white paper | Policy Deployment

Cracking the Code: How to Make Policy Deployment Work for Your Company

By Gary Hourselt

reating a strategic plan for your business is like working with an architect to develop a set of blue-prints for your dream house. Policy deployment is

often portrayed as the general contractor who works to turn that vision into reality, setting project milestones and in-itiating corrective actions when the plumber doesn’t show up. The weakness of this analogy is that every house under construction has a set of blueprints and a more or less com-petent general contractor, but every business does not have a good strategic plan let alone a disciplined process for making it a reality.

“Your business is perfectly designed for the results you’re getting,” says Mark Kohler, who has worked on lean manufac-turing and policy deployment initiatives since the early 1990s. Kohler was vice president of manufacturing for Snap-on Inc. (Kenosha, Wis.) through early 2008. “If leadership wants to achieve different or better results, they have to be willing to change the design of the business to get there. Policy deploy-ment determines which business processes need to change and which ones need to be developed and im-proved to take you where want to go.”

Kohler divides management activity into two categories, “working in the business” and “working on the business.” Working in the business is everything that has to be done to meet weekly, monthly and quarterly commitments. It’s about making incremen-tal improvements and doing all of the fun-damental things that competent managers know will improve business performance.

By contrast, working on the business is about changing how the company operates and shifting core competencies to achieve breakthrough improvements. As this white paper re-views, policy deployment helps organization leaders create an action plan for working on the business to achieve their stra-tegic objectives, and establishes a disciplined process for mak-ing it happen.

“A lot of companies are driven by an annual operating plan with incremental levels of performance improvement with incentive and bonus systems geared to that plan. Some years they do well. But in bad times they will blame the economy,

or a change in market variables, not their inability to respond to disruptions in the market.” Kohler adds. “Company leaders may have a vision of where they want to go, but they don’t have a way of deploying that vision, or understanding the physical changes required by the business to achieve it.”

Set Real Breakthrough Objectives As a disciplined process for executing a company’s strategic plan, policy deployment follows the Shewhart cycle—plan, do, check, act (PDCA)—named after Walter A. Shewhart and popularized by W. Edwards Deming. The “plan” phase en-compasses the development of the strategic plan and the key business indicators that reflect those breakthrough objectives. The “do” phase is the rollout of the plan, when leaders assign resources and accountability, and pull together cross-functional teams to drive operational or commercial breakthroughs. The “check” phase includes monitoring progress and monthly status meetings. And the “act” phase is the corrective actions required to stay on target.

“If a business is out of control, getting it un-der control would be the initial focus,” says Mike Heath. Heath spent 14 years at Danaher Corp. He was president of the Danaher Tool Group Asia and executive vice president of the Danaher Tool Group before launching his own consulting company in 2001. Focused on driving performance within public and private equity companies, the firm was ac-

quired by TBM Consulting Group in 2008.

“After getting the business under control, then you can focus on step function improvements,” says Heath. The top level, step function objectives will vary, but they tend to revolve around profitable growth and cash flow. In a slowing econo-my, when many companies are carrying a lot of debt, cash flow will often become the absolute top priority. One of the biggest challenges for many leadership teams is not where they need to focus, but what a step function or breakthrough objective actually looks like.

“It’s not uncommon for companies to have a budget expecta-tion for sales to keep up with market growth. That’s unaccept-able. That’s not a step function improvement,” says Heath.

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“ Your business is perfectly designed for the results you’re getting. If leadership wants to achieve different or better results, they have to be willing to change the de-sign of the business.”

TBM white paper | Policy Deployment

pg.2

“You want to double the market rate or improve cash flow

from 80 percent of EBITA to 120 percent of EBITA. True

stretch goals will require the team to reevaluate and approach

the business in a different manner than budget goals.”

Breakthrough objectives require managers to stop doing what

they‟ve always done and do something new. This pushes

people out of their comfort zones, which is the whole point.

Still, the breakthrough objectives must be within the realm of

possibility. A popular example of a visionary but achievable

breakthrough objec-

tive was U.S. Presi-

dent John F. Kenne-

dy‟s challenge to put

a man on the moon

and bring him back

home safely by the

end of the 1960s.

