Joel Nickelsen “Growing Lean – The New Paradigm”

Growing Lean: The New Paradigm

North America inSIGHT 2013

Applied Value LLC One Grand Central Place 60 East 42nd St., Suite 2825 New York, NY 10165 Phone: +1 646 336 4970 Fax: +1 646 336 4974

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Lean Growth in Action

Application

Agenda

Lean Growth Philosophy

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Growing Lean: The New Paradigm Our lean growth philosophy argues cost/capital efficiency is always the foundation for long-term profitability.

Lean AND Growth

Lean & Growth Lean Manufacturing

Lowest Cost Process Focused Project Oriented

Lean Multi-Dimensional

Lean Costs & Capital Growth Focused Ongoing Culture

Growth without “lean” is temporary…Lean without growth is no fun.


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Growing Lean: The New Paradigm Lean operations create a virtuous cycle of growth for companies to stay ahead of competition.

Enhanced Product

Economies of scale

Cost Efficiency

Increased market share

Increased Profits

Company X ensures a lean operation

Enhanced product offering will deliver new business and

increase the company’s market share

Economies of scale further increases delivery of the

organization’s cost competitiveness

Larger company size will generate economies of

scale through higher utilization of assets, reduced sourcing costs

and learning curve

Reduced costs enable the company to optimize

its product offering’s quality and price

Virtuous cycle


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Growing Lean: The New Paradigm There is no fundamental conflict between cost efficiency and product innovation – On the contrary!


Competitive Strategy – Porter’s Framework Applied Value Framework

Cost Leadership Differentiation

Broad

Narrow

• A company must focus on either cost or product differentiation to sustain a long-term competitive advantage

• A company must choose to have either a broad or narrow portfolio

• Cost efficiency is a requirement for sustainable long-term profitability

• Differentiate your product offering where it makes financial sense but always ensure cost efficiency

Cost Leadership and Differentiation

Broad

Narrow

Time

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Growing Lean: The New Paradigm Many myths create invisible barriers to change.

“The company has always been well managed”

“There are insufficient funds to invest”

“We are lean”

“We can rely upon superior products”

“We drive operational efficiency via acquisitions”

“Volume is more important than margins”

“We have too little inventory”


Examples Of Common Myths

Lean Growth driven change can happen anywhere.

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• Facts and benchmarks must set the standard for world class performance – not what your management team or organization believe

• Do not wait for “management” to tell you to “get lean”

• Your customers will be more cost oriented over time

• Companies who go lean before competition will be ahead of the curve and outperform its industry

• There are few (if any!) corporations that have lost competitiveness because they were “too lean” – there are corporate graveyards full of the other category

Do not wait to pursue Lean Growth, it destroys value. Lean Growth Philosophy

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Application

What is Lean Growth?

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Growing Lean: The New Paradigm What is complexity?

“A several billion dollar opportunity”

-Jack Welch, Ex Chairman & CEO General Electric

Companies are rewarded for making the complex simple.

Lean Growth In Action

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Growing Lean: The New Paradigm 2 Minutes, 2 Taps


Unreasonable?

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Growing Lean: The New Paradigm What is the single most important competitive advantage a company has in any industry?

SPEED

Financial return increases with speed.


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Growing Lean: The New Paradigm Applied Value’s overall path to Lean Growth.

SPEED FOCUS SIMPLICITY SUCCESS =


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Growing Lean: The New Paradigm Lean Growth is based on Focus, Simplicity, and Speed.

Lean Growth

Speed Simplicity Focus

Define strategic focus areas, excel in key capabilities and use partners to handle non-

core activities

Complexity is the key cost and capital driver and should

be minimized in all cases

Time is an asset which should be valued greater

than money – you can win back money but never time

• Strategic focus: ‒ Markets ‒ Customers ‒ Channels ‒ Products ‒ Technologies ‒ Suppliers

• Value proposition and offering

• Organizational efficiency • Footprint optimization • Supplier consolidation • Level of variable vs. fixed

costs

• Process lead times: ‒ Time to market

(of a new product) ‒ Time to customer

(of a proposal) ‒ Time to invoice and cash

(of a delivery/shipment) ‒ Time to integration

(of an acquisition)


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Application

What is Lean Growth?

