17 July 2015

PEX EUROPE 2015 CONFERENCE REPORT

MESSAGE FROM THE CHAIRMAN, PETER SIRMAN.

Many thanks for attending this year’s PEX conference. Once again, we heard from speakers from a wide range of industries with varying challenges. Even in as diverse businesses as Thomas Cook, Maersk, Deutsche Post and UBS (to name but a few) Performance Excellence is as vital a component of success as ever.

With this report, we aim to delve into the messages from the conference, elaborate further and summarise the key learnings from the various presenters. Specific mention should be made to the breakout sessions focusing on customer engagement and manufacturing excellence which went into more detail and offered yet more insight.

As I mentioned in my introductory remarks to the conference the broad social, political, financial and therefore business environment has been pretty tough in recent years. The European recession in 2008 was deeper than normal, but then it lasted longer and recovery was slower than normal too. As a consequence we face high unemployment in the West, coupled with declining real incomes.

Despite the apparently gloomy backdrop, thanks to many of you at the conference our businesses continue to succeed, growing stronger, more profitable and cash rich. Operations professionals the world over have responded admirably to these issues and have found new and innovative responses.

What we have seen however is a changing focus for operations and process professionals. Three years ago all of the talk was about method. Which tools, which training, what order to implement, seven wastes etc Change was programmatic – driven by timescales, pace and benefits delivery. The weird human creatures who deliver all this stuff were nowhere to be seen.

Today the world has changed and this was clear in the speeches, discussions and presentations during the conference. Today, we need to focus on flexibility rather than standardisation. Customers rather than cost. People rather than process.

In this report we will focus on these new issues as we look towards PEX 2016 – where I hope to see you all again! We will go into more detail on each topic

and offer a summary of the strategies discussed at conference but also some additional insight from PA. In this report you will find articles dealing with:

1. The age of disruption, an age of VUCA – as described memorably by Dirk Stoltenberg this year.

2. The focus on customers. In every speech this year, the customer was certainly king.

3. From Airbus to Oxford Instruments – the engagement of senior leaders is vital to embedding change

4. Continuous improvement as a culture, not a project

5.

The approach to our people – the thorny change management issue

I hope you will find this report helpful and interesting. I hope also to see you all again at next year’s conference where I’m sure we’ll discuss these issues further and different considerations not visible to us today. One thing is clear, things will change and we must be flexible to respond.

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WELCOME TO THE VUCA WORLD

As we have all seen, the last few years have been challenging for business, to say the least. Sometimes it may have felt like a battlefield, with new and dangerous threats coming to the fore and taking the unprepared and inflexible by surprise. Just ask the leaders of Nokia or the former leaders of Woolworths or Kodak before they succumbed to new, digital market threats.

To respond to this new world of emergent threats, operations leaders have turned to the military – where dangerous, volatile situations are the norm. To describe this uncertain world, the military derived the acronym VUCA and have been training its leaders to operate in this world for many, many years. At a high level, VUCA can be described as:

Volatility: Challenges are unexpected or unstable and may last for an unknown duration.

Uncertainty: New threats may be visible but their effect on your business are not clear

Complexity: New situations may have many interconnected parts and variables.

Ambiguity: Causal relationships between events are unclear and no standard procedures exist

Many businesses today face one or all of these challenges. New technologies mean the outlook for many businesses and entire sectors are uncertain. The rise of “Big Data” has blurred causal links between inputs and outcomes leading to ambiguity as to the correct course of action. Each industry and individual business is facing its own combination of ‘VUCA’ challenges and must respond in a flexible and well-considered way.

The required response is in itself ambiguous. An entire rethink of the way businesses operate is required if we as operations professionals are to meet the challenges of the future. In his fascinating presentation, Dirk Stoltenberg introduced us to four “agility factors” – Dynamic strategy, Perception of the environment, experimentation and “living the change”.

Challenges are unexpected or unstable and may last for an unknown duration.

