© 2018 RSM US LLP. All rights reserved.
Thriving companies regularly seek new ways to streamline processes, enhance workforce skills and leverage information technology.
It’s been three decades since James Womack brought the theories of lean to U.S. manufacturers, describing how Toyota and other Japanese companies had developed detailed systems for continuous improvement and were using them to take over the automotive industry.
Today, the need for continuous improvement has not disappeared. Even though there often remains a strategic opportunity for pricing as a profitability lever, thriving U.S. companies today succeed in part because they continually establish higher benchmarks to force improvements: 28 percent of them cite process improvement initiatives as a top reason for their success.
Thriving companies also report larger increases in productivity, driven by process improvements (80 percent of thriving companies), improved labor utilization (55 percent) and improved equipment utilization (46 percent).
For example, nearly 70 percent of thriving companies will increase their investments in equipment in the next 12 months. The impact of this investment can have a ripple effect throughout a company: Buying a new piece of machinery increases output, of course, and it may ultimately reduce labor and overhead costs.
"We have seen tremendous improvements to our ability to deliver a quality product on time. Lean principles have permeated our entire organization." –Martin Swarbrick President and Chief Executive Officer Bison Gear and Engineering Corporation
Unlike decades ago, the principles behind these approaches are being applied throughout an organization—research and development, procurement, accounting, administration, and sales and marketing. Bison Gear and Engineering Corporation, a manufacturer of gear motors based in St. Charles, Illinois, converted
its manufacturing facility to function as a lean manufacturing plant. The company has been able to achieve significant reductions in lead times throughout the operation by utilizing a number of lean techniques. Martin Swarbrick, president and chief executive officer of Bison, took the lean concepts used on the shop floor to other parts of the enterprise, implementing them in the back office, finance department and the engineering process of the business.
The methodologies need to engage the minds of operations associates in addition to their muscles. Problem solving, working in teams, personal initiative, a solid work ethic: These are skills that companies now are finding difficult to locate when looking for talent and that rarely develop within existing employees without establishing a training regimen.
The differentiator in today’s competitive landscape is people. Process and technology can be developed, monitored, and periodically upgraded, but people are key. Keeping people motivated, knowledgeable on industry changes and committed to corporate strategy is analogous to success.
Approximately 43 percent of companies with improved productivity report that workforce education and training is a critical factor. Not surprisingly, training is a continuing priority among thriving companies this year.
Training isn’t just for the shop floor: 37 percent of companies with improved productivity report that leadership and management development is a key training area. Talent management will be crucial in coming years, as baby boomers retire and companies look to replace their skills and knowledge. A studyby the Institute of Executive Development and the Rock Institute for Corporate Governance at Stanford University found that 54 percent of companies are grooming a replacement for their CEO, and 60 percent have a talent-management program in place.7
Investments in leadership and management development improved company performance at many thriving companies.
Among thriving companies in the Monitor survey, 54 percent report that investments in leadership and management development improved company performance. Nearly three-quarters of these thriving companies plan to increase their employment levels in the next 12 months by an average of 9 percent. Although some of this hiring is driven by rising demand, there are other motivations as well that go to the heart of workforce improvement. As one focus group executive put it, there is a “graying” problem in the workforce, on the shop floor as well as in the executive suite. The recession forced many employees who would otherwise have retired earlier to stay on in order to make up for losses in their retirement plans. As a result, companies may have delayed or even ignored the need for succession planning. Yet even those who are keenly aware of the issue find that replacing retiring workers is not easy.
Executives at thriving companies appreciate that a skilled workforce can have an impact on their growth. Although it varies across the country, the lack of skilled workers is limiting growth for 46 percent of these companies.
To address the need to attract and retain a skilled and younger workforce, many firms are collaborating with local colleges, trade schools and high schools on training programs. One school district in Tacoma, Washington has a dedicated education center with programs specifically designed to encourage trade careers. Some companies are finding skilled workers among those who have recently retired from the military.
Still other companies are enhancing or expanding roles beyond their traditional responsibilities. For example, one distributor is having its retiring engineers train new hires to help them understand the technical elements of their product. At the same time, they are broadening the knowledge of these younger engineers to include sales and contract negotiation skills. This provides the employee with a greater skill set that can make the
role more meaningful and attractive. It also allows the company to leverage the in-depth knowledge of the retiring engineer.
