Cost of Quality

I recently sat down with a private business owner that thought quality sat in the engineering and production departments, I asked him why it didn’t belong to finance.

In his boardroom there was a whiteboard, thankfully it was one of the bigger ones, I handed him a blue marker and asked him to ‘big picture’ sketch his product development steps; from concept to delivery.

I then picked up a red marker and put next to each step a variety of quality costs:

Cost to define markets, customers and users
Cost conduct all the market research and define product specifications
Cost of surveys (customer satisfaction, user perception, product research)
Cost to bid on contracts
Design costs
Cost of support activities
Testing / Qualification / Certification costs
Field Trials
Technical / Customer Support Centers
Supplier reviews, dealing with supplier issues
Cost spend for inspection, reviews
Process validation costs
Quality planning
Measurement & Control equipment
Education & Training
Audits
ISO certification
Updates / Upgrades / Improvements
Labour validation, time to complete, time / task
Return Material Authorizations – product returns
Corrective Actions
Engineering Change Orders
Scrap Costs

Aside from the scrap costs the organization didn’t track the cost or time associated with these actions. The subsequent 2 hours resulted in a basket full of low-hanging fruit, a variety of projects identified and a substantial opportunity for cost control and cost avoidance.

There is more than one meaning to the 'cost of quality', the one that seems to hit home is that with the $$$ in front of it.

Organizational Hierarchy of Needs

Organizational Hierarchy of Needs

Maslow's hierarchy of needs - an organizational / business version:

Need for Survival

Need for Maintaining Current Operations

Need for Improving Current Operations

Need for Adopting New Solutions

Need for Develop New Solutions

.....where do you think your organization is or should be?

.....where is your organization?

.....why is it where you think it is?

.....where are you telling your organization you are or want to be?

.....do you really stand behind / support where you are or want to be?

You've hire top talent - let them work!!!

Over the course of the last two years (basically at the onset of the recession where some great talent became available to the market) I’ve been asking two questions. The first question was to some top talent individuals; in essence, how is the new position going? The second to business owners, GMs, hiring managers; how’s the new employee going?

From the employee side, and these are keen folks I’ve known and worked with, understand their abilities, their dedication, their ability to make it work, I hear over and over again:
- It’s a one man battle and I’m expected to be the front line, reinforcements and supply.
- There’s a bunch of lip-service, I’m the only one biting into any of the tasks.
- Management can not make the tough decision(s), they look me to make them but don’t like the fallout.
- Lack of structure, support.
- Keeping getting told to not get absorbed into the ‘rut’, stay fresh.

From employers I’m hearing, and it’s not just one employer or about one employee, it’s a disturbing pattern:
- On paper and in the interview process was perfect, but he/she can’t win the staff over, they get lip-service from the staff (peers) but no real buy-in.
- They can’t implement the change required.
- They don’t understand the culture, they’re upsetting the current balance.
- They’re not ‘joining’ the team, they stand out, not entirely accepted.

When I first started hearing this I thought it was a bit of whining, some coincidence, personality mismatch, but there is a pattern, there is a trend and there is a problem.

Business owners have to realise a few key things:

One person is not going to solve the problem or address all the issues – not when you are hiring them at a manager or directors level – especially when you have not given his/her peers the same mandates for their departments. If you are telling the organization it’s status quo and then telling the new hire to make this change, make that change, increase this, decrease that, you are setting them up for failure. The organization is a living, breathing, interconnected mechanism. All the pieces have to work together.

There is a reason they accomplished so much prior to coming to you. I would venture to say it’s mostly due to their intelligence, drive and ability, but they did have the tools, structure and support needed to get things done. In hockey terms you’ve hired a great goal scorer but if he has no one to feed him the puck, no one to block a check and a goalie that lets every other shot on net in, your start scorer will never win you a game.

