achieving the two or three breakthrough objectives generally requires teams to work across departmental silos. Most companies don‟t work well across functions. To combat this tendency the action plans emerging from the policy deployment process should be fully vetted by finance, engineering, human resources and IT managers. Talking through their concerns and issues will reveal the potential impact on each department as well as the business itself. The more time that the team spends on such discussions, the deeper the buy in, and the greater the likelihood of success. “Following the policy deployment process, you realize that growing sales is too important just to leave it up to marketing and sales. You need to involve the accounting people, the engineering people, and the production planning people. You need to have people with different perspectives and less bias and baggage to help you see the possibilities,” Hourselt adds. Take Strategy Off the Shelf Most business managers have been involved in some form of strategic planning process. The result in many cases is a fancily bound book or report that sits on everyone‟s shelf until the next planning cycle rolls around when managers take it down and see how they did. “Daily management always takes precedence over spending time out in the future on strategy,” explains Sheri Nemeth. As corporate director for the Danaher Business System, Nemeth led an internal consulting team focused on rapid integration of new acquisitions at Danaher (Washington, D.C.). At General Electric she worked in the Controls, Medical Systems and Motors business unit, applying lean and Six Sigma tools to improve delivery, reduce lead times and increase inventory turns. “In any company that is resource limited, which almost all of them are, people get sucked up into daily activities,” she adds. Policy deployment attempts to balance this focus on meeting the monthly financial numbers with longer term metrics tied to pg.3 TBM white paper | Policy Deployment strategic objectives. CEOs like the process because it helps everyone understand the resource load requirements and assigns specific accountability through the action plans. Managers like policy deployment because it‟s a less time consuming and wasteful method for determining what the company is going to do and why. Policy deployment may begin with a planning meeting or series of meetings. (See box, “Focus on the Vital Few: Getting Started with Policy Deployment.”) But it soon becomes a way of running the business when managers start meeting every month to review progress (or the lack thereof) against their action plans and performance targets. “Getting the whole management team together in a room at the same time, building consensus on what they‟re going to work on—and what they‟re not going to work on—is a powerful part of the policy development process,” says Nemeth. “Everyone develops an understanding of what they‟re supposed to do to achieve the strategic plan.” During a typical policy deployment session the X-matrix is loaded for the upcoming fiscal year. On a single piece of paper Focus on the Vital Few: Getting Started with Policy Deployment POLICY DEPLOYMENT PHASE III POLICY DEPLOYMENT PHASE II POLICY DEPLOYMENT PHASE I STRATEGY, VISION & COMMITMENT (if it is not already well defined.) The policy deployment process begins with the company’s strategy. Here is a typical timeline for an organization that is just getting started with policy deployment: 1. Create a Common Understanding—Review customer perceptions of quality, delivery, service, and value. The leadership team must analyze current company performance, focusing on key operational and financial indicators. These discussions build understanding of competitors’ strengths and weaknesses, human resource challenges, supply chain capabilities, and the potential impact of any market changes. 2. Key Strengths, Weaknesses, Opportunities and Threats (Focused SWOT)—Start to identify the “vital few” issues that the organization must address now. One approach is to ask leadership team members to put themselves in the role of the company president and list their top three priorities. 3. Develop Directional Alignment—Align the company’s vision with the conclusions of the SWOT analysis. Determine the optimum organizational direction by looking at current technology and products, markets and sales channels. Creation of a directional matrix can expose new and related products and technology that the company could develop, markets it could enter, and related channels it could explore. 4. Outline the Strategic Plan—The planning team creates a three-year strategic plan that leverages the results of the SWOT analysis and the directional matrix to set concrete goals for quality/customer satisfaction, productivity/cost reduction, delivery/responsiveness, and morale/safety. The team identifies measureable goals for each business unit that will contribute to the overall business goals. 5. Create the Policy Deployment Matrix—The goals defined in the strategic plan must be developed into specific growth and operational improvement objectives. The X matrix presents these objectives, related projects, potential financial impact, and the responsible individuals on a single page. 6. Choose the Vital Few and Deselect Aggressively—Select the few breakthrough initiatives that will have a major impact on the company’s success. Going beyond incremental improvements, breakthrough initiatives have the potential of leading to a step change in sales, market share or earnings. Projects that are not aligned with organizational goals must be killed. 