simplify, perfect, innovate · 0 is in the middle third of companies investing in this category +...

Simplify, Perfect, Innovate

A Mantra for Continuous Improvement

11-TULSASPI-9A

Mark J. Kiemele, Ph.D.President and Co-FounderAir Academy Associates

Office: 719-531-0777Cell: 719-337-0357

[email protected]

Key Themes

Relationship Between Lean and Six Sigma

Innovation as a Catalyst

The Evolution of Innovation

Page 1©2011 Air Academy Associates, LLC. Do Not Reproduce.

Simplify, Perfect,Innovate

The Evolution of Innovation

Why Continuous Improvement in Good

Times and Bad

Key Factors that influence Performance

Performance Improvement Evolution

Interchangeable

Parts

Eli Whitney

AssemblyLine

Model

Variety

Jidoka

S. Toyoda

Mass / Batch

Alfred P. Sloan

Waste

Elimination

Mass Production

Henry Ford

Just – In – Time

K. Toyoda

Toyota

Production

System

Standard

Costing



Design forElimination

System

Synchronization

Time & Motion

Division of Labor

F. Taylor

Henry Ford

Supermarket

Systems

Total Quality

E. Deming,

et al

SQC

ShewhartWestern Electric

DOE

Taguchi et al

T. Ohno

Six Sigma

Motorola

Employee

Partnership

Drucker

Lean SixSigma

Graphical View of Variation andPerformance Capability

The Sigma rating/capability of a process performance measure is the result of comparing theVoice of the Process with the Voice of the Customer, and it is defined as follows:

The number of Sigmas between the center of a process performance measure’s distributionand the nearest specification limit

3 Process Centered• Process is WIDER

than thespecifications,causing waste and

LowerSpecification

Limit

UpperSpecification

Limit

Determined byDetermined by

3 Process


Simplify, Perfect, Innovate

causing waste andcost of poor qualityDetermined by

the customer

-6

Determined bythe customer

+5 +6+4+1 +2 +3-2 -1-4 -3-5

WASTE

-6 0

6 Process Centered• Process FITS well

within thespecifications, soeven if the processshifts, the values fallwell withintolerances

6 Process

+4+5+6+1 +2+3-2 -1-4 -3-6 -5 0

WASTE

Capability* RTYDPMO*

2 308,537 69.1%

Yield is the probability that whatever we

are producing (manufactured part, PO,

shipped part, etc.) will pass through the

entire process without rework and

without defects.

Sigma Capability is a measure of quality. It

compares the Voice of the Process with the

Voice of the Customer and is correlated to the

defect rate. It is computed from DPMO.

Sigma Ratings Measure Process Capability



Six Sigma is a standard of Excellence.It means less than 4 Defects per Million Opportunities.

ProcessCapability

Defects per MillionOpportunities

Rolled ThroughputYield

2 308,537 69.1%3 66,807 93.3%4 6,210 99.4%5 233 99.97%6 3.4 99.99966%

* Assumes a 1.5 sigma shift in average if the performance measure is normally distributed

Variation Reduction in Golf

Here’s a recent question sent to Athlon Sports:

“If a pro golfer played an entire year’s scheduleand shot even par at every tournament, how much



and shot even par at every tournament, how muchmoney would he earn for the entire year? Let’ssay in 2010?”

Variation Reduction in Golf

According to PGA statistics, Jason Dufner, whom I had neverheard of before this year’s PGA Tournament, averaged veryclose to the average par on the courses on the tour, namely71.02 strokes per round. He ranked 84th in earnings, bringingin $1,121,695. Since his average strokes per round is almostright on target (the true course average par), his data is usedas the benchmark.



The PGA Tour analysts then investigated what a hypotheticalgolfer would have earned had he shot even par for everyround in an entire season? Such a player would have ranked30th in earnings and brought home $2,456,064, more thandouble what Jason Dufner made.

Once again, hitting the target on average is nice, but hitting itconsistently is even better.

Of course, consistency in golf is what it is all about, and thisdata supports that premise.

Relationship Between Simplify, Perfect, andInnovate

OVERALL YIELD vs SIGMA(Distribution Shifted ±1.5)

# of Parts(Steps)

±3 ±4 ±5 ±6

17

10204060

93.32%61.6350.0825.086.291.58

99.379%95.73393.9688.2977.9468.81

99.9767%99.83999.76899.53699.07498.614

99.99966%99.997699.996699.993299.986499.9796

N (Simplify)

NE

E (Perfect)

Lean

Perfect Six Sigma



Source: Six Sigma RESEARCH INSTITUTEMotorola University Motorola, Inc.

