Closework Global Review - Issue 5 by Celerant Consulting

CLOSEWORK EDITION FIVE

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GLOBAL REVIEW 2013

Have you hit the wall in your Lean journey? The meter is running on your supply chain. Managing the emotional side of a change journey. How best to overcome new forces that face managers of restructuring programs.

a subsidiary of

Closework Global Review ®

Welcome to the 5th Edition of Closework® Global Review. This issue features our annual insights and experiences from the field of operations management. It also marks the first edition since the acquisition of Celerant Consulting by Hitachi Consulting. As such, this issue carries a new brand identity, reflecting the merger. As CEO of Hitachi Consulting, I am excited to be able to introduce a publication of this quality that focuses on operational improvement and behavioral change. Featuring real-world stories from both our clients and consultants, we deliver practical insights which serve as examples and inspiration for improving your own operational performance. With a 25 year heritage in operational consulting, a distinctive style of client collaboration ‘Closework®’, and a unique value-based model, Celerant brings a wealth of capabilities to assist business leaders in strategic transformation, to complete successful organizational change programs, and to deliver significant bottom line benefits as a result. Celerant is now part of Hitachi Ltd., a company dedicated to delivering innovations that answer society’s challenges. Hitachi’s Social Innovation solutions enable the development of safe, reliable societal and commercial infrastructure, powered by deep industry and process knowledge, and information technology. Hitachi Consulting is the global management consulting and IT services business of Hitachi. As a global innovator in management consulting, technology and managed services, we are dedicated to helping clients achieve measurable, sustainable results, while delivering a better consulting experience. We hope this issue will provide you valuable insights and would be delighted to hear your feedback. Enjoy the reading Phil Parr

CEO, Hitachi Consulting

CLOSEWORK® GLOBAL REVIEW 2013

Contents

Rising to the Challenge Helping Rieber and Søn integrate Lierne bakery into its ‘Future Production’ program.

Safe Quality Food Four strategies for rapidly gaining and sustaining your SQF certification, while realizing substantial business value from those efforts.

Fear. Anger. Optimism. Pride. How you manage the downs and enhance the ups is the key to a successful change program.

Lean Performance 24

Restructuring is never easy. Celerant Change Club Members debated the new forces that face managers of restructuring programs and how best to overcome them.

Closework 20

Lean Leadership 22

Have you hit the wall in your Lean journey? Helping KBC run the Lean programs that helped it think smarter and act smarter. The Failure of PEX The methods of Six Sigma can only enable sustainable breakthroughs when combined and aligned within a broader transformation.

Change Management The most effective ways to maintain team motivation and performance in a time of crisis.

Increasing Competitiveness 30 days to identify opportunities to revitalize and secure your competitiveness.

Q&A with BASF 42

Improving efficiency and driving change.

Energy & Chemicals Perspectives Shale oil and gas promises an economic boom, but the real impact will remain uncertain for some time.

The Meter is Running 48

A key challenge in the Oil & gas industry.

Gold. Silver. Bronze. Lead. Too many organizations are failing to maximize the value of their investment in change projects.

Red1 to Blue4 28

It’s not a chess move, it’s one of the best ways to improve leadership behavior.

Client Success Stories Re-energising North Sea assets; Raising standards and efficiencies; best-in-class manufacturing; Creating a culture of safety.

Inverting the Age Pyramid Helping GDF SUEZ E&P manage generation change without losing knowledge, and plan a production future with fewer employees.

Dealing with Defense Cuts A Behavioral Enterprise construct for reducing costs while maintaining readiness is feasible and demonstrated.

Client Success Stories A toast to collaboration; Creating global excellence; A dynamic new environment; A world-class platform for growth.

Client Success Stories Leading the flock; Turning up the heat on performance; Optimizing north slope production; Breakthrough improvements.

From Mine to Mill to Market Celerant’s 25 years of Metals & Mining experience spans open pit to underground mining.

Race Across America Meurig James is taking on the world’s toughest endurance race; alongside are two charities he supports.

Closework® Global Review is a magazine published by Celerant Publishing on behalf of Celerant Consulting Ltd. Edition 5: June 2013. Publication Director: Sabrina Laborde. Editors: Greg Kinsey, Charles Spofford, Alec Frazier, Andria Browne, Muddassar Ahmed, Linda Clifford, Monisha Sarna, Iben Mollerup Skov. Design conception and realisation: Andrew Barnes-Jones. Copywriting: Patrick Keating Celerant Consulting thanks all its Clients, Friends of the business and Celerant teams for sharing their exceptional experiences and knowledge with us.

Printed by Corelio Printing

The words, photos and images in this publication cannot be used without the express consent of Celerant Consulting Ltd. For more information on business solutions, sector expertise, service lines and insights mentioned in this magazine, please visit:

celerantconsulting.com CLOSEWORK® GLOBAL REVIEW 2013

Operational Excellence

Help integrate a major new bakery acquisition, relocate production of a famous brand, manage a 30% drop in sales volume, implement new ways of working and deliver a 4.7M NOK business case in Year One?

CLOSEWORK® GLOBAL REVIEW 2013

Rising to the challenge. When Rieber and Søn needed to integrate Lierne bakery into its ‘Future Production’ program it turned to Celerant Consulting, the program’s long term partner.

perating primarily in the Nordic region, Rieber and Søn manufactures and supplies a variety of own brand food products to the retail market. It purchased Lierne Bakery to provide significant synergies in procurement, production and sales, and to enable it to switch production of it’s famous Vestlandslefse product range to the Lierne lines. Now it needed to incorporate this new acquisition into its successful ‘Future Production’ program with the aim of reducing costs by almost 5M Norwegian Krone (NOK). As the trusted partner in the ‘Future Production’ program Celerant Consulting was tasked with implementing its Operational Transformation and Operational Effectiveness methodologies to support the integration and optimisation of the Lierne lines and the successful relocation of all Vestlandslefse production. A challenge arose from insourcing the Lierne sales and distribution processes from a third

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party supplier which caused a de-listing by a major retailer and a 30% reduction in sales. This meant a recalculation of the business case to ensure value for money and cost neutrality. It also emerged that the equipment on the production lines receiving the Vestlandslefse products was inadequate, causing a dramatic rise in waste, so a decision was taken to replace these large, historically and culturally significant ovens. Tried and tested solutions The team replanned to allow time to run in the new equipment and used all their experience to deliver a more challenging waste reduction target, rapidly mastering and reducing waste on all production lines with new ovens. The challenge then was to continue to drive behavioural change and deliver results. As in previous ‘Future Production’ implementations Celerant established four workstreams, with two consultants responsibility for delivery. It also supported several successful adjustments of

the business case. These additional challenges required a more substantial definition of processes, particularly sales and operations processes, but the tried and tested approach of implementing Celerant’s MCRS® Management System drove behavioural change from an initial awareness to a real commitment to adopting the new ways of working.

RESULTS • Cost reductions of almost 5M NOK delivered the initial expected ROI. • Activities were adjusted to reflect the adverse impact of volume reductions. • All Lierne production lines overhauled. • Exceptional stakeholder management and communications management ensured success.

To learn more about Rieber and Søn visit: www.rieberson.no

The Lierne change program implemented the right structure to get the basics right and cope with multiple challenges. Mindsets were changed in middle management and new ways of working established. Roar Moss, Supply Chain Director, BU Norway

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The Global Food Safety Initiative

Safe Quality Food can be the impetus to a whole new level of performance. I

n early January 2013, the US Food and Drug Administration (FDA) proposed two new food safety rules that shift the food safety focus from reactive to proactive. The appendix features a section describing the FDA’s views on how they would expect testing and supplier verification activities to be conducted. “An increasing number of establishments that sell foods to the public, such as retail and food service providers, are independently requiring, as a condition of doing business, that their suppliers, both foreign and domestic, become certified as meeting safety standards.”* The proposal specifically mentions the Global Food Safety Initiative (GFSI) and recognized food safety certification programs such as Safe Quality Food (SQF) 2000 to assist companies in meeting US regulatory requirements. One: Think big A top North American food processor launched its SQF initiative with clear focus. The goal was to ensure food safety, pure and simple. But in exploring their food safety risk points, leaders began to discern root causes which, when effectively addressed, would also drive millions of dollars of costs out of their processes and significantly raise productivity. By integrating SQF with their *SQF Institute (www.sqfi.com)

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Lean manufacturing initiative and stepping up traditional productivity approaches, the company could simultaneously ensure ongoing food safety and dramatically improve P&L. Management soon stopped viewing the SQF effort as a free-standing program. The more sensible course, they realized, was to combine food safety initiatives with a renewed focus on cost efficiency and productivity improvement. The company is now actively pursuing more than $20 million in targeted bottom line benefits as it drives toward SQF 2000 certification. Effective food safety requires control of end-toend processes. In most companies, processes have not been clearly linked across functions. People tend to view work in terms of the “silos” in which they have immediate control. This lack of understanding of how parts of processes actually interact, end to end, is the root cause of many food safety failures. You can approach SQF Certification as an ‘added requirement’ to be met through an audit-and-correct approach, or as a welcome catalyst for integrating your people, management systems and processes horizontally and vertically to make your company sustainably more competitive and profitable as it ensures food safety. Here’s the good news: A big picture mindset will actually get your organization ‘SQF-ready’ faster than will a narrow audit mindset. Earning your SQF

certification will require major effort in any case. Why not realize the fullest possible return on the investment? Two: Engage hearts and minds As shown in a U.S. and European survey - sponsored by Celerant Consulting and conducted by the Economist Intelligence Unit - 75% of U.S. senior executives respondents reported that no more than half of their change initiatives were successful. ‘Winning over the hearts and minds of employees at all levels’ was the most frequently cited (by 51%) barrier to success. Roughly a third (31%) also cited failure to gain local management buy-in. SQF auditors can identify your food safety gaps, but only your organization can close those gaps and prevent new gaps from opening. For that to happen, you need ownership for SQF compliance at the activity level. The people who do the work must feel personally engaged in ensuring food safety. Further, this vital mission should be shared by management and employees. SQF 2000 is a challenge they must tackle together. In many food processing companies, of course, there is a substantial divide between management and front-line employees. You must provide a bridge to unite them. Lean manufacturing, for example, provides shared goals, a toolset, and

Instead of adding yet another quality program to your company’s repertoire, the Celerant consumer sector team shares four strategies for rapidly gaining and sustaining your SQF certification, while realizing substantial business value from those efforts.

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A sense of urgency may tempt you to build SQF on a foundation of uncontrolled work processes. But that is clearly a recipe for trouble.

a common language so food safety solutions can be developed with the front-line. By engaging hearts and minds through a system such as Lean, you can ensure sustainable food safety results while also driving up business performance. Three: Go visual Visual management systems drive accountability by making the needed contributions vividly clean to all functional areas and hierarchical levels. Without a visual management system, HACCP (Hazard Analysis Critical Control Points) plans will not be consistently executed. Nor will critical control points be effectively managed. Visual management systems sustain focus on food safety and coordinate actions to prevent food defects, costly recalls, and excessive inspection costs. Visualization is a mainstay of the Management System (MCRS®) which Celerant has developed through two decades of work inside major manufacturing and processing operations. It is a comprehensive, disciplined decision making approach custom crafted with and by the people of your organization. MCRS® begins with clear intent. Business leaders clarify their strategy (in this case, the food safety strategy) and the keys to its fulfillment. Facilitated discussions articulate corresponding intent and

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across all functions. The critical contributions to be made by each area are then captured in key performance indicators (KPIs) a metric that measures a vital activity or process. Your people are coached to craft KPIs that define their own success with a focus on root causes and early identification of problems and risks. This management system makes the right KPI data visible to the right people, when they need it to effectively control operations. Aggregated performance data might be reviewed at a monthly meeting of senior leaders, while front line work teams may review their operating data hourly or following each shift. The visible, immediately relevant data flowing through your MCRS® drives accountability and execution at every level. Visible data also reinforces a satisfying sense that work is meaningful. It engages the whole organization in a unified pursuit of your food safety and business improvement goals. Four: Fortify your foundations A sense of urgency around SQF may tempt you to build your SQF processes on a foundation of uncontrolled, unaligned work processes and systems. But that is clearly a recipe for trouble. Simply layering SQF on weak foundations can yield uncontrolled costs, a host of new inefficiencies, overworked staff, non-value-add activity, increased food safety incidents and decreased business performance.

A more practical picture of your organization is a big picture that envisions sustained results flowing from effective integration of your people, work processes, and the systems through which you manage your business. Your SQF performance will only be as strong as these vital foundations. Only by addressing the big picture can you achieve consistent, sustainable food safety. For many companies, SQF will be just one more program to layer on. Their SQF vision will remain small, as will the business benefits they can realistically hope to achieve. But for you, SQF can be the impetus to a whole new level of performance. The big picture perspective briefly described above equals big returns on your SQF investments. To shape your big picture pursuit of SQF, we suggest your company begin with a big picture assessment. You want to be guided by a very clear, data-based vision of what you might accomplish and how you can accomplish it.

*Source: SQF Institute (www.sqfi.com)

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Emotional Change Journey

You won’t read about them in business plans, but they can make or break a Change Program.

FEAR. ANGER. OPTIMISM. PRIDE. Everyone on a change program goes through an emotional and behavioral journey, says Cathy Johnson, Senior Vice President at Celerant Consulting. How you manage the downs and enhance the ups is the key to success.

‘

hange’ is the most talked about and written about word in the consultancy lexicon. Hundreds of millions are spent annually on change programs across every sector of business. Each one has its targets, milestones and KPIs, but what about the emotional impact of the program? Who is managing that? Not the people strategizing the changes. Not the people implementing the changes. Certainly not the people budgeting the changes. That’s one of the reasons a staggering 75%* of change programs actually fail. Celerant Consulting have depth and breadth of experience in change programs. We have in-depth experience of the emotional and behavioral journey that individuals must go through to introduce better ways of working and have been helping clients successfully navigate this journey for over 25 years. We have conducted research into over 60 projects and found that the emotional curve looks different at different levels of the organization. The reasons for this are the exposure to the financial results, the fear of failure, the point in time where the

CLOSEWORK® GLOBAL REVIEW 2013

changes become personal and the individual’s ability to cope. No matter who you are though, you will experience real highs and lows. What People Experience Change is not like a plane journey where you simply get on at the airport and fly straight to your destination. It’s more a road journey, with traffic jams, detours and the occasional flat tyre. The most important difference though is that dozens of individual drivers are in charge and they all have to be brought to their collective destination. How an organization steers this is the key to a program’s success. Many people will rationalize required changes by either limiting them to ‘changes to be made by others,’ or by working on the assumption that they have already been made to a satisfactory level - when in fact, they haven’t. So the focus on results can be easily lost. Change teams become embroiled in the change process, managing activities and communications and forgetting about why the changes are being introduced in the first place. The end game must always be kept in mind, so a regular, institutionalized

look at the operational and financial outcomes of change is vital, but not always systematic. Visualizing the operational outcomes in a factory environment is a common outcome of, for example, a Lean Manufacturing project, but these results are often not fully reported back up to senior management or translated into true financial impact. Sustaining leader’s attention requires not only their involvement, but also showing where the promised results are not hitting the bottom line. As an example, an increased focus on the correct, systematic measurement of specific KPIs can mean that performance which was showing through at xx% prior to the changes, actually falls in the first few weeks of a new program. Secondly, the design of the new future state will only yield a financial impact if there is low hanging fruit or a very variable cost involved. Even in organization restructuring, the financial impact of a headcount change will be impacted by the consultation and release period. All that hard work and nothing to show for it? All that investment and no result yet? It can be very easy to give up.

