The following content is
provided under a Creative Commons license. Your support will help
MIT OpenCourseWare continue to offer high-quality
educational resources for free. To make a donation or
view additional materials from hundreds of MIT courses,
visit MIT OpenCourseWare at ocw.mit.edu. DICK LEWIS: OK, well,
why don't we get started? What we're going to talk
about for the next hour or so is experience in leading
change in a rather large, complex organization. And I had the great opportunity
to do that at Rolls-Royce in Indianapolis in the
years from 2000 to 2004, and then I retired-- came here. I like academia and I like
the lean business overall. Just as you've seen in the
other presentations today, we're going to talk about, from
Dick Lewis's perspective, what are the key components which
drive enterprise improvement? We'll talk about a number of
the essential tools for business improvement to flush out the
list that you saw earlier. I'll show you some metrics
that we used at Rolls-Royce for communicating with the
workforce how we were doing. And then I hope
that you will agree that improvement is a process. It goes on and on-- not an end state at all. So Rolls-Royce in Indianapolis
belonged to General Motors for many, many years,
and it has a long history of producing engines for a
wide variety of aircraft. At one point in
time, I could claim that we were the only
engine manufacturer that operated on all
seven continents, because the reprovisioning
in those days of the Antarctic missions
was all done with C-130s. Some unique product families-- lots of customers
and lots of engines in service, which
meant that there was a business not
only in new engines, but also in spare parts. The company was really
hidden in the round off error of General
Motors, and allowed to innovate, and
reinvest, and not behave particularly business-like. And so it was spun off
by General Motors in 1992 to a leveraged buyout firm,
and then subsequently resold to Rolls-Royce in 1995. And what Rolls-Royce
inherited was a company with great products,
good customers, lots of excellent technology,
but a company that didn't know how to make money. So that was somewhat
of a problem. It's a fairly complex company
with many business sectors, several different product
families which are completely different physically. And the volume of
operations was on the order of two engines every day, and
about $1 million of parts-- which, in hundreds
of dollars each, is a lot of parts every day-- a fairly good sized
workforce, half of which were unionized in an
inherited United Auto Workers Union from General Motors;
a large olfactory that was built during World War
II, with many obsolete pieces of equipment; and a good sized
business. $1 and 1/2 billion worth of sales is
not at all bad. So what we're going to look
at is the story between 2000 and 2004 or '05, which
was our lean journey. Now, as we said earlier
today, every enterprise has many stakeholders,
and in fact, if you even think--
because those of us who fly on regional jets
are also stakeholders, because we're flying customers
on those regional jets that are powered by the
Rolls-Royce engines. But there are
thousands of pilots, and maintainers, and other
users of the airplanes. There's lots of
customers that buy them. There are a number of partners. We found ourselves partnering
in some instances with General Electric, and other instances
with Pratt & Whitney-- and then lots of employees. We had dealt with
our supplier network actually just a little
bit before I took over, but having had
thousands of suppliers, and then gotten that
down to about 300 by some consolidation and
some tiering of suppliers. It turns out that governments
are also key stakeholders-- not only the federal
government, because they fund the military engine
purchases, but states, because they're concerned
about stable employment and taxes that are paid. And the same thing is
true of local governments. And then you go down
to the community, and they're concerned
about noise, and pollution, and traffic in
their neighborhoods, and so on and so forth. Finally, it's obvious that the
stakeholders of Rolls-Royce are big-- the shareholders are very
big stakeholders as well, as well as the union-- so a
lot of different constituents, all of whom you had
to consider as you were implementing change. Now, in my opinion-- and this is extracted from
going a lot of places, reading a lot of
things, listening to some very bright people-- but in my opinion, the
first and foremost thing that one has to have if you're
going to implement change is a vision of where
you want to be. And that has to be simply
and clearly articulated to everyone in the organization
so that there can be buy-in and subscription to that. You have to focus