6080100150200300400500600700800900

100012003000170003800070000

150000

1.580.400.10- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -

68.8160.7553.6439.3828.7715.438.284.442.381.280.690.370.200.06- - -- - -- - -

98.61498.15697.7096.6195.4593.2691.1189.0286.9784.9783.0281.1179.2475.8850.15

1.910.01

99.979699.972899.96699.94999.93299.89899.86499.83099.79699.76299.72999.69599.66199.59398.98594.38487.88078.82060.000Use for

BenchmarkingSimplify

Definition of Innovation and Latest Trends



Types of Innovation

Product Innovation

Service Innovation

Process Innovation

Business Model Innovation



Business Model Innovation

Sales and Marketing Innovation

Organizational Innovation

Supply Chain Innovation

Financial Innovation

Incremental Innovation

Breakthrough or Disruptive Innovation

Key Words in any Definition of Innovation

People

Discover

Create



Create

New

Value in terms of Performance, Time, Cost

For some segment of society

To Discover and Create

Studies of identicaltwins separated atbirth indicate that ourability to thinkcreatively comes 1/3



creatively comes 1/3from genetics.

The other 2/3 of the innovation skillset comes from learning the rightskills and practicing them.Source: The Innovator’s DNA by Dyer, Gregersen, and Christensen

To Discover and Create

Five Major Discovery Skills that can be practiced by anyone:

1. Associating- Steve Jobs (Apple): “Creativity is connecting things.”

2. Questioning

ApplyingDiscovery

Skills

CreativeIntelligence

Innovation



2. Questioning- Michael Dell (Dell): “Why does a computer cost five times as much as the sum of

its parts?”

3. Observing- Akio Toyoda (Toyota): “gemba—going to the spot and seeing for yourself”

4. Experimenting- Scott Cook (Intuit): “Our culture is open to lots of failures while harvesting the

learning. It’s what separates an innovation culture from a normal corporationculture.”

5. Networking- A.G. Lafley (Procter & Gamble): “We collaborate with the outside world

via our Connect + Develop website to not only publicize what we knowbut to also highlight what we need.”

Ranking the Discovery Skills of Innovators*

PercentileAssociating Questioning Observing Experimenting Networking


Simplify, Perfect,Innovate *Source: Harvard Business Review, December 2009

Why is Innovation Evolving?

Globalization

New Technologies

Greater Transparency



No longer correlation between market shareand profitability

Lines between industries and competition arebecoming blurred

Traditional approaches to strategy no longerwork due to market volatility

Volatility in the Internet Sector

1985 1990 1995 2000 2005



Source: hbr.org/slideshows/turbulence

Each line represents a single firm's revenueranking in relation to their competitors. Linesappear, rise, fall, or disappear when companiesenter, adapt, fail to adapt, or die. Crossing linesare a sign of increased volatility.

Innovation Adaptation

Adaptation means becomingreally good at learning howto do new things.

Capabilities that foster rapid adaptation:*



Capabilities that foster rapid adaptation:* The ability to read and act on signals of change

The ability to experiment rapidly and frequently—not onlywith products and services but also with business models,processes, and strategies

The ability to manage large networks of multiplestakeholders

The ability to motivate not only employees but also partners

* Source: Harvard Business Review, July-August 2011

Examples of Adaptation

TESCO: UK-based grocery retailer nowoffers media and financial services—have experimented often with theirbusiness models

BOSE: known for their soundsystems, now is an automotive



systems, now is an automotivesupplier of suspension systemsusing their sound technology

IKEA: whenever they opened a new store inRussia, the nearby real estate values alwayswent up. Now mall development is theirbiggest profit maker in Russia


Toyota: kanban and kaizen are earlyexamples of adaptive systems

Google: Android operating



eBay: complexnetwork of sellersand buyers

Google: Android operatingsystem brings togetherassets and capabilities ofmany entities

Samsung: huge success inblending Western bestpractices with anessentially Japanesebusiness system


Apple: adaptive ecosystem ofsuppliers, telecom partners,and independent developers tosupport the iPhone and iPad



Nokia: would still be leadingthe smart phone market ifexperience and marketposition/scale were keyindicators of success

Stephen Elop (CEO, Nokia): “Our competitors aren’t takingour market share with devices. They are taking our marketshare with an entire ecosystem.”