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Growing Lean: The New Paradigm Application of Focus, Simplicity, and Speed must occur across the organization.

Lean Growth

Process Speed

Double Speed

Organizational Simplicity

Organizational 8D, Activity Value Analysis

Business Focus

Customer and Product Profitability

SG&A Productivity G&A efficiency

S&M efficiency

Pricing Gross Margin Improvement

Sourcing Production

Cash management Inventory management Fixed assets leverage

Capital Efficiency

Segmentation/Positioning Go-to-Market Product/Channel mix

R&D Productivity R&D efficiency

R&D effectiveness

Application

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Growing Lean: The New Paradigm Significant Lean Growth efforts will include both strategic and tactical initiatives.

Application

Create Shareholder Value - EVATM “The Challenge”

Business Structure & Complexity

Business Strategy & Product Decisions

Strategy & Structural Level

Tactical & Operational

Level Capital Efficiency Cost Efficiency Order To Cash

Efficiency

Corporate Strategy & Structure

Both levels of initiatives need to be considered simultaneously in order to significantly boost shareholder value creation.

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Results Opportunity/Problem

Global Telecom – Cost and Capital Initiatives

• $1.3B Annual Loss

• $8.5B OPEX Spend

• 107k Employees

• 17k Consultants

• Turnaround in < 3 Years

• $3.8B Operating Income

• OPEX Reduced by 65%

• Achieved with 50% less HC OPEX

• Market unit consolidation

• BU structure and efficiency

• Corporate governance

• Headquarter and support functions

• R&D concentration

• IS/IT cost reduction and outsourcing

• Real estate

Lean Growth Solutions

Cost • Manufacturing outsourcing

• Local cost of sales

• Sourcing strategy & organization

• Fact-based negotiations/sourcing

• Product mix review

• Product rationalization

Cash • Joint venture

• Sales/leaseback

• Sold customer financing stock

• DSO reduction (collection)

• Inventory reduction

• Capital restructuring

Application

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Third World Non-Profit – Structure and Process

• Create jobs for the poorest of the poor

• “To be the most efficient organization in the world at creating jobs”

• 1.4M jobs over past 7 years

• Cost/Job of $50-200

• Afghanistan, India, Eastern and Southern Africa impact

Structure • Lean Overhead

• Local Structures


Process • Sustainability

1. Formation of

Self-Help Groups (SHGs)

2. Business education (business plan

formation, cash flow, marketing etc.)

3. Microfinance services

(either directly or through partnership)

4. Specialized skills training,

access to new/larger

markets

Application

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Growing Lean: The New Paradigm Small/Private Manufacturing – Cost and Sales Initiatives


• 1-3% EBIT

• Declining Sales

• Avoid Bankruptcy

• Limited Capital

• 3 Years In – 14% EBIT

• 5 Years In – 26% EBIT

• 5 Years In - Sales +30%

• Sold Business

Cost Initiatives •Divested non-core business

•Lean Organization – Multi-tasking

•Lean Energy – Sustainability

•Sourcing

•Lean Supply Chain


Sales Initiatives • Lean Sales Force

• Wholesaler agreements

• Pricing optimization

• Strategic customer partnerships

• Channel strategy

Application

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1. There is no point in finding efficiencies in things that should not be done at all

2. Automate important but routine work processes for efficient use of human resources, and ability to increase capacity/speed

3. Do not customize non-customer critical activities

4. Utilize shared services to the fullest extent and outsource whenever it makes sense

5. Minimize complexity by focusing only on profitable products, services and customers

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Applied Value’s ‘Top Five’ principles of Lean Growth. Application

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Growing Lean: The New Paradigm Final words on Lean Growth wisdom…

• Set goals that are unattainable with current processes

• “Growth requires more resources” is a fallacy; Create new ways of doing things

• Taking out costs, increasing capital efficiency and improving revenue processes to best practice standards can be done by rapid decision making – it is not contingent upon external factors

• All experiences show that simplifying organizations and balance sheets have positive effects, not only on shareholders, but also on customers and the organization

• There is a first-mover advantage in decreasing cost and capital tied-up – every company will ultimately have to go through this process

Go Lean…Grow Lean!

Application

Joel Nickelsen “Growing Lean – The New Paradigm”

Technology

Transcript of Joel Nickelsen “Growing Lean – The New Paradigm”