“A breakthrough is

not business as usual

and should require a

redirection of resources,” confirms Gary Hourselt, former

president of Huck Fasteners. “If you can immediately articu-

late a plan for accomplishing something, that‟s not a break-

through objective.”

Hourselt offers the example of a 60-year-old company he has

worked with that had been recording defective product and

warranty claims of $1 million to $2 million every year. Man-

agers had made sporadic attempts to reduce these claims, but

everyone assumed that they were just part of the normal

course of doing business. One of the company‟s policy dep-

loyment projects was to reduce these costs to zero. Having an

opportunity to focus on that goal, and dedicating some re-

sources to the problem, the cross-functional project team dis-

covered that most of the claims were caused by internal

process failures. Within a few months they had developed a

plan of attack and were making significant progress toward

eliminating all such costs.

“When pursuing strategic objectives many companies try to

work on too many initiatives at once,” Hourselt points out.

This dilutes resources and diverts management attention. A

critical element of policy deployment‟s initial planning phase

is the “deselection” process. In this phase the leadership team

rigorously eliminates any non-essential goals and kills any pet

projects that will divert focus away from the vital few objec-

tives.

“Each project must be scrutinized to determine if it aligns with

policy deployment objectives,” says Hourselt. “If it doesn‟t

and it isn‟t regulatory—you have to do it or you go to jail—or

it isn‟t required by the board of directors, it should be elimi-

nated to free up resources. The companies that add policy dep-

loyment projects on top of everything else that they‟re doing

are not very successful.”

Freeing up resources is critical because achieving the two or

three breakthrough objectives generally requires teams to

work across departmental silos. Most companies don‟t work

well across functions. To combat this tendency the action

plans emerging from the policy deployment process should be

fully vetted by finance, engineering, human resources and IT

managers. Talking through their concerns and issues will re-

veal the potential impact on each department as well as the

business itself. The more time that the team spends on such

discussions, the deeper the buy in, and the greater the likelih-

ood of success.

“Following the policy deployment process, you realize that

growing sales is too important just to leave it up to marketing

and sales. You need to involve the accounting people, the en-

gineering people, and the production planning people. You

need to have people with different perspectives and less bias

and baggage to help you see the possibilities,” Hourselt adds.

Take Strategy Off the Shelf

Most business managers have been involved in some form of

strategic planning process. The result in many cases is a fanci-

ly bound book or report that sits on everyone‟s shelf until the

next planning cycle rolls around when managers take it down

and see how they did.

“Daily management always takes precedence over spending

time out in the future on strategy,” explains Sheri Nemeth. As

corporate director for the Danaher Business System, Nemeth

led an internal consulting team focused on rapid integration of

new acquisitions at Danaher (Washington, D.C.). At General

Electric she worked in the Controls, Medical Systems and

Motors business unit, applying lean and Six Sigma tools to

improve delivery, reduce lead times and increase inventory

turns.

“In any company that is resource limited, which almost all of

them are, people get sucked up into daily activities,” she adds.

Policy deployment attempts to balance this focus on meeting

the monthly financial numbers with longer term metrics tied to

“Growing sales is too impor-

tant to leave it up to marketing

and sales. You need to involve

the accounting people, the en-

gineering people, and the pro-

duction planning people, with

different perspectives and less

bias to help you see the possi-

bilities.”

TBM white paper | Policy Deployment

pg.3

Focus on the Vital Few: Getting Started with Policy Deployment

The policy deployment process begins with the company’s strategy. Here is a typical timeline for an organization that is just

getting started with policy deployment:

ST

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, VIS

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& C

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(if it

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ell d

efin

ed.)

1. Create a Common Understanding—Review customer perceptions of quality, delivery, service, and val-

ue. The leadership team must analyze current company performance, focusing on key operational and fi-

nancial indicators. These discussions build understanding of competitors’ strengths and weaknesses,

human resource challenges, supply chain capabilities, and the potential impact of any market changes.

