Description
The report about Changing manufacturing strategy focuses on an approach to successfully managing change of manufacturing strategy.
PRODUCTION
AND OPERATIONS MANAGEMENT Vol. 5, No. I, Spring1996 Printed in U.S.A.
CASE STUDY
CHANGING
MANUFACTURING
LAWRENCE A. BENNIGSON
STRATEGY
*
Independent Consultant(Formerly Senior Vice President,The MAC Group and Gemini Consulting),Boston, Massachusetts 108, USA 02
This paper demonstrates an approach to successfullymanaging change of manufacturing strategy. It first introduces the issues and management guidelines, and then describes how one company used this approach to achieve dramatic benefits from changing its manufacturing strategy. A third part of the paper elaborates on how the company made the approach work. (MANUFACTURING; STRATEGY; CHANGE)
Introduction
Most people prefer stability to change. Change is OK as long as it’s theoretical or only affects someone else. And in the high-pressure world of manufacturing, ’ consistency is bliss. Here, new rules of the game threaten everyone, even those in marketing, who are often convinced that many sales shortfalls can be laid at the feet of manufacturing. Incremental change is hard enough to digest. Just look at all the effort required to successfully implement a quality improvement process. Whether it’s a new sourcing decision analysis, a sophistication of statistical quality control ( SQC) , or closer coordination between production scheduling and shipping, somebody’s familiar routines and relationships are threatened. Yet, as hard as they are, incremental changes affect relatively few people and by their very nature don’t stretch current practices far. It is even more challenging when major change threatens established rules for competing with manufacturing. Influential, historically based ideas have a way of slipping into the background to be taken for granted. For example, Company A instinctively deploys plants rather than machines or networks of plants as competitive units. Or Company B routinely invests in large-scale technology and schedules long runs rather than using highly flexible rapid-changeover techniques, while Company C’s manufacturing managers continue a decades-long struggle to maintain organizational control over order entry, scheduling, shipping, and customer service activities. But all established ideas about how to compete with manufacturing eventually lose their usefulness. Historical keys to success inevitably become barriers to improved com* Received June 1994; revision received May 1995; accepted July 1995. ’ “Manufacturing,” used in a generic sense here, refers to all operations required to create and deliver a product to a customer. 91 1059-1478/96/0501/091$1.25
Copyright 0 1996, Production and Operations Management Society
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petitiveness. Customer needs, competitors, technologies, regulations, conditions do change, and this results in competitive opportunities.
The Issues
and many other
This paper addresses two issues. First, how can management shed the blinders that limit their ability to recognize the need for major change in manufacturing strategy? Second, how can management conduct change processes that deliver revitalized manufacturing strategies that are understood and enthusiastically supported by the people who have to make them work?
A Point of View
Changing manufacturing strategy requires not evolutionary, but revolutionary, processes.Continuous improvement (evolution) is a prerequisite of success in a competitive world. But incremental change is simply not sufficient when competitive conditions dictate a redeployment of manufacturing resources. World-class competitors don’t slow down to allow others the luxury of more time to catch up. Revolutionary change-a fundamental reshaping of ideas and actions for competingcan be a positive and efficient experience for the enterprise, or it can be a long, costly struggle, leaving trails of political blood and disappointed customers. The challenge and the stakes are high. Whether it is highly constructive or unnecessarily costly, one thing is certain: major change in manufacturing strategy is inevitable for every company. To successfully redeploy manufacturing resources, management must accomplish change in several dimensions, simultaneously and usually under time pressure. These dimensions include the following: l Mind-set-what people believe about: Customer needs Competitive standards What manufacturing policies/practices are thinkable How manufacturing should work l Strategy-how resources are deployed for: Hard technology, capacity, vertical integration, regional positions Soft skills, values, organization capabilities Creating, making, buying products and services l Action-what people do from day to day: Identifying priorities and solving problems in manufacturing Working relationships within manufacturing Working relationships between manufacturing and other functions This large and complex bundle of issues poses a real challenge. A company cannot realize the benefits of changing a manufacturing strategy unless it tackles these issues in an integrated fashion. But doing so doesn’t come naturally to most organizations. Most organizations are geared to protect the established manufacturing strategy and to respect functional organizational boundaries. Effecting change in manufacturing strategy is the job of the entire organization. It is not an exercise limited to the manufacturing function. The basic question is, how should the firm deploy manufacturing to outperform the competition in meeting the marketplace’s needs? We find change processes that work include several common elements. These are: l A healthy dose of market-based business analysis (in contrast to mainly technical manufacturing analyses) l Substantial cross-functional analytical, problem-solving, and design activity
CHANGING
Cost-Smvke Low
MANUFACTURING
STRATEGY
93
is
I Trade-off along oxi8thg ~unm mdtor of rkting coat-aenrico poaitlon, given current manufacturing and operations
pollCi.8.
a
c2
---
II Shlft to now curve roqulna fundamanhl Improvements In manufacturing and operationa
Trade4f
CUNO
High sO servia EXHIBIT s1 Love/ High
1. The Cost-Service Trade-Off Curve.
l
l
Attention to coordinated, step-by-step understanding and buy-in at every level from the shop floor to the boardroom Heavy investment in communication throughout the process
The Story of Morine Products, Inc.*
Morine was an exceptionally successful specialty paper company. They had invented a process that led to a unique application for a paper product. Consequently, over many years, Morine became the dominant participant in an industry niche they had created. Growth and profits were attractive. The company provided thousands of different products to thousands of customers throughout North America. Customers varied from small mom-and-pop enterprises to large national chains. Multiple manufacturing facilities, acquired over the years, each contained a mix of machines of widely varying sizes and capabilities. Products moved to market through a half-dozen different distribution channels. Warehouses associated with each plant served as finished-goods shipping points to customers and independent distributors. In recent years, Morine experienced a slowdown in growth, margin squeezes, and troubling losses of market share. Its historically attractive margins had lured several new competitors to this niche, resulting in substantial price pressure. Morine responded by providing price concessions, while maintaining price leadership. Performance continued to weaken. Sales and marketing reported loss of customers to competitors who delivered products faster and more reliably. Frequently, when product applications required bundling different products together, Morine customers received incomplete orders, which then had to sit idle until the remaining parts were delivered. Product quality could not offset this-quality was consistent across most competitors and did not serve as a key differentiating feature. With the pressure on and a firm commitment by Morine to protect pricing discipline in the industry, management searched for other ways to strengthen defenses against
2 Morine Products, Inc., is a fictitious name adopted for a real company. Data about Morine have been modified in some cases to protect confidentiality. These modifications do not materially affect the validity of the management experience.
