Know what? So what…
There was a recent post in the Operational Excellence Group that I own on LinkedIn. The post was about the National Aeronautics and Space Administration’s (NASA) Lean Six Sigma program and the benefits that were realized. The person who created the post was rather excited that the program had saved NASA $1.3 million.
Reading this got me pondering. The benefits just didn’t seem very significant to me and I decided to dig deeper into the presentation.
To the poster’s credit, and something I appreciated a great deal, he did share the source of the information. The presentation is entitled “NASA Lean Six Sigma (LSS) Program“, created in 2012, and it can be found on the NASA Technical Reports Server (NTRS).
On page 44 of the report, I found the summary of benefits realized by the program which included the following bullets;
- LSS is being implemented by all centers to focus on cost, quality, schedule, and consistency
- NASA trained over 1000 executives and 1500 technical personnel in LSS
- And the summary specifically noted that NASA’s Return on Investment (ROI) and Cost avoidance was $1.3 million and 670 thousand labor hours – realized over the past four (4) years of the program.
I could not find in the report whether this was a gross savings or net savings; with net savings being the savings less the investment requirements to support the program. So, for the sake of argument, I am going to give the benefit of the doubt to NASA’s LSS Program and consider this a $1.3 million and 670 thousand labor hours as net savings after all investments and costs of delivering the program.
For this exercise, I will also assuming a linear benefit; that means that NASA’s LSS program saved, yearly on average, roughly $300 thousand and 167 thousand labor hours. What is more likely is that there was an escalation in the value of the benefit over time as more resources were brought to bear year-on-year; but this information is not shared in the report nor are projections of future benefits. I can only work with what I have.
And lastly, we need to assume a blended burdened labor rate for the projects and those involved. Based on my experience with companies in the private sector who are in the aerospace industry, I would estimate that burdened labor rate to be somewhere between $50 and $100 per hour (depending on the skillset and base rate of the employee). Therefore, saving 167 thousand labor hours translates to a labor cost savings of between $8.35 and $16.7 million per year. Add to this the other cost savings of $300 thousand and we get a total cost savings of between $8.65 and $17 million per year.
Over the four (4) years of the program, the labor cost savings would be between $33.4 and $66.8 million and, together with the other savings, the total savings of the program would be between $34.6 and $68 million.
Again, for the sake of argument and giving the benefit of the doubt to NASA’s LSS Program, I will use the higher end of the savings spectrum for my analysis and illustration, namely; $17 million per year and $68 million over the four (4) years of the program.
According to the report, NASA’s LSS Program trained 2,500 personnel between executives and technical people. I have to assume that the executives would materially participate in improvement projects; otherwise why train them? And, at 40% of all those trained, why train them in such numbers if they were not going to work directly on improvement projects?
This means, each of the people trained realized $27,200 worth of benefit over the four (4) years of the program; or $6,800 per year per individual.
Lastly, I took a look at NASA’s budget. For fiscal year 2012, NASA’s budget was $18.7 Billion. Even though NASA’s budget for 2020 is $22.6 Billion, I felt it important and fair to compare the 2012 LSS Program results with the 2012 NASA budget.
If we consider the impact on NASA as a whole, the net savings to NASA on a budget of $18.7 Billion was $0.017 Billion, or 0.09% of the budget [remember, we have to compare a single-year’s budget to a single-year’s savings and not the accumulated savings over four (4) years].
If I were the Director at NASA, or the CEO of a similarly sized company in the private sector, these numbers would not excite me. I would look at them and say, “Know what? So what…”
… Certainly, they would not make it to the PowerPoint deck I share with my investors. They are nothing more than rounding errors.
Put another way, imagine instead of dollars, we tracked seconds…
Then 18.7 Billion seconds / 60 seconds in a minute / 60 minutes in an hour / 24 hours in a day / 365.25 days in a year yields 592.567 years.
And 17 Million seconds / 60 seconds in a minute / 60 minutes in an hour / 24 hours in a day / 365.25 days in a year yields 0.539 years.