on your customers and on your
employees-- of course, the other stakeholders too, but
the customers are so important, because they are the
people who buy from you and allow you to
pay your payroll. Active leadership and
involvement with the workforce is absolutely key. I spent hours and hours in
our factory and in our offices as a part of my
everyday routine. Every week I sent an
email to all employees. Every time there was a major
issue that we had to deal with, we would gather people together,
and talk across the company, and communicate. You have to be willing
to change things, because a lot of what we
do is because we've always done it that way, and that's
not necessarily the best way to do things. You must have
trained, empowered, and in my opinion,
incentivized employees; a constancy of
improvement activity, and a way to celebrate
and reward success. So our vision was taken
from Rolls-Royce plc, the British parent. It's called trusted
to deliver excellence. But that's a rather
abstract term. What does it mean? Perhaps, if you were
schooled in the UK, it would come very naturally,
but to a Midwestern United States workforce in
Indianapolis, Indiana, we translated it and
we said, OK, it's determined by
customer satisfaction, first and foremost, measured by
a few understandable metrics, supported by a
workforce that's trained and empowered to
deliver the improvement, and across the entire business. So that was our
translation of our vision, and that was what drove us
and everything that we did. Now, I will tell
you that there have been just a few
really key leaders who have led their organizations
with a constancy of improvement over a long period of time. And the first we talked
about this morning was John Galvin, who brought
Six Sigma into Motorola. Jack Welsh then
amplified, on that and actually built an
entire business philosophy around being number one or
number two in the businesses, working out your problems,
developing wonderful leadership training, and using Six Sigma. So those things happened
over a long period of time at General Electric. Larry Bossidy
actually was an alum of General Electric, and
then Lou Giuliano on here, who was my boss at ITT,
for a number of years worked for Bossidy. So as you can see, that whole
clan came out of came out of General Electric--
kind of interesting-- as did Jim McNerney. Clay Jones, on the other
hand, at Rockwell Collins is a completely
different animal. He was a naval aviator, and
subscribed early to lean, and truly is a full-spectrum
visionary leader. Now, you don't do this
without knowledge. That's why training courses such
as this are really essential. And there's two components
that we talk about here. We talked about the Six Sigma,
with capable world-class processes, and we
talked about lean, with streamlined
value-adding activity focused on the customer. So at Rolls-Royce,
what we did is we actually used a hierarchy
of knowledge delivery. The first thing that
we did was teach people how to work in teams. That is not something
that people often have in their background,
and successful teamwork is really key. Now, I was very
impressed by the way that you have worked
together here in this class, so something's happening
right here at MIT. But that's not always the case. So then, once we had the team
and the leadership skills ingrained in the
workforce, we selectively trained people at various
levels of competency in lean and Six Sigma. A few people become black
belts, which is really about the highest level you'll
find in large proportion, but there are a few people who
really have certified mastery-- typically only a handful
in a big company. You go into Boeing and
there's four or five who I would say are
really certified masters. And then finally,
rarely and hardly ever do you find
people who are so knowledgeable about
lean and Six Sigma that they truly
become teachers-- or sensei, in Japanese. One of them was
at Pratt & Whitney for many years, Mr. Ito. And they named
the Ito University after him, which is
their executive training facility in Hartford. We have Dr. Genichi
Taguchi, who you may be familiar with from the
design of experiments work that he led. So the hierarchy of
knowledge is very key. Now, the knowledge then is
typically structured in-- around what we now call DMAIC. This is the natural evolution of
the old Deming cycle, but is-- now has a fifth component. So we talk about
defining the problem, measuring the situation,
analyzing the data, improving the situation, and
then finally controlling it. So DMAIC is a
virtuous cycle, and it has many, many components
embedded within it. So let's talk about those
on the next several charts. So on define, we do such
things as doing a process map, like you've done today. And define the problems--