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by Morine
EXHIBIT
Results Achieved
Improved customer service l Order-to-delivery time cut to one-third l Delivery reliability up 25% l Incomplete orders reduced by 40% Operating cost savings l Inventory carrying costs dropped 20% l Customer Service organization costs down 20%
Strengthened market position l Customer retention increased l New accounts increased l Market share improved Lower capital requirements l Inventory working capital decreased l Lower set-up times yielded added capacitv
competitive
attack. They decided to tackle customer service. They concluded that machine scheduling was a key to customer service and targeted it for improvement. A turning point was management’s decision to approach machine scheduling from a very broad, rather than the traditionally technical, perspective. They decided to address some “background” issues that, surprisingly, moved into the foreground. Management did this by first investigating all the external and internal factors that were affected by machine scheduling and related customer service. Some of the more important issues and findings were: Competitive Benchmarking: -Customer service was only slightly below par, but clearly not a competitive advantage -Costs were at par Competitor Actions: -Competitors with targeted packages of price and service were nibbling at attractive niches Competitor Uniqueness:
EXHIBIT
Highlights ofA4orine Manufacturing
3
Strategy Before and After
Components Customer Service Concept: l Who specifies l Service promise l Special service Competitive Unit Plant Philosophy: l Lead criteria l Interplant cooperation l Vertical integration l Plant product focus l Plant mission Operating Principles: l Order accumulation criteria l Changeover criteria l Scheduling rules
Old Architecture Morine Ship date Unavailable Plant Volume/cost Independent Mixed plant by plant Broad product mix All-purpose Large (ten-day) accumulation Minimize set-ups Long runs
New Architecture Customer Delivery date Available Product/machine combo Service/cost Coordinated in a network Mixed plant by plant Mix defined by best machine capability Specialized for continuous and job shop Small (two-day) accumulation Minimize set-up time Three concepts Continuous Batch Job Shop Best position in market Consolidate and ship
Distribution: l Warehouse location l Warehouse role
At the plant Ship only
CHANGING
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STRATEGY
95 X4 Cluster (-1
.
Small Regional a Large Regional Types of Customers Large National m Processors . Xl
EXHIBIT 4. Clustering Product
CC Cluster
au8tw -
Xl
x2 Cluster
I
I I x2 x3 Categories of Products
Customer Categories.
x4
I
Types against
-Competitors used single plants with few, large-scale machines designed for low-cost performance Customer Needs: -These varied widely by type of customer business Headlines of Manufacturing Strategy: -Unchanged in 15 years -Multiple, nearly autonomous, full-product-line plants -Small-scale technology Management analyzed other key issues, including overall manufacturing time, order demand on plants, machine set-up costs, and machine capabilities. This investigation was spearheaded by a large Steering Group made up of all plant and material managers, all manufacturing support functional heads, and representatives from sales, marketing, accounting, MIS, and R&D. Cross-functional teams led various investigations. A small team, including a dedicated executive and manager, became the Program Team for the Steering Group. The Program Team made periodic reports of their findings to a group of top manufacturing executives and to the CEO’S internal board. Over a period of several months, the Steering Group and top management began to see their views change in three ways. First, the competitive challenge became clearer. The choice was to either regain leadership or settle for losing a little more each day. And with price the only card to play, eroding margins would be inevitable. Customer service became not just a scheduling issue, but a possible route to regaining leadership. Second, the tenets of the current manufacturing strategy, which had been only dimly visible before, became bold and legible. This stimulated a lot of debate about “why we do things the way we do them.” Some of these tenets (like scheduling to minimize setups rather than set-up time) had simply been implicit and invisible. Others (like a plant is an independent empire) had been politically too hot to challenge. Finally, alternatives became thinkable. One approach was to use Morine’s many small machines to advantage over the large single facilities of the competition. The idea of using the best product-machine combination in the entire system (rather than a plant)
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EXHIBIT 5. Six-Month Order Size and Frequency Analysis.
took hold. Plant-product mixes would have to change. Since all plants would not produce all products, order consolidation points would be needed. Maybe plants shouldn’t be warehouses, and a network of consolidation warehouses should be created. As alternatives took shape for new ways to compete with manufacturing, many technical and economic questions surfaced. Would a different warehousing scheme add to costs? How much run time and changeover cost benefit could Morine really achieve by focusing on product-machine fit? If different approaches to scheduling were adopted for continuous runs, batch-type medium runs, and job-shop-type short runs, what would be the operating requirements and inventory implications? Teams came back with first-cut analytical results suggesting it was doable. Some initial findings revealed surprising levels of performance impact and cost savings. An integrated “architecture” for a revised manufacturing strategy crystalized. One team developed a preliminary view of the expected new approach’s impact on RONA. The Program Team provided top management with monthly updates. As the feasibility of an ambitious change became clear, the Project Team and Steering Group tested top management’s willingness to abandon some old sacred cows-after all, most of these managers had bred them. Armed with these new insights, Morine management concluded that they would not settle for incremental improvement in customer service. They decided to aim for making customer service a dramatic competitive advantage. This meant having a capability to improve delivery performance by 300%. By doing this, Morine could structurally change the competitive rules of the game in their industry. And they refused to trade off service for cost-they committed to reduce costs while improving service. This goal is reflected in the type II shift shown in Exhibit 1. With a complete, overall view of what the new architecture was to be, the Steering Group redirected their resources once again. They shuffled membership of the crossfunctional teams to address ten major implementation tasks. These ranged from machine loading and distribution to information systems and organization. The work became more design and planning and less analysis and testing. The Steering Group coordinated the outcome of the work into an overall implementation plan that the CEO adopted. Morine implemented the new program in several phases of about six months each. These were paced by many needs, including new operating procedures (e.g., back-up machines had to be identified and available for each product family), organization capabilities (e.g., all activities affecting customer service other than running machines were bundled into a customer service organization), information systems (e.g., order entry and MRP II requirements changed), and marketing plans (e.g., strategies for introducing new capabilities to customers had to be in place). Implementation proceeded faster than most Morine people expected. Within six months, delivery times began to drop, while reliability improved. Within twelve months, while customer service continued to improve, organizational and inventory costs headed south. Within two years, the system was able to deliver a manufactured order in half the previous time. Marketing introduced the new service selectively at first and then at a
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EXHIBIT 6. Simplified Order Cycle Analysis Showing Improvement Opportunities.
pace to beat the competition without even using all of the new capability. A summary of the results achieved appears in Exhibit 2. And Exhibit 3 summarizes the changes in manufacturing strategy that Morine implemented.