You’ve hired them for their ability, their know how, the fact they’ve done it before – use them to help transform your organization, help them get other managers on board to the changes, address the issues with managers that resist the change. Support these guys/gals and you’ll see they’ll go above and beyond to make things happen. Yes, they are the types you can put in a sink or swim situation (and they’ll swim) but you can’t expect them to survive if you throw them to the sharks. Think about how you won them over to join the organization, what you said that got them to join – they knew you had issues – but they saw the potential, help them unlock it.

Dragon's Den

There was a rerun of a Dragon's Den episode on TV last night - interesting how one of the dragons turned down a project that he thought was very impressive but, since he was unfamiliar with the product / industry, didn't want to get involved. He struggled with not being able to add value (other than funding) to the project.

The lesson is clear:

1 - be sure you can add value
2 - know your limits
3 - set yourself up for success

The answer to the business challenge.....cartoons!?!

Just got back from a business trip with a portfolio company and sat down to watch a movie with my daughters - we watched Fung Foo Panda - Secrets of the Furious Five, it's an animated features with Jack Black and Dustin Hoffman.

Two key take aways.

1. the essence of Kung Foo is excellence of self......hmmmmmm
2. the group tries to capture the Dragon Scroll - thought to provide unlimited power - it's blank - when looking at the scroll all you can see is your reflection.....hmmmmmmm

Just a little too coincidental with the last post on leadership.

_________________

Kung Foo Panda - The Secret of the Furious Five (from Wikipedia)

In an anthropomorphic China, the Valley of Peace is protected by the Furious Five - Tigress, Monkey, Mantis, Viper, and Crane - a quintet of warriors trained in kung fu by the wise tortoise Master Oogway and his protégé, the red panda Master Shifu. One day, Oogway has a premonition that Shifu's former pupil and foster son, the brutal and ruthless snow leopard, Tai Lung, will escape from prison and return to the Valley. Shifu decides to hold a martial arts tournament so that Oogway may identify the legendary Dragon Warrior - the one master worthy to receive the Dragon Scroll, which is said to hold the secret to limitless power. Tai Lung had been denied the Scroll years earlier, causing him to decimate the Valley in retaliation and resulting in his imprisonment.

Po, a young Giant panda and kung fu fanatic who works in his goose[7] father's noodle restaurant, is anxious to see the tournament, but is instead forced to take a noodle cart up the mountain to the Jade Temple. By the time he arrives, the gates are closed and the tournament has already started. Desperate to see the tournament, Po straps himself to a set of fireworks; he rockets into the sky and crashes into the middle of the arena just as Oogway is about to select the new Dragon Warrior. To the surprise of all, Oogway indicates that Po is the Dragon Warrior. Unwilling to believe that a clumsy, fat panda can be the Dragon Warrior, Shifu attempts to berate and humiliate Po into quitting, subjecting him to a grueling series of matches with the Five, all of whom despise Po as an upstart novice. Po is dejected after his first day of training, but after Oogway counsels him, he refuses to quit. Soon, he endears himself to the Five (except Tigress) with his impressive tenacity, culinary skill and good humor, though he is still unable to grasp the basics of kung fu.

Meanwhile, as Oogway had foreseen, Tai Lung escapes from his prison and heads for the Valley. Sensing his death is imminent, Oogway extracts a promise from Shifu that he will train Po and then disappears, ascending to heaven in a swirl of flower petals. Upon hearing that Tai Lung is coming, Po panics and tries to flee the Temple. Shifu refuses to let him go, insisting that he can change Po into the Dragon Warrior, but Po has lost all confidence and Shifu can not explain how he will turn Po into the Dragon Warrior. Seeing this argument, Tigress leads the Furious Five to stop Tai Lung themselves. The next morning, Shifu discovers that Po displays impressive agility when he is motivated by food; using the promise of food as a reward, Shifu trains Po into a skilled warrior.

The Five confront Tai Lung over a long rope bridge, but he easily defeats them and sends them back to the Valley unconscious as a warning, to inspire fear. Feeling that Po is ready to fight, Shifu gives him the Dragon Scroll, which he opens to reveal nothing but a blank, reflective surface. Shifu, despairing, orders Po and the Five to evacuate the valley while he prepares to delay Tai Lung for as long as he can. During the evacuation, Po finds his father who, in an attempt to console him, reveals that the long-withheld secret ingredient of his famous "secret ingredient soup" is nothing - except the belief that the soup is special. Po realizes this idea is the point of the Dragon Scroll and returns to face Tai Lung.

