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Making continuous improvement a culture.

During economic downturns, companies need to downsize their cost structures and bring them in line with the declining revenue base to maintain profitability. Downsizing is a reactionary defensive tactic employed by good executives. A strategic and proactive tactic employed by good executives is development of an organizational culture and business philosophy of continuous improvement. It is a prerequisite for achieving systemic profitability and consistency in earnings. In today's changing and challenging economic climate, every business needs to make improvements. In poor economic times, companies are less inclined to implement new programs and buy new things; their focuses are 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, and the medical device and equipment industry is no exception--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, requiting short-term actions. But for the longer term, continuous improvement should be the common theme of every executive of medical device and equipment manufacturers and distributors. The future profitability of companies is at stake, and continuous performance improvement is about doing the fight things to achieve future profitability.

Success Factors

For a continuous performance improvement culture to be successful, first, it is created by design with the processes that create 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, and it's not easy. Continuous performance improvement is a way of life; business planning, budgeting, and performance reporting become embedded in the organization's culture. It is part of the company's DNA, in which employees can't imagine the company without a continuous performance improvement culture.

Three primary success factors characterize continuous performance improvement cultures.

* Performance measurements 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 performance improvement mindset and culture are needed in your company, there is no better time to begin the journey than when the economy is suffering. A downturn is the best time to rally employees and help them focus on ways to improve the business. 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 fiscal storm.

Companies that have a continuous performance 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 over which the company has no control.

Creating a continuous performance improvement culture in a company is a journey that requires three must-get-rights: customer focus, employee development and financial performance.

Continuous improvement must be recognized by the customer, 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 customers' needs.

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Continuous performance improvement cannot be achieved without the involvement of the company's employees. Every company has more problems than problem-solvers, and engaging every employee gives him a substantive role to play. All employees must be involved and participate on a continuous improvement team. The teams are responsible for achieving improvement gains and are held accountable for improvements. To encourage participation, the employees may require education and training in the use of improvement tools such as value stream mapping, Six Sigma and Kaizen. Additional education and development courses and training may be required depending on the specific improvement needs. Critical to the success of continuous improvement and employee development is challenging employees to meet their potential. Too many employees are underutilized and under-challenged. 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, it's either he doesn't have the capabilities and skills or the management has not adequately trained him, and both can be remedied.

Financial performance is the last of the 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 must be able to physically identify the improvements. For example, a company might tell its workers that performing a task the old way produced certain financial results, but performing that same task in an improved manner produces better, more tangible financial results.

Getting Started

The biggest challenge in developing a continuous performance improvement culture is ensuring the effort doesn't resemble another program. Employees have become adept at enduring programs for which they are required to participate. Combating employee complacency and their wait-and-see attitude can quickly be handled by establishing an annual performance improvement financial target. Companies that manufacture and distribute products generally require assets. Using a return on assets measurement to establish a return on assets target helps the company ensure that its investment provides a systemic process for the creation and definition of annual 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 and profitability, and reduce costs or improve asset utilization. The four focus areas the teams must concentrate on for improvement 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, 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 hierarchy in the organization's 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 problems and issues are identified and solutions are developed and implemented.

Each team needs to be chartered with its share of financial performance gains identified by the return on assets target. In addition, each team should develop a detailed work plan 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 working toward the same target goal established by the return on assets requirements.

Every year, a new financial improvement target is established, and new teams are configured. As results are achieved, they are documented and communicated company-wide.

Managing this process effectively to achieve the results and embed continuous performance improvement as 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 take corrective action when necessary. Each team has its own meetings weekly or bi-weekly to stay focused, work on assignments and obtain results.

A continuous performance improvement culture does not develop overnight. It takes executives with vision, passion and commitment to achieve excellence in every aspect of their business to create and maintain this. Excellence is achieved by design, not default. A continuous performance improvement culture helps employees develop a mindset to challenge everything to improve business. It is a culture where employees are empowered to stop the carousel, get off, fix the problem and improve the process to improve performance. It also develops a sense of accomplishment by employees.

If you fundamentally believe your employees are your biggest assets, their value increases in value with a continuous performance improvement culture.

Bruce E. Jacobs is a principal with BKD, LLP, a CPA and advisory firm, and a member of BKD Manufacturing & Distribution Group, which provides solutions for management and financial needs of medical device businesses. Jacobs has more than 26 years of experience in manufacturing and distribution strategies. Contact the author at bejacobs@bdk.com.
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Title Annotation:Best Practices
Author:Jacobs, Bruce E.
Publication:Medical Product Outsourcing
Article Type:Company overview
Date:Jan 1, 2009
Words:1442
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