you haven't got to that yet, but you will as you turn
that into a value stream map. Putting metrics on them--
which you've done-- you've taken the basic
metrics for the process map. And then setting some
improvement goals-- well, it's implicit in the
[INAUDIBLE] exercise that they would like
to have more customers. So if they're going to do that,
what are they going to do? How are they going to
change their cycle time-- which is far too long-- to meet the [INAUDIBLE]
time desires of 75, or even 100 customers? So having done that
then, we measure, and by analyzing each
component of the process, we put data on it. You put things like
time, inventory levels, the amount of rework, the cycle
time-- all of those things. You can, in some instances,
apply probability statistics to those, if it's not a
clearly closed form issue-- like, for example, the clean up. That's kind of a
probabilistic issue, because you don't know
when you're going to do it. Data collection and analysis,
and having the right kinds of measurement systems
so that you can determine process capability-- analysis-- there are many
tools, and those of you who may go on to pursue
green belts or black belts in lean and Six
Sigma will be exposed to a lot of these things. Perhaps the best
body of knowledge that exists along these lines
is supported by the American Society of Quality. They have a large
manual that goes into all of this in
detail, and they have also web courses that you can take to
learn how to do each of those. And then, in terms
of the improvement, the things that we
usually find are we do watch are kaizen or
burst type exercises, where you get all of
the knowledgeable people together in a room to
work and solve a problem. If it's more of a
intellectual issue, you can use design
of experiments, or Taguchi methods, and so on. And then finally, under
control, Earl just showed you a number of things on
visual factory and [INAUDIBLE].. We talked this
morning about kanbans. Muda is waste. You want to eliminate muda. [JAPANESE] is fool-proofing
or mistake-proofing, and you want to do that. And we talked about 5S or 6S. And finally, total
productive maintenance is maintenance that's
keyed to the signal that you get from the equipment
that you're using so that, as you see it drifting
away from a desired state, you do the maintenance
then, as required, as opposed to just having
it, every three months, you do maintenance. So these are some of
the essential tools, and these are tools that
we trained our people. Now, I'm a believer personally
in a few simple metrics. This morning, before
I came over here, we were meeting with
Raytheon, and they actually have an executive in
their corporate staff who maintains a set of
metrics for the CEO. He has about 15. The problem that you have when
you have that many metrics is that not everybody
can understand them, and it's hard to dance or march
to 15 different drum beats. It's a little bit confusing. So what we did is we used
the voice of the customer-- the customer being both
the external customer, and also the internal
customer-- to help us to find the most
important shareholder issues. And so in our case, it
was on-time delivery. We were struggling to meet
on-time delivery, because it was the beginning of the
regional jet business, and the customer demand
was very, very high, and we were trying to
ramp up production. So that was a problem for us. We had several
supplier-related problems with our delivered product
quality, the worst of which was the electronic fuel
control on the engines, which were built by Lucas in the UK. And they suffered from a rash of
false diagnostic messages that were-- they said that there was
something wrong with the fuel control, but there really wasn't
anything wrong with the fuel control. But that drives the
airline customer crazy, so we had to deal with that. We had in our own factory
first past test yields. We were having to go back
and rework and retest too many of our
engines, and it was also compromising our
on-time delivery and our cost of non-quality. In our finance organization,
we had simply never addressed the issue of collecting money
from people who owed it to us. In the year 2000, I
think we closed the year with $50 million of
past-due receivables. And that may sound like
a small amount of money for a $1 and 1/2
billion company, but the fact of the matter is,
the way our financial structure was organized, we had to pay 10%
interest on that $50 million, which means I lost $5 million
of potential profit because of those uncollected
receivables. And then finally, we used
the standard parameter that I showed on the chart
this morning of return on invested capital. That's a little bit
more abstract and hard to talk about with
the employees, but we were able to
emphasize that the invested capital included all
of this inventory that we have in the factory-- and the work in
process and the engines that we couldn't deliver because
they didn't pass the test. So we concentrated really on
the denominator of the return on invested capital. The pricing, what the customer
pays, controls the numerator. That's harder for us
to control, but we could control the denominator. What it showed is that we had
a continuum of initiatives over time, including membership
in the lean aerospace initiative. But what we did is we
started in areas where there was low-hanging fruit. So we started with some
of our factory cleanup. We started with working
with our suppliers. Then, as we've got a
little bit more mature and had more people
trained, then we started cross-training
our workforce so that they had more
lean and Six Sigma skills. And in our unionized
workforce, we actually multi-skill trained people,
aiming at changing the contract with the union in the future. And then we gradually added
third-party part suppliers and outsourced some of the
stuff that it didn't make sense for us to do, because
our average labor cost was very high. OK, so here we are. It's the year 2000. My predecessor had been fired
because the company lost $50 million, and
he didn't know it, and the CEO didn't like that. So I got drafted
actually to do this. I was happily running the
defense side of our business, but having done this sort of
stuff at ITT and elsewhere in the past, they said,
you've got to do this for us. So I agreed. And the first thing we did was
try to mobilize the leadership team. I had about 15 or
so direct reports that covered all the
functions in the organization. And so we got together
and we spent some time agreeing on the vision, setting
priorities for the company, establishing the metrics
reassigning some key people. For example, the number
two design engineer was reassigned to run
the engine assembly. And that sounds like
a strange transition, but indeed, it was
absolutely key. I had to fire the
controller because he was part of the
financial problem, and we got in a new controller
who knew which way was up. And then I took the number
one civil aviation salesman and put him in charge
of supplier relations. So there were some changes that
were deliberate in their intent in order to try to put stronger
people in some of the key jobs that we really had to do. We focused on data. Everything that
we tried to do, we tried to have data to do that. And we started making
early investments to deal with some of the
roadblocks that we had. And so back to the question
this morning about, how quickly can you
make change, there was a lot of things that
were happening that could be significantly improved. And indeed, we got wonderful
results in the first year, but much of that is because the
results before the first year were so absolutely horrible. But we made improvements
on on-time delivery and in quality. We got our first
pass test yields moving in the right direction. The cost of non-conformance
improvement by 3% may sound like a small
number, but the gross number was $150 million, so
it was real money. We went through the
factory with a vengeance, and anything that
wasn't being used we sent off to the
scrap metal dealers. We worked hard with
our government customer to deal with the
processes of closing out government contracts. In the finance area, they
looked at the complexity of our financial
accounting, and were able to eliminate about
a quarter of that. And so as a consequence, we
turned the financial picture around in a year. I was very fortunate
that Rolls-Royce allowed us to actually
provide incentive compensation to everybody in the company. Now, there was
incentive compensation for the union members. That was bargained
into their contract. But Rolls-Royce very
astutely understood that, if we couldn't include
everybody, from the secretaries to the leaders in the
various test areas and all, that it wouldn't work, so
we were able to do that. Now, stability is important
when you're implementing change, and so we very we're conscious
of the need to be consistent. We had reaffirmed the
first year's actions, but we then started
on some new things. This year, it was
time to figure out how to deal with those
overdue receivables, so we set up a cash
collection team. And it was really amazing. It turns out that there
are a lot of organizations in this world, including
the bill payers that are hounding us these
days, who really have a process for collecting cash. And what we did was we trained
our finance and accounting people using those
models, and it began to come together very well. We also recognized it took
too long to assemble engines, and we were doing it in
a one-at-a-time basis, so we began an investment
in a flow line which allowed the engine to be built from
the compressor all the way up through the end as it
flowed down the line. Whereas it used to take 30
days to assemble an engine, our goal was 10 days. We hired a third-party
part supplier, somebody to actually control all the
nuts, bolts, and screws, and little things. It was silly for
us to manage those, so we hired actually UPS,
and they purchased them to our specs, warehoused them
for us, and then delivered us-- delivered them to
us in kanbans-- and training, of course,
and working with suppliers. So in the second year,
the momentum was there. The employees really
bought into this. They were being
told how they did. Every month, they knew
the financial performance. And so now we're getting
almost OK on-time delivery, and we've reduced the cost of
non-conformance by 10% now. Read $15 million. That's real money. Got the delinquent receivables
down from $50 million to $25-- we're headed down-- and
delivered record cash and profit to Rolls-Royce. So again, we were able
to reward our employees. And the typical reward was
about 10% of their salary, so that was-- that's meaningful when you
get more than a month's pay. The third year, we did some
work fine-tuning priorities, and particularly were working on
simplifying the way we operated in the factory. Our historical
labor contract was the typical
complicated mess that's driven the US automotive
business into the ground. Literally, we had 100
different job categories, and no one could do work
out of their job category. So if you were a receiving
person in the incoming material dock, that's what you did. You could not then deliver that
material to the shop floor, or you couldn't even
work on the outgoing dock and send it out, even though
the work was exactly the same. Nothing could move
in the factory without using material
handlers, so these guys-- they had a racket. They would-- drove
around all day in their bicycles
and their forklifts, and it was very
little value added. In the lean sense,
it was just horrible. Our strategy was to
cross-train people so they could do
multiple jobs, and then to bargain subsequently
with the union to eliminate some of
those job categories and simplify the way work
was done in the factory. So that was the reason
for that emphasis there. We completed the flow line. It was really amazing. The Duke of York came to
dedicate the flow line, and you can imagine
what excitement there was to have a
British Royalty coming in. And he's a very
handsome fellow, anyway. They just absolutely went wild-- fantastic. We started tearing down
stuff we didn't need, because it costs money to
heat, and light, and insure, and all the other stuff. And I talked about our
third-party logistics. The transactional black belts
thing was an experiment. There is various
places you can do this. We used the George
Group, which was a very successful
consulting firm in Texas that I had worked with,
to train about a dozen of our people in finance, and
human relations, and legal, and all those other areas. And it really worked well. I forced all of
my direct reports to live through a three-day lean
academy, so we did that too. So the results would
have been spectacular, except that we had 9/11. And that was a real
challenge for us, because we knew that, although
there was a backlog in work, that we knew that the orders
for the following years would be greatly reduced. And we spent a lot of
time trying to figure out how best to respond to that. And the whole
company, actually-- in the UK and the US-- we
all had the same issue here. We spent about two
months before we actually took any decisive
actions, because we wanted to think it through
and really understand what the consequences
of this would be, because we wanted to emerge,
after the aftermath of 9/11, as strong as we
had been going in. The other thing
that I did is, along with the president
of our local union, we addressed every
single employee on every shift I think
about three times-- first of all, saying what we
knew and what we didn't know, and then talking
about, how were we going to try to deal with it? And the way we dealt
with it was by offering incentivized early retirements. We had a number of
retirement-eligible people. In the union, they have
what they call buyouts. So for younger
people who thought that they could make
a career change, we would offer them
a lump sum of cash. And so there were very few-- actually very few involuntary
separations of that, so it was handled well. It was handled as
humanely as it could be. So as a consequence in here,
with the downturn in volume, we saw some of our
metrics actually improve, because if
you're not making things, the cost of non-quality
is going to go down. But at the same time, we were
still satisfying our customers, and we have got our wonderful
world-class engine cycle time now. And you know we delivered
significant cash and profit, and people did good
incentive compensation. So those are good results. In the fourth year, we needed
to still work on quality, and we were closing in
on a new labor contract. So we completed the
shop for multi-training, and we finished off on some
of our campaign activities and our factory modernization. And I retired. That had always been a plan. I wanted to work
something like 45 years, and that was about where
it was, and it was time to go on and do something else. So they changed me, but
the vision didn't change, and the organization
had momentum. And so as a consequence, there
were continued improvements in on-time deliveries. The quality and non-quality
were pretty static. We lost our quality lead,
which was really a problem. She left for personal reasons. And so we got good
customer satisfaction, and basically
continued the journey that we had been doing
for the last four years. So in the fifth year then, all
the energies of the company-- now, I'm gone, but all the
energies of the company were focused on this contract
with the United Auto Workers. The reason why this was so
important for Rolls-Royce is that our competitors
have much easier to live with unions, like
the Machinists Union. The UAW is really a tough union. They and the
Teamsters are probably the hardest to deal with,
but they're also very smart. And so we did negotiate
a breakthrough contract. We eliminated a lot of the
unnecessary job categories. We actually provided more
compensation to our employees, because they have
multiple skills, and they were worth more. So that was great, but
it was a distraction. After the contract was signed,
then the operations guy got transferred back to England,
the manufacturing guy got a great job down in Georgia, and
the quality lady that I talked about left because she
had a death in her family, and it was very sad. So that did cause
some lost momentum. But there were good
results that year. The contract allowed them--
and it was a four-year contract also, so long-term
sustainability. The metrics continued
to be established. They won a joint contract
with General Electric for the engine-- for the
alternate engine for the Joint Strike Fighter, and again,
got incentive compensation. Now, that's 2005. And people always ask me, well,
what's happened since then? And what's happened
since then is that there have been more
good things happening. There is certainly the focus on
lean manufacturing operation. They're working on lean
product development activities. They're very lean in
their finance activities. They've been able to invest in
a new light helicopter engine. You may know that the most
successful new training helicopter is made by a company
called Robinson, the R22. And they're coming out with
a turbine-powered version of that, which will be
exclusively a Rolls-Royce model 300 engine, which is
very good news too. There's some bad news. They've drifted away from LAI. And I was very sad-- very
disappointed about that. But on balance, things
have gone pretty well. Now, when you go
to lean, there are lots of other
beneficial changes, and what this chart captures
is the enormous volume of paperwork that was existing
before we started to do lean. And by eliminating so many of
these things, which turned out to not be necessary, you
free up people's resources to do important work. And so I don't want to go
through all of these in detail, but I can tell you that it was
a very major [INAUDIBLE] change, which allowed us then to
focus on better product development, better customer
support, better manufacturing activities, and good
profitability, et cetera. So if you try to capture these
things on a input/output, on the input, we increased the
employee training every year. It's really important. And we transitioned to a
multi-skilled workforce, which allowed us to change the
union contract-- modernized over 50% of facilities,
and our employees were empowered to earn
significant incentive compensation. In the output area,
our cycle times were reduced by more than 2/3,
inventory turns better than-- 40% better, the cost
of non-quality halved, on-time deliveries to benchmark
levels, customer satisfaction improved by 50%,
world-class cash collection. Earl, you had a question. AUDIENCE: Yeah. Can you explain what
inventory turn is? DICK LEWIS: Oh,
inventory turn is a ratio of the inventory that
you have on hand and the time that it takes to liquidate that
particular amount of inventory. So you talk about
days of inventory-- a spacecraft will have 300
or 400 days of inventory before they actually
liquidate that inventory and sell a spacecraft. Toyota has hours of
inventory, because it's hours from the time that
they get the material and to the time that
they deliver the car. So those are inventory turns. OK? All right, so benefits
to Rolls-Royce-- when I took over our
primary customer at Embraer, the regional jet
maker wouldn't even talk to us from Indianapolis. They refused to
talk to us there. They would only go to the UK
and talk to our super bosses. We fixed that. We reversed the mediocre
cash collection and finance performance, secured
future lines of business-- like the Joint Strike Fighter
engine and the new helicopter engine. And the best practices
that we evolved-- like the flow line, like the
cash collection activity, like the customer-- third-party supplier
stuff-- that was all then translated to the
UK, and is in use there now. So that's great. And that's the wonderful thing
about a large corporation is that the best benchmarking
is internal benchmarking. Now, there are barriers. There were barriers. We had lots of underground
resistance and skepticism. And you will hear this
whenever you're put in charge of change management. And people are comfortable
with the way things are, so it's easier to not change,
but you have to deal with that. And way we dealt with
it is we very clearly had a burning platform. This is a term you'll find in
a number of the books on lean. And they say, well, if
you're on an oil platform and it's burning, you know
you've got to do something. Well, our burning platform
were intense customer dissatisfaction, absolutely
horrible financial performance, and the very real risk that, if
we didn't get our act together, that Rolls-Royce could close the
whole operation in Indianapolis and move the work
elsewhere in the world. And so not wanting
that to happen, we had three very compelling
arguments to do better. You have to work
to get the buy-in, and that's why we started
with the leadership team, and then distributed,
and they had to do that. We use policy deployment
to flow down objectives into every organization. Communication-- it is impossible
to communicate too much. You just have to
do it all the time, and you have to be consistent,
and you have to be-- and you have to target
your communications so that you know that it's
getting to the right people and that they are
understanding it. Question and make sure
that what you're saying is being understood. You have to dispatch
some resistance-- usually not too very much. In most corporate
environments, the resistance is somewhat passive, and people
will modify their behavior if they know they have to. It's a little less that way
in government and in academia. I've worked in all
those areas as well. But we did reassign
several people away from things they
wanted to do, and there were a number of people
who left the company to go do something else. But finally-- and
this really comes from years of watching the
Malcolm Balridge process, which is a US initiative to encourage
industrial excellence headed out of the National Institute
for Standards and Technology in Washington. And in all the Baldrige
examples that I can remember, there was always rewarding
or celebrating success. And whether it's
Canon sending people from their factory in
Williamsburg, Virginia to a quality symposium in
Japan, or Milliken carpet makers in South Carolina
having a giant picnic for all the employees, or whether
it was us sending teams to the UK for our annual
quality conferences, recognition and rewards
are very important. And I think we would
have made some progress without the ability to
financially stimulate the activity, but it
certainly is very helpful. OK, so observations--
finally, this is a journey. This is a five-year
journey, and it continues. You find that
business conditions do change along the way,
and they force you to adapt. But as long as you have a
constancy of leadership intent, as long as the leadership
is in agreement that change to improve
customer satisfaction and business performance
is essential, then that helps to deal with
all the changes in business conditions-- and changes
with your competitors, because your competitors are
getting better all the time as well. So staying still is
really not an option. The better you get, the
more there is to do. So with that, I'd like to ask
if you have any questions, and I'll try to answer them. OK, the question is, what is
the difference, if you will, between the various levels
of competency and knowledge in lean and Six Sigma? And I mentioned yellow belts,
green belts, black belts, and master black belts. Basically, it's the amount
of knowledge and experience that you have. So a class like
this would probably qualify as a yellow belt.
