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Strategy & Tactics for State Owned Enterprises. Christoph Lenhartz


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  • This presentation is about all of us – you, me, and espacially about our children
  • A company is a system A system has a goal, the Goa is determined by the system owner!!! Necessary conditions must be satisfied in order to achieve the goal The performance of any system is limited by a constraining factor Success is defined by stability and growth Decisions/actions required for growth are often in conflict with those required for stability Common challenge: Achieve more goal units with same/less resources in less time
  • First understand focus relative to what…
  • SOE serve three main stakeholder groups Each group has specific expectations [blue text] and needs [clouds]. Although the perspectives of the state (as shareholder), the employees and the public are different, they are interdependent. Ignoring these well-established interdependencies diminishes the overall performance. An effective organization must satisfy all three perspectives simultaneously
  • SOE serve three main staekholder groups Each group has specific expectations [blue text] and needs [clouds]. Although the perspectives of the state (as shareholder), the employees and the public are different, they are interdependent. Ignoring these well-established interdependencies diminishes the overall performance. An effective organization must satisfy all three perspectives simultaneously
  • Financial Viabilty: Standard TOC global metrics applied to for-profit and for-cause organizations
  • Example de
  • Improve the quality of services provided and products developed by enterprises; Reduce the price of services provided; Improve the profitability of enterprises and increase their contribution to the budget.
  • Improve the quality of services provided and products developed by enterprises; Reduce the price of services provided; Improve the profitability of enterprises and increase their contribution to the budget.
  • A-B SOE exists to satisfy a specific goal or need which no private actor would or should not satisfy. B represents the idea that the SOE is primary there to pursue politics and regulate economic sectors B-D The obligation is required to achieve the SPS goals Service delivery is essential to achieving the mission SOE must do whatever it takes to achieve the mission Level of service delivery must be continuously increased A-C “ The target is to collect over LTL 500 million in dividends and profit payments in 2012”*; also taxes C represents the idea that the state is a shareholder in a business C-D‘ Profits don’t just happen must be generated within the SOE Personnel and leadership are not used to operating like a business SOE currently doesn’t meet profitability expectation Achieving the mission should no be founded through other sources
  • Is it true, that the national obligations can not be delivered in the most effective way? Is it true that there is no way to improve teir delivery? This is obviously a wrong assumption. You have seen this for instance with the significant improvements in the performance of the guarantee fund. TOC has proven ist effectiveness in the private and the public sector. Ist unique ability to analyze and resolve conflicts makes it the ideal tool for SOE and public sector reform.
  • PA1: . (D-D’ assumption from the core conflict / root cause of all the symptoms) 1. Why the change is needed? (Necessary Assumption) 2. What is the specific measurable objective of the change? (Strategy) 3. Why we claim the Strategy is possible and what specific requirements, potential negative branches or obstacles must be considered when selecting from the alternative ways (tactic) for achieving the Strategy? (Parallel Assumptions linking Strategy with Tactic) 4. How to best achieve the objective of the change (Tactic) e.g. what changes should be made to processes, policy or measurement? 5. What advice/warning should be given to subordinates, which, if ignored, will likely jeopardize the sufficiency of the steps they would take to implement this tactic or which is likely to be ignored (without the warning)? (Sufficiency Assumption)
  • SA: (the real power of TOC – focus on the constraint using the 5FS and the root cause using the TP).
  • Appplied knowledge: (e.g., TOC: TP, Lt. Cloud, 4 Views of Change, Organizational S&T tree, how to write Transformational S&T trees; Japan Wa), case studies, existing applications; management science
  • TOC’s operations management tools consist of what is perhaps the foremost working principle of TOC, the process of ongoing improvement (POOGI), as well as a suite of tools and methodologies for transferring TOC’s underlying ideas into a variety of operational contexts, such as production (e.g., DBR and buffer management), distribution (replenishment), and projects (critical chain). As TOC was originally conceived in a manufacturing environment, the tools associated with production management constitute some of TOC’s earliest developments.
  • Build and decommission NPP
  • Transcript

    • 1. Strategy & Tactics forState Owned EnterprisesVilnius, September 27, 2012Christoph Lenhartz, Chairman, TOCICO
    • 2. Topics1 SOE and Their Challenges2 The Dilemma between Obligation and Profits3 Strategy and Tactics for Sustained Improvement4 Examples 01.10.12 2
    • 3. What Is an Enterprise?Constraint GOAL Necessary Conditions 01.10.12 3
    • 4. State-Owned EnterprisesSOE pursue financial, strategic, political, social goals:•Strategic control of resources/infrastructure (Energy, forestry)•Delivery of essential but non-lucrative services (Public transport)•Social/political services (Registers) 10/01/12 4
    • 5. SOE in Lithuania• “Group 1A”: Focus on increasing returns (dividends)• “Group 1B”: Focus on increasing returns AND securing strategic interests• “Group 2”: Focus on social and political objectives while ensuring efficient operationsValue of state-owned assets: 3,053 mLTLPerformance 2011:• Sales revenue 6 552 mLTL• Net profit 247 mLTL• Asset market value 13 549 mLTL• D/E ratio 11.0 %• ROE 1.3 %• Employees 40.8 thousandSource: 10/01/12 5
    • 6. A Challenge in SOE and Public Sector• Close the large and often growing gap between service and infrastructure levels and a growing demand• Demand grows much faster than resources and services levels Demand Expectations Vicious cycles of over- and underreactions Services levels Current performance Resources 01.10.12 6
    • 7. A Vicious Cycle Budget Pressure to be decreases more efficientUsers resort to Reduce service alternative/ offeringprivate offerings Effective Demand per service level unit of service decreases increases 10/01/12 7
    • 8. TOC in ONE Word FOCUS•Doing what should be done•Not doing what should not be done
    • 9. Stakeholders and Expectations State Budget contribution Service provision Financial viability Security High service Satisfaction Low price SOE Employees Public/Users Secure employee Customer environment satisfaction 01.10.12 9
    • 10. Equally Important Conditions Satisfied shareholders SOE Satisfied Satisfied employees customers 01.10.12 10
    • 11. Goal and Critical Success Factors Throughput Financial excellence Financial Operating Expenses (increase T, while controlling Viability OE and reducing I) Inventory Satisfied Stakeholders Reliability Operations excellence Satisfied (production, project, Users distribution) Responsiveness Satisfaction Satisfied Employer excellence Employees (meaning, change, buy-in) Security 01.10.12 11
    • 12. Global Metrics in Business and SOE For-profit Business SOE CommentOrgani- Satisfied stakeholders Satisfied stakeholders (long termzational (long term profitable Identical value improvement)goal growth) Continuously increase satisfactionOperatio- Continuously grow of system users while growing Different focusnal goal profits profits beyond minimum level Rate at which system Rate at which system generates Parallel definitionThrough- generates money goal units = improvement of user yet different ope-put (T) through sales satisfaction and financial T ratonialization (T = Sales - TVC) Active: Investment in purchasing assets, stock for short termInventory sales (operating inventory) Identical(IY) Passive: customers waiting for processing (service industry)Investment Capital base (Current captal budget plus present value of all Identical(IT) past capital investments)Operating System cost of turning System cost of creating T IdenticalExpenses IY into TAdapted from Shoemaker &Reid, 2010 and own research 10/01/12 12
    • 13. An SOE Dilemma… Mission or Profit? Maximize fulfillment Focus on increasing of mission/special service delivery. obligation. B D A Be a successful SOE. C D‘ Operate within Focus on increasing financial profitability. expectations. 10/01/12 13
    • 14. An SOE Dilemma… Pay Dividends or Re-invest B D Ensure long term Re-invest profits into growth of SOE. business of SOE. A Be a successful SOE. Contribute to the Pay dividends to national budget in the shareholder(s). short run. C D‘ 10/01/12 14
    • 15. An SOE Dilemma… Cost of Service B D Ensure broad Charge low prices. accessibility A Be a successful SOE. Maximize profits Charge high prices. C D‘ 10/01/12 15
    • 16. A Generalized SOE Dilemma B D Achieve strategic Allocate resources to political, social goals national obligations. A Be a successful SOE. Allocate resources to Contribute to the profit-generating budget. endeavors. C D‘ 10/01/12 16
    • 17. Direction of Solution• Set clear and stable performance standards for the national obligations• Develop sound strategy and tactics as a blueprint for sustained, lng term value increase• Improve flow and effectiveness of national obligation and “free” services (Operations excellence): – Operations excellence: deliver more service with same/less resources, faster; – Use proven mechanisms from business world, e.g. TOC – Implement continuous improvement (“POOGI”)• Implement Financial excellence• Attract and retain outstanding employees• Address dilemmas and conflicts using Thinking Processes 10/01/12 17
    • 18. Strategy and Tactics – Global ViewStrategy The SOE is more and more adept at delivering excellent service (quality, timeliness and customer satisfaction), while providing a rewarding work environment (for staff and management) and significantly improving financial performance (performance to budget, profit, spending).Parallel • Actions taken to improve quality of service can jeopardize financialAssump- performance, while actions taken to not jeopardize or to improve financialtions performance can hurt quality of service. • Financial throughput must grow faster than OE to realize growing profit. • Exhausting the SOE’s resources and/or taking too high risks severely endangers the chance of reaching the strategy. • When industry applications (e.g., Lean, TOC, Six Sigma) are appropriately adapted and effectively focused (based on customer centricity) and POOGI is implemented, the SOE’s performance (service level, rewarding work environment and financials) improves significantly through more effective use of currently available resources.Tactics The SOE successfully changes its mode of operation through effective adaptation of industry applications and other knowledge applied (incl. POOGI) without exhausting its resources and without taking real risksSufficien- The way to achieve dramatic improvements is based on knowing where andcy Ass. how to successfully focus efforts. 01.10.12 18