7. Track and Review Performance—As the name implies, the crux of policy deployment is making sure each initiative is on track and that action is being taken to achieve the business objectives. Weekly team meetings and monthly progress updates review key milestones and devise countermeasures if anything is falling behind. Visual controls and performance boards help everyone see how the company, and each team, is progressing. Source: The Antidote: How to Transform Your Business for the Extreme Challenges of the 21st Century, Anand Sharma and Gary Hourselt (Managing Times Press, 2006). pg.4 TBM white paper | Policy Deployment the matrix describes the policy deployment plan including breakthrough objectives, annual improvement priorities (AIPs), the metrics that will be used to measure the AIPs, and the resource team assigned to each AIP. The appeal of the X matrix lies in its simplicity and elegance. Policy Deployment X Matrix After establishing breakthrough objectives and making step change improvements, company leaders begin to understand how they can directly contribute to the sales growth, in addition to managing the operational and cost side of the business. “Even managers in large companies with sophisticated marketing departments often don‟t feel like they have control over the top line,” says Hourselt. “The exciting thing about policy deployment is that after the second or third year managers become increasingly confident that they have some control over growth, and you start to see some creative ways to get breakthroughs and gain a real advantage over the competition,” he adds. Getting started requires a leader who draws the proverbial line in the sand and demands that business as usual is over, a leader who is confident that when managers start working on the breakthrough objectives, and really put their minds to them, they‟ll begin to uncover the possibilities. “In every company that is successful with policy deployment, there‟s a management team that is eager for some kind of breakthrough, something dramatically different from what they‟ve done before,” says Hourselt. That requires more than a commitment of funding to the policy deployment process. Executives have to be involved, and should know the process well enough that they can teach it, Heath believes. “In the spirit of policy deployment we win as a team, or lose as a team. When leadership buys in, as we go through the data and cascade the goals down to the point of impact and create the action plans, you can see the light bulbs going off. It‟s really pretty exciting.” Executives need to participate directly in the deselection process, allocate resources where necessary and attend the monthly review meetings. In addition to having high expectations, leaders have to nourish a culture that‟s not punitive, where it‟s okay to fail as long as a genuine effort has been made. Based on Kohler‟s experience, it can take several years for a company to develop such a culture and stop playing the blame game when results fall short of the targets. Cultural changes of any kind take time. The ability to respond to changes and take The policy deployment X matrix joins four quadrants and visually connects breakthrough objectives, annual objectives, improvement priorities, and performance metrics. countermeasures, one of the core success factors for an effective policy deployment process, often requires significant cultural changes as well. Not many companies have the discipline to stay on top of strategic priorities, get to the root cause when things aren‟t working according to plan, and change direction. “At Snap-on, once we had the action plans integrated, the teams first approached countermeasures by trying to revise the plan downward, or by trying to do more stuff,” recalls Kohler. “But if the stuff you‟re doing now isn‟t effective, how is doing more stuff going to be more effective?” Following a structured problem-solving process, managers there started creating formal problem statements that documented the issues and spelled out what they were going to do next to improve performance. “That‟s one of the most powerful parts of policy deployment because that‟s where true learning occurs,” says Kohler. “The teams look at what didn‟t work, whether it was a bad plan, bad assumptions, or some variation that they didn‟t expect or consider. By identifying and initiating countermeasures you‟re lifting the skill level of individuals and the performance of the organization at the same time.” pg.5 TBM white paper | Policy Deployment Communication is another key leadership area that can make or break a policy deployment initiative. Leaders have to be able to articulate compelling reasons for the breakthrough objectives. Everyone down to the plant floor has to understand what’s in it for them. By telling the whole workforce and the board of directors what they’re going to do, executives create accountability to deliver. “It can’t just be, ‘We’re going to grow sales by 50 percent this year! Rah, rah, rah!’” says Hourselt. “It’s more like, ‘We’re going to grow sales by 50 percent this year and we’ve put together a cross-functional team to do some things we’ve never attempted before. If we can accomplish this objective, we’re going to create a lot of opportunities for our company and our employees. We’re going to grow profit sharing.’” Crazy Discipline Policy deployment will ultimately cascade strategic objectives down to the plant floor, providing a disciplined framework for making progress toward the annual goals and the breakthrough objectives. At the day-to-day level this takes the form of X matrices, action plans and bowling charts to