Key Parts of the Morine Change Program
Morine management used several approaches to help ensure the success of this major change program. These were aimed partly at achieving a fresh view of the business opportunities and implications of manufacturing alternatives, and they served to get many people who could potentially derail things on board. In our experience, these kinds of approaches are key to successful change in manufacturing strategy. A Healthy Dose of Market-Based Business Analysis
It might seem paradoxical that manufacturing strategy must be based on analysis of business issues outside the company, let alone outside manufacturing. But the external issues raise profound implications for manufacturing. The raisons d%tre for manufacturing strategy are the demands of the marketplace. Analysis of manufacturing’s economic and technical issues is also necessary, but these, understandably, come more naturally to manufacturing-based problem-solvers. Morine analyzed market and competitive conditions to better understand customer performance requirements and improvement opportunities. They analyzed processes across the company, not just within manufacturing, to understand company-wide performance against those requirements and to spot ways to improve. Many of the analyses were custom-designed for Morine’s unique situation, but a large number are widely applicable. Some of these more universal market and competitive analyses are easily recognized (although too frequently not utilized). They include: l Historical industry evolution and business positioning to detect changes in competitive structure and performance levels, revealing competitive challenges and opportunities l Benchmarking competitor performance from a customer point of view to reveal standards, gaps, and possibilities l Benchmarking competitor practices to better understand how performance levels are being met and to challenge current accepted practices Morine undertook other market-based analyses that shed light on the manufacturing task. One of these was to examine the customer-product mix to test the fit of certain
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stssssssssssEXHIBIT 7. Structure of Analysis of Business Benefits and RONA.
clusters of similar products with selected customer categories. The results (see Exhibit 4) suggested that for about half the product mix, manufacturing could be focused by aligning products with customer groups. This provided an important input to eventual product-machine-plant assignments. Another externally-based analysis looked at the pattern of demands that customer orders placed on manufacturing. This involved re-creating a twelve-month history of customer orders and analyzing the spread of order size and order frequency. Given the variety of Morine’s product and customer mix, this was a complicated-but not difficultanalytical process. The results of this analysis are shown in simplified form in Exhibit 5. The order pattern analysis results suggested three approaches to machine loading and scheduling: ( 1) continuous runs for frequent, large-volume products; (2) a job-shop approach to bits and pieces (there was a surprisingly large number of them) ; and ( 3 ) traditional batch scheduling for the remainder of the mix. By cross-referencing product groupings in this analysis with the cluster analysis of products and customers, Morine could see how to align customers, products, and production scheduling rules for some parts of the mix. Morine then further analyzed the “tail” segment of small, infrequent orders. Here they discovered that about 1% of the total mix tonnage accounted for about half of the total items in the mix. Morine was the special order provider of the industry. Futher analysis revealed that some 65% of these tail items were ordered by five or fewer customers, and half of them were never ordered with high-volume products or by customers that ordered other products. Marketing and manufacturing then worked jointly to develop offer, pricing, and production approaches that would yield Morine more market benefit and production efficiency.
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Another example of how Morine stretched their analyses beyond manufacturing involved examining the typical duration of a cycle from customer order to delivery. The results (Exhibit 6) convinced Morine managers that dramatic improvement was possible. This work became the foundation for another key step. The overall process of moving from customer order to delivery was detailed in an extensive flow chart, which eventually helped Morine managers eliminate unnecessary steps, reduce redundancies, speed up activities, and conduct many activities in parallel. Finally, Morine quantified the expected impact of the new manufacturing strategy on bottom-line performance. The basic scheme is shown in Exhibit 7. The analyses of the cost base for each impact area and the amount of targeted impact was quantified and detailed. Morine used this view of the performance benefits to help measure progress during implementation. Manufacturing strategy is about how to compete with manufacturing. The analytical tools discussed here illustrate the kinds of approaches that help ensure that manufacturing design decisions are made against a thorough understanding of the external competitive business world. However, while this external view is an absolutely essential ingredient in the development of a new manufacturing strategy, it alone is not sufficient. This understanding of the business demands on manufacturing must be developed from a crossfunctional point of view. Substantial Cross-Functional Analysis, Problem-Solving, and Design
When the plays and strategy are well developed, team members can usefully concentrate on improving their own blocking, tackling, and execution. But when the plays are changing, all players have to work together to master the new game plan. This is certainly true in the world of manufacturing strategy. Morine’s approach is illustrative of how to get the team working together. Morine, rightly, put a lot of emphasis on activities that cut across traditional functional boundaries. This was uncomfortable for some people and loaded with the usual practical challenges of coordinating schedules, laying aside prejudices and taboos, and struggling to create some common language. But management persisted with the requirement and provided support and facilitation where it made a difference. Early on, control of the process and content was vested in a cross-functional Steering Group. The 2%person group was large for a decision-making body, but it included representatives from all functions with expertise on the issues and an interest in the outcome. It included plant and material managers, corporate manufacturing service heads, MIS, accounting, and sales and marketing representatives. This group controlled pace, R&D, workplans, and adoption of new ideas. They met for periods of one or two days at 30and 60-day intervals, depending on how much attention the issues needed. Their agendas were developed by a manager assigned full-time as project coordinator, and an executive assigned half-time as project director. The Steering Group chartered a number of tasks. Early-phase investigations became analyses of alternatives, and eventually design and problem-solving activities. Crossfunctional teams tackled many of these. For example, marketing, MIS, and manufacturing people analyzed customer order patterns, and sales and manufacturing people looked at customer service benchmarking. As the shape of a new manufacturing strategy became more clear and was adopted, the Steering Group chartered implementation teams. Members came from all relevant functions. A schematic of the implementation organization is shown in Exhibit 8. Cross-functional work flows naturally in few organizations. But the benefits are not only valuable, they are essential where manufacturing strategy is changing. First, many issues simply require the combined knowledge of different experts. Second, ongoing differences among functional views, such as marketing and manufacturing perceptions of
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Task Forces
Customw SchedulPhysical Dislribuuon Roduction PrOCOSS Order Handling smeuta Tracking
organizauon
w
Job %OP
strategy
and Cornmunkation
EXHIBIT
8.