Looking ahead, companies will need to be mindful of succession planning when reviewing their workforce. Management needs to be prepared for the growing challenge of attracting skilled personnel.
One reason for ongoing training is the pace at which companies implement new information technologies or upgrade software and applications. The increased availability of cloud computing, for example, makes it easier and more affordable to get the right applications for specific roles and functions. Many manufacturing and distribution jobs require a high level of technology skills for employees to operate effectively.
The quality of existing IT systems—and their impact on the organization—helps explain why new systems are so desperately needed. Thriving companies are not only using IT to improve information sharing both within the company and with customers, but they are also far more effective in using IT to improve customer satisfaction and minimize corporate risks (Figure 9).
Figure 9. Effectiveness of IT environment (infrastructure, applications and organization)*
Executives also are looking to improve systems to secure their company’s information and data. Unfortunately, security breaches are being reported regularly, with customer records or sensitive information ending up in the wrong hands. Of particular concern to manufacturers and distributors are the ramifications of joining their firms to the so-called “Internet of Things” (IoT), in which industrial controls, sensors, motors and other features communicate with corporate IT systems. The IoT provides executives with real-time information for decision making and equipment optimization. But here, too, there can be substantial enterprise data risk: Even a tiny sensor in a stamping machine or conveyor can provide a portal for a hacker to enter the plant and corporate network and IT systems.
A recent high-profile breach into a retailer’s customer financial data reportedly came in through a vendor-managed system designed to support billing and vendor payments for heating and air conditioning services. Once the hackers had access to the system, they were able to bypass the company’s firewall and test the internal security network. Eventually, they found the credit card information they were seeking. Business-to-business systems may be similarly threatened, and companies need to be ready to mitigate risks of unauthorized access made by employees or external hackers seeking to exploit a system’s weaknesses. Sophisticated hackers can use the company’s Voice over Internet Protocol phone systems to gain access to an organization’s ERP and CRM systems and other proprietary information.
Only 41 percent of respondents regularly monitor and test for unauthorized access to their systems
Yet a majority of executives believe that their company’s information and data is reasonably safe.8 More troubling are the reasons that make executives think their systems and data are secure. For example, many simply do not think that their companies are targets of hackers. This may be because executives view hackers’ targets to be limited to competitive information or intellectual property alone, and would be of limited use outside their firm or industry. Without large quantities of sensitive information to take, hackers will not be interested in breaching their systems—or so the thinking goes.
This perspective, coupled with the more than one-fourth of executives who think systems are secure because “that’s what I am told” (Figure 10), however, is not without risk. It ignores the attraction to hackers of other types of information—such as Social Security numbers, banking and other financial data—that is attractive to a wide range of talented and well-funded criminals who can convert any sensitive data into cash. When even governments are breaching commercial company systems and hacking is an ever-growing threat, a greater level of understanding by C-level executives may be warranted.
Only 41 percent of respondents regularly monitor and test for unauthorized access to their systems. Fortunately, it appears that executives are becoming aware of the risks. Monitor survey participants who feel their systems are not at risk appears to have dropped since 2013 (Figure 11).
Figure 10. How executives know systems and data are secure
Figure 11. Information and data risk
IT effectiveness and risks
Non-U.S. executives are more likely to report that their IT environment is effective9 for most tasks than their U.S. counterparts. For example, 50 percent report IT is effective for improving customer satisfaction, compared to 27 percent of U.S. executives. Yet non-U.S. executives are less likely to believe their information and data is safe:10 45 percent compared to 59 percent of U.S. executives. They appear to be more aware of the risks of breaches than those inside the United States. This may be due in part to privacy laws in the European Union that are more stringent than those in the United States. The EU Data Protection Directive, for example, defines “personal data” very broadly and declares its protection is a basic human right. For various political and cultural reasons, the United States has no single data protection law comparable to the EU directive and therefore may not have the incentive to protect data that EU businesses have.
- David Larcker and Scott Saslow, 2014 Report on Senior Executive Succession Planning and Talent Development, Institute of Executive Development and the Rock Institute for Corporate Governance at Stanford University, 2014.
- Rated 1 or 2 on a scale of 1-5 where 1 equals “not at risk.”
- Rated 4 or 5 on a scale of 1-5 where 5 equals “extremely effective.”
- Rated 1 or 2 on a scale of 1-5 where 1 equals “not at risk.”