… Not very impressive. Hardly anything any CEO would get excited about.
What is not measured in the NASA report-out is the benefit to the organization from accelerating the realization of any end-goals. To me, this could possibly result in a very compelling argument for NASA’s LSS Program. But it is largely, if not entirely, ignored.
To illustrate what I am referring to – namely the benefits of a program beyond cost savings – I will use Apple and its introduction of the iPhone.
Just to be clear, I don’t know anything about Apple’s OpEx/CI/LSS program, or even if they have one at all. But I am going to use Apple as a “what if” because the introduction of the iPhone was transformative for Apple as well as the consumers and also had a “hard start”; in that Apple did not sell mobile phones prior to the introduction of the iPhone.
The iPhone was introduced in the 3rd calendar quarter of 2007 and total sales for the 2007 year were 1.39 million units which generated $123 million in revenue. In 2008, Apple sold 11.63 million units which generated $1.844 billion in revenue.
What if; Apple’s program (if they had one) brought forward the realization of sales by one quarter. This would have increased the sales for 2007 by $241 million and 2008 by $2.699 billion (2008 revenue plus 2009/Q1 less 2008/Q1 which went to 2007).
Of course, if Apple had an OpEx/CI/LSS program in place at the time, perhaps the revenue realized in 2007 would have otherwise been in 2008. I really don’t know; and this is merely an illustration of a potential benefit a program might have beyond just cost savings in bringing forward a benefit.
For your consideration; maybe, just maybe, cost savings is not the best metric to judge the positive impact of an OpEx/CI/LSS program (nor are the number of completed projects). Maybe we should consider, even give more weight to, the impact of compressing time; OpEx/CI/LSS acting as an accelerant in achieving the vision of the organization.
In the NASA report out, there is mention (page 39) of a few select projects and their tangible savings of the improvement. But there is no mention of the impact of these improvements on the organization as a whole or how these efforts support the pursuit of NASA’s vision. With no mention of what the vision of NASA might be, there is no obvious alignment of these efforts to that vision.
Does this mean that OpEx/CI/LSS programs are misguided at best or a waste of effort at worst?
But it does mean that, for OpEx/CI/LSS programs to reach their full potential, they must mature beyond projects and savings and become the Business’ Operating System (BOS); just the everyday way the company operates.
See my related article; Operational Excellence Maturity Model for additional details. In it, I describe maturity levels as being “logistical” (project), “tactical” (initiatives), “strategic” (programs), and ultimately a BOS.
For your consideration; a few companies who have achieved such maturity levels.
Certainly, no list would be complete without starting with Toyota. Perhaps the most well-known of the BOS’, the Toyota Production System (TPS) is the base model from which other BOS’ have been created. It has served Toyota reasonably well over the years, only significantly failing when the company strayed from operating within the TPS BOS.
The mistake that many companies make in implementing their own BOS is in trying to duplicate the TPS (or anyone else’s BOS) into their own organizations. For every company, the business factors they are facing and their corporate culture are different than that of Toyota and also from one to another. A better approach than trying to duplicate Toyota would be to replicate; taking what is good and integrating it into the company; its culture and its circumstances.
An example of this would be United Technologies Corporation’s (UTC’s) Achieving Competitive Excellence (ACE) program; the seeds of which were planted in the late 1980’s at UTC’s Pratt & Whitney business unit and eventually grew to become UTC’s BOS. I had the opportunity to see UTC’s ACE program in action at the Sikorsky plant in Mielec, Poland (before Sikorsky was sold to Lockheed Martin). This is the facility where Sikorsky built the “green” version of the Blackhawk helicopter (the model without all the really cool secret gadgets used by the armed forces of the United States). It was truly impressive.
