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Nov 14, 2013

Genchi Genbutsu The Ultimate ERP and Metrics Based Reporting System

Genchi Genbutsu, The Ultimate ERP and Metrics Based Reporting System

Toyota Productions Systems, (TPS) leadership and their employees refer to it as genchi genbutsu. It is one of the most important and powerful analytical tools available to the executive today. What is it., and how can  executives use the tool to help them improve their businesses, cultures and lives of the employees and stakeholders they serve?

Genchi genbutsu means going to the place where things are happening, and seeing and experiencing them for yourself. When properly utilized, this helps us improve employee engagement, deliver higher quality products to our customers, and develop more consistency in identifying waste where things are happening.

A TPS Senior Engineer was tasked with overseeing the improvements of the 2004 Toyota Sienna van with features that would make the car more attractive for buyers of the 2005  model. You might say he was given MBO, or Management By Objectives from the executive team. Toyota had mounds of data and analytics in their ERP system on who their customers were, what conditions they drove in, and how many children or guests were typically in the van. Data on the Sienna itself, and on customers had been collected by Toyota over the years they sold the van that replaced the Previa in 1997.

In leadership however, ERP systems often only tell part of the story.

The TPS engineer poured over the information from the ERP system, visited the production plant and dealer showrooms, and spoke with customers. All pretty standard stuff when making important business decisions on product development. Then he did something different, he asked other leaders if he could experience driving the car. Toyota encourages this sort of thinking and employee engagement, and trains its leaders to think what is the value like that my customers are experiencing?

Driving from Florida to California, and from Alaska to Mexico he logged a total of 55,000 miles in pursuit of genchi genbutsu.  What he learned led to significant improvements in the 2005 model. In New Mexico for example, he learned the older model didn’t have a tight enough turning radius for narrow streets, in the mid west he experienced high wind loads which caused stability issues and  driving in Alaska on gravel roads the car didn’t steer as effectively as the data indicated it would. Because he logged so many miles himself he also recommended the van be upgraded to better suit children on long trips. This led to improvements in areas such as seat quality, and roll down windows in the back seat along with an optional DVD center.

Experiencing, and seeing things for ourselves helps us better understand the analytics that we may be seeing on paper, but may not completely understand. It gives us valuable pieces of additional information that may sometimes not be passed on to our executive teams because of fear and intimidation which may be the left over bi-product from a poor culture in traditional carrot and stick environments.

Modern day Key Performance Indicators give us immediate insight, but they don’t give us important human interaction, nor do they encourage leadership teams to more actively engage employees.  TPS has used genchi genbutsu for years, while many American executives are finally warming up to the idea. Toyota has maintained nearly 50 years of consistent profitability, and very high inventory turn rates because of the efficiencies that were developed while using this tool. It remains an active and integral part in TPS training programs for leadership development throughout Toyota worldwide. Few have been able to mirror the TPS system, but everyone can learn how to go, see, and experience things for themselves where the action is actually taking place.

Feb 8, 2013

J-Curves, Experience Rating, and Your Business

You may have heard  the term "J Curve" in many of your business classes, or you may utilize it in your existing business decision making process. Essentially the J Curve is the point in time where capital invested in a specific project reaches the bottom of a curve and begins to head upward to yield a favorable return on invested dollars.

I recently attended a conference call on J Curves and their application in helping CEO's evaluate ideas that solve complex business problems. With curiousity I began listening to the moderator speak eloquently about how the J Curve is an effective tool at looking at whether or not new ideas should be implemented, and how to evaluate when they should be cut off if they begin failing.

CEO's that have poorly performing workers compensation programs rarely, if at all ever measure what the difference would be to their long term workers compensation costs if they markedly improved safety and culture within their organization. The measurement of a J Curve within this environment has often been the resulting difference in measuring one insurer's costs  versus anothers.  Since the impact of this outcome rarely yields  more than a 10 percent difference between insurers, it doesn't begin to measure the true financial costs the individual employer's claim costs have on the insurer's basic pricing. Since the assumed impact of change is measured solely based upon  insurer's rates, and not the lowest possible costs if the insured were claims free, the true impact  of measuring the J Curve in this scenario is almost meaningless.

While risk financing is a part of the risk management process in a workers compensation transaction, it's relevence to material improvement in a poorly performing plan does little to help the executive  quantify and measure the potential benefits from investing in safety and cultural upgrades to their existing plan. What's actually needed is a better way at measuring the impact from these improvements, and then evaluting the J Curve from these improvements.

By utilizing a more sophisticated tool such as the J Curve to help measure the potential impact of change to a challenging safety and cultural environment, CEO's can more effectively evaluate what changes should be made in their worker compensation programs to materially improve long term costs.

