Art Byrne, one of the most successful CEO’s in history with more business turnarounds as both an executive and in Private Equity than most will ever achieve.
If you’re a chairman struggling to consistently increase your enterprise value, lend an ear to Art Byrne – “What does it take to Lead a Lean Turnaround?”
the Lego Turnaround
For those who enjoy turnarounds as much as I do,
How Lego Went From Nearly Bankrupt to the Most Powerful Brand in the World
https://www.successagency.com/growth/2018/02/27/lego-bankrupt-powerful-brand
How Lego Became The Apple Of Toys
01-08-15
After a decade-long slump, Lego has rebuilt itself into a global juggernaut. An exclusive look inside the company’s top-secret Future Lab.
https://www.fastcompany.com/3040223/when-it-clicks-it-clicks
Results:
Lego is so popular, it can’t keep up with demand
The company has worked to reduce sales
Sep 7, 2016
https://www.theverge.com/2016/9/7/12829974/lego-sales-2016-growth-demand-factory-strain
“chart of the LEGO’s complete sales history from its founding in 1932 through its most recent year. LEGO faced bankruptcy in 2003, made some major internal changes, and in 2007 began a period of eight years of 21% annual sales growth and 36% annual profit growth. The streak slowed down in 2016”
https://theleadershipnetwork.com/article/lessons-from-lego-what-do-you-do-when-your-current-growth-phase-ends
Rebuilding Lego, Brick by Brick
How a supply chain transformation helped put the beloved toymaker back together again.
Aug 29, 2007
Issue 48 (originally published by Booz & Company)
these are my notes/key points, link below to full article, worth reading; also touches on how standardization drives creativity.
“The Lego Group had lost money four out of the seven years from 1998 through 2004. Sales dropped 30% in 2003 and 10% more in 2004, when profit margins stood at –30%. Lego Group executives estimated that the company was destroying €250,000 ($337,000) in value every day.
The Lego Group’s supply chain was at least 10 years out of date. Poor customer service and spotty availability of products were eroding the company’s franchise in key markets.
it took many years of underperformance before the company realized that the supply chain was a major source of its difficulties.
What made those problems especially hard to identify was that they grew out of the company’s core strengths: its capacity for innovation and its commitment to quality. Those were the very advantages that the company’s leaders had relied on.
Three-quarters of the Lego Group’s sales every year were from new, mostly nonelectronic products. “I believe that the focus on electronic competition was really a blame game,”
the “Kitchen,” the company’s product development lab
disregard for the costs of innovation. The company designers were dreaming up new toys without factoring in the price of materials or the costs of production. That kind of carefree creativity is unsustainable
where cost pressures are a constant concern.
did not align its supply chain with that business strategy.
teams placed their orders haphazardly and changed them frequently, preventing operations from piecing together a reliable picture of demand needs, supply capabilities, and inventory levels. This murkiness led to overall capacity utilization of just 70%.
such a fragmented system
Day-to-day operations were often chaotic. Operators routinely responded to last-minute demands, readily implementing costly changeovers.
rationalizing the cost of the company’s materials would be one of the easier parts of the transformation and would yield savings immediately.
Constraints don’t destroy creativity or product excellence, and they can even enhance them.
the perceived mandate had evolved into a crutch. “This idea had become an emotional concept and an excuse to oppose new cost-saving initiatives,” he says. “Anytime there was something someone didn’t want to do, they would say, ‘You cannot do that because of quality.’”
the Lego Group cut its resin costs in half and shrink its supplier roster by 80%.
the operational team put a process in place to help designers make more cost-effective choices.
Cost transparency gave developers a new way to define their achievement. “The best cooks are not the ones who have all the ingredients in front of them. They’re the ones who go into whatever kitchen and work with whatever they have,”
a new set of constraints could in fact enable them to become even more creative.”
also needed to move its distribution channels closer to the customer — and to lower its bloated distribution costs.