track performance. It takes time for managers to understand these forms and how the process works. Some of the new software programs for managing policy deployment can shorten the learning curve and eliminate much of non-value-added administrative time that is often associated with early policy deployment initiatives. The project teams can then worry less about the mechanics of the process and focus on countermeasures. “You have to keep people rallied around the policy deployment process and meet at least every month without fail to review individual action plans and progress toward the breakthrough objectives,” says Nemeth. “Companies must use communication and technology-based tools to overcome geographic separation and competing priorities that might pull people away from these sessions.” This discipline must be complemented by a collective will to succeed. “If there are too many conflicting agendas, which tend to increase with the size of the company, policy deployment won’t work,” says Hourselt. In addition, as strategic objectives consume more time, the organization can’t lose sight of the business fundamentals, maintaining a balance between working in the business and working on the business. If delivery times or quality or costs are out of line, the best strategic breakthrough objectives in the world won’t get you anywhere. “As you build a foundation around business fundamentals your culture starts to work a little differently. It begins to have more of a bias to action. Nobody wants to lose. Nobody wants to miss their objectives,” Kohler concludes. “I think there’s a lot of untapped potential. Simply going through a long-range planning process or a strategic planning process, having discussions and building consensus around the company direction will not get you there. Most organizations don’t have a way of deploying strategy and aligning the resources. The ones that do it well, you can see the results, and their stock price and growth numbers reflect that.” TBM Consulting Group recently introduced Dploy Strategy, a web-based solution that helps companies successfully implement, accelerate and sustain policy deployment. Contact Stephanie Christopher at 800-438-5535 to learn more. Policy Deployment Dashboard Software can decrease the administrative burden often associated with policy deployment and give company leaders a dashboard view of project owners, action plans and countermeasure status. pg.6 TBM white paper | Policy Deployment Policy Deployment Best Practices  There’s no magic potion behind policy deployment other than the desire and discipline to do it. It takes a structured process and the willingness to hold people accountable. Policy deployment can be applied to any organization, whether it’s a manufacturer, an insurance office, or a hospital.  You can’t work on strategy until you have control of the business fundamentals. Whether the company uses balanced scorecards or KPIs or performance dashboards, business leaders have to have a good understanding of how the business pulses on a daily, weekly, and monthly basis.  Breakthrough objectives should be above and beyond the budget promises, and not communicated outside of the company. Teams must be able to take risks, and fail without being punished by the investment community if they don’t quite hit the targets.  Don’t try to focus on too many breakthrough objectives. Companies that are most successful with policy deployment don’t try to boil the ocean. They limit the number of strategic breakthrough initiatives that the organization will tackle in a given year to two or three. Pet projects that don’t support these objectives have to be formally killed.  Leadership has to understand stretch goals and foster discipline. Some leadership teams are better at defining and articulating breakthrough objectives that aren’t completely outside the realm of possibility. Likewise, some are better at instilling discipline and keeping people rallied around the process and the objectives.  The mechanics of policy deployment are straightforward. Being effective with it is much more difficult. Working “in the business” encompasses everything the organization is currently doing and currently measuring. There’s a tremendous amount of tribal knowledge and expertise. By putting fundamental metrics in place to track what’s going on in the business, the leadership team can begin to work “on the business.” This means changing how the business operates, changing business processes and systems. It’s an outside-looking-in approach to figure out what needs to be done to move the organization in a new direction.  Prioritize improvement initiatives according to the impact that they will have on the company’s financial statements. However dramatic setup time reductions or quality improvements may be, too many lean initiatives make in- cremental process improvements that don’t link back to the company’s strategic objectives.  There’s a role for tactical policy deployment but that’s not the most powerful application of the methodology. As a disciplined, structured framework for accomplishing things that they haven’t been able to accomplish, some companies find the policy deployment process useful for prioritizing projects related to decreasing scrap rates, improving quality, increasing inventory turns and decreasing costs. Many companies start to use policy deployment for tactical projects then move up to more strategic objectives.  Don’t cascade objectives down too deeply into the organization in the first year. Keep the initial objectives and projects within the top one or two levels. Instilling the discipline and procedures for effective policy deployment within these areas will be challenging enough. Master the mechanics of policy deployment before going all the way down to the plant floor.  