Joel Nickelsen “Growing Lean – The New Paradigm”
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Presentation from Elemica's inSIGHT 2013 Conference
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Joel Nickelsen “Growing Lean – The New Paradigm”
- 1. Growing Lean: The New Paradigm North America inSIGHT 2013 Applied Value LLC One Grand Central Place 60 East 42nd St., Suite 2825 New York, NY 10165 Phone: +1 646 336 4970 Fax: +1 646 336 4974
- 2. 2 Growing Lean: The New Paradigm Lean Growth in Action Application Agenda Lean Growth Philosophy
- 3. 3 Growing Lean: The New Paradigm Our lean growth philosophy argues cost/capital efficiency is always the foundation for long-term profitability. Lean AND Growth Lean & Growth Lean Manufacturing Lowest Cost Process Focused Project Oriented Lean Multi-Dimensional Lean Costs & Capital Growth Focused Ongoing Culture Growth without “lean” is temporary…Lean without growth is no fun. Lean Growth Philosophy
- 4. 4 Growing Lean: The New Paradigm Lean operations create a virtuous cycle of growth for companies to stay ahead of competition. Enhanced Product Economies of scale Cost Efficiency Increased market share Increased Profits Company X ensures a lean operation Enhanced product offering will deliver new business and increase the company’s market share Economies of scale further increases delivery of the organization’s cost competitiveness Larger company size will generate economies of scale through higher utilization of assets, reduced sourcing costs and learning curve Reduced costs enable the company to optimize its product offering’s quality and price Virtuous cycle Lean Growth Philosophy
- 5. 5 Growing Lean: The New Paradigm There is no fundamental conflict between cost efficiency and product innovation – On the contrary! Lean Growth Philosophy Competitive Strategy – Porter’s Framework Applied Value Framework Cost Leadership Differentiation Broad Narrow • A company must focus on either cost or product differentiation to sustain a long-term competitive advantage • A company must choose to have either a broad or narrow portfolio • Cost efficiency is a requirement for sustainable long-term profitability • Differentiate your product offering where it makes financial sense but always ensure cost efficiency Cost Leadership and Differentiation Broad Narrow Time
- 6. 6 Growing Lean: The New Paradigm Many myths create invisible barriers to change. “The company has always been well managed” “There are insufficient funds to invest” “We are lean” “We can rely upon superior products” “We drive operational efficiency via acquisitions” “Volume is more important than margins” “We have too little inventory” Lean Growth Philosophy Examples Of Common Myths Lean Growth driven change can happen anywhere.
- 7. 7 Growing Lean: The New Paradigm • Facts and benchmarks must set the standard for world class performance – not what your management team or organization believe • Do not wait for “management” to tell you to “get lean” • Your customers will be more cost oriented over time • Companies who go lean before competition will be ahead of the curve and outperform its industry • There are few (if any!) corporations that have lost competitiveness because they were “too lean” – there are corporate graveyards full of the other category Do not wait to pursue Lean Growth, it destroys value. Lean Growth Philosophy
- 8. 8 Growing Lean: The New Paradigm Lean Growth in Action Application What is Lean Growth?
- 9. 9 Growing Lean: The New Paradigm What is complexity? “A several billion dollar opportunity” -Jack Welch, Ex Chairman & CEO General Electric Companies are rewarded for making the complex simple. Lean Growth In Action
- 10. 10 Growing Lean: The New Paradigm 2 Minutes, 2 Taps Lean Growth In Action Unreasonable?
- 11. 11 Growing Lean: The New Paradigm What is the single most important competitive advantage a company has in any industry? SPEED Financial return increases with speed. Lean Growth In Action
- 12. 12 Growing Lean: The New Paradigm Applied Value’s overall path to Lean Growth. SPEEDFOCUS SIMPLICITY SUCCESS= Lean Growth In Action
- 13. 13 Growing Lean: The New Paradigm Lean Growth is based on Focus, Simplicity, and Speed. Lean Growth SpeedSimplicityFocus Define strategic focus areas, excel in key capabilities and use partners to handle non- core activities Complexity is the key cost and capital driver and should be minimized in all cases Time is an asset which should be valued greater than money – you can win back money but never time • Strategic focus: ‒ Markets ‒ Customers ‒ Channels ‒ Products ‒ Technologies ‒ Suppliers • Value proposition and offering • Organizational efficiency • Footprint optimization • Supplier consolidation • Level of variable vs. fixed costs • Process lead times: ‒ Time to market (of a new product) ‒ Time to customer (of a proposal) ‒ Time to invoice and cash (of a delivery/shipment) ‒ Time to integration (of an acquisition) Lean Growth In Action
- 14. 14 Growing Lean: The New Paradigm Lean Growth in Action Application What is Lean Growth?