Marine’s
Implementation
Organization.
competitive service requirements, are unproductive and time-consuming. These differences can be thrashed out at operating levels of the organization and resolved with common data and analysis. Finally, implementation of a new manufacturing strategy requires buy-in from the entire organization. Morine met this prerequisite partly by creating the cross-functional structure (Steering Group, teams) and then consistently requiring that it be used. But to succeed, they had to address another set of challenging organizational issues as wellthey had to avoid leaving either the shop floor or the board room behind.
Buy-in from the Shop Floor to the Board Room
All levels of an organization have roles to play when manufacturing strategy changes. Leadership at the top has to challenge, cajole, or simply allow the rest of the organization to find new ways of deploying manufacturing. Top functional and staff managers have the power to get things moving in a new direction and are responsible for managing the change and the new strategy. Operating and support people-from order-entry to shipping-are the experts who make the new strategy work every day. Mind-set, strategy, and actions have to change at each of these levels. It is not so important that any one level be out in front. What is important is that no level of the organization falls too far behind. If this does happen, overall progress slows down and organizational costs (political battles, damaged careers, wasted time) go up. Morine managed the program as a three-level decision process. The cross-functional teams made up of operating and staff people were one level. These people were assigned on either a full- or part-time basis for as long as the team was required. From being on the front line of data gathering, analysis, and design, they developed a deep understanding of the issues and a strong commitment to doing things differently. The next level consisted of the Steering Committee and managers assigned to run the program. An internal board of Morine executives constituted the third level. This board met on an as-required basismonthly during the program’s first year, less frequently thereafter. As shown in Exhibit 9, the kinds of transactions that took place among these three organizational levels differed according to the phases of the program. Even though the content of the transactions changed over time, the overlying aim remained consistent. The idea was to bring understanding, idea development, and decisions along in parallel at all three levels. The Steering Group was typically concerned
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Internal
Board
I Eluble 4
Key Andings
I Isawa
4
W AlternatIves
I Issues
4
Key Andings
I
Bless Recommend I
I
Charter status I
Steering
Group
I
Ouestion* I Finding8
I 4
I
Request8
I 4 t
Alternatives I
Question0
I 4
Re As I
Summarize
I 4
Sign Charter 4 Results
1
I
Oil I
Task Teams
Analyze ,-+
EXHIBIT 9.
Design ___)
Schematic of Three-Level Decision
Test ___)
Adopt ___)
Change
Implement
Program.
Process over the Life of Morine’s
that they not get too far ahead of the board since the board members were the architects of the status quo. Board meetings in the early phases were particularly interesting. This three-level, parallel decision process worked for Morine. A summary of how the three levels eventually arrived at the same degree of commitment to the new strategy is shown in Exhibit 10. While these three levels were making progress, Morine addressed another constituency: the organization at large. Heavy Investment in Communication Many manufacturing strategy change efforts have run aground due to the organization’s confusion about what is going on. Those who are not closely involved in task group work hear all kinds of rumors about potential devils around the corner. And, inevitably, people worry about prioritization. Everyone’s plate is full with just the day-to-day job, not to mention all the other new initiatives like quality, safety, and management training programs that are usually under way.
Leadlng t On Board f Blod<ing ANALYSIS--DESIGN (2 -1 (2 -w
HMntiocu 0 m-d TopFutWhwul
--)
TEST e
(2 mw
ADOPT --)
(2 month8)
IMPLEMENT
(12 months, etc.)
EXHIBIT
10.
Degree
of the Three
Levels’ Commitment
over the Phases of the Program.
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So, what is a person to make of this? Is the manufacturing strategy effort a nuisance that will go away? Is it a real threat to comfortable ways of doing things? Why is the program being undertaken? Does management know what it is doing? Extensive communication pays off handsomely for two major reasons. The first is that it helps avoid an overall drag on morale ‘and day-to-day performance. Second, positive attitudes toward the new manufacturing strategy pay real dividends during implementation. The process of gaining in-depth understanding of the new manufacturing strategy and the rationale for it requires management investment, and it takes time. Well-intended arm’s-length communication, such as newspaper articles and bulletin board memos, are not sufficient. Morine instituted regular briefing sessions for each facility and staff support area. Representatives from the Program Team visited large groups in these areas to provide overviews and discuss the process and progress. These discussions lasted from one to four hours and they occurred about once a month (more frequently in the early phases). The sessions provided opportunities to address not only the manufacturing strategy itself, but how some fifteen other initiatives constituted a coordinated program. Management gained credibility, ideas, and a better understanding of how things were working in the field. For Morine, the intensity of this communication seemed awkward at first. Later, as implementation moved more quickly than most people had ever thought possible, the value became clear.
Summary
A major development occurred after about two years. One of Morine’s most troublesome competitors concluded they couldn’t keep up. Their single, large facility lacked the low-cost flexibility they needed to meet the new service standards without simply stocking a lot more finished product in inventory. Morine gained most of the competitor’s market share. Of course, the new manufacturing strategy was not the only initiative Morine undertook. But it was a most significant one. Morine turned around its discouraging performance and has again been enjoying volume, share, and margin growth. Morine illustrates how to successfully change manufacturing strategy and avoid common pitfalls, i.e.: l Addressing manufacturing strategy as an internal, technical issue only l Leaving it to manufacturing people only l Relying on manufacturing executives to make all decisions l Keeping the organization at large in the dark These pitfalls can be tempting. When organizations fail to resist them, they pay high costs. They miss opportunities to gain a real competitive advantage, they waste time, and they divert energy from productive work. The guidelines for avoiding these pitfalls are identified here. Many companies successfully use them, but implementation is not easy. It requires a willingness to challenge established ideas, the creation of new working relationships, and management commitment to the discipline of a process (reasoned revolutionary change) that companies only occasionally need to call on.
doc_530577314.pdf
The report about Changing manufacturing strategy focuses on an approach to successfully managing change of manufacturing strategy.