One of the biggest management revelations that occurs with policy deployment revolve around taking countermeasures. Standardize reporting mechanisms, whether through automation or templates, so that the focus of review meetings is less on what happened and more on what can be done to get back on track, and how to get to where you need to go more quickly.  Cross functional activity drives the achievement of breakthrough objectives. Companies may socialize well across departmental silos but they don’t work well cross functionally. Leadership must provide the tools and establish the financial incentives that will encourage cross-functional cooperation.  Leverage technology that makes it easier for people to work collectively. Policy deployment software can ease some of the administrative burden and allow managers to focus on problems and solutions. Video conferencing can ensure that monthly meetings take place when team members are travelling or physically located in different geographical locations. Sources: Mike Heath, Managing Director; Gary L. Hourselt, CFO and Executive Vice President; Sheri Nemeth, Managing Director; and Mark Kohler, Global Client Manager, TBM Consulting Group. pg.7 TBM white paper | Policy Deployment For More Information On Policy Deployment  “Plan for Success through Policy Deployment,” Managing Times, July/August.07 (www.tbmcg.com/news/newsletter.php).  The Antidote: How to Transform Your Business for the Extreme Challenges of the 21st Century, Anand Sharma and Gary Hourselt , Managing Times Press (2006)  “Strategic Deployment: How To Think Like Toyota,” IndustryWeek, November 2007.  “A Philosophical Approach to High Performance,” an interview with Larry Culp, CEO, Danaher Corp., Outlook Journal, January 2006.  “Strategic Planning with the Hoshin Process,” Quality Digest, May 1997. Mike Heath, Managing Director for TBM Consulting Group, spent 11 years with the Square D Company before joining Danaher Corporation. During that time he worked extensively in Japan at companies implementing the Toyota Production System before applying the tools and processes within various Danaher businesses. Heath eventually became President of the Danaher Tool Group Asia and Executive VP of the Danaher Tool Group. After 14 years he left Danaher to start Catalyst Business Systems, a consulting firm focused on rapidly driving performance improvements within public and private equity companies. TBM Consulting Group acquired the firm in 2008. Gary L. Hourselt, Chief Financial Officer and Executive Vice President for TBM Consulting Group, formerly served as a senior executive in the aerospace industry. As president of Huck Fasteners he led the acquisition and integration of four companies over a four-year period. During his five years with the company revenues doubled and pretax income grew seven-fold. Mark H. Kohler, Global Client Manager, is a 28-year veteran of operations management and lean manufacturing leadership. He has spent his career transforming global manufacturing operations, including the development and execution of policy deployment at TRW Automotive, Rexnord Industries and most recently at Snap-On Tools. Kohler is a six sigma black belt, a certified Shingijutsu Leader, and a Certified Lean Technician. Sheri Nemeth, Managing Director for TBM Consulting Group, in her role as Corporate Director for the Danaher Business System, led an internal consulting team that implemented the Danaher Business System to rapidly integrate new acquisitions and deliver a bottom-line return on investment. Prior to that Nemeth worked for GE Controls, Medical Systems, and Motors, applying both lean and Six Sigma principles to improve delivery, reduce lead times and increase inventory turns in a variety of operational positions. In 2001 she cofounded Catalyst Business Systems with Mike Heath. pg.8 TBM white paper | Policy Deployment About TBM Consulting Group Headquartered in Durham, N.C., TBM Consulting Group, Inc. is the leading provider of LeanSigma® consulting and training services in North and South America, Europe, Asia and Australia. The company’s mission is helping manufacturers and service industry businesses create a competitive advantage to generate significant growth in sales and earnings. TBM provides the strategic direction and hands-on implementation to guide cultural and organizational transformation. TBM LeanSigma® Institute offers a range of interactive workshops, online training, user conferences and customized training solutions to give organizations the necessary tools to launch their own lean initiative. TBM Consulting Group’s LeanSigma® approach integrates lean principles for responsiveness and Six Sigma's focus on quality. More information about TBM Consulting Group and the TBM LeanSigma Institute can be found at www.tbmcg.com. The TBM Strategy Practice helps management teams to quickly develop actionable strategic solutions and achieve their full lean potential. We take the waste out of traditional strategic planning processes to help clients create an action-oriented strategy that delivers solid ideas, the structure to get them done and a real bottom-line impact, in less than half the time. __________________________________________________________________________________________ TBM Consulting Group, Inc 4400 Ben Franklin Blvd. Durham, NC 27704 800.438.5535 www.tbmcg.com ® | 10.08 | LeanSigma , TBM and the TBM logo are registered trademarks of TBM Consulting Group, Inc.