Tracking how change is taking place is vital. DESIGN

INSTALL & IMPLEMENT

SUSTAIN

NEGATIVE POSITIVE Emotions

ANALYSIS

Experiencing

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

Developing

Systems Installation Status

Practice & Learning (SIS™) EMOTIONAL

Measuring and Managing it That’s why the whole process of implementing change must be extremely robust. Celerant Consulting’s philosophy of change management is not only to thoroughly link people and processes, but also to develop the solution with the people who will actually use it. This creates a much greater appreciation of its true value. In addition, we have developed the Systems Installation Status (SIS™) which tracks how change is taking place week on week, month on month. It also helps clarify the behaviors required to successfully implement change because its measurements includes direct, personal feedback. When the various levels of an organisation hit a low, which they undoubtedly will, the SIS™ helps keep people focused. Our study of over 60 projects across multiple sectors and issues shows that in a typical 12 month change project, the low will correlate with the second milestone, the midpoint of the process and the point in time where changes in behaviors begin. This is the point where theoretical design has reached the execution stage where it affects a sufficient critical mass to generate emotional barriers to change. Our research also shows that the movement from ‘installed to implemented’ strongly correlates with the trough of change and the improvement of the financial and operational results. The criteria for progressing between these two stages will include using the new way of working where it will become clear

Performing

CHANGE CURVE OPERATIONAL & FINANCIAL BENEFITS DELIVERY

that individuals are not really stepping up to the change. This must be challenged for the changes to take effect. An experienced co-driver makes the Change Journey smoother Consultancies will talk about the change process and critical success factors, but their involvement typically stops at the design phase with the completion of the content and intellectual input. The organization is then responsible for implementing the changes and facing the barriers. Their lack of experience at overcoming internal politics and dealing with the emotional individual responses at various stages of the change are where most change initiatives fail. Leadership support is often not tangible enough to help people understand how to make the changes happen and stick. The advantage of experienced external support is that the support process continues until the teams are self-sufficient. Being able to use the equivalent of a map or sat nav to communicate the journey to their co-drivers and anticipate and manage traffic jams and accidents is a skill which can be learned. It is not about the tools themselves, it’s about their application in different circumstances. An internal change team can be a cost effective method of managing a change process. Its limitations however, arise from the real barriers to change. It is difficult to challenge a peer group to change their way of working. It is even more

difficult to change the way of working of the leadership group when the change becomes personal and leaders have to look carefully at their own behaviour. If you limit change to the implementation of tools and a project management process these issues go away. The aim of achieving a result disappears, but ‘at least we have implemented the latest thinking.’ Equipping the managers with a combination of experience to support the implementation of change and a focus on leadership behaviors is more valuable than extensive tool training. It allows them to anticipate barriers and provides proactive guidance to the organization. Celerant Consulting’s philosophy is to transfer both the technical and tactical skills of change through our unique Closework ® approach. We have experienced it all before, seen the reactions, supported the change process and can teach line management exactly how to respond to any given situation. To actually achieve successful change can take months or years and requires a high level of stickability. The change journey is a mixture of graft, tenacity and the ability to deal with people’s resistance and emotional reactions. That’s why in a world where 75%* of projects fail, 95%** of Celerant Consulting projects succeed. * The Economist Intelligence Unit global survey 2009. ** Based on payment of client success fees.

CLOSEWORK® GLOBAL REVIEW 2013

Change Management

Restructuring is never easy for managers, but scale and economic uncertainty have added a new dimension. At their recent 15th Workshop in Paris, Celerant Change Club Members debated the new forces that face managers of restructuring programs and how best to overcome them. This is an Executive Summary.

he process of implementing change has never been more problematic for managers. Media gloom about the deteriorating state of the labor market and increased levels of employee stress mean that everyone is concerned for their future. Pessimism and resistance to change are on the increase, creating real headaches for managers who can get caught up in the turbulence. They have been given responsibility for implementing restructuring plans by their superiors, but are faced with employee resistance and unsure of even their own future. So how best to proceed? The new normal Challenges which have always existed: • Clearly define objectives and identify key individuals to achieve them • Define the scope • Control communications • Maintain employee loyalty • Reconcile short and long-term targets • Implement clear and shared indicators • Identify managers able to carry out the restructuring and improve skills Today’s added pressure: • Pessimistic economic context and limited growth perspectives for the next 3 -5 years • Greater visibility of psycho-social risks • Stronger government involvement • Greater ethical constraints • Greater image and reputation challenges

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• Wider media/new media coverage which managers are not trained for • The Talent War - how to hold onto the best employees? Alone in the world According to a survey by Malakoff-Médéric, one third of French employees went through a restructuring project in 2012, with nearly one in two cases happening in major companies. The issue regularly makes the front pages of the media and is increasingly worrying for employees, whether directly affected or not. The very word ‘restructuring’ is unsettling and the process itself can lead to a loss of trust amongst those who experience it and real difficulty in maintaining a positive atmosphere within the company. On top of this, restructuring plans are often kept deliberately vague to avoid tension and employees falling into the trap of being seen as obstructive, so managers often know more than they can divulge and find themselves in a very isolated position. Managing a complex, emotional process Multiple stakeholders: • The usual players: Employees, trade unions, consultants, suppliers, customers. • New players: Courts, political players, administration, the media, public opinion. Multiple facets: • Economic, human and legal.

A disrupted psychological context: • Emotions and politics can often cloud reasoning. • Managers must take also into account the collateral damage of restructuring which can constitute a real time bomb for the teams who have to manage people afterwards Conflicting objectives to reconcile: • Short term: Reduce the range, number of employees, costs, etc. • Long term: Improve decision-making processes, build up branding, breathe new life into a company, etc. Good working relationships are key Managers must find a way to balance these conflicting factors, yet their role is often made more difficult because relationships with their executives are strained. According to a recent Celerant Change Club survey: • 35% of managers think their relationship with top management is good, but superficial. • 25% think it is deficient. • More than 50% have noted that a gap has grown over the last few years. The quality of executive/middle manager relationships has a considerable impact on a manager’s capacity to develop personally and professionally; understand problems and what superiors expect of them; fulfill their responsibilities and finish what they start; delegate to colleagues and help them develop; understand customer expectations and the reality of their colleague’s day-to-day work. A good working relationships is essential for a manager’s professional effectiveness and their capacity to motivate teams, especially during periods of restructuring. Executives and managers must therefore learn how to better work together again. Dealing with the rumor mill Managers can also find themselves in a particularly difficult situation when a restructuring project is first mentioned without an adequate communications plan first being in place. If for example, an executive suggests to the media that a particular site will become the ‘Center Of Gravity’ for their worldwide group, this announcement creates both great expectation amongst employees (a need for information) and great worry (will my family and I need to move?). A lack of clear communication in this situation can trap a manager in a web of complex interpersonal dynamics. Under constant pressure, the manager is stuck between the need for information and the obligatory confidentiality – a situation which can become unbearable if it lasts.

Outside World Rumor: Can be useful, but becomes harmful if it lasts.

Boss (Re)actions: A drop in attentiveness and rigor, ‘preventive’ departure of the best employees.

Attitudes: Tensions arise between peers; unsettled teams lapse into inertia or confrontation.

Teams

Is restructuring a form of cognitive order? For most executives surveyed by Celerant, restructuring is ‘a top-down reduction of costs; difficult work which managers need to carry out. Once the decision is taken, you have to act fast.’ For McKinley and Scherer (2000) however, restructuring may produce a form of cognitive order for executives. In other words, restructuring often leads to even more restructuring to fine tune what the first plans did not manage to accomplish. Studies also show that the results of restructuring are debatable: net profit and productivity improve in only 40% and 25% of cases respectively, and the impact on share price and activity is no more convincing. Two factors determine a successful project Although everyone’s view of success depends on where they stand in the company, everyone can agree that two closely interlinked factors are key for success: 1. The economic and financial aspect: the desired results have been obtained and observed in the profit & loss account. The company has seen renewed growth, new products, new markets and so on and now has a positive image both internally and externally. 2. The human aspect: motivation is maintained thanks to continued prospects, and employees are not scared of having to face renewed restructuring. Each employee has been treated well. The human aspect is the key to everything. If it is neglected, as is often unfortunately the case, the impact of the restructuring project on motivation,

The implication: If the rumor is true, what decision will I take?

Peers

skills and productivity will have negative consequences for the company as a whole. There is even a risk that the situation could worsen, forcing executives to launch a further round of restructuring. Building bridges to the future Managers do much more during restructuring than simply carry out orders passed down by executives. In fact, they are often asked to become superhuman. Their main challenges are human in nature, even if the company’s concerns are mainly financial. A manager must form a bridge between the executives and the employees on the ground, and between the short term and the long term. No schools offer an MBA in restructuring, so each individual needs to prepare themselves for the upheaval and this is no easy task, which is why managers are very active on professional networks. The need for discussion and support on this topic is very real, as is the need to not go through the experience alone. Launched in 2008, The Celerant Change Club is a unique Club where Change Management professionals share experiences, ideas and ambitions. It is a neutral zone where members can confront their own challenges with help from other specialists and discover new ways to prepare for them. The club is open to all managers who have experienced a business transformation project and welcomes representatives from every economic sector and managerial function, as well as academics, journalists and key influencers. For any further information on the Club, visit our website: The Celerant Change Club

CLOSEWORK® GLOBAL REVIEW 2013

Program Management Office

GOLD. SILVER. BRONZE. LEAD.

How to identify and maximize value in your current project portfolio.

CLOSEWORK® GLOBAL REVIEW 2013

Too many organizations are failing to maximize the value of their investment in change projects, says Tristan Harris, Vice President of Operations at Celerant Consulting. Typical program support structures don’t help leaders ask the right questions.

riving multiple change projects across different parts of a business is an almost inevitable requirement to remaining competitive in the current climate. However, a mentality akin to Hans Christian Andersen‘s ‘The Emperor’s New Clothes’ seems to pervade many organizations, such that weak or poorly aligned projects are left unchallenged and absorbing valuable resources. Turning this around requires the right structure to be in place to support busy leadership teams in selecting, sponsoring and executing the right change projects. Celerant Consulting’s extensive research within our clients’ businesses has provided some key observations that suggest significant value is being lost. What our research shows • As much as 15% of an organization’s headcount may be working on some form of change project at any one time - often outside their normal role. • 70%+ of projects have high level objectives and goals, putting real pressure on people to deliver.

• 60%+ have a high level definition of the technical solution to the problem. • Yet only 20% - 50% have rigorous implementation plans. • Less than 30% have a clear definition of target benefits, business case and tracking metrics. • Confidence levels in delivery against overall target range from just 35% - 60% with particular weakness in the area of sustainability of target changes to ways of working. • We also found that although senior managers can talk easily about projects they own, they can’t always list all current initiatives within their organization - and often don’t even know why these initiatives were originally set up. Why do these problems arise? “Mouse-Mats and Mugs” A common scenario is where a leadership team needs to be seen to be making visible progress on an immediate business challenge for the benefit of either internal or external stakeholders, but has limited time it can dedicate to it. Resources get assigned, leaders speak of the importance of success and the initial launch of the project

satisfies the urgency for action. However, as time moves on and the management team focus on new things the project remains, but the capacity for corporate sponsorship dies off. The best case scenario is that the project will deliver without the senior support that was originally intended. Worst case is that the management team are sitting on a series of change commitments which are just too uncomfortable to retract and so fester on. The way forward To begin aligning priorities, performance and a passion for change, the leadership team needs to ask searching questions: • Is there clarity of all change projects taking place? • Do all projects clearly support the business strategy? • Is the value of each project formally established? • Are projects delivering expected outcomes (as opposed to activity)? • Do any previous recommendations remain unimplemented? • Are projects focused more on solutions and awareness than on behavioral change? • Are all projects managed consistently? This will quickly highlight the impact of a dysfunctional or weak support framework.

CLOSEWORK® GLOBAL REVIEW 2013

Program Management Office

Where are the failure points? Of the reviewed projects, only 27% displayed acceptable or better levels of rigor in quality of benefits quantification and change management focus. KEY FAILURES Lack of rigorous project management Funnel Management & Strategic Alignment Our work also shows that how projects are initially accepted into an organization is a common weakness. Few have a mechanism to review and filter proposals and approve them in a structured way. A filtering mechanism should ensure that every new project: • Has a compelling, sufficiently tested cost vs benefit case. • Does not overlap with other running projects. • Supports the strategic agenda in the organization. • Has the right sponsorship that will last through the full lifecycle of the project. Establishing a solid Program Management Office To make all this work, not only must a selection mechanism be defined, leaders also need to critically test assumptions and ensure that the demand for the project is sustainable. To maximize the return on investment from change projects, senior managers require an appropriate support structure and the visibility which can control both

CLOSEWORK® GLOBAL REVIEW 2013

CONSEQUENCES Slippage & slow progress against targets Progress in activity confuses whether objectives are being met No early warning system to identify deviation Unclear on when and what value is expected to be returned

Poorly conceived projects / A focus on solution rather than outcome

Solution loses sight of the objectives Wrong resources struggle to implement Momentum lost after launch Lack of sponsorship as new priorities emerge

Strategic disconnect / A lack of gate keeping

Overlap between projects Competing internal communications Resources absorbed in low priority work Shifting priorities based on flavour of the month Corporate projects accepted without connecting to local needs

Weak Sponsorship / Limited Capacity

Lack of attention where needed Projects continue off track, but unchallenged Reporting tends to justify project rather than trigger decision-making Frustrated employees and organization

Sponsorship

Snapshot of the remaining 5 foundations of a Program Management Office

Best Practices

Governance Project charter; Business case; planning rigor; reporting and follow up structure.

Project Quality

Program Management Office

Training & Competence

Communication Stakeholder mapping; communication planning; messaging; recognition. Project quality: Results tracking; auditing; project close out and sustainability planning. Best practice usage Building on past learnings; external case studies and benchmarks; tap into existing skills and competencies.