2. Key Strengths, Weaknesses, Opportunities and Threats (Focused SWOT)—Start to identify the “vital

few” issues that the organization must address now. One approach is to ask leadership team members to

put themselves in the role of the company president and list their top three priorities.

3. Develop Directional Alignment—Align the company’s vision with the conclusions of the SWOT analysis.

Determine the optimum organizational direction by looking at current technology and products, markets

and sales channels. Creation of a directional matrix can expose new and related products and technology

that the company could develop, markets it could enter, and related channels it could explore.

PO

LIC

Y

DE

PL

OY

ME

NT

PH

AS

E I

4. Outline the Strategic Plan—The planning team creates a three-year strategic plan that leverages the

results of the SWOT analysis and the directional matrix to set concrete goals for quality/customer satis-

faction, productivity/cost reduction, delivery/responsiveness, and morale/safety. The team identifies mea-

sureable goals for each business unit that will contribute to the overall business goals.

PO

LIC

Y

DE

PL

OY

ME

NT

PH

AS

E II

5. Create the Policy Deployment Matrix—The goals defined in the strategic plan must be developed into

specific growth and operational improvement objectives. The X matrix presents these objectives, related

projects, potential financial impact, and the responsible individuals on a single page.

6. Choose the Vital Few and Deselect Aggressively—Select the few breakthrough initiatives that will

have a major impact on the company’s success. Going beyond incremental improvements, breakthrough

initiatives have the potential of leading to a step change in sales, market share or earnings. Projects that

are not aligned with organizational goals must be killed.

PO

LIC

Y

DE

PL

OY

ME

NT

PH

AS

E II

I 7. Track and Review Performance—As the name implies, the crux of policy deployment is making sure

each initiative is on track and that action is being taken to achieve the business objectives. Weekly team

meetings and monthly progress updates review key milestones and devise countermeasures if anything

is falling behind. Visual controls and performance boards help everyone see how the company, and each

team, is progressing.

Source: The Antidote: How to Transform Your Business for the Extreme Challenges of the 21st Century, Anand Sharma and Gary Hourselt

(Managing Times Press, 2006).

strategic objectives. CEOs like the process because it helps

everyone understand the resource load requirements and as-

signs specific accountability through the action plans. Manag-

ers like policy deployment because it‟s a less time consuming

and wasteful method for determining what the company is

going to do and why.

Policy deployment may begin with a planning meeting or se-

ries of meetings. (See box, “Focus on the Vital Few: Getting

Started with Policy Deployment.”) But it soon becomes a way

of running the business when managers start meeting every

month to review progress (or the lack thereof) against their

action plans and performance targets.

“Getting the whole management team together in a room at

the same time, building consensus on what they‟re going to

work on—and what they‟re not going to work on—is a power-

ful part of the policy development process,” says Nemeth.

“Everyone develops an understanding of what they‟re sup-

posed to do to achieve the strategic plan.”

During a typical policy deployment session the X-matrix is

loaded for the upcoming fiscal year. On a single piece of paper

TBM white paper | Policy Deployment

pg.4

the matrix describes the policy deployment plan including

breakthrough objectives, annual improvement priorities

(AIPs), the metrics that will be used to measure the AIPs, and

the resource team assigned to each AIP. The appeal of the X

matrix lies in its simplicity and elegance.

After establishing breakthrough objectives and making step

change improvements, company leaders begin to understand

how they can directly contribute to the sales growth, in addi-

tion to managing the operational and cost side of the business.

“Even managers in large companies with sophisticated mar-

keting departments often don‟t feel like they have control over

the top line,” says Hourselt.

“The exciting thing about policy deployment is that after the

second or third year managers become increasingly confident

that they have some control over growth, and you start to see

some creative ways to get breakthroughs and gain a real ad-

vantage over the competition,” he adds.

Getting started requires a leader who draws the proverbial line

in the sand and demands that business as usual is over, a lead-

er who is confident that when managers start working on the

breakthrough objectives, and really put their minds to them,

they‟ll begin to uncover the possibilities. “In every company

that is successful with policy deployment, there‟s a manage-

ment team that is eager for some kind of breakthrough, some-

thing dramatically different from what they‟ve done before,”

says Hourselt.