First, the number of its logistics providers was cut from 26 to three or four — enough to ensure resilience and gain greater economies of scale while still encouraging competition among the suppliers. This step alone saved more than 10% in transportation costs.
leapfrog the competition by redesigning its entire distribution system.
Although many companies have taken manufacturing to lower-cost markets and to contract providers, surprisingly few have done the same with distribution, although identical advantages exist. The Lego Group phased out five centers in Denmark, Germany, and France and created a single new center in the Czech Republic
- saved approximately €50 million ($67 million) since 2004, and forecasts savings in excess of €100 million ($135 million) over the next two years.
The tremendous gains in efficiency meant that despite the impact of rising oil prices on materials and transportation, stock turnover increased by 12 percent in 2005, and the same year, the Lego Group recorded its first profits — €61 million ($72 million) — since 2002. This positive trend further continued in 2006, with the Lego Group turnover up by 11 percent over 2005, and profits up by a staggering 240%
Addressing operations (streamlined product development, sourcing, manufacturing, and distribution) has allowed us to again focus on developing the business, on innovation, and on developing our organization to become a much more creative place to work”
https://www.strategy-business.com/article/07306?gko=813c3
The LEGO Group spells its trademarked brand name and its company name in uppercase letters.
(If you want to know the Lego co.’s origins: https://www.history.com/news/the-disastrous-backstory-behind-the-invention-of-lego-bricks)
Companies Don’t Need to Lay People Off to Survive
How one CEO saved his 12,000-person company without a single layoff
https://marker.medium.com/companies-dont-need-to-lay-people-off-to-survive-4197a9e57f6c
Photo courtesy of Bob Chapman
What to expect as a Lean Manager? depends on the CEO's commitment
What to expect as a Lean Manager?
- depends on the CEO's commitment
Operational Excellence: the CEO has delegated to one of their executives a program to generate savings or improvements.
Lean transformation: the CEO is working with a coach to spend more time where the revenue generating business is done and change how they are running the company.
understand which problem we’re trying to solve:
a program of productivity improvement workshops to deliver savings,
or a program of gemba walks to deliver ideas and voluntary engagement in trying new ways of satisfying customers.
Great article by Michael Balle here: https://www.lean.org/balle/DisplayObject.cfm?o=5173
The Lean Trilogy - Mark Deluzio - Danaher
“they already have the person in place that should lead the transformation, the CEO.”
“The CEO must not only verbalize his commitment to the Lean Transformation, he must show it in his actions."
“If the CEO delegates away his responsibilities to a staff position within the company, the Lean transformation will stall and eventually fail. The CEO must be as committed to the process of the transformation as he is to the results.”
“a Lean transformation is all about people.”
“one must think about Lean as a growth strategy.”
“You may need to decide NOT to do business with a group of customers if employee and/or shareholder requirements are not met.”
Don’t Demonize Employees Who Raise Problems
They hired her to make the firm better, but the firm’s leadership wanted to believe they were already great.
Some management demonize people, accusing them of being the problem instead of solving the problem that is being raised.
It’s not comfortable to see your shortcomings; this discomfort causes leaders to deflect and defend, and when leaders do this, they limit whether their organization advances.
article here: https://hbr.org/2020/01/dont-demonize-employees-who-raise-problems
Burnout Is About Your Workplace, Not Your People
quotes from article, my comments in italics
"Instead, business leaders may need to change how their organizations operate.
One great way to start?
Ask employees what small changes will help them most."
When was the last time you engaged your employees?
Successful turnarounds often start with the (new) CEO meeting everyone in the business, getting to know them on a 1 to 1 basis, and what problems they experience. Involving themselves in the business helps them understand what impedes it, so they know what needs to be worked on and how they can facilitate it.
One reason people get burnt out is from banging their heads against the wall with issues senior management fails in addressing.