Communication Governance

current projects and the number of new projects being introduced, so they can ensure their success. They need help in being more challenging in their approach to running projects. Sponsors must also consider the full lifecycle of projects, not just the launch, or projects may lose momentum. They also need to ensure their involvement will not eclipse, or be eclipsed by, other responsibilities and consider where their energy will be needed most. A Program Management Office should ensure this process of critical questioning works, rather than simply pushing through certain projects and expanding the portfolio. It should support effective sponsorship by providing: • Clear visibility of their current project portfolio and whether it aligns to strategic objectives. • Snapshot status versus planned delivery. • Clarity of key issues and options for corrective actions. • Adherence to a rigorous project management standard.

Training and Competence Change management skills; train the trainer; aligning with HR processes and incentives.

• Direction on exactly what support requirements are needed. • Guidance on what questions leaders should ask. • A gatekeeping process controlling new initiatives. • A line management role to individuals who are seconded out of their core functions. Recently, the Aberdeen office of a global oil producer was experiencing the challenge of developing change projects within the operation at the same time as top-down programs were being introduced by corporate HQ. Management were struggling to understand what their people should focus on and how to achieve visibility without becoming overly controlling. Celerant Consulting helped them establish a Program Management Office to monitor all change activity and coordinate reporting up to the management team. They could now see exactly what was happening, how it was being managed and what intervention was needed to ensure delivery against objectives on time. If the structure

is there to support leadership, not just report to it, a dynamic is created which allows leaders to play the right role and ask the right questions. In short, senior managers do not have time and skills to get into the depths of all the project content that is needed to execute successfully. They therefore need a Program Management Office that puts needed project and portfolio management rigor in place while equipping senior sponsors with the right amount of information and support to influence positively and confidently.

Celerant Consulting works with leadership teams to define and set up the right type of Program Management Office structure to handle the varying demands of multiple change programs. We also provide specific support in the project and program management fundamentals.

CLOSEWORK® GLOBAL REVIEW 2013

Client Success Stories

Re-Energising North Sea Assets

Raising Standards and Efficiencies

Business Challenge: The client is a global, diversified, oil and gas company, with a portfolio of producing midstream assets. They had been running an Operational Excellence program across some of their Northern Europe assets for more than a year and wanted an independent review on progress. Production efficiency had been declining and efforts to stem this decline had not been yielding results at the rate that had been anticipated.

Business Challenge: The client provides a complete range of services to the oil & gas, petrochemical, pulp & paper, mining and power generation industries, including pipe fabrication, module assembly and site construction. The Company was experiencing significant cash flow challenges driven primarily by invoicing issues; poor change order management systems driving margin erosion; lost productivity driven by poor planning and scheduling; and insufficient visibility into major risks resulting in significant margin losses. Celerant Consulting was brought in to mitigate risks, maximize margins and improve cash generation.

Celerant Solution: Celerant Consulting was invited to conduct an analysis of the existing program and feed-back its findings. Opportunities for strengthening the approach were identified which resulted in a proposal to improve a number of the existing operational processes. The analysis also identified the need for greater engagement and involvement from the ‘front-line’. Without engaging the ‘hearts and minds’ of end-users, it was unlikely that the program would achieve the levels of ownership required to sustain the improvements beyond the initial program. So each asset was resourced with onshore and offshore Celerant coaches who worked alongside the client’s management team, supervisors as well as technicians. Coaches immersed themselves into the day-to-day operations, both facilitating process improvements and more importantly providing the coaching input to drive behavioural change. Results: The primary measure of success was found in the ability of the assets to anticipate and mitigate threats to production and to manage these assets in a more structured and proactive manner. For the majority of assets, the effect was more immediate and production efficiency improved. For others, the rate of decline slowed and would reverse over time as the back-log of work was steadily liquidated. Planning and scheduling and production loss elimination processes were optimized. Greater awareness and focus on performance was evident across all levels. ‘Celerant Consulting’s differentiation was in creating the right balance between process and behavioral driven improvement. By being fully embedded in the operation and working as part of the team, Celerant built the trust and credibility that earned them the right to work closely with the client’s workforce and focus their efforts on behavorial change.’

Energy

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Celerant Solution: : Celerant immediately began assisting the Company in designing improved project management and work execution processes. To progress overall productivity, the team implemented a series of coordinated activities: they scheduled the Fabrication shop based on Module Assembly requirements; they implemented Lean principles in the Fabrication shop to reduce materials handling; they established short interval controls in Fabrication, Module and Construction to identify issues; and they introduced daily, weekly and three-week activity schedules, as well as a project management ‘playbook’ to increase visibility and accountability. Results: Operational: •Schedule attainment of planned Fabrication work improved from base of 40% to greater than 90%. •Spool Fabrication cycle time shortened from 17 days to 9 days. •Fabrication weld repair rate improved from 2.6% prior to the project to 1.4% afterwards. As a result of the sustained in-line quality improvements, the target was adjusted from 3% to 2%. Cost Reduction: •13% improvements in Direct Welded Inch Productivity; these improvements are worth $2.5M in annualized benefits at shop capacity. •15% improvements in labor productivity in the Pipe Handling, Rigging and Installation at the Mod Yard; reflecting $885,000 in annualized benefits. ‘This project, by far, is the most transformational change I have seen in our organization... we have fundementally changed the way we are doing business.’ Client Executive Vice President

Construction

Best-in-Class Manufacturing

Creating a Culture of Safety

Business Challenge: Underpin the 2020 growth strategy of doubling global vehicle production volume by delivering industry benchmark production quality and efficiency and significantly improving the new model introduction capability.

Business Challenge: Our client, a leading potash producer with over 20 percent of global capacity and operations spread across the globe, set an ambitious goal to be the safest mine in the world. They were experiencing a number of challenges impeding their ability to increase market share and deliver against an aggressive and safe production goal. To meet their goal, they began a capital and operational expansion program at three of their sites. Large numbers of employees and contractors were hired, many of whom had limited experience in underground mining operations. While historical safety records were good, a significant uptick in the recordable incident rate raised concerns with senior management as to the robustness and quality of their current safety management processes and systems. Celerant was selected to develop and implement a safety improvement program to enable the achievement of the client’s vision of best-in-class safety performance.

Celerant Solution: Undertake a Global Manufacturing Operational Strategy assessment and define the Operational Roadmap to 2020. • Develop a Lean Operations Leadership model to move the organization to a true Lean Thinking organization. • Define and implement the Organizational and Performance Management pre-requisites to support the Lean transition. • Enhance the New Model Introduction & Engineering Lean capability through early phase process improvements and ‘Design for Lean’ competence development. • Design and implement a Lean transformation capability to support line management in the implementation of Lean and delivery of results in all functions at all levels. • Integrate future Lean governance into the ‘business as usual’ management system and people processes to secure sustainability and continuous improvement. Results:• Successful pilots for the Lean transformation capability demonstrating the operational, financial and behavioral results that can be achieved. • A sustainable approach to deliver the organizations 2020 ambitions, supporting the potential to double worldwide vehicle production: • Predictable year on year productivity improvements. • Best in class ‘first time through’ capability in all facilities. • Improved ramp-up time for new models, reduced overall time to market. • Supporting the potential to double worldwide vehicle production.

Celerant Solution: Celerant partnered and developed a multi-phased approach, beginning with the assessment of the ‘current state.’ The scope of work included both the Mill and Mine Operations at the client sites and the associated Safety Program elements. The second phase focused on identifying critical gaps in the important elements of the current safety program, addressing people, processes and management systems. The last phase targeted the development and implementation of safety tools & processes – including checklists, hazard identification, risk assessment and mitigation, leading metrics, intensive training and coaching and the supporting management systems both at the Mine and the Mill to ensure sustainable safety results. One our client’s sites had a large expansion program underway with over 1,000 contractor employees and a significant incident rate. Working closely with the management team, we developed consistent field level risk assessment processes and delivered one-on-one training, significantly reducing the incident rate year over year. Results: • No recordable or first aids in the last five months at one of the sites. • Another site achieved one million hours without a lost time injury. • Over 50% reduction in injury rates at the third site with a major contingent of contractors who had no injuries.

Automotive

Mining

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U.S. Government

A practical approach for dealing with defense cuts.

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anc e

an c e

tu re Pe rfo rm Fu

CURRENT

Cu rre nt Pe rfo rm

iting major weapon system programs’ delays and skyrocketing costs, former Defense Secretary Robert Gates declared in 2010: “The culture of endless money that has taken hold must be replaced by a culture of restraint.” In his first major policy speech, current Defense Secretary Chuck Hagel quickly drilled in on the need for the military to make fundamental changes in the way it operates to cope with new fiscal realities, noting that the military has “grown enormously more expensive in every way” over the past decade. There is a path to make fundamental changes that leverages the existing military organizational constructs and existing

The New Reality Under pressure once again to manage costs, systemic problems reappear as funding disappears. Studies conducted a few years before the Naval Aviation Enterprise (NAE)2 was formed, in 2004, revealed costly processes built to sustain a deeply embedded way of life and an endemic ‘consumption culture’ – issues also identified by the U.S. Army Office of Business Transformation in 20103: • A perception that people and hardware are ‘free goods’. • A consumption-oriented culture in which financial success is defined as spending every dollar. • A difficult relationship of cost to outputs and outcomes. • No penalty for excessive cost, no reward for decreased cost.

Cost per Unit of Performance

knowledge, with what we see as a clear strategy: Cost Culture at Right Readiness (CC@RR).

It is clear that an approach to CC@RR must consider not only analysis and performance criteria based on ‘hard’ data (e.g., schedule, cost, technical, quality), but on incentives and other mechanisms that motivate human behavior.

DEPLOYED GOAL NON-DEPLOYED GOAL

Operational Readiness

Figure 1. Cost/Readiness Targets. While any improvement efforts cannot negatively impact support levels required by deployed units, cost/readiness targets for deployed and non-deployed assets can differ.

For leaders charged with sustaining military mission success, the double whammy of reduced funding and increasing weapon system Operating and Support (O&S) costs1 appears suffocating. But a Behavioral Enterprise construct for reducing costs while maintaining readiness is feasible and demonstrated says Craig McGirr, Manager at Celerant Consulting.

Readiness Driven Cost Goals A key premise of CC@RR is that the new cost focus cannot impact the readiness of deployed assets - senior war-fighters make that clear. However, as illustrated in Figure 1, cost/readiness goals for deployed and non-deployed assets need not be the same.

• Use the professional and personal logistics relationships developed during the last ten years to find sufficient data. We asked for and found dedicated government and contractor individuals who kept their own records that were not part of the ‘official’ record, but helped them do their job well.

The challenge is to ensure that the contractors can gain experience working within an improvement environment, work cross-functionally with their system, and transfer that learning to the military. The result will be a better understanding of the O&S cost of the weapon system now and in the future.

A secondary premise of CC@RR is that it must not conflict with the need for Rapid Acquisition and Quick Reaction Capability (QRC) nonstandard equipment. QRC programs upended traditional DoD acquisition timetables, delivering materiel and solutions within months rather than years, but at the expense of technical, performance, and cost data normally purchased as Contract Data Requirement Lists (CDRLs)4. As a result of most sustainment also being provided by a Contractor Logistical Support (CLS) contract for this equipment, contractors gained the weapon system performance knowledge, with that data inaccessible to the military for learning and improvement in future Programs of Record (POR). Thus new cost behaviors must maintain readiness, while increasing learning based on best practices, and focus on three requisites: Obtaining sufficient data, aligning ‘WIIFM’ incentives and tasking the Enterprise to remove barriers.

A recently completed Celerant effort within the Department of Defense increased operational availability of sensor systems from 79% to 96% (1Q2013) a year after implementation, while reducing the number of spare systems. This was accomplished by replicating a forward repair maintenance concept already in use by a logistics contractor to significantly reduce repair turn-around times (RTAT). Previously, all of the systems were returned stateside to the Original Equipment Manufacturer (OEM) with a 17 week RTAT. Now, 60% of repairs require only two days to complete. This learning is now being applied to several funded PORs that will use the same sensor system to reduce future O&S costs.

3. Tasking the Enterprise The CC@RR construct requires the support of a third leg: the Behavioral Enterprise to provide governance and measurements for cross-command leverage without having to escalate disagreements to the Service Secretary.

1. Obtaining Sufficient Data The military cannot afford to buy the data that is now missing. How are informed CC@RR decisions to be made when you cannot obtain sufficient data? To start, some assumptions need to be re-evaluated. For example, with regard to Cost Culture: • Not every QRC is destined to become a POR, or to need long-term funding support. Strategically select which QRCs should have improvement projects, thus reducing the total level of effort required. • All improvement projects should be prioritized based on a need for focused QRC / POR cost behavior understanding, not for every Program Management Office (PMO) to complete a set quantity of improvement projects.

2. Aligning ‘WIIFM’ Incentives Reducing costs requires an understanding of Real Cost Behaviors. As shown in step 1, the opportunity lies with CLS and OEM partners, but the contractors’ incentives (‘What’s In It For Me?’ or ‘WIIFM’) have been misaligned with those of the military: contractors’ revenue motives lay at odds with the military’s demanding ‘more for less.’ Reduced Defense funding now provides a motivation for improving alignment; any contractor worried about future revenue should strive to be better positioned for the next contract. But how? CC@RR suggests that the military should do its part to align incentives by including two criteria in future contract evaluations: • Improvement experience weight that includes documented efforts to explain what was learned. • Credit for real savings generated for both current year cost reduction and future funding reductions.

The Behavioral Enterprise removes barriers at the lowest reporting level possible, recognizing the longer-term revenue motivation of the OEM or CLS provider, and the ‘positive attention from a Flag Officer’ motivation for a military member. There is a limit to how much empowerment people far down the chain have when they seek to change a restrictive policy or move funds across Commands, even if it is for something that will benefit the ‘Greater Good’ of the Service. Succeeding at the Greater Good The four issues identified by the U.S. Army Office of Business Transformation as targets to address Cost Culture clearly conflict with the Greater Good. This is why military organizations competing for funding must subordinate their individual Command goal to the Behavioral Enterprise goals that focus on the right readiness at the right cost. Positioning the Behavioral Enterprises across all the cross-functional processes to accomplish their goals requires effort. The Behavioral Enterprise leaders need to harness the data and ingenuity of what they have, focus on the vital few ideas that matter, capture learning, and set the priorities to change the culture to reflect the new reality.