At the Temple, Tai Lung confronts Shifu and demands the Scroll. When Shifu refuses, Tai Lung attacks Shifu and, in a furious battle, overpowers and nearly kills him before Po arrives. Tai Lung can hardly believe that the Dragon Warrior is a "big, fat panda", but as he battles Po to take the Scroll, using a hybrid variation of his natural unorthodox clumsiness and the training he had accomplished with Shifu, Po unexpectedly proves himself an equal. Tai Lung gains the upper hand and opens the Scroll, but cannot comprehend its symbolic value. Po explains that "there is no secret ingredient" other than the warrior's belief in himself, but Tai Lung fails to understand and attacks again. With the combination of his new understanding and his own natural resilience, Po counter-attacks with devastating effectiveness and finally defeats Tai Lung, destroying him with the secret "Wuxi Finger Hold".

The deeply impressed Furious Five accept Po as a kung fu master and their superior. Po returns to Shifu and finds that he is exhausted but alive, and finally at peace now that Tai Lung has been defeated and peace restored to the Valley. In a post-credits sequence, Po and Shifu are seen eating dumplings under Oogway's favorite peach tree, where a peach seed Shifu had planted earlier has begun to sprout into a seedling.

Management Round Table

This past weekend I was invited to sit in on a mini executive round table - I know the COO of a private company and he asked me to sit in and just observe the management team - how they acted, reacted, attitudes, etc. The room had six couches, all facing eachother, it was very relaxed, everyone was open and I felt quite at home - I did know a few of the team members.

The group chatted about the organization as a whole, pros, cons, strengths, weaknesses - was a very good, very productive session.

Take away - every VP / Director was excellent at their job, their area of expertise but had no clue about any other function. When we talked afterward I was asked what it would take to get the organization to the next level. First things first - get each VP to starting learning more and appreciating other departments, functions, responsibilities. Getting the management team to be expertise to their staff but generalists among eachother was key. Every senior manager had to start learning more about the other departments so that the organization could grow from one base simultaneously instead of each department growing individually and some playing catch up.

Leadership is a great thing.

Sometimes, as leaders, we get caught up in the day to day grind. I came across this presentation and thought it was a good refresher - take s a minute or two to load but worth the effort.

Not much to comment on, really speaks for itself.

http://s3.amazonaws.com/ppt-download/leadership-trainingv1-1227410222472541-9.pdf

Private Equity Pod Casts Kick Butt

The world is revolving around blogs, podcasts, ithis, ithat. I'm a pen & paper guy for the most part but have taken to various forms of communication that help turn a 24 hr day into a 28 hr day. I love podcasts. Downloaded onto an ipod or playing in the office I find they are a great way to stay current, hear something new, provide a spark for a fire.

The Financial Post has FP Executive

http://www.financialpost.com/podcasts/fp-executive/index.html

that has a number of PE, VC andother interesting topics. Our latest newsletter talked about Jacoline Loewen's podcasts that surround private equity. I've received more than a few comments from clients wrt these podcasts and thought I would send it out for larger distribution.

It's worth a listen.

5 Rules to Live By

There are five simple points I like to keep in mind whenever undertaking any project or working with any company:

1. You have to execute with discipline at all levels - no exceptions. Promote excellence in execution.
2. You have to create a culture where change is a matter of course.
3. Focus the entire business on a few initiatives.
4. Make effective trade-off decisions about investment.
5. Maintain strong metrics and feedback loops.

#4 is one I have been concentrating more on as of late and Jacoline Loewen of Loewen & Partners has several podcasts at http://www.financialpost.com/podcasts/fp-executive/index.html that discusses the private equity side of investing and how balancing the right amount of outside investment and support with internal structure can help an organization get to the next level. Jacoline has a number of podcasts, you can find more at http://www.moneymagnetbook.ca/

C-Level Walk About

C-Level Walk About

Two things I did every morning as a Military Officer was ‘morning prayers’ and ‘the circle’.

