Speaker A For 30 years I was a professor at Ohio State University. My last area of interest prior, prior to retiring and starting two companies was activity based accounting. My area was finance. So it's very process oriented activity cost oriented, not worrying about the efficiency of the process, but of the cost of the process. Having joined the army, what are they going to do with an old guy? I wasn't going to go to Iraq. And so what they asked me to do, what the Secretary of the army asked me to do, knowing my background in best practices, was to go out and find best practices process wise in the army. And I ended up at several army depots and wrote a case along with an individual from MIT Lean Aerospace Institute on the Lean processes at Letterkenny Army Depot. Strictly leaning the processes. Subsequent to that and prior to meeting Steve, I was embarking on looking at the impact of process change on organization structure and was doing research at a second depot and interviewing management and so on that not only leaned their process but totally reorganized the depot. This is Rock Island Army Depot in the Quad Cities area. But I never got to that point. I was a member of the Army Science Board and last summer, a year ago became involved in something called General Order and General Order Three. Not having an army background, I did not realize what that meant. I'm working on it, but I didn't realize it until it was signed. And it is an order. We're on the headquarters, the administrative, the staff side, not the war fighting side. But it's treated the same way because you have a very large military staff and when General Order was issued, it was based on basic management principles. We don't have time, nor is this the form to go into it. General Order Three, however, is relevant because in working with Steve and we're bringing that into play right now, that is basically requisite organizations. And so what Steve has introduced to the secretary is requisite organization theory but the practice thereof. And so right now the army, as you know from Michael Kirby's presentation, has a large deployment in the Lean area. The Letter Kenny and the other depots were ahead of the curve. This Lean area that we're talking about now, the Lean initiative is enterprise wide. Letter Kenny was just in the depots and Rock Island just in the depots. Source wise. What I'm going to talk about is alignment. Think about the topic of this panel. Synergies. That's not the way we think in the business schools. Except for mergers and acquisitions, one plus one equals three. But what we think about in terms of processes is a horizontal picture of a beginning to an end, almost a material and information as it moves through a horizontally system to provide some sort of an output. And of course we think vertically when we think about structure so what I've chosen to talk about today just and I should mention that please ask questions I'm not used to. I don't brief, I don't wait to end the things and so on. So if something comes up, feel free to ask a question and I'll just cut my time back. But what I'm going to talk about today is alignment and I'm going to talk about how you align, at least in theory and somewhat in practice processes with organization structure, source wise. These two books, the cases and all of this are online. The books, the cases and the slides that you'll see today will be online and that's at www.valueassociates.org. The case that we wrote and the question already came up on Letter Kenny we wrote two cases. One was the army teaches business a lesson because they were doing cutting edge lean at Letter Kenny. And the second one involved the financial innovations down there. And the financial innovation was that in the army there's not an incentive to reduce your costs because the next year actually two years later, they take it out of your budget. So Colonel Gwen, the commander at the base, came up with an ingenious way of returning money back to the customer. Every dollar that they save, everything was audited. $0.60 went to the customer in the way of an inter. I call it an intercompany transfer, but it's an intra agency transfer and 40% or $0.40 out of every dollar went to infrastructure. So that's how they managed to get around that. The reason that the Letter Kenny case was interesting was there is a black, which is a base closing. And in 1995 that facility went from 3000 employees to 1500. In 2003 when Gwen went in it was just understood that they were going to close it totally. In 2005, another 1500 jobs had three years to turn that facility around. They were the lowest in absolutely everything lean came in. And in 2005 the first year, the Shingo Prize, which is the Nobel Prize for Excellence, that's what Business Week calls it. Letter, Kenny. Army Depot won the prize. They won it again in 206 and several other facilities won that. Now what we're talking about here is the process and the successes. Mike and Steve talked about continuous process improvement, which is lean, mostly lean organizational. Now situational awareness, what we're talking about today is aligning. These you aren't focused on, if you remember City Slickers. The one thing and so what I'm going to talk about is the one thing you focus on when these all add up, when they're all laid out, when they're aligned metrics, systems, processes and structure, I will break out strategy. Single value proposition, steve referred to that yesterday. Operational excellence, organizational clarity, focus. And the one thing, the alignment model is you align around your value proposition. Microsoft aligns around new product introductions. Apple does a better job of it. Keep in mind that Microsoft is a software company. Apple is a hardware and a software company, Nordstrom's aligns around that single proposition. So what do they do in terms of their propositions? They