1 “DoD Needs Better Information and Guidance to More Effectively Manage Operating and Support Costs of Major Weapon Systems,” July 2010, GAO report 10-717 <http://www. gao.gov/products/GAO-10-717>. 2 “The Naval Aviation Enterprise – Our History,” <http://www.public.navy.mil/airfor/nae/Pages/History.aspx>. 3 “Business Transformation Plan 2011,” Army Office of Business Transformation, 1 Oct 2010, p. 43. 4 “MRAP Rapid Acquisition,” GAO-08-884R, June 15, 2008 <http://www.gao.gov/new.items/d08884r.pdf>

CLOSEWORK® GLOBAL REVIEW 2013

Closework® in Action

The things we know and the things they know are very different, and that’s ok. Together, we can deliver more than either team could on their own. Jim Smart, a Celerant consultant for 15 years, shares his perspective on putting Closework® into action for both commercial clients and the U.S. Department of Defense.

CLOSEWORK® GLOBAL REVIEW 2013

hat does Closework® mean to you? I spent time in the Navy and about 16 years in industry as a manager, where I was a user of consulting services. When consultants came in to do a study, they would write up a massive report that told us all the things we needed to do to get better. I found that humorous; rarely did anyone take the time to read the thing, much less execute on the recommendations.

medical facility. It seems like there’s no industry or part of the world that is out of our jurisdiction. When we go into a commercial plant, it is mainly for a financial return. We were working on a site that is part of a broader corporation looking to get something out of that asset. So the buy-in from management is around showing bottom line savings that ends up in financial gains. Everyone is aligned and tuned in to changing behaviors and getting those results in a short time frame.

When I interviewed for this position at Celerant Consulting, Closework® was one thing that led me to work here. The concept – putting a team onsite, working hand in hand with clients to help them improve performance – that grabbed me. What a difference to really live life with the people you were consulting for, making sure recommendations were implemented and results achieved rather than submitting a report, collecting the bill, and that’s that.

At the Department of Defense, it isn’t about the bottom line. It’s about managing processes better to support the war fighter more efficiently. How can we quickly get the latest and greatest technology and capability into the hands of the men and women fighting for this country? That’s about saving lives. It leads to a different way of working and a different way of putting Closework® into practice.

What stands out about your work with the Department of Defense? I have been at Celerant a long time, and I feel like I have seen everything. What really stands out at the Department of Defense is that with one success leading to another, the project has extended past the five year mark. That is one of Celerant’s longest continuous engagements. Even with all the great client results and relationships that are formed, I have never seen an ongoing commitment like this. One of the things we are working on is a tool to manage the sheer number of contracts that comes into the Department. There’s such complexity. I’m working in one program office but then there are 10 different contracting vehicles that are working through six centers with billions of dollars being distributed. If you think you’re going to manage that by hand or through notes and spreadsheets on individuals’ computers, you’re sadly mistaken. They’ve come to realize that they need to know where everything is at any point in time. That’s where we come in. What makes your work with the Department of Defense different from other engagements? I have worked on a lot of oil and gas engagements. I have also been in a paper plant, in a plant that makes the bagging that goes on turkeys, in a

How is Closework® used differently at the Department of Defense? At a commercial client, teams are made up of a consulting team leader and client staff that work together to find solutions and deliver results. We were there to facilitate the process, teaching staff how to be better managers and get the right data in their hands every hour, day, week to ensure they were successful. The focus there is on the processes, how to manage them, and changing behaviors to impact the deliverable. I’m teaching you to think and act differently so you can put new rules and principles into action every day. If I come back a year later and you’re doing the same thing you were doing when I left, that would be a failure. Because there is less teaching and training at Department of Defense, I’m more of a trusted advisor than a team facilitator. Ideally, I have one person that I am partnered with. We meet every week to gauge what problems need to be solved. I help make decisions on what we need to focus on, guide him with the processes, and improve how that piece of the operation is managed. So just like with Closework® on the commercial side, I’m working with people on the floor every day. On any given day I might be supplementing data entry, looking at the next generation of

software, conducting test evaluations of the next phase, and putting together training material. I’m more of a doer and a trainer of ‘super users.’ Has your work made the Department of Defense better? Absolutely, which explains why the relationship keeps extending. They need tools that help them manage this very complex procurement operation, and we need to be really good at providing those tools across a massive organization. It starts at a department level, but the more work we do, the more people see the results and want them. We need to be able to scale the tools to service multiple program offices through multiple acquisition communities. You can have the slickest tool in the world, though, and if people don’t know how to use it, it’s worthless. We work with them to teach them to use the tool to get it to work the way it’s supposed to work. We put meeting structures in place, and we get them used to behaviors needed to manage the process. Can you tell us a success story from your years with Celerant? I was in a project early in my consulting career at a massive chemical plant, which was very technical in nature. I’m a history major - a management and process guy - and in the chemical industry there are a lot of technically brilliant people. One guy I was working with was skeptical right away, and I know he was thinking, “What can a history major possibly teach me?” But the greatest thing happened at the final meeting. After months of work, he stood up and announced, “I have to admit it, I was wrong. I learned quite a lot.” That says it all. People are skeptical because we’re coming in from the outside and don’t know their facilities and their processes. We need to say right away that we’ll never know their technical process as well as they know it, but we do know how to manage it better. Blending their expertise with our expertise is how we’ll be successful. The things we know and the things they know are very different, and that’s ok. Together, we can deliver more than either team could on their own. That’s what Closework® is all about.

CLOSEWORK® GLOBAL REVIEW 2013

Lean Leadership

HAVE YOU HIT THE WALL IN YOUR LEAN JOURNEY? Too many Lean initiatives fail to realize their full potential, say Jonathan Gray, Vice President Operations & Operational Transformation service line leader and Mark Hughes, Vice President Operations. Celerant’s experience with a European automotive manufacturer provides real lessons in Lean Leadership.

ince ‘The Machine That Changed The World’ was published in 1990, most businesses around the world have embarked in one way or another on a Lean initiative, in pursuit of higher productivity, lower cost, and greater customer loyalty. Unfortunately, few organizations have realized the full potential of the Lean system. In fact, many businesses have failed to show significant progress beyond an initial year or so of waste reduction. Like a marathon runner who begins strong, but soon runs out of energy, many Lean efforts have the feeling of ‘hitting the wall’. When this happens, senior management often concludes that either Lean is ‘done’, or that the theory was over-hyped and not as powerful as they were initially led to believe. Both of these conclusions are wrong. In fact, Lean is a transformational journey which changes the fundamental values and behavior of an organization. Along the way, there are a number of critical success factors which enable the progress and learning required to advance to the next level of maturity. Celerant Consulting has been working with a European car manufacturer in 2011 and 2012, which, like many other companies, was feeling a slowdown in their Lean journey. Their situation was typical: over a decade of experience in applying Lean techniques, a strong focus on tools/ methods, and strong push from management to implement. They achieved significant improvements over the first few years and even starting feeling that they were approaching ‘world-class’ levels of Lean performance. But for some reason, the initiative began to lose energy. And in fact, the harder they pushed for results with Lean, the more the progress seemed to slow down. Why? What was happening? What could be done to get over the wall? Understand where you are on your journey Let’s take a closer look at their situation. The scope of Lean was initially limited to the work cell and production line. Their efforts were mainly focused on team work, waste reduction and standardized work. To achieve this, the workforce had been trained to apply the basic Lean toolkit. A strong awareness had been created in the Lean roll-out and management

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The assessment highlighted a gap in fundamental Lean understanding of the workforce, applying the toolkit without considering the real essence of Lean and thus achieving a compliance only approach to improving performance.

Lean is a Transformational Journey

The organically grown production system had become complex and core Lean principles were not articulated clearly. The system needed to become simpler, more logical and easily able to articulate the why, what and how of Lean.

Stronger technical focus (get people to learn & apply tools & methods)

LEAN BENEFITS AND EFFECT

was strongly communicating the importance and measuring progress. This produced some good initial results, as the low-hanging fruit was harvested. In Celerant’s Lean Leadership Model MaturityTM Scale this was a typical ’Phase 1- Start’ experience, which is an effective way to begin the Lean journey. Over time the basic Lean toolkit organically grew into a production system, incorporating the broader manufacturing organization into the Lean journey with a strong set of working standards as defined in ‘Phase 2 - Standardize’. The available toolkit grew significantly, the level of education increased throughout the organization with the development of a Lean Learning Academy as did the centralized governance structure required to drive compliance to the installed elements of the production system. It was at this point Celerant were asked to step in and undertake a wide spread assessment of the manufacturing organization to understand why this more advanced Lean system was not delivering the step change in performance as expected.

Stronger leadership focus (get leadership team to truly understand and live Lean, pulling the organization) Lean learning organization Lean thinking organization

Lean understanding organization Lean knowing organization

(incorporated into a cross functional ‘Business System’, demonstrate Lean behaviors)

(Lean is Enterprise DNA creating a continuous improvement culture)

(gradual development into a Lean system)

(typical a pilot phase using a basic toolkit)

Typical ‘wall’ for Lean programs

Phase 1 3 -12 months

Phase 2 12 -36 months

Phase 3 24 - 60 months

Phase 4 60+ months

Start

Standardize

GROW

EMBED

Celerant’s Lean Leadership Maturity Model TM In addition, some of the key prerequisites where not in place to provide the environment for the workforce to execute Lean effectively. The organizational set-up did not provide enough capacity for people to consistently drive improvement activities, the performance management system did not put Lean at the forefront of achieving performance targets, leadership was not providing the level of support required for the teams to be successful and as a result overall organizational climate was low. Leaders must make a conscious choice Leadership were openly sponsoring the Lean journey but not actively role modelling a Lean way of working. The reason they were hitting the wall was mainly due to leadership behavior. The role of leadership during Phases 1 and 2 includes creating awareness, setting clear expectations, energizing teams and measuring results. It usually has a very top-down style, which is often prescriptive. While this leadership approach is necessary to get Lean started, it soon outlives its usefulness. And unfortunately, most leaders do not feel it necessary to fully understanding Lean yet many say they have done Lean. For many, Lean simply becomes a trendy moniker for cleaning up the shop floor and reducing cost.

At this tipping point leadership must make a conscious choice. Take the safe route and make the required structural changes; re-design the production system and tweak the organizational set-up to create capacity providing others with a greater chance of success on their Lean journey or move to ‘Phase 3 – Grow’. Support experimentation, encourage creativity In phase 3 your organization starts to think Lean. It requires a shift in leadership behavior, moving from driving compliance to supporting experimentation, encouraging creativity without losing the importance of standards and structure. It is now that people start to take their own Lean journey, applying it to themselves and their environments, taking accountability to improve and with the right support, committing to stretching goals and targets. When leaders unlock the full potential of Lean, the workplace transforms in some dramatic ways. Employee engagement, creativity, teamwork and pride reach new levels, and continuous improvement becomes ingrained in the daily work culture. As continuous improvement becomes a reality, seemingly impossible levels of performance become the new norm. If you find your Lean journey has hit the wall, what choice will you make?

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Lean Performance

20%

improvement in cost-income

All for one. One for all.

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“

Celerant really helped us to get a management system in place to steer towards improved results and to follow-up using KPIs. Sara Depret, Program Director

”

When KBC wanted to create a Shared Services Group for Belgium and Central Europe it asked Celerant Consulting to run the Lean program that helped it think smarter and act smarter.

aced with the challenge of building a new Shared-Services Group for its Asset Management, Consumer Finance, Group Payments, Leasing and ICT operations, and keen to proactively introduce a greater focus on performance and customer service, KBC’s new COO selected Lean Management as the key vehicle for change. A common approach was required that incorporated management best-practices to break down organizational silos and anchor a culture of continuous ¬improvement. Transforming 5 entities in 4 countries A transformational change program was structured to implement a new Lean way-of- working, build Lean thinking capabilities and deliver significant results across 5 entities in 4 countries. Starting with proof-of-concept pilot projects in each entity and then expanding to include all teams, Celerant worked alongside colleagues from KBC to develop their capabilities as Lean coaches and implement Lean management practices. Multiple approaches were simultaneously used;

including bottom-up coaching of individual teams and large scale deployment of must have practices, including white-boards and daily team meetings. Celerant’s Performance Management System (MCRS®) with cascaded KPIs and targets and streamlined meeting structures was also implemented in each entity. Cross-functional kaizen improvement workshops were then facilitated by Celerant consultants to improve flow and eliminate waste across critical processes. A ‘back-pack’ of best-practice tools and training was developed, and communities of practice and a certification process were established to support ongoing learning. Finally, the new way-of-working was anchored into existing people processes including training, appraisals and incentives. Raised co-operation - reduced costs Employees are enthusiastic about the more inclusive way-of-working, leaders are pleased with the improved collaboration between teams, and internal customers are delighted

with the improvements in cost and service. ‘It’s brought clarity to management’ observes COO Danny de Raymaeker, ‘It’s also brought clarity to expectations that I can formulate towards my direct reports and it allows us to measure progress; so for me everything that has to do with setting targets, following up on targets and the way we come to decisions has changed significantly.’

RESULTS • Significant potential savings identified in Year 1. • The Shared Service Center is on track to achieve its target of 20% improvement in cost-income within 3 years. • Lean practices implemented across 200 teams. • Over 500 methodologists trained and 30 Lean coaches certified to build sustainable support for a continuous improvement target of 5% per year. To learn more about KBC visit www.kbc.com

CLOSEWORK® GLOBAL REVIEW 2013

The Failure of PEX

What happened to Process Excellence? The methods of Six Sigma are both powerful and effective, argues Greg Kinsey, Senior Vice President at Celerant Consulting, but they can only enable sustainable breakthroughs when combined and aligned within a broader transformation.

ver the past quarter century, thousands of businesses around the globe have pursued ‘Process Excellence’ initiatives, aimed at increasing productivity and quality through process improvement. The basic idea is not new. The origins emerged from the work of quality gurus Demming and Juran in the 1950s.

Today a quick search for Six Sigma Black Belts on LinkedIn reveals just how pervasive the movement has become. However, talk with any senior executive about Process Excellence, and most will have mixed views on the topic. Multiple surveys indicate that somewhere between 50% and 70% of Process Excellence initiatives failed to deliver the expected results. Consequently, few senior executives are willing to stake their careers on sponsoring such an initiative today.

However, the Process Excellence craze really took off in the late 1990s, after the Six Sigma successes of Motorola, AlliedSignal, and General Electric. These companies demonstrated how the optimization of process capability and process control can deliver significant results to the bottom line.

Why has Process Excellence failed? One of the reasons Process Excellence was so successful in the first place was its laser focus on processes, and eliminating process variation. Ironically, this deep, narrow focus is also a reason for its failure.

Few Fortune 500 boardrooms could afford to ignore the promise of Process Excellence and most tried to copy the approach. A cottage industry of consultancies soon emerged, helping companies to train and deploy armies of Six Sigma Black Belts - experts in the science of eradicating poor processes.