UTC merged with Raytheon Company to become Raytheon Technologies in 2020 and, unfortunately, it appears that ACE is no longer the BOS it used to be; with minimal mention, being referred to as the United Technologies Operating System, and rather disassociated from Raytheon. This is a second lesson to learn and a risk to a BOS being viable and able to stand the test of time; surviving a change of leadership. And it’s another reason to put-up numbers beyond cost savings; becoming a strategic “need to have” rather than a “nice to have”.
And although there are others of note, my final example would be Danaher’s Business System (DBS). Danaher’s establishment of the DBS started in the 1980’s as a counter-measure to intensifying competition. Over the years that followed, the DBS matured to being Danaher’s BOS. Danaher places their DBS at the center of their core values. In fact, the DBS is Danaher’s core values. And Danaher is not shy to proclaim its success is measured in its market capitalization and share-value; a measure of success with which I agree.
Unlike UTC, with the DBS being the center of Danaher’s core values, it has survived the test of time even though there have been several changes in leadership at the top. I believe the reason for this is that the DBS at Danaher is not fixed, but an ever-evolving program which gives the DBS the opportunity to remain relevant and effective by recognizing the continued need to evolve; adhering to the notion that it’s journey not a destination. According to the Danaher DBS webpage; “We use DBS to guide what we do, measure how well we execute, and create options for doing even better—including improving DBS itself.”
- When launching your OpEx/CI/LSS program, its fine to measure success in cost savings. This is tangible, easy to evaluate, and everyone can readily see there is benefit to such efforts.
- Cost savings alone will only get you so far and never dazzle those whose support you need.
- You will need to work to evolve the benefits beyond cost savings otherwise your efforts will remain a “nice to have” and not a “want to have” (not to mention a “need to have”).
- Work to position your program as an accelerant to achieving the corporate vision. This positioning will take time to create as you need to have a command of the basic skills [logistical (process improvement) and tactical (systems thinking)] before you can become a strategic force. Of course, a requisite of this stage is that you know what the corporate vision is and to level-set your program once a quarter to make sure the corporate vision has not changed and you and the efforts remain aligned.
- Regarding alignment; the program and its efforts have to be aligned to the corporate vision, not the corporate vision being aligned to the program. This is until the program and vision one and the same, having evolved into a BOS.
- Focus on the outputs, not the inputs. It doesn’t matter that you trained “x” number of people, it matters what those people produced both in cost savings and as accelerants for the achievement of some objective or corporate vision.
- Understand that this will take a considerable amount of time; just look how long Toyota, UTC (Raytheon), and Danaher have been working at it. For a thumb-nail timeline – and assuming you are starting from a stand-still, there is a planned roadmap, and consistent effort is applied – an organization should expect the process to take between 15 and 20 years start to finish; beginning at being Logistical, through Tactical and Strategic, to being a real BOS. It can be less if you have already started and have some pieces (including from this list; motivation, desire, attitude, alignment, and commitment) already in place.
- Because the end-form of a BOS is rather amorphous at the beginning, only make detailed plans to go from stage to stage, not from the start to the end. Think of it as an “agile” roll-out of your BOS.
- Beware of regime change. With regime change comes change in the corporate visions and you might find yourself working on the old priorities and not the new. Nothing will kill your program faster than working on what’s not important.
- And lastly, beware of individuals who claim to the the creator or architect of a BOS. Because of its complexity and involving all business functions of an organization, for a program to become a BOS is beyond the ability of a single person to design and deploy.
As I have mentioned before and elsewhere; having a successful OpEx/CI/LSS program takes a lot of work and a lot of effort. There is no pill you can take or button you can push to make it any faster or easier; it’s just hard work and a lot of it. But like the water on the rock, the rock will succumb to the water; it just takes time and constant pressure.
Be the water…
Paris is an international expert in the field of Operational Excellence, organizational design, strategy design and deployment, and helping companies become high-performance organizations. His vehicles for change include being the Founder of; the XONITEK Group of Companies; the Operational Excellence Society; and the Readiness Institute.
He is a sought-after speaker and lecturer and his book, “State of Readiness” has been endorsed by senior leaders at some of the most respected companies in the world.
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