align strategy, metrics, systems, processes and structure. We're going to talk about briefly today, processes, vertical alignment. Think about vertical alignment and horizontal alignment. Vertical alignment. You're aligning your work around your value proposition, vertically levels. We're introducing all of this to the army. Steve is strategy drives your structure. The secretary came in in 2004. What probably hasn't been said was he was in manufacturing, applied lean to his plants. So the first thing he thought about was processes. So you have a major, major deployment, hundreds of people, black belts. You heard it all yesterday in the lean area. But he had no experience at vertically restructuring. So we're talking here about organizing the work around that operating excellence. He set up the agency that Mike Kirby heads today, deputy undersecretary Kirby, which is business transformation. So he placed that at his level, direct reporting level. Heard earlier on the lean or the six sigma at Letter Kenny, the six Sigma team reported directly to the commander. Now, that violates level. He was a level four, his team, his champion, level four. I know that violates something, but the whole organization took note of where that position was in the organization. When his champion went down to the line and they leaned at level one and a level two or level three supervisor objected. They knew the commander was going to call them the next hour. So it was known that whatever the champion lean champion said was going to happen because it was at that high of a level. And when I went and visited Corpus Christi and the situation was very similar to what I saw up here on the flip chart, they had put the lean champion three or four levels down and had been there for six months. And by this time Bill Gwynn had left. He walked in there, he told the commander, absolutely the wrong place. And they moved it up the next week. And they're making progress now. Okay, the key to vertical alignment are the metrics measure, measure, measure relative to your value proposition, vertical alignment. Now, am I running out of time? Okay, how much do I have? Okay, that's all right. I'm used to that. Let me go back here. I want to talk about horizontal alignment processes. Leaning again. You're leaning towards your value proposition, and in this case, your customer. I'm going to just go over two slides. I want to make an important distinction that was made at Leonard Kenny. I'm not sure it's being made at the enterprise level of the army. There is a difference between lean on the left and six sigma on the right. And how the two ever became intertwined, I don't know. Letter Kenny in 1995 was doing six sigma when they cut the operation in half. Quality was going out the door, but they had the highest costs of the six depots, very, very high. The commander came in, said in 2003, 2002, we don't need this. We're doing quality work, but our costs are way out of line. So Lean is what he emphasized. There were no black belts, green belts, blue belts. He pushed it right down to the front line and started his process work at that line, the leaning at that level. So there is a difference. Why do you think people are confused on that? Pardon me? Why do you think people are confused on that? I think people are confused on like they're saying Lean Six Sigma. So the first thing you do is you say, well, who's doing Lean Six Sigma? All right? And you bring in and I've gone on the website, you get into minitab, you get into controls, you get into variation, right? I'll tell you what, go down to a level one front line and put up even a bell shaped curver and they don't understand it, go down to level one and just ask them what you could do to make their job faster or cheaper. And it's incredible the answers you get. All you have to do is let empower these people because they know their job best. So all the Lean teams, they're made up of the frontline people and it took about it's a long story. The case is very interesting, I have to say that, since I wrote it, but it's very interesting. It started out to be a case on Lean and ended up to be a case on leadership and organization structure and how you manage an organization. So it ended up at a different place from where it started. Let me skip to the very end here a couple of lessons. Don't confuse view graphs with reality. You know what that means. Managing with good metrics is essential. At Letter Kenny right now, we did interviews down there for days and days and we said again to the level one, the frontline workers who are running the whole thing now, generating the projects and all this, we said, what's going to happen when Colonel Gwen leaves? Will lean. Go away. They said, there's no way. We wouldn't let it happen. They had such ownership. It was so institutionalized that it wouldn't go away. Nor did it go away because he left in 2005. After, after they won it the first time and they've won it again. Leadership lessons learned. Organizational leadership must establish expectations and change. So there was constant communication, constant expectations and sufficient influence. We spoke a little bit to that already. So the question then that I always raise is where is your train heading in terms of structure, processes, systems, culture? Going to go over a cliff or is it heading towards your vision and mission? The mission at Letter Kenny was to turn that operation around over a cliff, towards a vision and mission. The one thing then. And I don't know if it's new product development or new product introduction. I don't know if it's operational excellence. I don't know if it's customer intimacy. But the one thing is really quite simple and it didn't come out in city slickers. The one thing is to keep the one thing the one thing to keep focused on the one thing, and in our case, in the army, it's operational excellence.