Process performance is only one of several factors which are critical to a high performance business. Acting on processes alone usually does not create sustainable productivity gains, except for an initial wave of ‘low hanging fruit’. Further gains require looking beyond processes, to also address a number of other aspects, such as:

CLOSEWORK® GLOBAL REVIEW 2013

• operational strategy, • management and control systems, • business metrics, • organizational structure, • roles and responsibilities, • reporting processes, • performance management systems, • people development, • and leadership behavior. Unfortunately, many of these aspects are often overlooked in the scope of Process Excellence initiatives. The methods of Six Sigma are both powerful and effective, but they can only enable sustainable breakthroughs when combined and aligned within a broader transformation. In fact, this was why it worked so well at AlliedSignal and General Electric – those companies integrated it within a wider transformation of management systems and organizational models. That’s why most executives today are focused on Operational Excellence or Business Excellence, rather than simply Process Excellence.

CLOSEWORK® GLOBAL REVIEW 2013

Improving Leadership Behavior

RED1 to BLUE4. It’s not a chess move, it’s one of the best ways to improve leadership behavior. Mark Turek, Vice President, Celerant Consulting and Steve Glowinkowski, President, Glowinkowski International explain how improving leadership behavior will dramatically improve organizational performance. Steve Glowinkowski formed Glowinkowski International in the early 90s. For the past 25 years he and his team of consultants have developed a coaching and consultancy practice, together with a research institute that underpins the approach and toolkit and accreditation academy for transferring knowledge and skills. Their work focuses on helping organizations drive up their performance through leadership development and behavior coaching.

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n today’s uncertain, rapidly changing environment good leadership is a main source of competitive advantage for any business. Where leaders really lead, others will follow. The work of Steve Glowinkowski has firmly established that the difference between ‘average’ and ‘outstanding’ organizations is based on whether employees experience a Performance Oriented Climate. Employees in high performing organizations show that they experience a deep sense of clarity, challenge, change orientation, autonomy, recognition and involvement. The Glowinkowski research, based on many thousands of business leaders from a global, multi-sector data base, clearly indicates

that it is the quality and effectiveness of leadership behavior that shapes and instils this performance climate within an organization - a performance climate that in turn, is shown to directly correlate with bottom line performance. So what makes some leaders far more effective than others? Measuring and improving leadership behavior Can the quality of an individual’s leadership behavior be measured and improved over time? One reliable approach that has emerged over recent years is the idea of Blue4 Behavior as measured by the Engagement Style Indicator (ESI™). Developed by Glowinkowski, it provides a simple, yet powerful framework to diagnose leadership behavior and create a path for improvement.

The Model of Leadership Behavior

rabbits in the headlights. In short, he tended to stifle people’s ideas and creativity. The key learning was for him to recognise this performance connect. Based on this he implemented his learning strategy over a six month time frame. He then re-assessed and demonstrated a significant increase in Blue4 and the climate dimensions and a corresponding reduction in Red1. More importantly, his organisation now shipped 42 trucks per day.

DIRECTIVE (Proactive)

INDIFFERENT (Towards People)

Hostile Inflexible Over-demanding Controlling Narrow-minded Talks rather than listens

Assertive Flexible Information seeking Results-minded Involving

Detached Cagey Defensive Uninterested Uninvolved Wary

Too friendly Unstructured Concillatory Conceeding Indirect Non-demanding

CONCERNED (For People)

PASSIVE (Reactive)

The Leadership model is based on two behavior dimensions. This creates a simple two by two matrix, with each quadrant reflecting a specific style. The top left, called Red1, is a behavior which is seen as coercive and dictatorial. Moving anticlockwise is Amber2. This behavior is seen as secretive, disengaged and anonymous. The lower right, Green3, is seen as accommodating and overly friendly - fine on people, but poor on results. The final quadrant, Blue4, is the combination of directive and concerned. The research data reveals that Blue4 is the name of the game. The more Blue4 behavior a leader demonstrates, the better the performance climate will be, enhancing the bottom line results.

Blue 4

Clarity Challenge Change Autonomy Recognition Involvement

PERFORMANCE

Leadership Climate Performance

Practical applications have shown on average 10% improvements in leadership behavior drive 20% improvements in climate. Many cases have also shown these results drive bottom line financial improvements of up to 40%. Improving business performance can be achieved by assessing the leadership behavior of supervisors, together with the climate and performance of the area for which they are accountable. Based on this analysis, and the new understanding it brings, the supervisors can then change their behavior to improve performance. A change of style brings a change of results Let’s consider two case studies: CASE STUDY 1: The logistics director of a major brewery was frustrated by the fact that although his organization could sell all the beer they could ship, they were only shipping 32 trucks per day. His leadership profile revealed a low Blue4 score with a predominance of Red1. This drove down the climate scores of autonomy and change orientation because his overly coercive style caused his people to ‘run for cover’, they were

CASE STUDY 2: The COO of a leading financial services business had significant issues with his call centre operation. These were mainly driven by a staff turnover of 30% and difficulties with attracting new talent because the company’s reputation in the industry was poor. Sales performance and customer service were also mediocre. When the management population undertook the Blue4 and climate audit the result was an overly Amber2 and Green3 profile and a poor level of Blue4. This was associated with low climate scores in terms of clarity, challenge and recognition. In short, the management lacked edge, focus and drive - a kind of ‘sleepy hollow’. It was not a culture for the talented, ambitious and driven type to prosper. Over the next 12 months the management population implemented their development agenda and then re-assessed their behavior and climate. The results showed a significant shift towards greater Blue4 with enhancements in climate. The performance improvements were also impressive. Staff turnover dropped to 16% and stayed there for several years, the call/sales ratio doubled from 24/1 to 12/1 and customer service leapt from 55% very satisfied to 89% very satisfied over an eighteen month time frame. Using the framework, these two case studies provide insight into why leadership behavior is of such critical importance. Whether we are talking about short term performance issues or long-term competitiveness, organizational health, and the effectiveness of leadership behavior are critical drivers. The application of Blue4, provide a practical way to diagnose leadership behavior and continuously raise the bar to create a higher performing culture. Celerant works with Glowinkowski International to help drive sustainable and measurable change through effective leadership improvements.

CLOSEWORK® GLOBAL REVIEW 2013

Organizational Effectiveness

INVERTING THE AGE PYRAMID.

Using the wisdom of the past to power the future. When GDF SUEZ E&P needed to manage generation change without losing knowledge, and plan a production future with fewer employees, it enlisted Celerant Consulting’s organizational expertise to help secure the desired results.

DF SUEZ E&P Deutschland GmbH, global energy group GDF Suez’s unit in charge of Oil & Gas Exploration and Production in Germany, faced major human capital challenges. It had to figure out how to manage generation change without losing knowledge, whilst at the same time focusing on cost reduction to keep production profitable. It also had to determine how safe and stable production could be managed in the future with fewer employees. After reviewing the existing production and financial operations a joint Celerant-Client team developed an operational strategy for the future which identified three key areas where major changes would have to be implemented to meet the challenges ahead: organization, management system and project & production.

Drilling into the knowledge base The first work stream focused on developing a new operational strategy and organization for the GDF Suez E&P Deutschland production unit. Based on this new strategy a Lean organization was then designed with flat hierarchies and clear roles and responsibilities. Knowledge centres were introduced to guarantee that all the experience and know-how that existed within the company could be captured and specific employees were identified for special education programs to fill future gaps in the supervisor roles. Releasing the potential Management systems were upgraded In the MCRS® work stream to better control and steer the dayto-day operations and improved performance monitoring and short interval control were introduced with new reports on different levels

within the organization. In addition, a newly aligned project management organization was implemented with defined interfaces to the engineering departments and clear roles and responsibilities to ensure a more efficient realization of internal projects. RESULTS • A new organization structure with a new roadmap for the next 5 years. • Centralized Knowledge Management and succession planning to counter the generation change. • Staffing optimization. • A new planning and budgeting process, with clear roles and responsibilities. • Improved budget accuracy and reduced costs per BOE. To learn more about GDF SUEZ visit: www.gdfsuez.com

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“

We have introduced the new organization with very little noise and we now have a clear roadmap that is ambitious, but achievable. Well done!

”

Albrecht. Möhring, Managing Director.

CLOSEWORK® GLOBAL REVIEW 2013

Client Success Stories

A Toast To Collaboration

Creating Global Excellence

Business Challenge: The client is the leading Brewing Group in Central and Eastern Europe, but within this fiercely competitive market its operations planning was insufficient to cope with changing market dynamics where promotions and innovation management were increasingly key differentiators. Additional challenges included a lack of integrated processes to support agility, poor alignment between supply operations and Sales & Marketing, Supply Chain performance regarding inventory levels and the operational costs of achieving desired service targets. A step change was therefore needed.

Business Challenge: The client, a world leading speciality Chemical company, had protected proﬁts during the economic crisis by undertaking a comprehensive cost cutting review. Now the challenge was to manage growth and keep the organization lean. The key questions were: “Can we improve performance by sharing the best practices of our global manufacturing sites?” and “Can we spend our money more wisely whilst improving asset reliability?”

Celerant Solution: The Celerant team worked closely with the client to design and implement tactical and short term integrated planning capabilities, using timely market information to maximize performance. The project covered Sales & marketing, Supply Chain, Production, Procurement and Finance to ensure perfect alignment for optimal performance and was supported by robust processes across all countries, including inventory management, NPI and complexity management. Celerant’s MCRS® Management System was implemented to manage Sales & Operations, with optimal decision making to constantly balance cost, service and inventory. Structured internal collaboration and communication were also instituted, with widespread sharing of information, common processes and KPI’s best practice sharing to enable benchmarking and leverage between countries. Celerant supported the implementation in 3 pilot countries out of 7, using a ‘train the trainer’ approach. Then the company began rolling the project out to the remaining countries to embed a culture of continuous improvement. Results: Improved cross-functional collaboration and alignment between Sales & Marketing and Supply Operations, with rolling monthly/weekly planning cycles. •Informed, structured decision making, with increased anticipation capabilities. •Better understanding of the link between operational performance and financial impact. •Improved cross-functional alignment and communication enabling the generation of a consensus plan and agreed priorities, taking into account supply constraints and sales opportunities. •Reduced supply variability with improved forecast accuracy. •Optimal inventory targets aligned with sales volumes and variability.

Consumer

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Celerant Solution: After reviewing the global manufacturing footprint, the Celerant team selected the 3 most important sites in the US, Europe and Asia to launch a maintenance excellence assessment. It highlighted existing best practices, areas for improvement and a clear need to establish a common language with global KPIs. To implement these changes 6 major workstreams were installed at each site: •Optimized maintenance work order processes with planning & scheduling of internal craftsmen and contractors. •Risk assessments to identify critical equipment and reliability centred maintenance strategies. •CAPEX project prioritization and project management focused on cost drivers and performance killers. •Contractor performance management linked to sourcing to improve OPEX and CAPEX spend. •OEE to reduce loss and cycle time. •Performance management (MCRS®) with global KPIs, SICs and continuous improvement to create the glue for maintenance excellence. Results: Maintenance now recognized as a cross functional task with clear roles and responsibilities in production, procurement and maintenance. •Plant and reliability engineers drive maintenance and investment strategies to improve asset reliability and production output. •Bi-weekly conference calls share best practices between sites and global KPIs provide performance transparency and continuous improvement. •Although not a cost out program $10M annualized benefits was also delivered through increased output and revenue. ‘We have achieved a remarkable change in cooperation and behavior within the organization. The 3 sites have taken a major step forward in maintenance excellence and now we have a team ready to roll out the changes to our other sites in the 3 continents.’ Global Program Manager.

Chemicals

A Dynamic New Environment

A World-Class Platform for Growth

Business Challenge: The client is a global leader in environmental solutions, providing tailor-made services in water management, waste management and energy services. Analyses by its Finance Department showed a non controlled increase in HQ costs, primarily due to misalignment between activities. With more than 2,300 subsidiaries relying on three core businesses with different backgrounds, the company’s way of working needed transforming to run the total business more effectively and deliver increasing numbers of transversal projects. There was also pressure on stakeholders to significantly reduce costs, so the CEO decided to initiate real cultural change to better serve clients as one integrated company.

Business Challenge: Our client is a leading global provider of innovative medical devices used by physicians for minimally-invasive diagnosis and treatment of cancer and peripheral vascular disease. Through a series of acquisitions, the company had created a diverse, market leading product line. Our client was facing several challenges: limited market share gains in recent years, compressed margins due to slower growth in volume and pricing, loss of key oncology product, lack of M&A execution capability, limited organic growth opportunities due to lack of effective R&D, lagging manufacturing efficiency gains, costly product recalls and FDA oversight. Celerant was approached to help the executive team identify and validate potential synergies with its largest acquisition. This would nearly double its revenue and position the company as the second largest market provider in the segment.

Celerant Solution: Celerant Consulting was tasked to help the group launch and implement a comprehensive change program to create a leaner, more efficient organization. It covered Corporate Headquarters, 3 branch headquarters, 2,500 people, 17 functions and €775M SG&A. In a complex and political situation, the Celerant team challenged the client’s initial decision to adopt a more tactical perspective and pushed for a more ambitious approach, conducting face-to-face interviews to identify stakes and potential cost optimization and a series of workshops with directors from different subsidiaries and different functions to provide a global view on costs and activities which helped define a change roadmap to the to-be situation. Celerant also created a detailed FTE and costs dashboard to align all functions on expected results and ensure action was taken on time, and trained and transferred knowledge to sustain the new way of managing HQ performance. Results: The creation of a real Global Control Group. •Clearer, more integrated organization for 17 HQ functions. •A reversal of the increasing HQ cost trend. •14% SG&A costs reduction with €110 M direct impact on EBITDA. •Empowerment of Corporate functional branch leaders to drive performance at all levels.

Celerant Solution: Celerant worked with the company to identify redundancies and performance improvement opportunities across all functions of the organization. Significant pre-close planning activity involving management of both client and target allowed accelerated post-close integration synergies to be captured in a short period of time. Best practices from both companies were expanded and installed in the critical areas of R&D, marketing and manufacturing.The Celerant team installed management control and reporting methodologies to lead the Executive Steering Committee and Project Management Office, and align with client business leaders during implementation activities. Results: •Net synergies of $11.4M in the first 6 months post acquisition. •Implemented new organizational design. •Focused Lean project improved productivity and quality control of selected product lines. •Installed shared service organizations to increase scalability across Customer Service, IT and HR.

‘I’ve been with the company for 13 years and have never seen such a change dynamic.’ Manager.

Utilities

Private Equity / Life Sciences

CELERANT GLOBAL REVIEW 2011 CLOSEWORK® GLOBAL REVIEW 2013

XX 33

Change Management

In times of uncertainty, actions speak louder than words. At their recent 16th Workshop in Paris, Celerant Change Club Members discussed the most effective ways to maintain team motivation and performance in a time of crisis. This is an Executive Summary.