That requires more than a commitment of funding to the poli-

cy deployment process. Executives have to be involved, and

should know the process well enough that they can teach it,

Heath believes. “In the spirit of policy deployment we win as

a team, or lose as a team. When leadership buys in, as we go

through the data and cascade the goals down to the point of

impact and create the action plans, you can see the light bulbs

going off. It‟s really pretty exciting.”

Executives need to participate directly in the deselection

process, allocate resources where necessary and attend the

monthly review meetings. In addition to having high expecta-

tions, leaders have to nourish a culture that‟s not punitive,

where it‟s okay to fail as long as a genuine effort has been

made.

Based on Kohler‟s experience, it can take several years for a

company to develop such a culture and stop playing the blame

game when results fall short of the targets. Cultural changes of

any kind take time. The ability to respond to changes and take

countermeasures, one of the core success factors for an effec-

tive policy deployment process, often requires significant cul-

tural changes as well. Not many companies have the discipline

to stay on top of strategic priorities, get to the root cause when

things aren‟t working according to plan, and change direction.

“At Snap-on, once we had the action plans integrated, the

teams first approached countermeasures by trying to revise the

plan downward, or by trying to do more stuff,” recalls Kohler.

“But if the stuff you‟re doing now isn‟t effective, how is doing

more stuff going to be more effective?” Following a structured

problem-solving process, managers there started creating for-

mal problem statements that documented the issues and

spelled out what they were going to do next to improve per-

formance.

“That‟s one of the most powerful parts of policy deployment

because that‟s where true learning occurs,” says Kohler. “The

teams look at what didn‟t work, whether it was a bad plan, bad

assumptions, or some variation that they didn‟t expect or con-

sider. By identifying and initiating countermeasures you‟re

lifting the skill level of individuals and the performance of the

organization at the same time.”

Policy Deployment X Matrix

The policy deployment X matrix joins four quadrants and visually

connects breakthrough objectives, annual objectives, improvement

priorities, and performance metrics.

TBM white paper | Policy Deployment

pg.5

Communication is another key leadership area that can make or break a policy deployment initiative. Leaders have to be able to articulate compelling reasons for the breakthrough ob-jectives. Everyone down to the plant floor has to understand what’s in it for them. By telling the whole workforce and the board of directors what they’re going to do, executives create accountability to deliver.

“It can’t just be, ‘We’re going to grow sales by 50 percent this year! Rah, rah, rah!’” says Hourselt. “It’s more like, ‘We’re going to grow sales by 50 percent this year and we’ve put to-gether a cross-functional team to do some things we’ve never attempted before. If we can accomplish this objective, we’re going to create a lot of opportunities for our company and our employees. We’re going to grow profit sharing.’”

Crazy Discipline Policy deployment will ultimately cascade strategic objectives down to the plant floor, providing a disciplined framework for making progress toward the annual goals and the breakthrough objectives. At the day-to-day level this takes the form of X matrices, action plans and bowling charts to track perfor-mance. It takes time for managers to understand these forms and how the process works. Some of the new software pro-grams for managing policy deployment can shorten the learn-ing curve and eliminate much of non-value-added administra-tive time that is often associated with early policy deployment initiatives. The project teams can then worry less about the mechanics of the process and focus on countermeasures.

“You have to keep people rallied around the policy deploy-ment process and meet at least every month without fail to

review individual action plans and progress toward the break-through objectives,” says Nemeth. “Companies must use communication and technology-based tools to overcome geo-graphic separation and competing priorities that might pull people away from these sessions.”

This discipline must be complemented by a collective will to succeed. “If there are too many conflicting agendas, which tend to increase with the size of the company, policy deploy-ment won’t work,” says Hourselt. In addition, as strategic ob-jectives consume more time, the organization can’t lose sight of the business fundamentals, maintaining a balance between working in the business and working on the business. If deli-very times or quality or costs are out of line, the best strategic breakthrough objectives in the world won’t get you anywhere.