“When Stanford researchers looked into how workplace stress affects health costs and mortality in the United States (pdf), they found that it led to spending of nearly $190 billion — roughly 8% of national healthcare outlays — and nearly 120,000 deaths each year. Worldwide, 615 million suffer from depression and anxiety and, according to a recent WHO study, which costs the global workforce an estimated $1 trillion in lost productivity each year. Passion-driven and caregiving roles such as doctors and nurses are some of the most susceptible to burnout, and the consequences can mean life or death; suicide rates among caregivers are dramatically higher than that of the general public — 40% higher for men and 130% higher for women.”
“FACT: companies without systems to support the well-being of their employees have higher turnover, lower productivity, and higher healthcare costs, according to the American Psychological Association (APA). In high-pressure firms, healthcare costs are 50% greater than at other organizations. Workplace stress is estimated to cost the U.S. economy more than $500 billion dollars, and, each year, 550 million work days are lost due to stress on the job. Another study by the APA claims that burned-out employees are 2.6 times as likely to be actively seeking a different job, 63% more likely to take a sick day, and 23% more likely to visit the emergency room.”
“gold standard of measuring burnout — the eponymous Maslach Burnout Inventory (MBI) — and the coauthor of the Areas of Worklife Survey. Maslach worries about the new WHO classification in the IDC11.” “Categorizing burnout as a disease was an attempt by the WHO to provide definitions for what is wrong with people, instead of what is wrong with companies,” she explains. “When we just look at the person, what that means is, ‘Hey we’ve got to treat that person.’ ‘You can’t work here because you’re the problem.’ ‘We have to get rid of that person.’ Then, it becomes that person’s problem, not the responsibility of the organization that employs them.”
“a survey of 7,500 full-time employees by Gallup found the top five reasons for burnout are:
Unfair treatment at work
Unmanageable workload
Lack of role clarity
Lack of communication and support from their manager
Unreasonable time pressure
The list above clearly demonstrates that the root causes of burnout do not really lie with the individual and that they can be averted — if only leadership started their prevention strategies much further upstream.”
“It’s hard for leadership to then ignore needs after witnessing them first-hand.”
“Many CEOs will tell you they spend time on the floor. But those visits are often tourist or diplomatic visits”
@nicochartier Founder CEO startup Aramisauto
“even though you trust your teams, reality is probably not what they tell you with PowerPoint...”
“Many CEOs will tell you they spend time on the floor. But those visits are often tourist or diplomatic visits”
from “Command and Control” to “Orient and Support”
“last year our EBITDA grew by 44% versus the previous year; a key part of this result comes from better teamwork within the executive team.”
“One of the main missions of a CEO is to build teamwork in the company, and this must start with the Executive Committee”
“realize as a CEO that you’re more useful as organizing conditions for teamwork than being the one who knows everything and decides everything.”
full read: https://www.lean.org/LeanPost/Posting.cfm?LeanPostId=1092
Are you a humble CEO or a 'knower' CEO?
Getting to Better Organizational Performance Means Consciously Being Humbled
https://www.linkedin.com/pulse/getting-better-organizational-performance-means-being-karl-ohaus
Already-struggling retailers face a new challenge: Finding a CEO
Things Lean CEO's outperforming you understand about it:
"fundamental to the means and methods of the firm."
"a complete, coherent system of thinking that addresses the strategic concerns of senior leadership."
How Leaders Sabotage Lean
Required reading for senior executives:
”Senior managers with good intentions have a handicap:
They possess inherited knowledge from the past which they apply to the present, even though it is no longer relevant.”
”Whether it is intended or not, this sabotages the practice of Lean management, whose intent it is to produce better results for business & society than can be achieved with Classical management.”
Love Bob Emiliani’s response also:
“Money (gain or loss) often puts top management to the test of whether they are serious about something. I suggest you negotiate a compensation package that requires the company to pay you 3 years of salary and benefits if current or future senior management obstructs your efforts - whether termination is voluntary or involuntary. You will need to carefully define obstruction in your compensation agreement. To do that, you can pick items from this comprehensive list https://tinyurl.com/yyevlkag . That way you will feel safe with them.”
Full article worth reading twice: