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This talk is based on the ebook "Drawing a new map: Doing the right things well through the application of Strategic Learning and the Strategic Fitness process" by Hendrik Lourens. It explains why …

This talk is based on the ebook "Drawing a new map: Doing the right things well through the application of Strategic Learning and the Strategic Fitness process" by Hendrik Lourens. It explains why profitability in manufacturing is under pressure (doing the wrong things well) and what to do about this. More info can be obtained at

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  • Thank you all very much for attending today. We all know that times are tough and instinctively we know that what we have been doing up to now has not really worked. For many of us work is not fun any more. Over the last 18 years I worked at Sasol, Nampak and a number of smaller plastics converters. I have thus had a front row seat unto the plastics business and have seen the competitive environment change, with most companies being oblivious to these changes. I have seen companies go under or struggle when there was absolutely no need for them to be in that situation. It was all preventable and yet it happened. As a result of this I published an ebook earlier this year titled “Drawing a new map”. The book attempts to make sense of what has been happening or rather not happening, and puts forward simple and practical steps for changing this reality. Nothing in the book is really new or difficult to understand, I took the thoughts of 10 top business thinkers and combined them around simple real life stories. Stories in which I was a witness or a participant over the last 15 years. You will see in the handouts that I put down the ‘eureka moment” in my management career as the first 3 pages. Everything that we will discuss today follows from that experience.
  • When companies don’t make money the fun goes out of the business.
  • When profitability is poor emergency actions need to be taken.
  • This graph shows the plastic related imports and exports into South Africa. These trends are true for steel, clothing and footwear also (trade balance in general) This is not an academic problem. With the joblessness and skewed income distribution in South Africa we cannot afford to close larger and larger parts of manufacturing and mining. We need to find the root causes and deal with them.
  • I think the causes are fairly obvious, we have discussions on this in the press every day do we not? Would anybody like to add anything to this or disagree?
  • From my experience over the last 20 years I would say that the usual suspects of reasons are only responsible for 20% of the problem. The problem is that we do not know which the 80% is. Why do we battle so much to identify the right things. Our mental models (our beliefs on how cause and effect works) Blown film example: I am in the market for making refuse bags. My Gross margins are 10%. Should I buy the coex German extruder at R12 million or the monolayer Italian extruder at R6 million? International studies have shown: Over 10 years, 70% of cost is raw material, 15% electricity and 15% equipment ammortization It is possible to put low cost regrind in center without sacrificing quality Less overtime Much better thickness control and thus downgauging possibilities So the cheap machine is the expensive machine!!!!! I have worked for blown fim companies growing sales 20% per year every year and for companies losing 10% sales every year. What was the difference? The age of equipment and the mindset towards investment.
  • We will now discuss a generic plastics company which is a composite of many South African Plastics Firms since 2005.
  • Does this PBIT graph look familiar for the plastics Industry? What is happening here? The rules of the game are changing but management has not noticed. Short term actions seem to be doing the trick and then the market reacts. Year 0:Extrutech very successful for 30 years, Barriers to entry based on import protection, Limited competition in local market High margins, substandard quality vs imports Year 1: Max historical PBIT, no spare capacity, Import tariffs start reducing, customers become aware of alternatives Year 2: First quarterly loss, Reaction:equipment upgrades approved, margins raised, PBIT up, Techniques such as TOC, Lean implemented Year 3: Downward Trend resumes, Cash flow meetings, pressure on Operations, Sales Managers to perform better. FG and RM stock cut to bone, stockouts Year 4:, poor human relations, no fun at work, resignations and forced resignations Year 5: Under new management, required changes forthcoming
  • So the customer required shorter lead times, smaller volumes more frequent, lower price. The equipment at 30 years of age could satisfy this but at much higher scrap cost. “ But the customer must understand”-Production “ He does not need to understand anything”- Sales Rules of the game: Used to be able to make customers wait until cycle was favourable for orders. Underinvestment in equipment leading to unreliability, high production cost, poor quality not critical under sanctions. For years no investment in equipment. When finally recognised financial position did not allow investment any more. Customers started to compete with imports, required shorter lead times, better quality, lower cost. Some brought in old equipment, margins in country atrracted foreign competitors. Budgets were increased year after year to meet overheads, no cognisance of production problems leading to excessive cost, insufficient capacity and quality. Root problems was underinvestment in equipment and increased complexity in trying to satisfy all customers: Leading to degradation in reliability, lead times could not keep up with Lost sight of changing customer needs/customer options Had limited understanding of constraints and cost drivers in production (vs rest of world) As a result Production could not be Aligned with chosen Strategy
  • Hope you can see: The titanic is sinking, but someone has not noticed. He is acting as if it is still business as usual.
  • We are always sure that something like this will never happen to us. Maybe it is not so easy to avoid.
  • Highly intelligent individuals More than adequate info Not able to put it together
  • Best practice (do what worked before)- Keep LT/Quality standards where it has always been Dont spend money on new equipment Increase profits by cutting costs Business environment becoming difficult to grasp by one person (CEO) Outdated mental models- the way to prosper is to spend less and save more Information overload – every day is full of crisises that need to be handled immediately Wicked problems- We cannot write the main problem down, do not get a second chance, solutions affect problem Cause – time delay – Effect – the wondertech example shows that without a good model of how things work we miss what happens Management traps Hierarchy and the human need for esteem, authority (not admit ignorance) Undiscussable topics (attributing negative characteristics to those who disagree, make us uncomfortable) Debate instead of Dialogue Communication that is not truthful (bottom not allowed to feed to top what is not working, embarrassment)
  • It is better to do the right things poorly than the wrong things well . Who knows what the right things are? How do we get the knowledge in actionable form? How do we roll the ideas out in our organisation
  • If strategic planning has been around for a long time and shows limited results, why is Strategic Learning the answer? Managers have developed certain mental models over the years which preclude them from identifying the root causes of the problems in their environment. At the same time, even when some do see the right action they need to take there are good political reasons not to do anything. Managers need to do strategy for themselves, no consultant can do it for them. Clear, easy to follow guidelines are given by Prof Pietersen for this endeavour.
  • write in terms of what went before in slides
  • Organisations are power structures and thus dialogue between members from different levels in the hierarchy may always be problematic. This is the problem with ‘speaking truth to power’. As we have seen in the section on the Strategic Fitness Process, it is possible to address this problem by putting task teams in place. Most people are more acquainted with debate than dialogue. Debate is about proving one’s own view to be correct and to point out the problems in another’s views. In order to have effective dialogue it is important to understand how the process works and what rules are required to make it effective.
  • There is excellent information available to help us deal with our problems but unfortunately not in a form easy to understand. Problems faced by industry have also been tackled in a narrow specialised way, not holistically.
  • Transcript

    • 1. How to survive and thrive in a competitive market - a manager’s guide to turning your company around based on “Drawing a new map” (published 7 March, 2013) Hendrik Lourens, Director Large Sales Projects, Ampaglas, South Africa
    • 2. Hendrik Lourens Hendrik Lourens has many years of industrial and managerial experience in the plastics industry behind him. This includes working at Barlows, Sasol and Nampak. He has a Masters Degree in Polymer Science and an MBA from Edinburgh Business School. He reads extensively on economics, investments, Systems Thinking, personality typing, philosophy and technical literature within his field of expertise. In 2003 he received the Plastics Institute of South Africa best paper award and he completed the Managing the Theory of Constraints Way programme of Goldratt Schools (2010)
    • 3. 1) The problem: Poor profitability
    • 4. The post 2008 Plastics environment  Competition from overseas increasing  Margins and volumes under pressure  Cost cutting and retrenchments  Profitability and enjoyment of work reduced  We run after every new fad, work harder but results stay the same  Do what you did before just better  Find and eliminate poor performers
    • 5. Imports increasing exponentially
    • 6. What are the reasons?  Causes are:  Poor worker skills  Workers too expensive  Government not doing enough to support  Government interfering too much in labour laws etc  Unfair imports  Administered costs
    • 7. Wrong!! The reasons are not what we like to believe  The exact contrary of what we believe is often the truth- Jean de La Bruyere  It is better to do the right things poorly than the wrong things well- Russel Ackoff  Based on 20 years in the industry I would say “The Plastics Industry is doing a lot of wrong things very well!”  Doing the right things are solely the responsibility of management
    • 8. 2) Extrutech as the story of many companies
    • 9. The Extrutech story-(compilation of the stories of many RSA companies) Year1 Year2 Year3 Year4 Year5 P B I T
    • 10. What did Extrutech management miss?  The rules of the game were changing  Customers now had choice/information on price  Customers now required smaller orders faster  Competition became international  Production costs had to come down  But costs mainly driven by age of equipment/cycles  This was not understood at top level (Machines in books totally depreciated=good)  Shortcut solutions (TOC/Less stock) seemed to work  But came at cost of more stock
    • 11. Missing the big picture
    • 12. This will never happen to us???? The Monkey Business Illusion.avi
    • 13. Why did they miss the environmental changes?  Lack of intelligence?  All information required available?  Managers capable of putting information together?