“As you build a foundation around business fundamentals your culture starts to work a little differently. It begins to have more of a bias to action. Nobody wants to lose. Nobody wants to miss their objectives,” Kohler concludes. “I think there’s a lot of untapped potential. Simply going through a long-range planning process or a strategic planning process, having dis-cussions and building consensus around the company direction will not get you there. Most organizations don’t have a way of deploying strategy and aligning the resources. The ones that do it well, you can see the results, and their stock price and growth numbers reflect that.”

TBM Consulting Group recently introduced Dploy Strategy, a web-based solution that helps companies successfully implement,accelerate and sustain policy deployment. Contact Stephanie Christopher at 800-438-5535 to learn more.

Policy Deployment Dashboard

Software can decrease the administrative burden often associated with policy deployment and give company leaders a dashboard view of project owners,action plans and countermeasure status.

TBM white paper | Policy Deployment

pg.6

Policy Deployment Best Practices

There’s no magic potion behind policy deployment

other than the desire and discipline to do it. It takes a struc-

tured process and the willingness to hold people accountable.

Policy deployment can be applied to any organization, whether

it’s a manufacturer, an insurance office, or a hospital.

You can’t work on strategy until you have control of

the business fundamentals. Whether the company uses ba-

lanced scorecards or KPIs or performance dashboards, busi-

ness leaders have to have a good understanding of how the

business pulses on a daily, weekly, and monthly basis.

Breakthrough objectives should be above and beyond

the budget promises, and not communicated outside of

the company. Teams must be able to take risks, and fail with-

out being punished by the investment community if they don’t

quite hit the targets.

Don’t try to focus on too many breakthrough objec-

tives. Companies that are most successful with policy deploy-

ment don’t try to boil the ocean. They limit the number of stra-

tegic breakthrough initiatives that the organization will tackle in

a given year to two or three. Pet projects that don’t support

these objectives have to be formally killed.

Leadership has to understand stretch goals and foster

discipline. Some leadership teams are better at defining and

articulating breakthrough objectives that aren’t completely out-

side the realm of possibility. Likewise, some are better at instil-

ling discipline and keeping people rallied around the process

and the objectives.

The mechanics of policy deployment are straightfor-

ward. Being effective with it is much more difficult. Work-

ing “in the business” encompasses everything the organization

is currently doing and currently measuring. There’s a tremend-

ous amount of tribal knowledge and expertise. By putting fun-

damental metrics in place to track what’s going on in the busi-

ness, the leadership team can begin to work “on the business.”

This means changing how the business operates, changing

business processes and systems. It’s an outside-looking-in

approach to figure out what needs to be done to move the or-

ganization in a new direction.

Prioritize improvement initiatives according to the

impact that they will have on the company’s financial

statements. However dramatic setup time reductions or quali-

ty improvements may be, too many lean initiatives make in-

cremental process improvements that don’t link back to the

company’s strategic objectives.

There’s a role for tactical policy deployment but that’s

not the most powerful application of the methodology. As

a disciplined, structured framework for accomplishing things

that they haven’t been able to accomplish, some companies

find the policy deployment process useful for prioritizing

projects related to decreasing scrap rates, improving quality,

increasing inventory turns and decreasing costs. Many com-

panies start to use policy deployment for tactical projects then

move up to more strategic objectives.

Don’t cascade objectives down too deeply into the

organization in the first year. Keep the initial objectives and

projects within the top one or two levels. Instilling the discipline

and procedures for effective policy deployment within these

areas will be challenging enough. Master the mechanics of

policy deployment before going all the way down to the plant

floor.

One of the biggest management revelations that oc-

curs with policy deployment revolve around taking coun-

termeasures. Standardize reporting mechanisms, whether

through automation or templates, so that the focus of review

meetings is less on what happened and more on what can be

done to get back on track, and how to get to where you need

to go more quickly.

Cross functional activity drives the achievement of

breakthrough objectives. Companies may socialize well

across departmental silos but they don’t work well cross func-

tionally. Leadership must provide the tools and establish the

financial incentives that will encourage cross-functional coop-

eration.

Leverage technology that makes it easier for people to

work collectively. Policy deployment software can ease some

of the administrative burden and allow managers to focus on

problems and solutions. Video conferencing can ensure that

monthly meetings take place when team members are travel-

ling or physically located in different geographical locations.