Longitudinal Study on Recession Strategy*(Why We Need Continuous and Breakthrough Improvement)

• 4700 public companies from S&P’s Compustat database were analyzed

• During past 3 global recessions- 1980-1982- 1990-1991- 2000-2002

• Each company was studied

- 3 years prior to each recession

- during the recession with strategies employed compared to previous 3 years



20

- during the recession with strategies employed compared to previous 3 years

- 3 years after each recession

• Each company’s recession strategy is rated on 3 variables

A: investment in operational efficiency (e.g., LSS)

B: head-count reduction

C: investment in new product and asset development (e.g., DFSS)

• Each company’s post-recession performance is measured by(1) sales and (2) profitability (EBITDA)

*Source: Roaring Out of Recession by Gulati, Nohria, and Wohlgezogen; Harvard Business Review,March 2010

Recession Strategy Variables

Each variable takes on 3 potential values (-, 0, +) according tothe bottom, middle, and upper thirds of the population.

A: Operational Efficiency- invested much less than the middle third tier of companies in operational

efficiency (i.e., are in the bottom third)0 is in the middle third of companies investing in this category+ invested much more than the middle third tier of companies (i.e., are in the top third)



21

B: Head-Count Reduction- reduced head count much less than the middle tier of companies in this category

0 is in the middle third of companies with regard to head-count reduction+ reduced head count much more than the middle third tier of companies in this category

C: New Product and Asset Development- invested much less than the middle third tier of companies in this category

0 is in the middle third of companies investing in this category+ invested much more than the middle third tier of companies in this category

Recession Strategy with Results Need LSS

and DFSS)

Average Annual Percentages for 3 Years after the Recession

4

6

8

10

12

14

Sales

EBITDA



0

2

Average Prevention Promotion Pragmatic Progressive

Recession Strategy with Results Need LSS

and DFSS)



Integration w/Existing BusinessImprovement Initiatives

The Right Projects and Studiesand People to Lead Them

Effective Support Infrastructure

Factors That Impact the Effectiveness ofContinuous Improvement

Better

Integrated Training and Software

Executive Ownership andLeadership Alignment

Intellectual Capital

Continuous Realizing theBenefits of

Customer Value


Simplify, Perfect,, Innovate

Faster

Lower Cost

Reward & Recognition

Financial and ImplementationAccountability

Enterprise-Wide KnowledgeSharing

Customer and SupplyChain Involvement

Change Management:Leveraging Cultural Strengths &Managing Its Weaknesses

ContinuousImprovement

Implementation

Benefits ofContinuous

Improvement

Top Line Growth

Bottom Line Growth

Cultural Change

Relationships Between Inputs and Outputs

Output Level:

Cu

sto

me

rV

alu

e

Inte

lle

ctu

al

Ca

pit

al

To

p-L

ine

Gro

wth

Bo

tto

m-L

ine

Gro

wth

Cu

ltu

reC

ha

ng

e

Executive Ownership * 0.177 0.217

Support Infrastructure * 0.164



Support Infrastructure * 0.164

Integration with exist Initiatives * 0.117

Right People & Projects * 0.183 0.233 0.115

Integrated Training Materials & SW n/a

Financial Accountability * 0.080 0.133 0.341 0.094

Reward & Recognition n/a

Knowledge Sharing * 0.155

Customer & Supply Chain Int. * 0.122 0.194

Change Mgmt & Cultural Strength * 0.109 0.153 0.256 0.215 0.416

Plus Constant + 2.611 1.587 2.414 2.604 0.717

Inp

ut

Lev

el:

Impact of Longevity on Factor Influence

Group A Group B p -value

Input Factors (n =255) (n=260) (from t-test)

Executive Ownership 6.13 6.41 .186

Support Infrastructure 6.13 6.81 .001

Integration of Initiatives 5.54 6.25 .000



Right People and Projects 5.80 6.12 .085

Integrated Training Materials 6.30 7.03 .000

Financial & Impl. Accountability 5.83 6.50 .002

Rewa rd & Recognition 5.40 5.50 .627

Knowledge Sharing 5.24 5.97 .000

Customer & Supplier Involvement 4.57 5.31 .000

Change Management 5.42 5.87 .025

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