PRODUCTION
AND OPERATIONS MANAGEMENT Vol. 5, No. I, Spring1996 Printed in U.S.A.
CASE STUDY
CHANGING
MANUFACTURING
LAWRENCE A. BENNIGSON
STRATEGY
*
Independent Consultant(Formerly Senior Vice President,The MAC Group and Gemini Consulting),Boston, Massachusetts 108, USA 02
This paper demonstrates an approach to successfullymanaging change of manufacturing strategy. It first introduces the issues and management guidelines, and then describes how one company used this approach to achieve dramatic benefits from changing its manufacturing strategy. A third part of the paper elaborates on how the company made the approach work. (MANUFACTURING; STRATEGY; CHANGE)
Introduction
Most people prefer stability to change. Change is OK as long as it’s theoretical or only affects someone else. And in the high-pressure world of manufacturing, ’ consistency is bliss. Here, new rules of the game threaten everyone, even those in marketing, who are often convinced that many sales shortfalls can be laid at the feet of manufacturing. Incremental change is hard enough to digest. Just look at all the effort required to successfully implement a quality improvement process. Whether it’s a new sourcing decision analysis, a sophistication of statistical quality control ( SQC) , or closer coordination between production scheduling and shipping, somebody’s familiar routines and relationships are threatened. Yet, as hard as they are, incremental changes affect relatively few people and by their very nature don’t stretch current practices far. It is even more challenging when major change threatens established rules for competing with manufacturing. Influential, historically based ideas have a way of slipping into the background to be taken for granted. For example, Company A instinctively deploys plants rather than machines or networks of plants as competitive units. Or Company B routinely invests in large-scale technology and schedules long runs rather than using highly flexible rapid-changeover techniques, while Company C’s manufacturing managers continue a decades-long struggle to maintain organizational control over order entry, scheduling, shipping, and customer service activities. But all established ideas about how to compete with manufacturing eventually lose their usefulness. Historical keys to success inevitably become barriers to improved com* Received June 1994; revision received May 1995; accepted July 1995. ’ “Manufacturing,” used in a generic sense here, refers to all operations required to create and deliver a product to a customer. 91 1059-1478/96/0501/091$1.25
Copyright 0 1996, Production and Operations Management Society
92
LAWRENCE
A. BENNIGSON
petitiveness. Customer needs, competitors, technologies, regulations, conditions do change, and this results in competitive opportunities.
The Issues
and many other
This paper addresses two issues. First, how can management shed the blinders that limit their ability to recognize the need for major change in manufacturing strategy? Second, how can management conduct change processes that deliver revitalized manufacturing strategies that are understood and enthusiastically supported by the people who have to make them work?
A Point of View
Changing manufacturing strategy requires not evolutionary, but revolutionary, processes.Continuous improvement (evolution) is a prerequisite of success in a competitive world. But incremental change is simply not sufficient when competitive conditions dictate a redeployment of manufacturing resources. World-class competitors don’t slow down to allow others the luxury of more time to catch up. Revolutionary change-a fundamental reshaping of ideas and actions for competingcan be a positive and efficient experience for the enterprise, or it can be a long, costly struggle, leaving trails of political blood and disappointed customers. The challenge and the stakes are high. Whether it is highly constructive or unnecessarily costly, one thing is certain: major change in manufacturing strategy is inevitable for every company. To successfully redeploy manufacturing resources, management must accomplish change in several dimensions, simultaneously and usually under time pressure. These dimensions include the following: l Mind-set-what people believe about: Customer needs Competitive standards What manufacturing policies/practices are thinkable How manufacturing should work l Strategy-how resources are deployed for: Hard technology, capacity, vertical integration, regional positions Soft skills, values, organization capabilities Creating, making, buying products and services l Action-what people do from day to day: Identifying priorities and solving problems in manufacturing Working relationships within manufacturing Working relationships between manufacturing and other functions This large and complex bundle of issues poses a real challenge. A company cannot realize the benefits of changing a manufacturing strategy unless it tackles these issues in an integrated fashion. But doing so doesn’t come naturally to most organizations. Most organizations are geared to protect the established manufacturing strategy and to respect functional organizational boundaries. Effecting change in manufacturing strategy is the job of the entire organization. It is not an exercise limited to the manufacturing function. The basic question is, how should the firm deploy manufacturing to outperform the competition in meeting the marketplace’s needs? We find change processes that work include several common elements. These are: l A healthy dose of market-based business analysis (in contrast to mainly technical manufacturing analyses) l Substantial cross-functional analytical, problem-solving, and design activity
CHANGING
Cost-Smvke Low
MANUFACTURING
STRATEGY
93
is
I Trade-off along oxi8thg ~unm mdtor of rkting coat-aenrico poaitlon, given current manufacturing and operations
pollCi.8.
a
c2
---
II Shlft to now curve roqulna fundamanhl Improvements In manufacturing and operationa
Trade4f
CUNO
High sO servia EXHIBIT s1 Love/ High
1. The Cost-Service Trade-Off Curve.
l
l
Attention to coordinated, step-by-step understanding and buy-in at every level from the shop floor to the boardroom Heavy investment in communication throughout the process
The Story of Morine Products, Inc.*
Morine was an exceptionally successful specialty paper company. They had invented a process that led to a unique application for a paper product. Consequently, over many years, Morine became the dominant participant in an industry niche they had created. Growth and profits were attractive. The company provided thousands of different products to thousands of customers throughout North America. Customers varied from small mom-and-pop enterprises to large national chains. Multiple manufacturing facilities, acquired over the years, each contained a mix of machines of widely varying sizes and capabilities. Products moved to market through a half-dozen different distribution channels. Warehouses associated with each plant served as finished-goods shipping points to customers and independent distributors. In recent years, Morine experienced a slowdown in growth, margin squeezes, and troubling losses of market share. Its historically attractive margins had lured several new competitors to this niche, resulting in substantial price pressure. Morine responded by providing price concessions, while maintaining price leadership. Performance continued to weaken. Sales and marketing reported loss of customers to competitors who delivered products faster and more reliably. Frequently, when product applications required bundling different products together, Morine customers received incomplete orders, which then had to sit idle until the remaining parts were delivered. Product quality could not offset this-quality was consistent across most competitors and did not serve as a key differentiating feature. With the pressure on and a firm commitment by Morine to protect pricing discipline in the industry, management searched for other ways to strengthen defenses against
2 Morine Products, Inc., is a fictitious name adopted for a real company. Data about Morine have been modified in some cases to protect confidentiality. These modifications do not materially affect the validity of the management experience.
