by Bruce E. Jacobs

During any economic downturn, companies will need to downsize their cost structure and bring it in line with the declining revenue base in order to maintain profitability.  Downsizing is a reactionary defensive tactic employed by good executives.  A strategic and proactive tactic employed by good executives is the development of an organizational culture and business philosophy of continuous improvement.  This is a prerequisite for achieving systemic profitability and consistency in earnings.

In today’s changing and challenging economic climate, every business needs to be making improvements.  In poor economic times, companies are less inclined to implement new programs and buy new things; their focus is cost reduction, cash conservation and doing things better for lower total costs.

Very few industries that manufacture and distribute products are immune to an economic decline when customers place smaller orders and take longer to pay for the products they purchase.  Getting through the economic downturn without jeopardizing profitability is a key focus that requires short-term actions.  But for the longer term, continuous improvement should be the common theme for every executive of manufacturing and distribution companies.

The future profitability of the company is at stake and continuous performance improvement is about doing the right things to achieve future profitability.

Success Factors

For a continuous performance improvement culture to be successful, it must first be created with processes that provide the platform to define improvements and drive improvements into the business.  Second, the continuous performance improvement culture is not part of the game, it is the game.  The leadership of the company must want to establish this culture, which is not easy.

Continuous improvement is a way of life; it becomes embedded in the organization’s culture, business planning, budgeting and performance reporting processes.  It becomes baked into the company’s DNA, where employees cannot imagine the company without a continuous performance improvement culture. Three primary success factors characterize continuous performance improvement cultures:

• Performance measurements that are used to establish performance targets and measure achievement
• Employee improvement teams seek and search out opportunities to make improvements in the company
• Achievement of recognizable improvements that make a difference and provide economic improvement to the company

If a continuous improvement mindset and culture are needed in your company, there is no better time to begin the journey than when the economy is suffering.  The best time to rally employees and focus on the right things to benefit the business is during a downturn.  Starting the continuous improvement journey puts a positive spin on the process of achieving improvements and it settles the fear factor in employees about the economy and the company’s ability to weather the storm.

Companies that have a continuous improvement culture understand that change is inevitable and improvement is not optional to maintain strong profitability.  The continuous performance improvement culture drives changes throughout the business to improve performance, counter margin migration and offset costs the company has no control over.

Creating a continuous performance improvement culture in a company is a journey that requires three “Must Get Rights.”

Continuous improvement must be recognized by the customers in the products and services they receive and in every interaction and transaction the customer has with the company.  Continuous improvement is directed at providing the highest level of service to the customer, delighting the customer from every aspect of doing business with your company by anticipating and proactively resolving issues and meeting the customers’ needs.

Continuous performance improvement cannot be achieved without the involvement of the company’s employees.  Engaging all employees gives them a substantive role to play.  All employees are required to be involved and participate on a continuous improvement team.  The teams are responsible for achieving improvement gains and are held account-able for improvements.  Employees may need education and training in the use of improvement tools such as value stream mapping, Six Sigma and Kaizen in order to fully participate in continuous improvement.  Additional education, development courses and training may be required depending on the specific improvement needs.  Challenging employees to meet their potential is critical to the success of continuous improvement and employee development.  Too many employees are underutilized and underchallenged.  Employee development occurs rapidly when they are required to step-up and meet the challenge.  If an employee is not capable of meeting the challenge, either he or she doesn’t have the capabilities and skills or the management has not adequately developed him or her, and both can be remedied.

Financial performance is the last of the a “must get rights.”  Every improvement should contribute to economic gains in financial performance measured in terms of cost improvement, revenue enhancement or asset utilization.  Continuous performance improvement without recognizable financial gains is a waste of valuable time and resources.  Employees on continuous improvement teams need to be able to physically identify the improvements.  They should be able to say, “we used to do it this way with these financial results and now we do it this way with these better, tangible financial results.”

Getting Started

The biggest challenge in developing a continuous performance improvement culture is kicking it off so it doesn’t seem like just another program.  Employees know all too well how to endure another program.  Combat employee complacency and their wait-and-see attitude by establishing an annual performance improvement financial target they must achieve for the year.  Companies that manufacture and distribute products generally require assets.  Using a return-on-assets measurement to establish the return-on-assets target the company requires from its investment provides a systemic process for not only getting started but defining year-over-year economic gains to be achieved with continuous performance improvement.

Once the return-on-assets target is established, employee teams are assembled and chartered to improve performance that will, in effect, improve revenue, improve profitability and reduce costs or improve asset utilization.  The four focus areas for improvement the teams concentrate on are:

• Product leadership in quality, performance, reliability, dependability and consistency
• Operational excellence in supply chain performance at the least total cost and highest asset usage
• Service to customers with excellence at every point of customer interaction
• New business growth from new and innovative products and services, new customers and market channels and new product applications and uses

Continuous improvement teams should have members that represent various business functions and organizational levels.  They should not be limited by their hierarchy in the organization structure.  The intent is to populate teams with members from various business functions, levels of responsibility and work specialties in order to benefit from different points of view as issues are identified and solutions are developed and implemented.  Each team needs to be responsible for its share of financial performance gains identified by the return-on-assets target.  In addition, each team should develop a detailed workplan and schedule to achieve the performance improvement.

As problems and issues for improvement are identified, additional but smaller improvement teams are organized to develop and implement the improvements.  This process creates leverage by having more employees involved in continuous improvement, all driving toward the same target goal established by the return-on-assets requirements.  Every year, a new financial improvement target is established and new teams configured.  As results are achieved, they are documented and communicated company-wide.

Managing this process effectively to achieve results and make continuous performance improvement a way of life requires an executive to be responsible for the continuous improvement effort.  Formal status review meetings are held monthly with team leaders to review work-plan status and results and to take corrective action when necessary.  Each team has its own meetings—weekly or bi-weekly—in order to stay focused, work on assignments and obtain results.

A continuous performance improvement culture does not develop overnight.  It takes executives with a vision and passion and commitment to excellence in every aspect of their business.  Excellence is achieved by de-sign, not default.  A continuous performance improvement culture develops employees with a mindset to challenge everything to improve their work-place.  It is a culture where employees are empowered to stop the carousel, get off, fi x the problem and improve the process to improve performance.  It also develops in employees a sense of pride by accomplishment.  If you fundamentally believe your employees are your biggest asset, their value increases with a continuous performance improvement culture.