New threats may be visible but their effect on your business are not clear

New situations may have many interconnected parts and variables.

Causal relationships between events are unclear and no standard procedures exist

VOLATILITY UNCERTAINTY COMPLEXITY AMBIGUITY

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WELCOME TO THE VUCA WORLD

Building on this sound advice, military training also offers key insights in how operations leaders can react to the VUCA world;

• Think agile: The world is changing fast and your organisation needs to do the same. Therefore, agility and flexibility must permeate everything your operation does. Recruitment, investment and role descriptions must be tailored to allow freedom of action

• Provide clarity: Ensure that everyone in your team or organisation fully understands the vision or end goal as opposed to just their individual task. This means that if the situation changes, they still know what the team or organisation is ultimately trying to achieve.

• Communicate early and often: When teams are under pressure individuals will often retreat inwards and team meetings stop taking place - this is the worst thing that can happen in difficult times

• Plan for risks: The military prepare for difficult situations by creating “actions on” plans so

everyone knows what to do should difficulties arise – you can too. Consider the ‘threats’, ‘risks’ and ‘what if’s’ that may affect your plan – create a simple ‘issues and risks’ register. Once you have considered the risks – plan for them. Don’t just have a plan B, have a plan C as well

The world may be changing but if your organisation makes some simple but far reaching adjustments, your operation can not only respond to the changes but take full advantage of them. Remember, for every Nokia that was slow to respond, there is an Apple that took advantage.

We can’t all be Apple, but we can all make sure we’re not Nokia.

Drawing on military experience

THINK AGILE COMMUNICATEPROVIDE CLARITY PLAN FOR RISK

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BUILDING CUSTOMER FOCUS INTO OPERATIONS

If there was one overarching constant to this year’s conference it was the laser-like focus on the customer. To Thomas Cook it is about “putting the customer at the heart”; to BT the customer sits above all other considerations; to E.On the customer is the measure of success. This highlights a break from the past. Today we put customer above process and with good reason.

In an ever changing, VUCA world, we have seen that business operations must be responsive, flexible and able to adapt to rapid changes in expectations and demands in order to maintain market share and its customer loyalty. A key part of the success of companies in this era will be their ability to rethink the way they engage with their customers. To retain their position and market share, they will need to be relentlessly focused on making their customers’ experience easy, personal, seamless and enjoyable.

The voice of customer (VOC) has always been a key element to the lean philosophy but is often mis-understood or overlooked in preference of targeting the operations cost base. In many cases, the answer lies in changing established mind-sets and behaviours within the organisation rather than a complete and immediate overhaul of the entire business model and all the underlying structure which goes with it.

In addition to the insights from our speakers, there are three key lessons we’d like to share in order to bring the customer back to the heart of operations.

Firstly, it is important to not think about products and think about people and what they really want. Accurate and appropriate customer data is key to achieve this. The rise of social media and innovative ways for customers to communicate and interact with businesses means there is tremendous amounts of data but very little insight. Any insight that is found can be lost in an ocean of unnecessary data, choosing data to derive actionable improvements can be difficult – but the gains are significant if achieved.

The organisation that can use all the data available to properly understand their customers will have a big advantage.

The second lesson is to treat customers as an extension of the brand and positively encourage them to talk to each other. A stronger connection to the customers helps to define and refine the service offering and generate real interest that encourages customer loyalty

Finally, organisations need to focus on connecting experiences across channels and making it easy for customers to toggle between them. The term Omni-channel is now ubiquitous, but it is a genuine area where firms should invest.

It is easy not to do this. All firms are struggling with competing priorities and are often tempted to put off work to develop the customer experience. Yet this is a recipe for failure. There is growing evidence that organisations that have adapted and embraced new approaches to customer experience have seen share price growth, improved market share and an improvement in their customer satisfaction or net promoter scores.

In this VUCA world, the winners will be those who think and act differently to drive real innovation in how they meet their customers’ needs.

4

AVOIDING PITFALLS IN CONTINUOUS IMPROVEMENT

As we saw in the manufacturing session during this year’s conference, the principles of continuous improvement have been part of the manufacturing industry for many years. At their best, the results are remarkable. The release of 25% of employee time, 50% reductions in scrap, 30% increases in capacity and inventory reduction of 35% are eminently possible should continuous improvement be implemented effectively.

As in all industries, however, one of the biggest challenges for manufacturers is making sure that their systems deliver the sustainable benefits expected by the business. It is an unfortunate truth that, despite the wealth of experience around, and the many tried and tested approaches available, many systems fail to really engage and energise the business.

As a result, they do not deliver the expected results. So if the costs are highly visible, but the benefits less so, how can leaders stop their continuous improvement activity from appearing like an irrelevant and unnecessary overhead?

A great deal of otherwise excellent continuous improvement activity fails to make the grade because of three common pitfalls. If leaders take the right steps to avoid these pitfalls, they stand a much greater chance of success.

Get the story right

Often, there is no clear vision of what a manufacturer’s continuous improvement group is aiming to achieve and little guidance on how it should be applied. To avoid this confusion, the business and the continuous improvement team must be clear about what their purpose is, what the benefits are, and how to engage the wider organisation.

This means getting a framework in place to provide information in a way that is relevant to the business and in a language they understand.

It should support the communication of the benefits, principles, tools and techniques and share stories of its success. For example, if your system releases 1,500 hours of employee time in the first year, you need to make sure that everyone know about this and how it was achieved.

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AVOIDING PITFALLS IN CONTINUOUS IMPROVEMENT

Focus on pressing issues

In many situations the link between business objectives, performance targets and improvement activities can be missing. Establishing clear alignment between these three areas – and tracking performance accurately – is therefore vital to success.

You should implement a process to roll out business strategy throughout the organisation and establish metrics, targets and reporting to support it. By getting the process in place, you create the performance gap used to focus the direction of continuous improvement activities. This approach applies regardless of which business objectives you are targeting.

Engage the organisation

Many continuous improvement systems rely on centralised expert teams. These teams often fail to really engage and energise the organisation; they can easily become disconnected from the business. Frequently, experts who have been trained in all the right methodology and tools don’t have the necessary business context and coaching skills to deliver the change through working with employee teams.

As well as a grounding in the methodology, you need the right change management, coaching, infrastructure, and on-going learning mechanisms. This must be in place throughout the entire organisation, from senior leadership to the shop floor.

Continuous improvement activity is too valuable to be dismissed as ‘too hard’ by manufacturing businesses. But, for it to be a success, leaders must ensure they are working hard to engage the business and win their support.

6

ENGAGING SENIOR LEADERSHIP TO ENABLE CHANGE

Although much is changing in the world of operations and process excellence, it is in some ways comforting that even in the VUCA world, some things are as vital as they’ve ever been. One such topic is that of leadership engagement. Throughout the conference this year we saw that the engagement of senior leadership in change programmes is vital to their success and once again we discussed many strategies for achieving this.

The effects of change are felt up, down, and around our organisations. Change can be seen as positive or negative, exciting or demoralising, vital or unnecessary, easy or difficult—often a combination of the above. The role of mid- and senior-level leaders in making change happen is critical. Managers of teams, projects, departments, and functions are in a unique and powerful position.

These are the leaders who must translate the vision of change from the C-Suite to the ground troops, help direct reports navigate the emotions of change and transition, and influence change agents to generate alignment and commitment for the change effort to be successful.

If leadership involvement is so central to the success of change programmes, why is it that the lack of leadership engagement is still so often cited as a major contributor to project failure? In truth, there are many reasons for this. However, if leaders ensure they adhere to the following three major principles, the risk of programme failure will be much reduced.

1. Participate actively and visibly throughout the project: The role of active and visible participation for the primary sponsor is vital. At Deutsche Post we saw how recognition from senior leaders can reinforce success and build empowerment. The other important word in this role is “throughout” - sponsors cannot disappear once they’ve attended the kick-off meeting for a project. Their sustained presence is necessary to build and maintain momentum for change.

2. Build a coalition of sponsorship and manage resistance: Primary sponsors need to take a lead role in building and maintaining a healthy coalition in support of the change. The sponsor must mobilise other key business leaders and stakeholders so they can take the change back to their part of the organisation. The coalition is especially important for changes that stretch across multiple parts of the organisation

3. Communicate directly with employees: As noted above, employees want to hear about why a change is important from someone at the top - either at the very top of the organisation or at the top of their department or division. Senior leaders are looked to for messages about why the change is being made and the risks or costs if no change is made.

Change is often difficult to accept and to come to terms with. It is up to senior organisational leadership to be the resilient face of the programme, to get involved and be seen to take an active interest not only in the successful outcome of the programme but the welfare of their employees too.

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As we saw at this year’s conference from many of the exciting and interesting programmes described across many different industries, successful change programmes require resilience and courage. From Stuart at Oxford Instruments we heard how focusing on “pain not performance” can help focus the mind of those on the shop floor. We also heard some sound advice for anyone starting out on a performance improvement journey – “one idea worth £1m is luck, a million ideas worth £1 is continuous improvement”.

I’m sure many of us working in performance improvement can attest to this. It is significantly easier to embed change if it helps remove obstacles to people doing their jobs – in fact, it will come naturally. If we can push down improvement activities to those directly affected by it and stand to benefit we can reduce resistance, generate better and more numerous ideas and reduce the cost of each.

Along with ensuring strong leadership involvement, building a culture of continuous improvement into an organisation’s DNA is among the most common goals of operational improvement programmes, but like strong senior leadership involvement, it is deceptively difficult to implement and make stick.

Adding further complication to these efforts today’s VUCA world requires additional flexibility and responsiveness to changing customer and market demands. We need not only to embed a continuous improvement culture, but an “Agile” culture too. If we are successful in this effort we can both drive our organisation towards improved performance but also towards our customers future needs.

In short, our operation will not just do today’s work better but tomorrow work better too.

Originally an IT development philosophy, building on lean principles, Agile has swiftly become an effective and popular methodology for implementing flexible improvement culture into even the most static organisations. When the Agile Manifesto was first published, it heralded a fundamentally new approach to software development. Today, in a fast-growing trend, private and public sector organisations are increasingly applying Agile principles to large-scale business change programmes. Their attention has been drawn by studies that show Agile projects are three times more likely to succeed.

BUILDING CHANGE INTO THE FUTURE

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As well as enabling large-scale business transformation, the Agile approach presents a number of opportunities for business change teams. Close collaboration means the business is driving development. This in turn enhances the business’s understanding of the change impact whilst reducing the resistance to change by helping the business prepare and feel greater ownership.

There is, however, little published advice on how to successfully manage business change within an Agile programme. There is also no guidance as to how traditional approaches to business change need to be modified.

The following four key principles give you an outline of what you need to succeed:

1. Know where business change is taking you: Whilst Agile does not advocate having highly detailed plans which look months or years into the future, it is still critical to have a high level view of the end state of the business transformation.

2. Existing business change principles hold true: Don’t be tempted to overlook the fundamentals of business change. Key underpinning change theory still applies even in the new Agile environment you are operating in.

3. Input into the release schedule is critical: In an Agile programme, the intent is to release new functionality to the business on a frequent basis. In release discussions, it’s important to consider to what extent the business is able and prepared to receive the change. The business change approach must look at both the macro and micro change approach, considering both the big picture change that the programme will achieve as well as the small steps represented by each Agile release.