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by Morine
EXHIBIT
Results Achieved
Improved customer service l Order-to-delivery time cut to one-third l Delivery reliability up 25% l Incomplete orders reduced by 40% Operating cost savings l Inventory carrying costs dropped 20% l Customer Service organization costs down 20%
Strengthened market position l Customer retention increased l New accounts increased l Market share improved Lower capital requirements l Inventory working capital decreased l Lower set-up times yielded added capacitv
competitive
attack. They decided to tackle customer service. They concluded that machine scheduling was a key to customer service and targeted it for improvement. A turning point was management’s decision to approach machine scheduling from a very broad, rather than the traditionally technical, perspective. They decided to address some “background” issues that, surprisingly, moved into the foreground. Management did this by first investigating all the external and internal factors that were affected by machine scheduling and related customer service. Some of the more important issues and findings were: Competitive Benchmarking: -Customer service was only slightly below par, but clearly not a competitive advantage -Costs were at par Competitor Actions: -Competitors with targeted packages of price and service were nibbling at attractive niches Competitor Uniqueness:
EXHIBIT
Highlights ofA4orine Manufacturing
3
Strategy Before and After
Components Customer Service Concept: l Who specifies l Service promise l Special service Competitive Unit Plant Philosophy: l Lead criteria l Interplant cooperation l Vertical integration l Plant product focus l Plant mission Operating Principles: l Order accumulation criteria l Changeover criteria l Scheduling rules
Old Architecture Morine Ship date Unavailable Plant Volume/cost Independent Mixed plant by plant Broad product mix All-purpose Large (ten-day) accumulation Minimize set-ups Long runs
New Architecture Customer Delivery date Available Product/machine combo Service/cost Coordinated in a network Mixed plant by plant Mix defined by best machine capability Specialized for continuous and job shop Small (two-day) accumulation Minimize set-up time Three concepts Continuous Batch Job Shop Best position in market Consolidate and ship
Distribution: l Warehouse location l Warehouse role
At the plant Ship only
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Small Regional a Large Regional Types of Customers Large National m Processors . Xl
EXHIBIT 4. Clustering Product
CC Cluster
au8tw -
Xl
x2 Cluster
I
I I x2 x3 Categories of Products
Customer Categories.
x4
I
Types against
-Competitors used single plants with few, large-scale machines designed for low-cost performance Customer Needs: -These varied widely by type of customer business Headlines of Manufacturing Strategy: -Unchanged in 15 years -Multiple, nearly autonomous, full-product-line plants -Small-scale technology Management analyzed other key issues, including overall manufacturing time, order demand on plants, machine set-up costs, and machine capabilities. This investigation was spearheaded by a large Steering Group made up of all plant and material managers, all manufacturing support functional heads, and representatives from sales, marketing, accounting, MIS, and R&D. Cross-functional teams led various investigations. A small team, including a dedicated executive and manager, became the Program Team for the Steering Group. The Program Team made periodic reports of their findings to a group of top manufacturing executives and to the CEO’S internal board. Over a period of several months, the Steering Group and top management began to see their views change in three ways. First, the competitive challenge became clearer. The choice was to either regain leadership or settle for losing a little more each day. And with price the only card to play, eroding margins would be inevitable. Customer service became not just a scheduling issue, but a possible route to regaining leadership. Second, the tenets of the current manufacturing strategy, which had been only dimly visible before, became bold and legible. This stimulated a lot of debate about “why we do things the way we do them.” Some of these tenets (like scheduling to minimize setups rather than set-up time) had simply been implicit and invisible. Others (like a plant is an independent empire) had been politically too hot to challenge. Finally, alternatives became thinkable. One approach was to use Morine’s many small machines to advantage over the large single facilities of the competition. The idea of using the best product-machine combination in the entire system (rather than a plant)
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EXHIBIT 5. Six-Month Order Size and Frequency Analysis.
took hold. Plant-product mixes would have to change. Since all plants would not produce all products, order consolidation points would be needed. Maybe plants shouldn’t be warehouses, and a network of consolidation warehouses should be created. As alternatives took shape for new ways to compete with manufacturing, many technical and economic questions surfaced. Would a different warehousing scheme add to costs? How much run time and changeover cost benefit could Morine really achieve by focusing on product-machine fit? If different approaches to scheduling were adopted for continuous runs, batch-type medium runs, and job-shop-type short runs, what would be the operating requirements and inventory implications? Teams came back with first-cut analytical results suggesting it was doable. Some initial findings revealed surprising levels of performance impact and cost savings. An integrated “architecture” for a revised manufacturing strategy crystalized. One team developed a preliminary view of the expected new approach’s impact on RONA. The Program Team provided top management with monthly updates. As the feasibility of an ambitious change became clear, the Project Team and Steering Group tested top management’s willingness to abandon some old sacred cows-after all, most of these managers had bred them. Armed with these new insights, Morine management concluded that they would not settle for incremental improvement in customer service. They decided to aim for making customer service a dramatic competitive advantage. This meant having a capability to improve delivery performance by 300%. By doing this, Morine could structurally change the competitive rules of the game in their industry. And they refused to trade off service for cost-they committed to reduce costs while improving service. This goal is reflected in the type II shift shown in Exhibit 1. With a complete, overall view of what the new architecture was to be, the Steering Group redirected their resources once again. They shuffled membership of the crossfunctional teams to address ten major implementation tasks. These ranged from machine loading and distribution to information systems and organization. The work became more design and planning and less analysis and testing. The Steering Group coordinated the outcome of the work into an overall implementation plan that the CEO adopted. Morine implemented the new program in several phases of about six months each. These were paced by many needs, including new operating procedures (e.g., back-up machines had to be identified and available for each product family), organization capabilities (e.g., all activities affecting customer service other than running machines were bundled into a customer service organization), information systems (e.g., order entry and MRP II requirements changed), and marketing plans (e.g., strategies for introducing new capabilities to customers had to be in place). Implementation proceeded faster than most Morine people expected. Within six months, delivery times began to drop, while reliability improved. Within twelve months, while customer service continued to improve, organizational and inventory costs headed south. Within two years, the system was able to deliver a manufactured order in half the previous time. Marketing introduced the new service selectively at first and then at a
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EXHIBIT 6. Simplified Order Cycle Analysis Showing Improvement Opportunities.
pace to beat the competition without even using all of the new capability. A summary of the results achieved appears in Exhibit 2. And Exhibit 3 summarizes the changes in manufacturing strategy that Morine implemented.
Key Parts of the Morine Change Program
Morine management used several approaches to help ensure the success of this major change program. These were aimed partly at achieving a fresh view of the business opportunities and implications of manufacturing alternatives, and they served to get many people who could potentially derail things on board. In our experience, these kinds of approaches are key to successful change in manufacturing strategy. A Healthy Dose of Market-Based Business Analysis
It might seem paradoxical that manufacturing strategy must be based on analysis of business issues outside the company, let alone outside manufacturing. But the external issues raise profound implications for manufacturing. The raisons d%tre for manufacturing strategy are the demands of the marketplace. Analysis of manufacturing’s economic and technical issues is also necessary, but these, understandably, come more naturally to manufacturing-based problem-solvers. Morine analyzed market and competitive conditions to better understand customer performance requirements and improvement opportunities. They analyzed processes across the company, not just within manufacturing, to understand company-wide performance against those requirements and to spot ways to improve. Many of the analyses were custom-designed for Morine’s unique situation, but a large number are widely applicable. Some of these more universal market and competitive analyses are easily recognized (although too frequently not utilized). They include: l Historical industry evolution and business positioning to detect changes in competitive structure and performance levels, revealing competitive challenges and opportunities l Benchmarking competitor performance from a customer point of view to reveal standards, gaps, and possibilities l Benchmarking competitor practices to better understand how performance levels are being met and to challenge current accepted practices Morine undertook other market-based analyses that shed light on the manufacturing task. One of these was to examine the customer-product mix to test the fit of certain
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stssssssssssEXHIBIT 7. Structure of Analysis of Business Benefits and RONA.
clusters of similar products with selected customer categories. The results (see Exhibit 4) suggested that for about half the product mix, manufacturing could be focused by aligning products with customer groups. This provided an important input to eventual product-machine-plant assignments. Another externally-based analysis looked at the pattern of demands that customer orders placed on manufacturing. This involved re-creating a twelve-month history of customer orders and analyzing the spread of order size and order frequency. Given the variety of Morine’s product and customer mix, this was a complicated-but not difficultanalytical process. The results of this analysis are shown in simplified form in Exhibit 5. The order pattern analysis results suggested three approaches to machine loading and scheduling: ( 1) continuous runs for frequent, large-volume products; (2) a job-shop approach to bits and pieces (there was a surprisingly large number of them) ; and ( 3 ) traditional batch scheduling for the remainder of the mix. By cross-referencing product groupings in this analysis with the cluster analysis of products and customers, Morine could see how to align customers, products, and production scheduling rules for some parts of the mix. Morine then further analyzed the “tail” segment of small, infrequent orders. Here they discovered that about 1% of the total mix tonnage accounted for about half of the total items in the mix. Morine was the special order provider of the industry. Futher analysis revealed that some 65% of these tail items were ordered by five or fewer customers, and half of them were never ordered with high-volume products or by customers that ordered other products. Marketing and manufacturing then worked jointly to develop offer, pricing, and production approaches that would yield Morine more market benefit and production efficiency.
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Another example of how Morine stretched their analyses beyond manufacturing involved examining the typical duration of a cycle from customer order to delivery. The results (Exhibit 6) convinced Morine managers that dramatic improvement was possible. This work became the foundation for another key step. The overall process of moving from customer order to delivery was detailed in an extensive flow chart, which eventually helped Morine managers eliminate unnecessary steps, reduce redundancies, speed up activities, and conduct many activities in parallel. Finally, Morine quantified the expected impact of the new manufacturing strategy on bottom-line performance. The basic scheme is shown in Exhibit 7. The analyses of the cost base for each impact area and the amount of targeted impact was quantified and detailed. Morine used this view of the performance benefits to help measure progress during implementation. Manufacturing strategy is about how to compete with manufacturing. The analytical tools discussed here illustrate the kinds of approaches that help ensure that manufacturing design decisions are made against a thorough understanding of the external competitive business world. However, while this external view is an absolutely essential ingredient in the development of a new manufacturing strategy, it alone is not sufficient. This understanding of the business demands on manufacturing must be developed from a crossfunctional point of view. Substantial Cross-Functional Analysis, Problem-Solving, and Design
When the plays and strategy are well developed, team members can usefully concentrate on improving their own blocking, tackling, and execution. But when the plays are changing, all players have to work together to master the new game plan. This is certainly true in the world of manufacturing strategy. Morine’s approach is illustrative of how to get the team working together. Morine, rightly, put a lot of emphasis on activities that cut across traditional functional boundaries. This was uncomfortable for some people and loaded with the usual practical challenges of coordinating schedules, laying aside prejudices and taboos, and struggling to create some common language. But management persisted with the requirement and provided support and facilitation where it made a difference. Early on, control of the process and content was vested in a cross-functional Steering Group. The 2%person group was large for a decision-making body, but it included representatives from all functions with expertise on the issues and an interest in the outcome. It included plant and material managers, corporate manufacturing service heads, MIS, accounting, and sales and marketing representatives. This group controlled pace, R&D, workplans, and adoption of new ideas. They met for periods of one or two days at 30and 60-day intervals, depending on how much attention the issues needed. Their agendas were developed by a manager assigned full-time as project coordinator, and an executive assigned half-time as project director. The Steering Group chartered a number of tasks. Early-phase investigations became analyses of alternatives, and eventually design and problem-solving activities. Crossfunctional teams tackled many of these. For example, marketing, MIS, and manufacturing people analyzed customer order patterns, and sales and manufacturing people looked at customer service benchmarking. As the shape of a new manufacturing strategy became more clear and was adopted, the Steering Group chartered implementation teams. Members came from all relevant functions. A schematic of the implementation organization is shown in Exhibit 8. Cross-functional work flows naturally in few organizations. But the benefits are not only valuable, they are essential where manufacturing strategy is changing. First, many issues simply require the combined knowledge of different experts. Second, ongoing differences among functional views, such as marketing and manufacturing perceptions of
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Task Forces
Customw SchedulPhysical Dislribuuon Roduction PrOCOSS Order Handling smeuta Tracking
organizauon
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EXHIBIT
8.