If you aren't measuring it, you cant manage it. If you'd like to know how to measure the impact from your existing workers comp plan, drop me a line at riskmanager@verizon.blackberry.net, or give me a call at 661-332-0382.

Dec 3, 2012

A Culture of Safety and Employee Engagement at Spectra Energy - Towers Watson

Why engaging employees in leadership and safety matter.

A Culture of Safety and Employee Engagement at Spectra Energy - Towers Watson

Leadership: It's Not So Hidden Value

This one is too hard to pass up given the excessive beating of the drum by the news media on how bosses treat their employees. While we recognize there is significant room for improvement at the leadership level, we also need to recognize when bosses do nice things for their employees, it makes a difference at home, and at work. Random acts of kindness should not go unnoticed. For this, I commend BMI Elite for doing this for this treasured employee. http://news.yahoo.com/video/bosses-buy-man-car-153935538.html




Sep 25, 2012

What Type Of Leader Are You?


Great Leaders Are Guided By AbundanceStuart Friedman, Business As Usual
September 11th, 2012 – The changing of the guard has begun. Members of “Generation Y” (born between 1982 and 2000) are permeating the workforce, creating cultural shifts in our business environments. While many of us “tenured” business folk believe in not quitting until the job’s done – not to imply this is (or was) necessarily the right or only way – this next generation seeks more than just work as a path to fulfillment.
Recently a client of mine, a vice president of operations, hired her replacement. The VP is a baby-boomer. She works what she considers normal business hours: she’s there before the client arrives and is there after the client leaves. Her new hire, though, works from 8:30 a.m. to 5 p.m. without fail.
When I asked my client if her new associate was completing her work, the VP responded, “I’m not sure.” Come again? According to the VP, while her new associate completes the work assigned, she doesn’t seem all that committed to the team or to the organization.
So I asked, “Have you given all the information, emotional support, acknowledgment and guidance you can to the new hire?” and “Are you being abundant with your giving, or are you being stingy?”
While the VP’s response was not surprising, it was thought provoking. “When I joined this company 18 years ago, I had to prove myself. I had to show I could keep up with my superiors. I had to win their acceptance before I could ask for things like flexible hours. I just feel everyone must pay their dues.”
Can you say, “Business as usual?”
Consider this example: An entry-level associate with a year on the job was showing promise at a small business, which came to the owner/CEO’s attention. On a Friday afternoon, the CEO asked the associate to put together a plan for how he could take on greater responsibility, building up to a promotion. The CEO asked for the plan to be completed by Monday morning. That weekend the associate told his father he thought the CEO’s request was unacceptable. How dare the CEO ask him to give up the weekend!
Surprising? Yes. But understandable when you consider that 80 percent of today’s workforce does not want to own a business, lead a team, or manage people. Most want to listen to radio station WIIFM (“What’s In It For Me”) and to get as much as they can get as soon as they can get it. Like it or not, Generation Y is here to stay. Great business leaders will be those most able to lead this next generation closer to their ways of thinking while also learning from them what is required to retain top talent and get results. At the same time, these leaders will need to be generous with their time and knowledge so Generation Y can succeed.
Do you approach life from a place of abundance or of scarcity? Which of the following best describes you?
• I live by the philosophy of ABUNDANCE, the belief there’s plenty as long as I take action with purpose and intention and always make progress toward my Specific, Measurable, Action-oriented, Reasonable and Time-sensitive (SMART) goals.
• I live by the philosophy of SCARCITY, which means if I get there first I win and you lose. Living with abundance is like running a marathon. There is ongoing preparation, maintenance and the wherewithal to deal with the unexpected. Pass this legacy on to those you currently lead. Help them help you win the future.
Scarcity is more like a sprint, where in order to win, someone else must lose. Leaders guided by scarcity hire quality individuals, make them work long hours, and bleed all they can from them in 2 to 3 years. They are guaranteed that their golden gooses – their businesses – will cease laying golden eggs for them.
What kind of leader are you?
Get the less-tenured workers more involved in your business. Work with them. Share your knowledge so they have a better understanding of who you are and what you’ve done. Have them participate in this knowledge-share. Discover what they need from you. In the process, you’ll build longer-term relationships, loyalty and show Generation Y how to be generous to those who follow, resulting in greater profits and stability for the long haul. It’s your choice…
Stuart Friedman is president of Progressive Management Associates, Inc. He is a business visionary who helps his clients get their companies “Unstuck!” He guides organizations through cultural shifts by getting people aligned to strategic outcomes. He is a leading consultant, speaker, coach and author. Friedman can be reached at stuart@pma-co.com.)

May 24, 2012

CFO's, Stakeholder's and Workers Compensation

EBITDA, everyone thinks about it.

Your Workers Compensation Program. Very few think about it.