To become a green belt, you really ought to work
on a project or two, applying these principles. To become a black belt,
you have to lead projects which produce tangible results. And typically, most companies
require hundreds of thousands of savings to be demonstrated
before they would affirm that that's a black belt. Master
black belt's higher than that. Does that answer your question? OK, thank you. The first observation
she made was that your early benefits
from implementing improvement are significant. And then there seems to
be a diminishing return as you keep working on
the same thing over time. And that's true,
but what happens is that, in any
organization, you can only deal with certain
processes at a time, because you don't have enough
resources to deal with it. So when you reach an acceptable
level with, say, a process, then, if you look
adjacent to that, you'll find other opportunities
for dramatic improvement as well. So it's possible to keep
momentum going for a long time. Now, you also raised
the issue about it's more fun to create new
processes than it is to be the maintainer of processes. And that's an issue
that we have especially with creative people,
like engineers. But the way that some
companies deal with that is that they actually have what
they call process councils. And at Boeing, at Rolls-Royce,
you have process ownership councils so that, for
example, the people who do preliminary design
have a process council, and they work across the
company to share best practice, to share problems and issues,
and then to develop and evolve the body of knowledge
that is associated with that particular
set of processes. It is important to
have a process owner. It's important to sustain
attention on that, because otherwise,
they can drift away. The question is, if you are
too structured and focused on improvement activities,
does that stifle creativity? I don't really think
so, but the way that we dealt with it
is that we set aside pockets of our company that
were specifically chartered to be creative. So for example, we
had an organization that is kind of like
the Lockheed Skunk Works that was there to focus on
very advanced, far-out engine concepts. I had a group of people who
were just entirely focused on innovating new
factory models. So there were
pockets of creativity surrounded by stable
process-oriented activity that paid the bills. Certainly, 9/11 was
the most challenging. The most rewarding
is seeing people succeed after having grown
and evolved in their skills and capabilities. I have many people
that I worked with who went on to other leadership
positions in Rolls-Royce, and that's great. That makes you feel so good. We did. And what we had was there
was an announced formula that said that, depending
upon the amount of success-- financial success
that the company had, then there was a sliding scale. And in the case of the whole
employee incentive pool, it went-- and it could be 0
if we didn't meet our goals. If we met our goals,
they would get a 5% of their
normal compensation, and if we exceeded the goals
by like 100%, they would-- it could get up as much as 10%. So it was on a sliding scale. Did that answer your question? I'm not sure. AUDIENCE: If you couldn't
use something like that-- DICK LEWIS: If I couldn't-- OK-- what I do? All right, if I couldn't
do something like that, then I would go fight with
my human resources department to a budget for, if you will,
basically non-salary type compensation-- so
award type money. And I would use that. But also, I use-- and we did anyway-- we used a lot of recognition. So people who did good
things were paraded in front of the
leadership of the company, and got to speak at our
management meetings, and got introduced to the CEO, and
all that kind of stuff. Whenever the chairman
of Rolls-Royce would come to Indianapolis--
and it was two or three times a year-- we would
parade him around to areas that were doing good
work, and introduce the people and talk about why that was
important for the company. Within Rolls-Royce, we had
an annual quality conference in the UK, and we would send
two or three teams of people-- so maybe as many as 20 people
would go to the UK for a week and listen to-- they make presentations,
and they'd also listen to other people from
all over the world doing that. You need a combination. Cash is important because
it helps pay bills, but the personal recognition
and acknowledgment of having done good
things is very key. We did use what's called various
terms of management policy deployment. And so every one of
my leadership team was obliged to
mirror the activities that we were taking at
the top of the company in their own organization. So it would vary
from place to place. In engineering, it might have-- I think they actually made
more changes in engineering than we did in the civil
airline business, for example. So it depended upon the
individual department. And I would recommend
Collins's book Good to Great. It's an excellent review of the
attributes of highly successful companies-- and not the ones that get
all the hoopla, necessarily. But the one parameter that's
in there that I really subscribe to is that
an effective leader needs to acknowledge
the contributions of his entire or her
entire workforce, and not assume all the glory. So look at people like
Dennis Kozlowski or even Jack Welsh, for that matter-- I don't think
personally that that's the-- that's not the kind
of leader I want to be. Earl-- AUDIENCE: Many
organizations, when they start their
lean journey, find they need to tell the
employees that nobody's going to lose their job as
a result of productivity improvement. They may lose their job because
the business goes down or-- but not because of
productivity improvement. You assure them that they're
not going to work themselves out of their job. What did you do at
Rolls-Royce in that respect? DICK LEWIS: Well, first of
all, we didn't necessarily advertise ourselves as
just a lean initiative. We said, we have
some major business issues that we
have to deal with, and we're going to have to
improve across the company. Unless we do this, we're
going to lose our customers and we're going
to lose our jobs. So we didn't use
lean as a rallying call or anything like that. We used the lean
principles and practices. Some people quipped that
lean means less employees are needed, but if you ever do
that, you're in deep trouble. Thank you very much.