‘Morning Prayers’ involved the key Officers in the Squadron standing in the Operations Room and taking 15 minutes to highlight the days objectives & identifying and addressing any gaps that impacted the objectives.

‘The Circle’ was simply a military term for Management By Walking Around – simply walk the Hangar floor, talk with staff, ensure communication boards were current, walkways clear, obtain a pulse for the climate, address any morale issues, etc.

I have to admit I’ve struggled in bringing this type of behaviour into civilian / commercial operations.

A colleague recently said to me, ‘it worked there because lives were at stake, lives aren’t at stake at the office’.

Jacoline Loewen, in her book ‘The Money Magnet’ has this quote – “a business earns it’s right to exists each and every day”,

so I guess I have to beg to differ with my colleague, lives are at stake – he obviously hasn't seen the recent jobless rate or it's trend.

I guess I’ll keep pushing.

engineering types (and I'm one) - listen up if you are looking to attract funding

This week I received three proposals for review – entrepreneurs looking for advice, guidance or funding. Our strength (nCompass) is on the engineering / operations side of the equation but we do have the network that supports the funding side (that exceeds our scope).

Two of the three wanted some support in completing applications for some of the government funding that is currently available to organizations looking to implement processes that increase efficiency in either manufacturing output or general business processes. In essence we were asked to review their organization and identify projects that would qualify for the funding / grants.

Most of the people I meet understand and can articulate their project quite well but lack the ability to develop the ‘pitch’ that attracts investors. I find myself repeating the same line over and over, “if you can not pitch your concept in a manner that attracts funding, in essence, you can not pitch your concept”.

To attract the attention your project deserves entrepreneurs have to learn to attract the attention of those individuals that hold the purse strings. A great place to start is http://www.moneymagnetbook.ca Jacoline Loewen has put together a great book that really helps attract investors – The Money Magnet is a great read and a fabulous resource.

The key to getting any project going and keeping it going is funding – pick up a copy of The Money Magnet, you will truly see things differently.

I would pass on my copy but it's been ear-marked, highlighted and tabbed. Most books I read get put on a shelf, this one stays on my desk.

the value of humility

I have worked with a number of companies over the last 20 years that were extremely successful in their markets. If I look at where they are today, on the list of successful companies, they are no longer near the top.

Curiousity got the best of me as I wondered why - having been involved with each organization I was very familiar with not only the hard numbers but the soft cultural and people side. I put together a chart highlighting what these organizations had in common:

- strong contacts
- strong contracts
- dominated a market, or portion of a market with a niche product
- were early adopters taking risks in new areas - more wins than losses there

Surely all these points foster growth so I looked a little deeper and the answer popped off the page; humility.

None of the leaders in these organizations were humble enough to look take their contribution out of the equation and look at the key underlining factors that made their organizations grow at the rate they have. The 20 / 80 rule. In dropping the ball on that small percentage of key inputs, the house comes tumbling down.

On the operations side humility is the biggest contributor to optimizing a factory or production line - if you assume you know it all you'll never succeed, if you are not humble enough to cultivate the knowledge within the staff and workers you will never gain support.

Keep an eye on why your organization thrives (or maybe has hit a rough spot) but be humble enough (at least with yourself) to highlight that main ingredient that you were able to spot, foster and grow - is it sustainable? Can you make is sustainable?

Minding the Store

I had a very interesting conversation at an event this weekend, it was with three colleagues that all have their own businesses. Most of what they were saying concentrated on the financial side of their business and when I said ‘is that all you guys concentrate on?’ the response was, in concert, ‘what else is there?’
Well, there is the ‘machine’ that utilizes resources, consumes cash and generates income. “you remember, that thing you started that became a business that you are so busy running that no one is minding the store”.

Who is minding the store while everyone is doing the ‘important’ work?

Some things to consider, keep in mind or at least glaze over during the course of the week.