This is exactly my point. Very few CFO's or Stakeholders within the middle market take much time to think about the real opportunity to improve their bottom lines, (or even top line growth equivalent) from workers compensation plan improvement. Let's analyze this to see whether or not this particular transaction has enough economic value to move it up the priority list.

Since Workers Compensation has both direct expense, (premium financing costs) and indirect expense (lost productivity, temporary staffing, keeping jobs open, etc.), it is important to understand that the scope of this discussion is much broader than our simple financial analysis indicates. In our discussion below, we are simply dealing with the direct costs affiliated with the premium and claims costs of an existing program.

Let's analyze two companies with similar size, industry segments, and employee counts. We'll assume both businesses are in the food manufacturing sector. We'll also assume both companies can be sold for the same EBITDA multiple of 7X.

Company A has 250 employees, has an average wage of $40,000 per employee, and a total payroll of $10,000,000. The average workers compensation rate is $15.00 per 100. Through poor claims management, and a  lack of ownership and interest in their existing safety culture since the private equity acquisition, Company A has an experience rate of 150%. Their annual cost for workers compensation is $2,250,000.

Company B also has 250 employees, has an average wage of $40,000 per employee, and a total payroll of $10,000,000. The average workers compensation rate is $15.00 per 100. During the pre-acquisition due diligence process a consultant demonstrated that a significant improvement in EBITDA would result from making necessary changes to the claims handling and safety programs within the company. Through an aggressive strategy to implement a new program for safety and leadership aimed at dramatically reducing current and prior claims costs, Company A now has an experience rate of 75%. Their annual cost for workers compensation is $1,125,000.

The difference in EBITDA between Company A and Company B is $1,125,000! But remember our 7x multiple? That's right, the real value of the transaction at exit is $7,875,000!

A simple concept that should be an additional arrow in the quiver of Private Equity and their stakeholders.

Call me for questions.

Colin
661-332-0382


Dec 20, 2011

Quantifying and Measuring How Your Workers Compensation Plan Performs

Perhaps one issue raised frequently by Safety Directors and some of my other clients is how to convince a CFO and or CEO to invest in safety.

While in its simplest form what you are about to learn is fairly basic, it still addresses the real value that can be achieved by Safety Directors and Safety Officers looking to convince their C Level executives that safety is profitable. Or, perhaps in other words, lack of safety is expensive.

Let's compare and contrast two different companies with the same levels of staffing, exposures/payrolls, and classes of business.

For the fun of it, let's assume both companies are privately owned and the stakeholders of each company utilize EBITDA (EBITDA=Earnings Before Interest Taxes Depreciation and Amortization) to measure themselves, and are both anticipating selling the respective businesses within the next 5 -6 years.

Company A (Let's call them The Careful and Concerned Company, Inc) has an experience mod of 150%, pays $1,000,000 in workers compensation claims/expense, posts EBITDA of $5,000,000, and anticipates an exit multiple strategy of 7X EBITDA.

Company B (Let's call them The Not So Careful and and Not So Concerned Company, Inc. ) also has an experience mod of 150%, pays $1,000,000 in workers compensation claims/expense, posts EBITDA of $5,000,000, and has an exit multiple strategy of 7X EBITDA.

Both companies understand the value of safety, but only The Careful and Concerned Company makes fixing their safety culture a top 5 priority over the next 5-6 years while they get the company ready for sale. The Not So Careful and Not So Concerned Company, Inc. tries and tries, but eventually throws in the towel and gives up on fixing their culture.

Over the next 5 years Not So Careful and Not So Concerned Company, Inc. sees their experience mod spike up to 175%, while Careful and Concerned Company, Inc. takes the time to change their safety culture, manage their claims more efficiently, and makes great strides with the leadership team in charge of safety. Because of these changes, and the employees active participation in making Careful and Concerned Company, Inc. a safer place to work, the experience mod falls to 87%.

Not So Careful and Not So Concerned, Inc. sells for the 7x EBITDA multiple as does Careful and Concerned, but what happens to their respective stakeholders?

Not So Careful and Not So Concerned has increased workers compensation costs in year 6 of $1,166,666 (150% is to $1M as 175% is to $1,166,666).

Careful and Concerned has reduced their workers compensation costs in year 6 to $580,000 (150% is to $1M as 87 is to $580,000).

The stakeholders from Careful and Concerned have $586,666 ($1,166,666 minus $580,000 equals $586,666) in increased cash flow at the exit point.

Remember our 7x multiplier?

Careful and Concerned has increased it's distribution to its stakeholders by $4,106,666.67 (7x $586,666) while Not So Careful and Not So Concerned actually decreased its distribution because of their increased experience mod.

Safety pays, make it pay for you. Feel free to call or email me 661-332-0382 or cbaird@sullicurt.com.