CLOSEWORK® GLOBAL REVIEW 2013

udget cuts, restructuring, outsourcing, redundancies: the mere rumor of their arrival can affect workforce morale. Uncertainty breeds insecurity which can quickly lead to a lack of trust and a loss of commitment. In normal times this might only affect a few individuals, but in times of crisis it can ripple across an entire organization, so managers must work extra hard to ensure that people remain focused and positive about their future. Motivating people through financial incentives is not enough. Other solutions exist, and they are based on the intrinsic motivations of individuals: the search for meaning in their work, pride in what they have achieved, autonomy and involvement. Autonomy, trust, meaning: these are the three pillars of engagement which leaders must focus on during times of uncertainty because a crisis can also represent an opportunity for people to get out of their comfort zone and develop as professionals. Motivation is the cornerstone of value creation Employee engagement consists of three elements: mobilization for company success, loyalty to the company and a pride in belonging. A global

survey of 3,100 companies, published at the end of 2012,* showed that the average engagement rate of employees in 2011 stood at 58%, with Latin America in first place and Europe last. The most effective drivers for engagement are employee recognition, career potential, company reputation and clear communication. The challenge for companies lies in maintaining a strong level of engagement among workers. If the engagement rate drops below 30%, the company enters a situation of value destruction. Employee motivation, which supports and nourishes this value-creating engagement, is therefore vital. Companies must be able to recognize and measure the symptoms of a drop in motivation so they are better placed to react:

WORK ATMOSPHERE • Offer bonding activities

ENVIRONMENT

Symptoms of a drop in motivation • Absenteeism • Reduction in decision-making, inactivity • Loss of trust, feelings of doubt, questioning the situation • Drop in productivity • Decreased innovation and creativity Measurement tools • Diagnosis of the climate of the organization • Fully confidential employee interviews and evaluation, with cross-checking of observations made • Identification of the causes of deviation and the creation of consensus • Roadmap by theme with associated actions What drivers maintain and stimulate employee motivation? Motivation depends on whether or not certain needs are met. Do I understand my contribution to the company? Do I have career prospects? Is my work interesting? If employees can answer yes to these questions, they are probably motivated by their job. Contrary to expectation, financial incentives are not crucial. It is equally important to share the company’s vision and strategy to build a foundation of trust.

• Provide specific rooms/tools to improve productivity

PERSONAL DEVELOPMENT AND PROMOTION • Give a sense of perspective by reaffirming the personal development and training plan • Link individual contribution to collective performance • Strengthen the sense of belonging and pride

TRUST • Be honest when the outlook is negative • Give autonomy and define clear objectives (aligned with the vision) • Promote a sense of responsibility and delegate

VISION AND STRATEGY • Give the vision and associated strategy by providing clarifications to aid understanding • Unite teams around a shared vision • Communicate by reassuring, listen attentively to expectations, respond to uncertainty

* Global Study by Aon Hewitt CLOSEWORK® GLOBAL REVIEW 2013

Change Management

Vision & Motivation

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Motivation also comprises elements that are conscious and subconscious, individual and collective. Employees must be given room for manoeuvre when it comes to the way in which the company is changing. It is also important to leave space for new ideas to emerge, as these ideas may prove useful to the organization. However, there must be some shared rules: a subtle balance must therefore be found between freedoms granted to promote creativity, and restrictions imposed. As a general rule, it is a good idea to combine teams, give employees responsibility while providing support, offer a sympathetic ear and inform them of successes and progress. The way forward for managers If demotivation does occur, managers must pay greater attention to the messages they are giving their teams. Errors to avoid • Don’t reduce contact time on the ground by avoiding operational difficulties. • Don’t allow rivalries to build up or negative leaders to act. • Don’t play down the situation to stop the team worrying. • Don’t adopt an individualist strategy. • Don’t communicate without emphasizing the vision and explaining the objectives. • Don’t pass down pressure to your employees, by increasing controls or demanding more reporting. • Don’t rush into hyperactivity. Approaches to adopt • Give support to those most in need of it. • Optimize company resources. • Go for quick wins. • Communicate results and the progress being made. • Rebuild trust, encourage teams to be flexible and help one another. • Take advantage of the free time you have as a result of a reduction in activity to simplify processes, optimize management through continuous improvement and clarify R&R. During a change program, there will be at least 10% who remain resistant to change: it is pointless to try to convince them. It is better to focus energy on leaders and positive actors, those capable of carrying most of the undecided

along with them. It is also important to remember that not all managers are necessarily leaders, still less positive leaders, so it can be tempting to bypass them. But make sure you do not involve them too little: these are the managers in daily contact with the teams, and a lack of investment on their part can result in the demotivation of the driving force behind the company. How can project management techniques be adapted? Change cannot take place without discussion because discussion enables a transformation project to be understood. Time must be invested in relationships. The critical path runs via healthy ownership of the project, without which we are exposed to the risk of obstacles later on. Paradoxically, it is sometimes better to slow down in order to make better progress: like a rally driver, the manager must know how to accelerate when the situation allows, but also take time to negotiate difficult bends. In the same way, it is important to give each employee a global vision and realistic time scale (2-3 years), with backward planning based on milestones: in times of crisis, it is impossible to motivate employees for a project that is meant to finish in five or ten years time!

‘The Qualitative Model’ by Philippe Verkindere, Mentally Fit Institute. In every group we are constantly seeking a balance between an adaptation deficit (attitude of rebellion) and an excess of adaptation (attitude of submission). Between these two extremes lies an individual’s adaptation zone: the psychological zone in which they are prepared to make changes. The Qualitative Leap model provides a way for individuals to remain inside their adaptation zone and embrace change. Success will follow if managers: 1 Provide a vision. 2 Face discomfort head on. 3 Provide support. 4 Help everyone find meaning. 5 Let employees know what is changing. 6 Let employees know what is staying the same.

For any additional information on the Club, please visit our website: The Celerant Change Club

If a major transformation program is underway, another solution could be to divide the project into stages, in order to provide a horizon that can be reached in the short term: this gives each person a better sense of their own contribution. Enabling everyone to find their own meaning in a company project is certainly achieved by this visibility over the short term (6-9 months). What do teams expect from their managers? Managers must set an example, especially during times of uncertainty. Above all, their teams expect a clear and honest view, demonstrated by constructive communication structured to be clearly understood by the different audiences. Specific training in crisis communication techniques is necessary and its usefulness will extend far beyond crisis situations. Employees also expect something more from managers: greater receptiveness, dialogue, initiative, improvement, proximity and innovation. Indeed, they expect them to share in the reality of day-to-day work - this sharing is a vital part of building trust.

CLOSEWORK® GLOBAL REVIEW 2013

Increasing Competitiveness

DAYS

30 38

CLOSEWORK® GLOBAL REVIEW 2013

It’s all you need to identify opportunities to revitalize and secure your competitiveness.

Increasing competitiveness is an urgent, ongoing challenge, say Sébastien Planche and Richard Fontaine, Vice Presidents at Celerant Consulting, but only those companies which launch true organizational change will secure their future.

he scale and severity of today’s economic crisis is unprecedented and growth forecasts provide little or no encouragement. Given such high levels of uncertainty, and the complex nature of today’s business environment, it is no surprise that most European countries are on red alert in terms of industrial competitiveness. This crisis will affect companies in the long-term, forcing them to make rapid, in-depth changes to their approaches and organizational models. For senior executives however, it is becoming increasingly difficult to strike the right balance in terms of change. They must show greater operational flexibility to better absorb crises and develop their potential for sustainable growth, but at the same time the design and implementation of these change initiatives often proves to be a complex process. The time has come to take rapid and substantial measures. The success of a competitiveness improvement initiative depends on rigorous analysis, a focused approach, a broad and pragmatic organizational engagement and sustainable implementation. Sustainable change is imperative for future success These days, every company has ambitious plans to improve its competitiveness. Cost control and the quest for productivity gains and innovation are top priorities, but only those companies which see this crisis as an opportunity to launch true organizational change will secure their future. With so much at stake however, such plans often come up against resistance to change, and for understandable reasons this can become the main fear of managers, who know they must implement radical changes to maintain or boost competitiveness.

Internal threats

Priority actions to be taken

53%

Resistance to change

78%

Improve productivity

42%

Reliability of forecast systems

56%

Develop new products / services

42%

Increasing number of concurrent projects

50%

Streamline structures

42%

Excessively high production costs

39%

Reduce overheads

37%

Lack of human resources in growing markets

33%

Reduce purchasing costs

Barometer of Major European Companies - Celerant 2012 It should nevertheless be noted that while simply reducing costs might seem like a good idea, in practice it may prove a misguided approach during times of crisis. It is a response that only meets short-term needs and can often be just a knee-jerk reaction. Sustainably reducing costs can only be done by asking the right questions in terms of operational efficiency and work organization. Overlooking this second consideration will only send a company into a downward spiral. Spending less does not always guarantee an improvement in net income and productivity. A managerial model to overcome the barriers to change The need for change can sometimes also come up against problems in terms of resource, internal commitment and sustainable results. All studies which analyze current developments in the situation and factors with an influence on competitiveness - be they economic, competitive or social - highlight the strong need to develop collaborative management within companies, while rigorously overseeing improvements in performance. But while

organizations need to design and deploy their projects more quickly, in practice, management is faced with several difficulties: • Insufficient time to establish precise project frameworks. • Lack of experience with project tools that are properly suited for use in times of economic crisis. • Lack of hindsight to be able to identify new opportunities to improve competitiveness and implement the best practices to resolve issues. • Difficulty of bringing together multiple stakeholders with a view to achieving shared targets and putting the main drivers in place to improve performance. • Strong pressure on middle managers who now, more than ever, need to bring teams together to weather the storm. To overcome these challenges, Celerant has developed a managerial model which takes into account environmental, social, financial and legal constraints, as well as factors with an influence on competitiveness including productivity, innovation, quality, and flexibility.

CLOSEWORK® GLOBAL REVIEW 2013

Increasing Competitiveness

Adaptation of the Economic Model

Clarification of the Strategic Vision

nc ia

l cia So

Quality

End to End Process Optimization

Process of Results Management

Managerial Model for Competitiveness

Operational Strategy Implementation

Flexibility

Innovation

Constraints

Management Dimensions

Competitiveness Levers

Productivity

Alliance Partnership M&A

Products / Services Offering Deployment

In our experience, the success of competitiveness projects depends on three essential factors: • Following a Top Down – Middle Up approach. While the vision and targets are defined by top management and shared with middle managers, the latter need to pass on these strategic concepts to operational activities. They have to effectively set out the key factors for success to enable the strategy to be implemented at operational level. • Structuring and overseeing projects over short periods of time. Market uncertainties naturally lead many companies to adopt a prudent approach. Managing projects over short periods of time makes it possible to focus on those actions which are essential,

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taking advantage of opportunities for rapid gains. The flexibility of companies when faced with the unexpected therefore needs to be taken into account when structuring projects. • Adopting projects and the changes they requires faster. The committed involvement and mobilization of internal resources is the best way to ensure a sound understanding of how important change is. Changes must be implemented quickly and be permanent. Planning, implementing and sustaining increased competitiveness Celerant’s Scan - Focus - Accelerate approach helps management put their competitiveness projects on a secure footing.

Talent Management

Phase 1: Scan – Focus This enables top management to launch, within 30 days, a plan focusing on the priority measures to be implemented with quantified targets, supported by a team of senior Celerant experts. This plan summarizes top management goals, as well as internal and external constraints. Teams are also brought together by our ‘TopDown – Middle-Up’ approach. Our approach We assess the strengths and weaknesses of the company in 5 key areas: strategy, operational maturity, leadership quality of top and middle management, organizational efficiency, ability to deliver and develop.

How we do it We adopt a three-pronged approach: • Analysis of internal and compared data (benchmarks) to provide reasoned, quantified and external observations. • Assessment of existing practices in relation to our maturity benchmarks, developed over our 25 years of operational experience. • Series of interviews with top management and a selection of targeted managers from every level in the chain of command.

cost-cutting and organizational efficiency to provide short and long-term solutions with positive momentum. • Top management in line with this roadmap, with quantified targets. • Substantive action plans to be implemented. • Clearly identified areas for improvement. • Motivated teams and a system to speed up improvements set in motion. Phase 2: Accelerate We also help clients deploy identified actions to speed up the implementation of their competitiveness roadmap in all areas:

Results in 30 days We then provide a competitiveness roadmap comprising: • Newly identified opportunities. • Additions to or strengthening of existing opportunities not being used to their full potential. • A good mix of growth, innovation,

Projects, Analyses & Design • Support internal teams with the implementation of complex projects, in particular during the start-up phase. • Provide expert analysis on issues identified as requiring further analysis.

Implementation • Provide a methodology to manage a range of action plans, projects and analyses and ensure that they remain consistent. • Implement a system to measure results to highlight real balance sheet gains or savings. Sustain • Facilitate the creation or improvement of skills on internal teams in charge of projects. • Help to develop expected team leadership and behavior. Celerant Consulting has been helping clients implement their strategy for over 25 years. On the strength of this expertise, we have developed a customized range of solutions which will provide you with the keys to make your competitiveness projects a success during times of crisis.

For further information, please visit our website www.celerantconsulting.com

Example of a Roadmap created in 30 days

Leadership Organization Connection bottom - top Managers Top 80

Operations Efficient Partners network

Focussed

Aligned

Quantified Target New products

Flexible

+15% sales -10% costs & stocks ns Quick actioeed-up Project sp design, and projects & is ys Anal

Efficient

2013

2013 H1

2013 H2

Actions & Projects Implement - Sustain

2014

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Improving Efficiency and Driving Change

Q&A

with BASF’s Jo Richert and Volker Schaedler BASF is the world’s leading chemical company. Its portfolio ranges from chemicals, plastics, performance products and crop protection products to oil and gas. The company is vertically integrated and regionally diversified with more than 110,000 employees worldwide. BASF Corporation, headquartered in Florham Park, New Jersey, is the North American affiliate of BASF SE based in Ludwigshafen, Germany.

CLOSEWORK® GLOBAL REVIEW 2013

elerant Consulting’s most

We spoke with Jo Richert and Dr. Volker

recent engagement with BASF

Schaedler, project sponsors for OCEAN and

Corporation, Project APEX

APEX respectively, about the challenges

focuses on boosting collaboration and

being tackled with these initiatives. Jo is

efficiency of the analytics platform in BASF’s

Vice President and global Head of the

North American region. The analytics platform

Competence Center Analytics in Germany.

includes all QA/QC functions and the Analytical

He has been at BASF for 22 years and has

laboratories. Following a series of acquisitions,

held various positions in R&D and analytics

BASF has more than 100 sites in North

at BASF in Germany and North America.