    • 19. Strategy and Tactics – Level 2: FlowStep 2.1 Effective Flow•Flow of work within and between departments has a significant impacton quality and financial performance.•The flow of information, resources and inventory affects not only theworkflow, but also the work environment and financial performance.•Strategy: A successful mode of operation is accomplished wheneffective flow is achieved within the SOE, when all other parametersremain the same•Tactic: Identify, prioritize and remove barriers to flow (use TOC toolsto focus and improve) 01.10.12 19
    • 20. Strategy and Tactics – Level 2: ImprovementStep 2.2 Process of Ongoing Improvement (POOGI)•Service delivery have an important impact on customer satisfactionand financial performance of the SOE.•Service defects (errors) have an important negative impact on SOEperformance.•Applied knowledge in the public domain can be utilized to significantlyimprove SOE performance..•Strategy: Applied knowledge is utilized in the SOE to improve itsperformance (excellent service, rewarding work environment andfinancials).•Tactic: The SOE implements an effective, focused POOGI 01.10.12 20
    • 21. Structure of Strategy and Tactics Strategy Tactic Strategy Strategy Tactic Tactic Strategy Strategy Strategy Strategy Tactic Tactic Tactic Tactic 01.10.12 21
    • 22. Expected Results Higher value of SOE Better quality of services and products Lower cost/price of services and products; Increased profitability of SOE and contribution to budget. DON’T FORGET TO MEASURE!! 10/01/12 22
    • 23. The Five Focusing Steps0. Define system & goal1.IDENTIFY the system’s constraint(s).2.Decide how to EXPLOIT the system’sconstraint(s).3.SUBORDINATE everything else to theabove decision.4.ELEVATE the system’s constraint(s).5.WARNING!!!! If in the previous steps aconstraint has been broken, go back tostep 1, but do not allow INERTIA to cause asystem’s constraint. 01.10.12 23
    • 24. 24 10/01/12 Quadrants of Change Layers of Resistance, Shoulders of Giants Strategy & Tactics Trees Standing on the Change Management Five Focusing Steps Ongoing Improvement Thinking Processes Performance Mgt. Operations Mgt Effect-Cause-Effect: CRT, Operational Measure- Production: FRT, NBR, PRT, TT ments: T, I, OE Drum-Buffer-Rope Conflict Resolution: Financial Measurements: Project Management: Cloud diagrams NP, ROI, CF Critical Chain PM Audit: categories of Link Reliability: Distribution: Legitimate Reservations TDD, IDD Replenishment TOC – Technology Overview
    • 25. Specific Applications• Health Care – Improve patient outcomes (quality, timeliness of care) – Higher efficiency (overall resource utilization) – Examples: NHS (UK), hospitals and practices worldwide• Education – Teach through the use TOC TP tools – Learning instead of exam-focus only – Examples: Schools worldwide, prisons• Justice – Increase throughput (no. of cases/time) – Reduce duration of cases/trials – Better quality 10/01/12 25
    • 26. Strategic Projects of SOE• SOE projects: – Build & decommission nuclear power plants – Upgrade power plants and grids – Gas infrastructure – Logistics – Road, rail, airspace, port• All companies have several additional, internal projects• All projects share/compete for limited resources What is the impact of delays? What is the value of timely/early delivery? What is the impact of incomplete delivery? 10/01/12 26
    • 27. A Delayed SOE Project – Airport BER• Initial opening date: October 2011• Current plan: October 2013• Project turned from “green” to “red” within short timeDamages include:• Significant cost overrun (current estimate: 4.3 b€, overrun of 1.8b€)• AirBerlin and Lufthansa can’t realize planned growth and expansion• State can’t collect fees, taxes• Airport company on the verge of bankruptcy• Unhappy passengers• Others: tourism, noise, congestion, reputation 10/01/12 27
    • 28. Critical Chain Project Management• TOC-based solution for project management• Single & multiproject organizations• Typical results: – On time performance: 95% – Lead times reduction: 25% – Increased project throughput: 30%• Three key interventions: – Stagger projects – Buffer safety – Robust tactical priorities 10/01/12 28
    • 29. Example: SOE Logistics ProviderChallenge: – Provide basic national obligation service and non-regulated services without segmenting resources – Regulator had determined too many service failures on obligation services (delayed deliveries) – Need to improve flowSolution direction: – Improve effectiveness of uniform physical process/flow for all products – Ensure sufficient capacity for obligation service in sorting centers, line-haul, first and last miles – Decide on bottleneck location: line-haul schedule – Fill up capacity on line-haul schedule: • First obligation service • Then premium non-regulated products • Then basic non-regulated products 10/01/12 29
    • 30. Other Examples• Ministry of Land Infrastructure and Transportation, Japan – Critical Chain Project Management used to significantly increase delivery of public works projects (infrastructure) – Win-win-win Partnerships (one day response) – Clean-up after 2011 Tsunami and Fukushima nuclear accident – Create harmony (Wa)• Utah Department of Workforce Services (USA) – Case workload 2008-2012: +50% – Operational cost 2008-2012: -25% 10/01/12 30
    • 31. Dėkui! Thank You! Vielen Dank!Pinnacle Strategies Europe, Middle East & Africa +49 175 1862047