    • 14. What stopped them from putting the puzzle together?  Best practice (do what worked before)  Business environment becoming difficult to grasp by one person (CEO)  Outdated mental models  Information overload  Wicked problems  Cause – time delay – Effect  Management traps  Hierarchy and the human need for esteem, authority (not admit ignorance)  Undiscussable topics (attributing negative characteristics to those who disagree)  Communication that is not truthful  Debate instead of Dialogue
    • 15. 3) What can we do?
    • 16. Doing the right things will change our destiny  Strategic Learning  Strategic Alignment  Supported by Dialogue
    • 17. Strategic Learning (Prof Willie Pietersen)  1. What are those few things organizations must be able to do outstandingly well  2. How can organizations implement these things in practice?
    • 18.  No consultants, Managers need to do strategy themselves- templates  Strategic Learning  Insight: The ability to make sense of the changing environment (Situational Analysis).  Focus: Winning proposition to get customers against competitors
    • 19.  Alignment: The ability to align and mobilize the entire organisation behind this strategic focus.  Execution: The ability to implement fast (implement and experiment).  Renewal: The ability to do the these things over and over without stopping. 
    • 20. Strategic Alignment (Prof Michael Beer)  Every strategy requires the organisation to align  Management traps prevent feedback regarding problems from grassroots level.  Strategy/alignment get out of synch  Strategic alignment process bypasses this problem
    • 21.  Stage 1: Developing a concise statement of strategic and organisational direction (Top Team)  Stage 2: Collecting data on strengths and barriers to implementing strategy (Task Force)  Stage 3: Task force feedback to the top team: the three-day fitness meeting (Task force)  Stage 4: Developing an integrated plan for change
    • 22.  Part One  the top team started to develop plans for redesigning the organisational and management processes  Part Two  The task force evaluated the plans developed by the top team..
    • 23.  Stage 5: Implementing the plan with commitment from key managers  The top team communicated to the organisation what had happened, what changes were coming and why.
    • 24. Dialogue  What happens when the information that has been collected is presented to the senior managers?  How do they go about effectively interpreting it and putting forward well thought-out action plans which are not extensions of old mental models?  It is at this phase that proper dialogue can help.
    • 25. A man convinced against his will is of the same opinion still 
    • 26.  The Differences between Debate and Dialogue 34)  Debate–Oppositional: Two sides oppose each other and attempt to prove each other wrong  Dialogue–Collaborative: Two or more sides work together toward a common understanding
    • 27.  Debate – Assumes that there is a right answer and that someone has it  Dialogue – Assumes that many people have pieces of the answer and that together they can put them into a workable solution
    • 28. Moving from Debate to Dialogue  Questions to ask  “What leads you to conclude that?”  “What data do you have for that?”  “Can you help me understand your thinking here?” rather than “What do you mean?” or “What’s your proof?” 
    • 29. 4) Proof that it works
    • 30.  The author have used TOC, Strategic Learning and Strategic fitment to turn 2 production facilities around, each within 6 months.  See free chapters of “Drawing a new map” on Amazon Kindle site (“The Business Unit that turned around in 6 months”)  Printout of Action- Time delay- result
    • 31. A Turnaround affected within 6 months
    • 32. Summary: Drawing a new map  The world is more complicated than we think/and changing  Many people know a part of the puzzle  The problem is to put the pieces together  We need to focus on the few critical issues
    • 33.  We need to bypass aspects of human nature working against our success. (Management Traps, Mental Models  Proper Dialogue along with Strategic Learning and Strategic Alignment will help us do the right things well
    • 34. Drawing a new map: Doing the right things well through the Strategic Learning and the Strategic Fitment processes