America with diverse analytical capabilities supporting its businesses across the region

Volker is Vice President in charge of

including: agriculture, automotive, chemicals,

Innovation and Technology at BASF North

coatings, construction, printing & packaging,

America and has been with the company for

and nutrition, health & beauty.

15 years. He has led R&D teams in Germany, France, and the U.S. He is currently in charge

BASF is conducting a similar initiative in

of innovation, technology and analytics

Europe called Project OCEAN. OCEAN is an

staff functions for the North America and

on-going initiative targeted at improving

also supports global research platforms

laboratory processes in analytics and

based in the region.

enhancing collaboration with internal customers and other analytical experts in BASF’s global analytics network by implementing a standard toolkit, or set of processes, across the region.

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Improving Efficiency and Driving Change

You are both instrumental in leading the work being done within BASF to drive improvements through the analytical organization with projects like APEX and OCEAN. Can you tell us a little about these important corporate initiatives? Volker Schaedler: APEX and OCEAN are examples of how we drive efficiency in our business. Improving efficiency and driving change is a strong part of our culture at BASF. Being a large organization with 14 operating divisions serving many different industries and using a broad range of technologies, it is important to look at opportunities to leverage our talent and capabilities across the globe. Project APEX is putting into place sustainable solutions and a platform for continued growth and better communication in the analytical organization. Celerant helped us develop our approach by sharing best practices from outside of BASF. Jo Richert: We saw that as we increased the efficiencies of our processes, we reached a level where we needed some kind of step change based on innovative solutions or, in certain cases, just

CLOSEWORK® GLOBAL REVIEW 2013

a completely new approach. OCEAN is much more a process than a project. We believe it’s a different way of doing analytics. A major part is the change of mindset and behavior among people in the labs. Take charge. Raise your head and talk to your customer as a partner. Think outside of the box, mobilize your team and come up with innovative solutions. Volker Schaedler: As a general trend in the chemical industry, we see lots of opportunities for new innovations further down the value chain. With BASF’s “We create chemistry” strategy, the company is taking a more holistic approach by offering new systems, innovative technologies and customized solutions through chemistry in addition to basic chemicals.

How does improving the analytics function move innovation? Did the engagement help make the organization better? Volker Schaedler: We see momentum there thanks to Project APEX but also due to other programs that we’ve begun over the last five years. We have formed great analytical communities around the globe aligned around certain capabilities and competencies.

I see this as a starting point for having more and more global interaction in the future. Jo Richert: I agree. Suddenly colleagues across remote sites understand that they are part of a community, that they are facing the same types of challenges and the same issues in their daily work. So across the business units, we created a matrix of competencies through which analytical experts from R&D, QA/ QC, and production could exchange opinions, get feedback, and share best practices. As far as project support is concerned, I have worked with several consultants on projects in Europe, and I have not yet met any consultant that brought in so much background in analytics and know-how. With Project APEX, most of the content came from us and the consultants helped develop the structure, provided project management tools and gave some very valuable expert input around analytics.

What issues do you see as you create this culture across the analytical platforms and work to bring diverse people together as a community?

Jo Richert: The major challenge has always been the sustainability of all these measures. How do we continue the momentum that projects and new processes have created? It is essential to establish the appropriate tools supporting this effort, such as peer audit systems, benchmarking, KPIs, balanced scorecards, and more. Used appropriately, these tools really create a win-win situation for the individual lab manager as well as the company as a whole by exposing the true value added by analytics. Volker Schaedler: I think you need to have open dialogue with the key stakeholders - that’s so critical if you want to gain support to make things work. We talk a lot with the folks in the labs, production managers, business leaders, etc. It’s about being transparent regarding what will change and how this impacts individuals and the company overall. Having this open dialogue is crucial to drive change and to accomplish our goals. If you just walk in and tell them, “This is the way we do it now,” then obviously change won’t last very long. Jo Richert: Yes, we want to truly change the mindsets and behaviors of people and get them engaged. As you say, that’s where the rubber meets the road. And it’s so much more than just efficiency.

We need to do the right thing. By involving the people in the lab, management, customers and experts from around the globe, we create an environment where sustainable innovation in analytics can flourish in a type of assisted “bottom-up” process. As a result, we are leveraging the insights, knowledge and competencies of all stakeholders in analytics.

What do you see coming up as major challenges that might influence your analytical direction? Volker Schaedler: A big part of our strategy is to deliver systems and customized solutions going down the value chain and getting even closer to our customers. For example, we co-developed the Smart forvision® concept car with one of our customers and came up with radical new ideas for using innovative materials to create fundamentally new design features. Our strengths go far beyond chemistry and molecules. How do you integrate photovoltaic cells into a car roof? How do you design a durable all-plastic wheel? There are lots of exciting challenges for scientists and engineers.

It’s an interesting time for the chemical industry and for companies like BASF who can operate on a truly global level. Leveraging our global presence across the analytical platforms in every region is critical. Of course, each region has its own opportunities and challenges in terms of specific customer needs, economic climate, availability of raw materials, etc. Therefore, our analytical platforms must adapt to the evolving needs of R&D and manufacturing in each region. Overall, we’re on an exciting journey... I think BASF has changed tremendously over the last ten years. Jo Richert: Absolutely. BASF is a different company now compared to when we started. Volker Schaedler: It has become much more flexible, much more agile, and much more diverse. And I feel good about that.

CLOSEWORK® GLOBAL REVIEW 2013

Energy & Chemicals Perspectives

Shale oil and gas promises an economic boom, but the real impact will remain uncertain for some time. Industry experts dared to both look into the crystal ball of the future and reflect on the past while serving as panelists at Celerant Consulting’s executive dinner and discussion in Houston, Texas in February 2013. What they shared with the room of Energy and Chemical industry leaders was that this new era could be one of the most economically significant trends that can be experienced in a lifetime from an industrial perspective. And this is just the beginning.

CLOSEWORK® GLOBAL REVIEW 2013

ive years into the shale oil and gas phenomenon, there is no question that its impact on the energy industry, the chemical industry and the global economy will be unprecedented. How far and wide it influences the next chapter of mankind remains uncertain and unclear. “I would suggest that economists are perhaps underestimating the potential for additional gross domestic product growth in the United States,” said panelist Joseph Coote, Senior Vice President and Chemicals Sector Lead at Celerant Consulting. Coote pointed to the compelling economics and a massive capital wave that is about to hit the industry. There is $350 billion in committed downstream investments, of which $220 billion is in the chemical space. Front and center is olefins and derivatives. On the table are seven new ethylene crackers, seven material expansions and one restart. In total, that is approximately 10 billion pounds of ethylene. With this capital wave about to come through, how does the investor proceed? “What is important is to carefully assess the investment projects with realistic future expectations around pricing for feed stocks,” he said. “We’re talking, $3 or sub $3 ethane today. I think $5 to $6 is a more normal level that would still support attractive returns in the industry and for that matter, future growth.” Electricity also has been turned upside down with shale gas impacting residential, commercial and industrial markets. Overproduction from shale technology, coupled with warm winters, has resulted in a price nosedive. “With natural gas currently in the $3/mbtu range, that is about a third of what it was in 2008,” said panelist Lane Sloan, President of Sloan Consulting and Co-chair of the Greater Houston Partnership Energy Collaborative. “So the bottom line is that other sources are finding it very difficult to compete with natural gas in the electricity marketplace. Of course this is not sustainable because $3/mbtu is below cost.” Sloan said he thinks the price will rise into the $4 to $6 range over the next several years, which will be sustainable enough to ramp up more natural gas production. Shale taking off globally Though the U.S. is clearly the leading shale producer, panelist Chris Robart, Principal with

PacWest Consulting, explained that on the world stage, shale oil and gas production is gaining serious momentum. The U.S. and Canada accounts for 80% of the worldwide fracturing capacity; which equals 15.4 million horsepower. Canada operates with 2.1 million horsepower. The rest of the world, both on and offshore, accounts for 4.4 million horsepower. In all, there is almost 22 million horsepower changing the world. “We forecast that by 2017, the international portion will double from 20% to 40%,” Robart said. After the U.S. and Canada, China is the next biggest shale operator in terms of horsepower, having doubled its efforts in a year. The Middle East region is also making a move. “Saudi Arabia and Oman are absolutely the biggest markets right now for frack capacity and activity,” Robart said. “We see this trend continuing.” The change in source for oil and gas will impact the global supply streams and influence North America’s economic and geopolitical stance. Oil production mentality changing The shale boom presents the need for a complete change process and a different mindset for everyone involved in the increasingly complex supply chain, said panelist Maarten van Hasselt, Senior Vice President and Energy Sector Lead for Celerant Consulting. He contrasted the colossal and concentrated capital equipment commitment for drilling in deep water to the more manufacturing-like process of drilling in shale-formations on land that involves hundreds if not thousands of wells. “It is very different from the massive project systems. Building these assets is very different and they present complicated challenges because work sites are spread out and extremely fragmented. Equipment, resources and people have to be moved from one site to the next.” More than ever, managers must alter their approach and integrate operations. Managing manufacturing time and rollouts, along with all the other nuances, must be considered. “It has taken us 135 years to build and evolve this industry from single wells to ever more complicated wells, fields and drilling technologies,” Van Hasselt said. “It will take us some time to figure out the true ramifications of the shale revolution and its lasting impact on the energy industry.”

“

On the world stage, shale oil and gas production is gaining serious momentum.

”

A chemical renaissance While the long-term impact is still somewhat ambiguous, Coote indicated that the chemical industry is already financially enjoying the early stages of the boom. “The reason why the chemical industry is profitable today is because chemical prices are essentially tracking closely to oil prices and we have low feed stock costs because of the very attractive natural gas prices,” he said. “For the industry to remain attractive, we need to have a substantial oil-and-gas price spread. My concern is that we are going to see that spread narrow. It is still going to produce an advantageous situation but the natural gas consumption that we currently see is going to drive natural gas prices upward. Also, I think that tight oil production and a surplus in the U.S. is going to drive oil prices down.” With all the prognostication, Sloan brought these kinds of notions into perspective. He said he takes the contrarian view because when he was a corporate planner at one of the majors, he conducted a study that showed the company repeatedly missed the price forecast. Ultimately, it was because the company’s forecast was the same as everybody else’s. “When the forecast is the same, it automatically is not going to happen,” Sloan said. “If you think prices are low, you do not go and drill. It gets fed right into the budget cycle and nobody drills. Then, guess what? Prices go up. And when everybody thinks prices are going to be high, what do they do? They drill like crazy and prices go down.” “So when everybody thinks the price is going to go down, then I say it is going to go up.” Guests got a sense that the future not only looks bright for industry today, but it presents a stimulating challenge for those whose time is yet to come. “There is a lot we don’t know yet, but I am excited that together we can discover it, develop it and work on it; unlocking all the value that the shale oil and gas development promises today,” Van Hasselt said. For industry news and perspectives, please visit our blog: http://thechemicalexecutive.com/

CLOSEWORK® GLOBAL REVIEW 2013

Supply Chain in Oil & Gas Industry

Unprecedented technological advances in horizontal drilling and completions, coupled with increasing global demand for energy has transformed the Oil & Gas exploration, development and production landscape says Gary Traylor, Senior Vice President of Energy for Celerant Consulting. The answer? A modern, integrated supply chain approach.

The meter is running T

he exploration and production (E&P) industry has experienced significant change, not only throughout the United States, but across the globe. With increasing demand side pressure, we have proportionally experienced higher prices and a boom in E&P activity. Industry growth has been both significant and rapid in some regions, bringing with it new challenges for E&P operators, especially regarding their organizational resources, as well as their supply chain. Particularly for unconventional shale and tight oil formation plays, where repetitive field development activities have been compared to those of basic manufacturing businesses, asset development programs are requiring levels of resource demand and supplier capacity management as never seen before in the industry. As new technologies surface for Oil and Gas production and new regions are developed, service, material and equipment providers are being stretched to their capacity limits. E&P operators face the daunting task of growing their operating footprint with a vendor and supply base that must balance new infrastructure investment with equipment and people utilization goals, while rapidly redeploying and over-leveraging already limited human resource talent. Where just five or six years ago there was a reasonable balance between demand and

CLOSEWORK® GLOBAL REVIEW 2013

available supply chain capacity in sustaining fields across a region, the advent of new technologies has made multi-completion of new zones and re-completion of old zones much more profitable and viable than in the past. The imbalance of demand versus supply has caused well costs to escalate year over year, greatly impacting lease and well economics. Increased activity brings with it higher levels of complexity, particularly in onshore operations, where cycle time from lease to first-production (also called ‘time to market’) is fundamental to cash flow and return on investment. Due to the inter-dependencies of rig and equipment movement, infrastructure build-out, and local supplier development, managing the supply chain becomes an essential lever for containing costs and accelerating cycle times, not just for individual wells and facilities, but across an overall field development program. Consider for a moment the frequency of costly delays and cost over-runs that go into building a single well. In unconventional plays, where operators are scrambling to ‘manufacture’ hundreds of wells quickly across an expanded geography, the compounded losses from such inefficiency can be staggering for an overall development program. Whether from a lack of standardized well designs, suboptimal pad locations, or simply uncoordinated materials and contractor logistics, the need for tight

resource management has never been greater. So, what can be done to improve supply chains needed to support growth in rapidly growing development plays? How can E&P operators overcome critical demands upon materials, equipment and services in today’s modern manufacturing style operations? More often than not, the root-cause is poor supply chain management systems While E&P operators are good at finding oil and gas, manufacturers who make anything from automobiles to aircraft are much more adept at managing their supply chains in an integrated way. Perhaps this is because they better understand their ‘total supply chain;’ which in manufacturing terms could best be described as their ‘business value chain’. For years, manufacturing companies have understood and applied advanced supply chain management concepts, such as ‘operations demand planning’, ‘integrated resource scheduling’ and ‘master production scheduling’. They know how to optimize multiple manufacturing constraints to balance lead times and production capacity limitations with their resource availability and costs. They do this through the use of modern

“

The challenge management faces is that most of the technical change and advancement is layered on top of management systems that are no longer able to keep up.

