The Secret to Surviving and Thriving in a Downturn Economy

by Mark J. Kiemele

This article is an abridged version of a workshop of the same title that we presented at the iSixSigma Live Conference in January. The timing for this topic is apropos as everyone is being affected by the current economic situation. If you don’t think you are being affected, you are not collecting the right data. If needed, further motivation can be derived by some familiar quotes from the recent and not-so-recent past:

“Let Wall Street have a nightmare and the whole country has to help them back in bed again.” Will Rogers (as quoted in Forbes)

“Never confuse the stock market with the economy.”
Ronald Reagan (as quoted in ESPN.com)

“Things are going to get a lot worse before they get worse.”
Lily Tomlin (as quoted in the Daily Kos)

What we present here are five necessary ingredients to the secret of surviving and thriving in a downturn economy. Note that we do not claim that these are sufficiency conditions, i.e., if we do these, we will definitely survive and thrive. Rather, if we don’t do these, we have a greater chance of not surviving or not thriving even if we do survive. Additionally, timing is always a complicating factor as well, since when we apply these key ingredients will have an impact on the effect that each ingredient has. As a general rule, the earlier these ingredients are inserted into a business strategy and sustained, the better. However, even on its deathbed, a company can gain leverage by applying these key elements. The message is it is never too late, and sometimes in a downturn, these principles are more easily applied since the need and vision are much clearer. Just as it would be unwise for a smoker not to abandon smoking upon learning he has lung cancer, so too would it be unwise for a company not to insert these ingredients during economic tough times.

Ingredient #1: Protect strategic expenditures.

In order to protect strategic expenditures, we need to distinguish between short-term operational and long-term strategic programs. During economic slowdowns, many leaders react by cutting discretionary spending. Many managers take this as an edict to cut costs that affect both short-term and long-term goals. Thus, it is important to separate strategic funding, which I will call a company’s lifeline, from ordinary operational expenses. Attacking operational inefficiency and waste via initiatives like Lean Six Sigma is good, and such activities should be preserved. But sacrificing the longer-term initiatives that build competitive advantage, such as Lean Six Sigma, Design for Six Sigma, or Systematic Innovation, is not a good strategy. Many parents begin investing in a college fund for their children when the children are very young. These funds are untouchable, in a sense, to ensure the future competitiveness of their children in the marketplace. It is interesting to note that some companies don’t see their real lifeline and inadvertently take action to cut that lifeline. A large part of the problem stems from extremely short-sighted business objectives, and that is precisely why organizations need to separate and protect their long-term strategic funding.

The slash-and-burn tactic implemented by some executives to cut spending across an entire organization is short-sighted and will create more harm than good. While slashing out fat in an organization is good if it is done using a planned, systematic and measured methodology such as DMAIC, an undisciplined and unknowledgeable approach to cutting will also slash the muscle, bone, and very fiber of our current and future competitiveness. Leaders and managers must know the different colors of money. If they cannot distinguish between the dollars that give them the higher return on investment, then all the money looks the same.

Ingredient #2: Relentlessly and ruthlessly pursue the reduction of waste and variation. 

A downturn economy often means downtime. This time can be an opportunity to build the infrastructure to remove waste and variation or to solidify it if it is already under construction. Unfortunately, many companies slash people in a downturn economy, thus not leaving too much downtime for the remaining survivors who have to pick up the slack. Again, a short-sighted mentality can exacerbate the current as well as longer-term effects of a slow economy. But no matter what, every company should use this time to build a capability that will allow it to continuously cut out waste and inefficiency, and improve its quality. It is never too late.

Furthermore, we fail to see the logic of allowing waste and cost of poor quality to exist in good economic times but not in bad. That disconnect is costing us, because if we are not ready for the bad times, it will cost us dearly via the indiscriminate slash-and-burn mentality. Every company must have an established, disciplined methodology that can be used repeatedly to remove waste and variation, wherever and whenever it occurs. Lean Six Sigma is an approach that brings the infrastructure and deployment strategy for continuous removal of waste and variation, no matter what the times are like. Thus, we must ingrain the mindset of always pursuing the elimination of waste and variation. The elimination of waste is for the benefit of removing internal costs, and the removal of variation is for the benefit of our customers, because the customer only sees and feels the variability that we create.

Ingredient #3: Invest in and develop competency in systematic innovation.

There is not a word more frequently used in the business world today than the word innovation. Unfortunately, this word is not well defined. One can find hundreds of definitions of innovation, and most have something to do with the word “new.” For the purpose of this article we will combine many of those definitions into the following definition:

Innovation involves people, ideas, and change. It creates new value for someone or some sector of society (Wycoff). It creates a new dimension of performance (Drucker). 