- Where is the business going? Not just $$$ or lack of $$$ in the bank or sales in the funnel but where is the business going – new products, old products, new markets to enter, current markets to exit, channels, offerings, service…..
- Why are you doing what you are doing? Are you making decisions based on the market conditions – what about your plans, your strategy, did the market turn ‘eat up’ all the risk mitigation that was built into the plan?
- If you are making changes be sure you can give them time to stick (assuming they were the right decision). Be sure they are in line with the overall plan.
- Is management behind all the initiatives (don’t answer – ask someone on the factory floor).
- Are you pooling your team together and utilizing the talents and experience of your staff. Maybe there is someone new or young that has some experience that should be capitalized on. Don’t think that the core group has to come up with all the ideas.
- As the leader are you creating the right atmosphere. The rumor mill is working overtime these days, speculation can generate a number of very ‘believable’ scenarios….are you spending time and effort on ensuring the right message is getting out.
- Keep in mind that what you believe is happening, what you implemented some time ago, what people say is being done may not be….keep a list of key initiatives and ask about them regularly, to different people at different levels within the organization.

Take some time to reflect and plan. Times like these have people running on the need to the latest information, don't get overwhelmed, step back, reflect and validate your plans.

Suppliers / Defects - the liberty taken with definition

We work across a number of industries with our portfolio companies and one of the many things I see over and over again is how suppliers define defects - BEWARE, is all I can say.

I sat in on a meeting as an observer to a company we were looking to work with and I was stunned at the supplier's behaviour; I couldn't figure out if they were that arrogant, ignorant or thought that their client grossly lacked any sense of intellectual acuity.

This particular supplier (a globally recognized brand) kept defining defects as 'anything that stopped production'. By 'their' definition they had an outstanding performance record that they were only too happy to promote.

Taking a closer look at supplier performance there are a number of factors that come into play:

= on time delivery
= order accuracy
= incoming inspection defects
= product quality
= cost fluctuations
= program management & effort
= returnable containers
= defective component handling
= cost of rework

Add these factors in and one quickly sees the suppliers true colours - one not to do business with.

A well balanced supplier scorecard is key to understanding the impact a supplier has on your business.

Is it too late to save?

More and more I hear about business owners and managers discussing the utilisation of cost cutting measures to compensate for lack of sales in hopes of maintaining margins.   

Not to say that cost cutting is not a valid undertaking, optimization is key in manufacturing / operations but it really isn't an overnight exercise.  No doubt savings will be found however, if you are seeking a sustainable process (sustainability - the key in any business initiative) you need to address the cultural side of costs; how does your staff feel about and treat (your) money. 

Building a sustainable cost conscious culture means you'll have to deal with 'change' - it becomes a bigger undertaking.

If you are hiring a firm to find cost savings - ask what they will do with respect to developing the proper culture - if that isn't addressed the initiative will end with the end of the consultant's contract.

The Old Model for Finance is Dead - MoneyMagnet Blog

Jacoline Loewen had an interesting post on her MoneyMagnet blog....I thought I would parallel her financial thoughts with some operationally orientated ones.

http://moneymagnetbook.blogspot.com/2009/03/old-model-for-finance-is-dead.html

Not the TEAM speech again......

At a client today and, well, another TEAM analogy – 9 times out of 10 when I get a plant / office tour I hear the TEAM analogy. I have to wonder if managers really know / understand what TEAMS do.

A very good friend of mine is a professional football player and I got to shadow him for a couple of days – jog, train, run plays, watch videos about good plays, rerun plays, watch videos of bad plays followed by laps, run drills and a quick game.

I have to be honest I didn’t see the link - all I saw was EXECUTION. Executing, watching how to execute, watching how not to execute, practicing to execute followed by more executing. TEAMS win because they work together, no doubt, but they work together because all they do is practice executing and then execute.

Google “professional services” and you will be bombarded by help with ‘your strategy’, ‘your costs’, ‘your planning’. All that is important but the reality of it is that most initiatives fail during execution.

I really wish I could hear the Execution speech and not the Team speech.