” on your supply chain. manufacturing techniques and tools. Successful E&P organizations will learn to adopt manufacturing management methods and tools needed to prioritize, coordinate, measure and manage the puzzle of moving parts, including contractors, crews, trucks, rigs and pumping units. Gone are the days when operators can allow inefficiencies to exist and still meet development and production forecasts. Building an ’Integrated Supply Chain Management’ capability has only recently become a priority for many companies as they discover that much of what other industries have learned can now be applied to E&P. The principles of Integrated Supply Chain Management rely on demand-constraint optimization between the various resources required to efficiently conduct production operations and development activities. The objective of the optimization model is to maximize production by minimizing the remaining factors. Optimization occurs through integrated resource demand planning and scheduling, in support of constant feedback on field execution. To be successful, all aspects of the supply chain must be addressed, beginning with a multi-phased supply chain planning cycle and continuing with the adoption of an integrated supply chain organization that includes accountable

representation from operations, drilling, completions, facilities, procurement, logistics, and in some cases land and legal. The objective is to create a collaborative resource requirements management process, where more advanced stages include external collaboration with suppliers regarding efficient warehousing and inventory management. Total integration requires an effective demand and operations planning process, one which delineates between long-range, mid-range and near-term requirements cross-functionally. To eliminate delays, lost days and inappropriate priorities that result in lower net production and higher spend, high visibility into total resource requirements is necessary so the appropriate levels of support, materials and resources are in place prior to work commencement. The challenge management faces is that most of the technical change and advancement is layered on top of management systems that are no longer able to keep up. Therefore, the goal for a sustainable solution is to increase management’s full visibility and control of the many cross-functional interactions between field operations and other supply chain functional participants, both internal and external to the company. Putting it all together to create a sustainable solution When properly designed and fully implemented, an Integrated Supply Chain Management model provides the mechanism for the supply chain

organization to more accurately define and position the resources (materials, equipment and services) that are needed to support the ongoing and strategic operations of today’s modern E&P organization. Addressing the challenges of visibility, collaboration, planning and scheduling, properly positions the supply chain to support the total operational needs of its organization. The end result is an E&P operation better equipped to meet today’s production requirements and capital programs, as well as tomorrows strategic forecasts, with minimized losses due to a lack of resources to meet operational demands. Lower operating costs are realized as field operations are integrated with the supply chain. Net production increases as wells are completed and brought to production much faster and closer to forecasted schedules. These results are sustainable through effective demand forecasting combined with capacity planning and supplier management techniques which allow the Supply Chain Organization to collaborate with their internal operations customers to better balance today’s needs with tomorrow’s demands. As demand is identified in a manner that supply chain professionals can translate into supplier capacity, an alignment of priorities and investments can be accurately planned, scheduled and resourced for success.

CLOSEWORK® GLOBAL REVIEW 2013

Client Success Stories

Leading the Flock

Turning up the Heat on Performance

Business Challenge: One of the most prominent ‘Farm to Fork chicken growers in the United States had a firm grip on the market, but knew that its position would only be secure if it stayed one step ahead of the pack. Two areas seemed ripe for examination. Operationally, they were lacking a system that tied them their operational improvement tools together to fully utilize the Company’s knowledge base. Secondly, as the cost of corn settled at historic highs, the Company wanted to ensure that feed was being used to its full capacity. With so much relying on the growth rate, weight, and health of the birds, they hoped that improved pellet durability would translate into healthier chickens. The Company called in Celerant Consulting to put these two questions to the test: where could further operational efficiencies be found, and could reducing fines ensure higher conversion?

Business Challenge: A European manufacturer of radiators for both domestic and business use had experienced overcapacity in both of its mass production manufacturing lines. They had capacity to produce in excess of 4 million radiators a year, however they were working under capacity and holding high levels of inventory. They wanted to reduce inventory by around 35% and link production and planning to sales and market demand, rather than have production tied to manufacturing capacity. They needed to use data more effectively for decision making on inventory. There was also a disconnect between sales, planning and production, and a requirement for more management information and a clear management control structure, roles and responsibilities and KPIs to be put in place. In addition, they wanted to improve operational efficiency, review their production cycles and be able to measure production efficiency and utilization.

Celerant Solution: A thorough analysis revealed opportunities to improve live operations integration, processing, and maintenance planning and scheduling. An organization redesign utilizing Celerant’s Closework® approach was identified as a possible improvement area to provide better support to the existing Lean and Six Sigma tools. In Live Operations, a Design of Experiments was conducted to find potential improvements in feed composition. A cycle of tests was constructed to determine the most reliable formula for making pellets more durable and the impact on chicken performance of reducing the % fines in grower and finisher feed from levels of 20-40% to less than 5%. In Processing, visual management tools were installed that measured and maintained visibility to scrap and labor utilization, as well as, the development of a labor management modeling tool that set labor expectations for each line for each day. Results: The live operations moved seven critical Key Performance Indicators above their targets, including Breeder Field Mortality, Hatchability and Calorie Conversion. Where feed composition was concerned, testing revealed additional areas that could be addressed to improve pellet durability and, subsequently, calorie conversion. The results in the processing area were focused around five critical operational elements including: • 5%- 7% increase in bird per labor hour • 8% -10% decrease in downtime due to improved maintenance process • Reduction in meat downgrades

Consumer

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Celerant Solution: Celerant conducted a 6 week analysis followed by a 40 week project. The scope covered 3 work streams: Manufacturing Excellence, Inventory Management, Sales & Operations Planning (S&OP) and Project Management Office (PMO). During the project, Celerant consultants partnered with the client taskforce to define, develop, and install the solution and provide training. They developed and installed an MCRS® management system to keep day-to-day operational performance aligned with the business imperatives. They installed robust planning rules to drive down inventory holding and maximize operational efficiency. The joint team improved the effectiveness of the manufacturing to sales process through an enhanced forecasting and integrated planning systems. They introduced a Kanban process and concept (just-in-time inventory) that was embedded within the organization when we completed the project. And they installed operational excellence elements within manufacturing to increase operational flexibility and optimize Kanban flow. Results: The project delivered the target inventory reduction as well as: •15% operational cost reduction, whilst increasing overall equipment effectiveness (OEE) from 50% to 70%. • 45% finished goods inventory reduction while maintaining service level above 95%. • A robust sales and operations planning (S&OP) process was embedded in the organization, leading to more than 90% forecast accuracy, reducing the need for inventory.

Industrials

Optimizing North Slope Production Breakthrough Improvements

Business Challenge: A major multinational energy corporation had made a tremendous investment in its Alaskan production outlet, only to see the site continually come up short. Its oldest asset in the group was neglected in favor of the larger North Slope entity, and it had become stagnant, inefficient and was running out of time. Getting more out of its wells was paramount to staying profitable. The assets were acquired from different companies and a tense culture clash kept teams isolated, preventing them from getting on the same page. This environment produced systems with poor visibility and little communication. The site’s issues were magnified by a complex drilling environment. After failed internal attempts to make improvements, the Company partnered with Celerant Consulting. They were tasked with applying their knowledge to a culturally sensitive, frustrated environment in order to get the location on track. Celerant Solution: Celerant quickly found that new opportunities in this asset were not being prioritized. The Company’s focus was taking away from their ability to maximize the efficiency of their operational processes; even at the existing well, the assets were working with poor data that caused them to vastly underestimate the potential returns for new production. Celerant demonstrated the benefits of initiatives that drove operational improvements and the greatest ROI. The team then turned its attention to the management structure. They analyzed organizational structure and identified key performance indicators that would help improve communication channels, align staff roles and balance the workload across all organizational levels. The key to sustainable success was direct involvement and ownership by employees. Communications opened up and the workforce began to embrace change. Results: The Company better aligned its base operation and maintenance costs and created a consistent focus on employee involvement. Celerant’s original projection called for a 3 to 4 percent production improvement and $10M in projected annual returns. At 40 weeks, the asset boasted 6% average production improvements, with $14.8M in cumulative benefits and $51.8M annualized. Sustainable improvements included stronger infrastructure, a sense of ownership in production, revitalized well sites, enhanced equipment reviews and accurate, accelerated timetables.

Energy

Business Challenge: The client is the largest global paints and coatings company and a major producer of specialty chemicals. Their product range includes solutions for various segments in the vehicle refinishes market, as well as the OEM commercial vehicles, automotive plastic coatings and aerospace coatings markets. One site was identified as a strategic site for growth and product transfers from other factories across Europe as a result of a footprint consolidation. One prerequisite was the integration of the site and the adaption of the group’s business model. In doing this, the main target was to demonstrate benchmark performance and generate enough capacity onsite to handle the additional volumes. Celerant Solution: The Celerant Consulting and client teams jointly started the journey by analyzing the site to identify performance improvement areas. Three workstreams were established to address the site’s challenges: • Production & Quality: transformation to mature standard operating procedures, improved compliance, optimized cycle times and capacity usage. • Performance Management and Organization: improve cross-functional communication, active site performance management with closed action and decision loops, create a performance-oriented and aligned organization. • Integrated Planning: introduced stable planning processes, appropriate material and resource planning, inventory optimization, improved customer service and delivery performance. Results: • Output increased by 190%. • Yield losses reduced by 50%. • 5S and improved process compliance. • 25% cycle time reduction and 39% pass reduction at bottleneck equipment. • WIP reduction of 37% and improved product flow - QC - Color correction cycles decreased, approvals per FTE increased. • New macro and micro organization, supported by performance KPIs, reports, and closed loop decision making for continuous improvement. • Increased plan stability from 60% to over 90%. • Increased customer OTIF delivery to 92%. • Reengineering of entire planning and scheduling processes with clear R&R, along with improved use of the ERP system. • Setup of a new supply chain with closed loops from be-weekly demand review to daily planning meeting with Production.

Chemicals

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PDAC 2013

Metals & Mining

From Mine to Mill to Market.

CLOSEWORK® GLOBAL REVIEW 2013

Celerant’s 25 years of Metals & Mining experience spans open pit to underground mining across the United States, Canada, Finland, Columbia, Peru, Turkey and other far off destinations.

s a continuous Gold Plus Sponsor, Celerant participated at the Prospectors & Developers Association of Canada (PDAC) 2013 International Convention in Toronto, Canada. Launched 81 years ago, this annual event continues to grow in size and importance. With over 30,000 attendees from more than 125 countries, it is where the world’s mineral industry meets. Like no other stage, our involvement allows Celerant to demonstrate our unique approach while hearing from other industry experts. The tenor of this year’s event was one of discretion and hedging in the midst of uneasy investor outlook. Repeatedly stressed was the need to focus on the long-term outlook and big picture. Rather than being distracted by the state of the markets, companies must fine tune their ability to pin point real value and stability today instead of impulsively looking down the pipeline for the next opportunity. “M&A in the industry will likely increase as large companies increase cash buildups and look to acquire smaller niche players,” says Boyce Jacob, Vice President of Metals & Mining,

Celerant Consulting. “When this happens, fundamental to success is the integration of new companies into the fold promptly and efficiently in order to realize immediate benefits.” Other themes addressed in Toronto included the need to advocate gold’s value as “real money” and an increased focus on safety. Across Celerant’s experience in the Metals & Mining industry, we have seen the growing need for mining companies to get the most out of their safety investments. Millions of dollars are invested annually and programs have achieved results, albeit highly variable in their depth and sustainability. Despite relative improvements, a disconnect exists between the level of investment and realization of aspirational safety performance. We have seen that the best safety systems have components that integrate the entire site into one common vision. Achieving this comes down to connecting the dots between the most important elements of a fully functioning safety program: people, processes and systems.

“

We look forward to coming together at future events with our industry colleagues, contributing thought leadership and learning from key members of the community so we can continue to deliver value-driven operational strategy and implementation for our clients. says Boyce Jacob.

”

CLOSEWORK® GLOBAL REVIEW 2013

Race Across America

Nothing is impossible with a touch of Optimism. Focus. Perseverance. Commitment. Never give up....... 3000 MILES OR

115 A

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2HRS SLEEP

MARATHONS t 6:49pm, Meurig was the victim of a near fatal hit and run accident. While on his daily training ride in Fairmount Park, Philadelphia, a speeding motorist plowed into him, making no attempt to brake before or after the collision. The force of the impact was so great that he was thrown high into the air like a rag doll and landed more than 20 feet from the collision. Despite sustaining severe injuries including multiple broken bones, fractures, severe pulmonary contusions and abdominal bleeding, he miraculously did not sustain any head trauma. Over the last two years and many physical

LESS THAN

PER NIGHT

therapy sessions, he has successfully fought his way back, regaining his strength, endurance and overall fitness. In fact, in mid 2012, he won the Philadelphia Masters State TT. The win was testament to his work ethic, perseverance and drive to make a difference. “I received a lot of support from my friends and Celerant colleagues. When I did return back to work I was still in a leg brace and ankle and boot, which made negotiating airport security ‘interesting’”. Having survived this ordeal, he has resolved to do whatever he can to increase road safety for cyclists of any level. He has also set his sights on his next greatest challenge.

HE WILL BURN

150,000 CALORIES THAT’S THE SAME AS

215

BIG MACS

“In June 2013, I will be taking on the world’s toughest endurance race – The Race Across America. The race is 3,000 miles long; beginning in Oceanside, California and finishing in Annapolis, Maryland. It is a real grind.” Fewer than half who start the race actually finish. Racers are put to the test, cycling more than 300 miles per day and only a few hours of sleep a night. The record is a little over eight days. ‘Riding’ alongside Meurig are two charities that he believes in and supports; The Bikes Belong Foundation and The Cancer Support Community.

March 18, 2011 started out like any other day for Meurig James, Consultant at Celerant; morning exercise routine, a full day at work and home at dusk for an evening ride. What transpired over the next several hours changed Meurig’s life for good.

SOLO RIDERS

WILL COVER

250-350

MILES EVERY DAY

“I was extremely lucky to have survived my accident, many of my friends and those of my team have not been as fortunate. We need to build mutual respect among motorists and cyclists. We need to slow traffic. We need to provide safe places to ride. We need to create communities where people of all ages can enjoy bicycling without fear. These issues affect health, safety, and quality of life. The Bikes Belong Foundation focuses on: Bicycle safety projects and Children’s bicycle programs. Now is the time to encourage more children to ride and make bicycling safer. The two go hand-in-hand.” “Cancer has directly impacted the lives of

HE WILL CLIMB

GIVEN JUST

WHICH IS THE SAME AS EMPIRE STATE BUILDINGS

DAYS

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our family and friends. The Cancer Support Community is charity dedicated to providing support, education and hope to people affected by cancer. Its network is dedicated to bringing the highest quality of support to the millions of people touched by cancer, so that no one has to face cancer alone.” Meurig grew up in Wales, UK and moved to Philadelphia in 2009, where he met his wife, Kristie. He has been an avid cyclist since the age of nine. As a junior, he raced internationally, representing Wales and also won several Welsh national time trial championships in his age

TO FINISH THE RACE

group. Most recently, he has raced at an elite level in both the USA & UK. “My work involves long hours and a hectic travel schedule. I manage my training around these commitments by travelling with a ‘suitcase’ bike wherever I go and fitting in training sessions in the early hours of the day.” For more information about the race, how you can support him, and track his progress, please visit his website at www.bikesbelongacrossamerica.org.

CLOSEWORK® GLOBAL REVIEW 2013

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