Systematic innovation is defined here as the application of proven methods and techniques to repeatedly, reliably, and predictably deliver innovative results. We must move to innovation becoming planned and systematic, not just being the epiphanies of a select few creative geniuses. That is why we need to get the proper tools and methods into the hands of many, and not just the select few. Systematic innovation demands the attention of all, and thus an investment must be made to make this happen. But we must invest in the right tools and methods with a proven conveyance (training and coaching) regimen in order to allow competency to be developed. Systematic innovation demands the use of data along with the associated techniques that generate and analyze data. This may seem contrary to many of the current definitions of innovation, but to create value and new dimensions of performance will require that we scope the problem correctly and truly understand the customer base we are targeting. One does not do this well without data.

Some of the methods and techniques required by systematic innovation include prioritization techniques; Quality Function Deployment (QFD); Axiomatic Design; empirical modeling via DOE to generate transfer functions; multiple response optimization; TRIZ with psychological and emotional methods of creativity; Monte Carlo Simulation to perform expected value analysis, parameter (robust) design, tolerance allocation, and sensitivity analysis; and analytical modeling using Finite Element Analysis and Computational Fluid Dynamics. Although the reader may not be familiar with all of these, rest assured that these can be learned; and if taught and coached properly, practitioners can become competent in all of these methods and more. Competency means knowing what to use, when to use it, how to use it, and above all, knowing why we are doing this and how all of this fits together. I encourage readers of this article to assess their organizations on their competency in systematic innovation. Systematic innovation demands an investment, and it should be tied to Ingredient #1, that is, it should be a protected strategic expenditure. 

Ingredient #4: Strive for quick-hitting, impactful results.

Leaders will no longer wait for months to realize impactful results. They demand almost immediate successes and return on their investment from any training or coaching in any methodology. In the Design for Six Sigma (DFSS) methodology of IDOV or DMADV or whatever phased approach is used, we have found that one way to achieve quick successes is to accomplish studies rather than full-blown projects, especially at the beginning of a DFSS rollout.

A project is defined as an effort that results in the design of a sub-assembly, module or system. The design should proceed through all four or five phases of DFSS, starting with the concept and customer requirements and ending with a validated design that has been delivered to manufacturing. The project must include a representative sampling of tools such as QFD, concept selection, DOE, etc.

A study is the execution and completion of work which utilizes one of the DFSS tools / methods as part of an assignment to meet unit objectives. A DOE, a QFD, an MSA, and a tolerance study are examples. Accomplishing well defined studies can create the momentum needed to repeatedly generate quick-hitting successes. Oftentimes we see a supposedly mature Lean Six Sigma effort languishing in its own bureaucracy. Leadership is disgruntled because the results are not flowing in as quickly as needed. Studies can help in this regard, as they are designed to get very quick-hitting results. 

Ingredient #5: Focus on knowledge based principles.

Knowing the right things at the right time provides for better decision making. Focusing on the following principles will help create the right mindset for both continuous and breakthrough improvement. Both types of improvement, especially breakthrough improvement, are needed in a downturn economy.
   (a) Develop a product or service development process built upon
         knowledge.
   (b) Focus on knowledge generation to streamline the development
         process, rather than strict adherence to pre-determined timelines.
   (c) Capture knowledge from unused concepts and designs to eliminate
         waste and improve process efficiency.
   (d) Create structure and accountability around flexibility.
   (e) Promote technical competency over procedural compliance.
   (f)  Develop innovation-driven project leaders.
   (g) Support and reward competitive excellence.

For more information on these principles and the questions leaders need to ask to generate the right kinds of knowledge, please refer to our Knowledge Based Management (KBM) text. Deming had it right many years ago when he stated (from Out of the Crisis) “the invention of new products and services has been accomplished in every case in my experience by the application of innovation and knowledge.”

The five key ingredients described herein will not with 100% guarantee surviving and thriving in a downturn economy, but their application will minimize the risk of the alternative. And managing risk is what business is all about.

Strengthening Your Lean Six Sigma Deployment with Business Process Management
by George Maszle,  VP, Business Process Management

Lean Six Sigma has contributed much to business effectiveness and efficiency since the convergence and advancement of these tools and processes began in the mid-1980’s. It has enabled significant improvements in customer experience and loyalty, has streamlined business processes, and driven higher levels of overall business results. Examples of projects that have reduced cost, improved profitability, enhanced revenue growth and enabled better cash utilization are pervasive. Why then are some organizations still struggling to gain a competitive advantage and thrive?

As with prior business improvement initiatives, organizations can reach a point of diminishing returns and limited or narrowly focused project benefits.   Lean Six Sigma results can stagnate and decline when leaders aren't open to evolving advances in business improvement methods or new techniques that might better address expanding enterprise-wide processes. Core concepts of Business Process Management or End-to-End Process Management can help an enterprise sustain the gains achieved through Lean Six Sigma or Design for Six Sigma and take the improvement efforts to new levels.