4. Support your team through the cultural change: Agile is a completely different way of delivering programmes. To ensure your business receives the benefits it is expecting, recognise the change that your programme delivery team will experience if they are new to Agile.

Start by ensuring that your internal programme team are fully up-skilled in Agile. You then need to educate the business in Agile: they must understand what it means for them, how it will look and feel different, and – if a cultural shift is required – how they can respond.

If implemented correctly, Agile design principles offer an additional level of flexibility and responsiveness to traditional business change programmes.

BUILDING CHANGE INTO THE FUTURE

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A personal highlight of the conference for me was the lively debate on “change management” on the Wednesday of the conference – it is one I’m sure we’ve all had at some point in our performance excellence journeys. Clearly, change management can be a thorny issue.

Some see it as a luxury to be added on as an afterthought to a change programme. Some see it as the way in which an organisation enforces change on its people from the top. To those most successful organisations however, change management is a vital part of any change, an opportunity to engage and empower their staff to change their own working lives for the better and in some small way own the organisation they work for.

Although this is not new, change management is as important now than it has ever been. With the speed of change and subsequent job instability increasing every year, the need to ensure the people on the ground are an integral part of the change is paramount.

All of the successful change programmes mentioned in this report and others – those at Thomas Cook, Oxford Instruments and Deutsche Post in particular – has one thing in common. The people drove the change and owned it. It’s worth considering why this is the case.

As we have seen today’s VUCA world requires fresh, agile and flexible thinking in order to drive successful change and secure operational excellence. As the excellent and interesting speakers at this year’s conference have shown, this generation of operational excellence leaders are able to respond to the changing landscape and secure performance improvement for their organisations.

Kotter’s 8 steps for successful change management are well known and won’t be repeated here, but the well-trodden statistic that 70% of change programmes fail if they don’t follow them is well worth keeping in mind.

On top of the 8 step framework, there are two further actions that could and perhaps should be taken to still further improve your chances of success.

The first has already been covered before in this report – engage senior leadership early and often. Programmes fail most often because those who say they want the change do little to secure it.

Finally though, you shouldn’t ever stop changing. Once a programme is finished, change must continue. One doesn’t create an agile and flexible organisation by working through steps 1 to 9 for every programme put in place. By rigidly following this framework one actually imposes change on the organisation, precisely the opposite of its intention.

An organisation must be open to change coming from below, be open to adjusting the programmes in flight or scrapping them altogether.

As Winston Churchill said “to change is to improve, to perfect is to change often”.

FOCUS ON THE PEOPLE

To change is to improve, to perfect is to change often.

WINSTON CHURCHILL

10

THANK YOU AND SEE YOU NEXT YEAR

Thank you all once again for attending this year’s PEX conference. The insights and experiences shared by all the speakers and presenters, synthesised and added to in this report have been tremendously valuable to us at PA and I hope they were for you too.

We have seen that although the business environment is more volatile and changeable than any time in the last 30 years, operational excellence professionals continue to generate new and innovative solutions to meet these challenges. We have adapted approaches from the military to describe the VUCA world we now live in and now have a tool-kit to deal with it. We have adjusted to the newly mobile customer and now focus on their needs more than ever. Even in the field of delivery, Agile methodologies now provide a way of reacting quickly and driving performance in a responsive way unheard of in the “old days” of IT and business change.

As well as these new challenges, those of leadership involvement and change management continue to present challenges no matter the business environment. To meet these ubiquitous challenges also, you as operational excellence professionals continue to find new ways of overcoming them.

These advances leave me confident that working together we can respond to whatever the near future has in store. One thing is clear however, we cannot stand still – the world is moving too fast for that. Anyone standing still will be left behind. From what we’ve seen in this year’s conference though I am sure that working together and sharing our experiences and successes we can overcome whatever challenges are in store and drive performance excellence ever forward.

I hope you all have a successful year and I hope to see you all next year.

Many Thanks

Peter Sirman

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