Marine’s
Implementation
Organization.
competitive service requirements, are unproductive and time-consuming. These differences can be thrashed out at operating levels of the organization and resolved with common data and analysis. Finally, implementation of a new manufacturing strategy requires buy-in from the entire organization. Morine met this prerequisite partly by creating the cross-functional structure (Steering Group, teams) and then consistently requiring that it be used. But to succeed, they had to address another set of challenging organizational issues as wellthey had to avoid leaving either the shop floor or the board room behind.
Buy-in from the Shop Floor to the Board Room
All levels of an organization have roles to play when manufacturing strategy changes. Leadership at the top has to challenge, cajole, or simply allow the rest of the organization to find new ways of deploying manufacturing. Top functional and staff managers have the power to get things moving in a new direction and are responsible for managing the change and the new strategy. Operating and support people-from order-entry to shipping-are the experts who make the new strategy work every day. Mind-set, strategy, and actions have to change at each of these levels. It is not so important that any one level be out in front. What is important is that no level of the organization falls too far behind. If this does happen, overall progress slows down and organizational costs (political battles, damaged careers, wasted time) go up. Morine managed the program as a three-level decision process. The cross-functional teams made up of operating and staff people were one level. These people were assigned on either a full- or part-time basis for as long as the team was required. From being on the front line of data gathering, analysis, and design, they developed a deep understanding of the issues and a strong commitment to doing things differently. The next level consisted of the Steering Committee and managers assigned to run the program. An internal board of Morine executives constituted the third level. This board met on an as-required basismonthly during the program’s first year, less frequently thereafter. As shown in Exhibit 9, the kinds of transactions that took place among these three organizational levels differed according to the phases of the program. Even though the content of the transactions changed over time, the overlying aim remained consistent. The idea was to bring understanding, idea development, and decisions along in parallel at all three levels. The Steering Group was typically concerned
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Internal
Board
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Key Andings
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Implement
Program.
Process over the Life of Morine’s
that they not get too far ahead of the board since the board members were the architects of the status quo. Board meetings in the early phases were particularly interesting. This three-level, parallel decision process worked for Morine. A summary of how the three levels eventually arrived at the same degree of commitment to the new strategy is shown in Exhibit 10. While these three levels were making progress, Morine addressed another constituency: the organization at large. Heavy Investment in Communication Many manufacturing strategy change efforts have run aground due to the organization’s confusion about what is going on. Those who are not closely involved in task group work hear all kinds of rumors about potential devils around the corner. And, inevitably, people worry about prioritization. Everyone’s plate is full with just the day-to-day job, not to mention all the other new initiatives like quality, safety, and management training programs that are usually under way.
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(12 months, etc.)
EXHIBIT
10.
Degree
of the Three
Levels’ Commitment
over the Phases of the Program.
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So, what is a person to make of this? Is the manufacturing strategy effort a nuisance that will go away? Is it a real threat to comfortable ways of doing things? Why is the program being undertaken? Does management know what it is doing? Extensive communication pays off handsomely for two major reasons. The first is that it helps avoid an overall drag on morale ‘and day-to-day performance. Second, positive attitudes toward the new manufacturing strategy pay real dividends during implementation. The process of gaining in-depth understanding of the new manufacturing strategy and the rationale for it requires management investment, and it takes time. Well-intended arm’s-length communication, such as newspaper articles and bulletin board memos, are not sufficient. Morine instituted regular briefing sessions for each facility and staff support area. Representatives from the Program Team visited large groups in these areas to provide overviews and discuss the process and progress. These discussions lasted from one to four hours and they occurred about once a month (more frequently in the early phases). The sessions provided opportunities to address not only the manufacturing strategy itself, but how some fifteen other initiatives constituted a coordinated program. Management gained credibility, ideas, and a better understanding of how things were working in the field. For Morine, the intensity of this communication seemed awkward at first. Later, as implementation moved more quickly than most people had ever thought possible, the value became clear.
Summary
A major development occurred after about two years. One of Morine’s most troublesome competitors concluded they couldn’t keep up. Their single, large facility lacked the low-cost flexibility they needed to meet the new service standards without simply stocking a lot more finished product in inventory. Morine gained most of the competitor’s market share. Of course, the new manufacturing strategy was not the only initiative Morine undertook. But it was a most significant one. Morine turned around its discouraging performance and has again been enjoying volume, share, and margin growth. Morine illustrates how to successfully change manufacturing strategy and avoid common pitfalls, i.e.: l Addressing manufacturing strategy as an internal, technical issue only l Leaving it to manufacturing people only l Relying on manufacturing executives to make all decisions l Keeping the organization at large in the dark These pitfalls can be tempting. When organizations fail to resist them, they pay high costs. They miss opportunities to gain a real competitive advantage, they waste time, and they divert energy from productive work. The guidelines for avoiding these pitfalls are identified here. Many companies successfully use them, but implementation is not easy. It requires a willingness to challenge established ideas, the creation of new working relationships, and management commitment to the discipline of a process (reasoned revolutionary change) that companies only occasionally need to call on.
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