- 15. 15 Growing Lean: The New Paradigm Application of Focus, Simplicity, and Speed must occur across the organization. Lean Growth Process Speed Double Speed Organizational Simplicity Organizational 8D, Activity Value Analysis Business Focus Customer and Product Profitability SG&A Productivity G&A efficiency S&M efficiency PricingGross Margin Improvemen t Sourcing Production Cash management Inventory management Fixed assets leverage Capital Efficiency Segmentation/PositioningGo-to- Market Product/Channel mix R&D Productivity R&D efficiency R&D effectiveness Application
- 16. 16 Growing Lean: The New Paradigm Significant Lean Growth efforts will include both strategic and tactical initiatives. Application Create Shareholder Value - EVATM“The Challenge” Business Structure & Complexity Business Strategy & Product Decisions Strategy & Structural Level Tactical & Operational Level Capital EfficiencyCost Efficiency Order To Cash Efficiency Corporate Strategy & Structure Both levels of initiatives need to be considered simultaneously in order to significantly boost shareholder value creation.
- 17. 17 Growing Lean: The New Paradigm ResultsOpportunity/Problem Global Telecom – Cost and Capital Initiatives • $1.3B Annual Loss • $8.5B OPEX Spend • 107k Employees • 17k Consultants • Turnaround in < 3 Years • $3.8B Operating Income • OPEX Reduced by 65% • Achieved with 50% less HC OPEX • Market unit consolidation • BU structure and efficiency • Corporate governance • Headquarter and support functions • R&D concentration • IS/IT cost reduction and outsourcing • Real estate Lean Growth Solutions Cost • Manufacturing outsourcing • Local cost of sales • Sourcing strategy & organization • Fact-based negotiations/sourcing • Product mix review • Product rationalization Cash • Joint venture • Sales/leaseback • Sold customer financing stock • DSO reduction (collection) • Inventory reduction • Capital restructuring Application
- 18. 18 Growing Lean: The New Paradigm ResultsOpportunity/Problem Third World Non-Profit – Structure and Process • Create jobs for the poorest of the poor • “To be the most efficient organization in the world at creating jobs” • 1.4M jobs over past 7 years • Cost/Job of $50-200 • Afghanistan, India, Eastern and Southern Africa impact Structure • Lean Overhead • Local Structures Lean Growth Solutions Process • Sustainability 1. Formation of Self-Help Groups (SHGs) 2. Business education (business plan formation, cash flow, marketing etc.) 3. Microfinance services (either directly or through partnership) 4. Specialized skills training, access to new/larger markets Application
- 19. 19 Growing Lean: The New Paradigm Small/Private Manufacturing – Cost and Sales Initiatives ResultsOpportunity/Problem • 1-3% EBIT • Declining Sales • Avoid Bankruptcy • Limited Capital • 3 Years In – 14% EBIT • 5 Years In – 26% EBIT • 5 Years In - Sales +30% • Sold Business Cost Initiatives •Divested non-core business •Lean Organization – Multi-tasking •Lean Energy – Sustainability •Sourcing •Lean Supply Chain Lean Growth Solutions Sales Initiatives • Lean Sales Force • Wholesaler agreements • Pricing optimization • Strategic customer partnerships • Channel strategy Application
- 20. 20 Growing Lean: The New Paradigm 1. There is no point in finding efficiencies in things that should not be done at all 2. Automate important but routine work processes for efficient use of human resources, and ability to increase capacity/speed 3. Do not customize non-customer critical activities 4. Utilize shared services to the fullest extent and outsource whenever it makes sense 5. Minimize complexity by focusing only on profitable products, services and customers 1 2 3 4 5 Applied Value’s ‘Top Five’ principles of Lean Growth. Application
- 21. 21 Growing Lean: The New Paradigm Final words on Lean Growth wisdom… • Set goals that are unattainable with current processes • “Growth requires more resources” is a fallacy; Create new ways of doing things • Taking out costs, increasing capital efficiency and improving revenue processes to best practice standards can be done by rapid decision making – it is not contingent upon external factors • All experiences show that simplifying organizations and balance sheets have positive effects, not only on shareholders, but also on customers and the organization • There is a first-mover advantage in decreasing cost and capital tied-up – every company will ultimately have to go through this process Go Lean…Grow Lean! Application