Business Process Management (BPM) is defined as the design and execution of end-to-end business processes that create value for the customer and the business. In other words, it's how we plan and run the enterprise to create value.  Unlike some Lean Six Sigma efforts, which can often be bounded by organization or functional interfaces, BPM helps the enterprise look across operational silos or functions. BPM takes the kind of systematic improvement proven successful with Lean Six Sigma to new heights and  helps identify opportunities more holistically across the enterprise.  This creates increased value for the end customers, streamlines operations, and improves everyone's focus on the core business.

A strong and complementary Business Process Management approach will strengthen your Lean Six Sigma efforts and enable new levels of customer value and business performance only achievable with a cross-enterprise approach.   Business Process Management builds on many of the same tools and concepts used in Lean Six Sigma, including customer focus, systematic improvement processes and tools, fact-based measures, demonstrated results, and trained/ competent resources.

Where it differs is that BPM also establishes a shared understanding of the cross-enterprise process framework and it helps define clear end-to-end performance measures that are better aligned to creating customer value and enabling the enterprise strategy.  BPM also relies heavily on establishing accountable process owners, understanding necessary cultural enablers and setting in place the required governance and communication mechanisms necessary to make better investment decisions and align IT prioritization.

When an enterprise is able to enhance its Lean Six Sigma approach and integrate these broader concepts they become more customer focused, business relevant and proactive.  Opportunities are more visible and people think about their customers and business differently.  Thinking differently can help remove barriers that stifle innovation, creativity and growth.  BPM helps open doors to better applications of structured innovation and promotes real breakthrough process thinking and redesign efforts.

In other words, BPM helps make Lean Six Sigma whole and allows it to deliver the original promise of enterprise efficiency, effectiveness and breakthrough business results.  Many companies are coming to the realization that BPM must be an integral part of their Lean Six Sigma improvement strategy. Unfortunately, most come to this realization after they begin to see deterioration in project benefits and/or leadership scrutiny of total reported project results versus overall business performance. 

As with any series of consecutive growth curves, the best time to inject new life into an initiative and engage the next curve is before the effort plateaus or worse yet, begins to die. The addition of Business Process Management concepts to a Lean Six Sigma or DFSS deployment will provide a new leadership perspective, refresh the improvement strategy and enable an end-to-end process focus. This renewal can not only help companies survive these difficult times but actually accelerate the improvement momentum and launch the enterprise to higher levels of growth, profitability, and competitiveness.

Since the basic Business Process Management techniques were first introduced by Michael Hammer in the early 1990’s, the knowledge base has been greatly expanded. Unlike Lean Six Sigma, however, the BPM approach, methods, tools and organizational structure have suffered from the lack of a well defined or codified approach. At Air Academy Associates we understand the power of “KISS” (“Keep It Simple Statistically”) and we are applying these same principles to BPM.  We also understand the potential untapped improvements that are possible by integrating sound Business Process Management principles with our proven Lean Six Sigma, Design for Six Sigma, and Structured Innovation offerings.

The Air Academy business synchronization workshop is one way we approach this integration as we help customers define their core cross-functional value chains, enterprise process framework and key process measures.  These fundamental components of BPM begin to link or synchronize how you "Plan the Business" with how you "Run the Business."  We recognize that this initial sychronization is only a beginning; that there is enormous incremental improvement capability and power that Business Process Management can bring to an organization; and we understand how BPM can be structured to complement your Lean Six Sigma deployment with integrated offerings best suited to your needs.

For additional information describing how Air Academy Associates can help your organization assess your BPM maturity, lay out a growth plan, and improve your BPM competencies, contact Air Academy Associates at 719 531-0777 or email aaa@airacad.com.   Watch for more information on BPM to be posted to our website soon. 

Product News - HD TOOLS™ - Coming soon!

Air Academy is excited to announce HD Tools™ – software for sampling, screening, modeling, and validating when dealing with many variables. This Microsoft Excel® add-in is used for constructing nearly orthogonal screening designs which accommodate large numbers of input factors and/or levels; constructing modeling designs (Central Composite and/or Box-Behnken) for 6-12 factors, designs often not available in standard DOE software packages; and for constructing representative samples for one or more factors with users selecting from 6 built-in distributions.  For more details on the functionality of this exciting new product prior to the official launch, contact Air Academy University at 719 531-0777.

Meet Our Consultants

Lee Pollock, Ph.D., who joined Air Academy in 2000 after a distinguished career which included positions at Polaroid Corporation, Data General, Electronic Systems Center for Air Force Material Command,  and EMC, is Senior Vice President for Lean Sigma Programs.  His extensive background in implementing continuous improvement efforts is reflected in his Account Management and executive mentoring for some of Air Academy’s most successful client relationships.

Lee holds a B.S. in electrical engineering from West Point, an M.S. in engineering from Northeastern University in Boston, MA ,and a Ph.D. in Operations Research from Florida Tech.  He is the co-author of Lean Six Sigma: A Tools Guide and is a member of the Air Academy Associates Strategic Marketing Committee.  Lee can be reached at lpollock@airacad.com.