Sources: Mike Heath, Managing Director; Gary L. Hourselt,

CFO and Executive Vice President; Sheri Nemeth, Managing

Director; and Mark Kohler, Global Client Manager, TBM Con-

sulting Group.

TBM white paper | Policy Deployment

pg.7

For More Information On Policy Deployment

“Plan for Success through Policy Deployment,”

Managing Times, July/August.07

(www.tbmcg.com/news/newsletter.php).

The Antidote: How to Transform Your Business

for the Extreme Challenges of the 21st Century,

Anand Sharma and Gary Hourselt , Managing Times

Press (2006)

“Strategic Deployment: How To Think Like Toyota,”

IndustryWeek, November 2007.

“A Philosophical Approach to High Performance,” an

interview with Larry Culp, CEO, Danaher Corp., Outlook

Journal, January 2006.

“Strategic Planning with the Hoshin Process,” Quality

Digest, May 1997.

Mike Heath, Managing Director for TBM Consulting Group,

spent 11 years with the Square D Company before joining

Danaher Corporation. During that time he worked extensively

in Japan at companies implementing the Toyota Production

System before applying the tools and processes within various

Danaher businesses. Heath eventually became President of

the Danaher Tool Group Asia and Executive VP of the Da-

naher Tool Group. After 14 years he left Danaher to start

Catalyst Business Systems, a consulting firm focused on rapid-

ly driving performance improvements within public and pri-

vate equity companies. TBM Consulting Group acquired the

firm in 2008.

Gary L. Hourselt, Chief Financial Officer and Executive

Vice President for TBM Consulting Group, formerly served

as a senior executive in the aerospace industry. As presi-

dent of Huck Fasteners he led the acquisition and integra-

tion of four companies over a four-year period. During his

five years with the company revenues doubled and pretax

income grew seven-fold.

Mark H. Kohler, Global Client Manager, is a 28-year veteran

of operations management and lean manufacturing leader-

ship. He has spent his career transforming global manufac-

turing operations, including the development and execution of

policy deployment at TRW Automotive, Rexnord Industries

and most recently at Snap-On Tools. Kohler is a six sigma

black belt, a certified Shingijutsu Leader, and a Certified Lean

Technician.

Sheri Nemeth, Managing Director for TBM Consulting

Group, in her role as Corporate Director for the Danaher

Business System, led an internal consulting team that imple-

mented the Danaher Business System to rapidly integrate new

acquisitions and deliver a bottom-line return on investment.

Prior to that Nemeth worked for GE Controls, Medical Sys-

tems, and Motors, applying both lean and Six Sigma principles

to improve delivery, reduce lead times and increase inventory

turns in a variety of operational positions. In 2001 she co-

founded Catalyst Business Systems with Mike Heath.

TBM white paper | Policy Deployment

pg.8

About TBM Consulting Group

Headquartered in Durham, N.C., TBM Consulting Group,

Inc. is the leading provider of LeanSigma®

consulting and

training services in North and South America, Europe, Asia

and Australia. The company’s mission is helping manufactur-

ers and service industry businesses create a competitive ad-

vantage to generate significant growth in sales and earnings.

TBM provides the strategic direction and hands-on implemen-

tation to guide cultural and organizational transformation.

TBM LeanSigma® Institute offers a range of interactive

workshops, online training, user conferences and customized

training solutions to give organizations the necessary tools to

launch their own lean initiative. TBM Consulting Group’s

LeanSigma®

approach integrates lean principles for respon-

siveness and Six Sigma's focus on quality. More information

about TBM Consulting Group and the TBM LeanSigma Insti-

tute can be found at www.tbmcg.com.

The TBM Strategy Practice helps management teams to

quickly develop actionable strategic solutions and achieve

their full lean potential. We take the waste out of tradition-

al strategic planning processes to help clients create an

action-oriented strategy that delivers solid ideas, the struc-

ture to get them done and a real bottom-line impact, in less

than half the time.

__________________________________________________________________________________________

TBM Consulting Group, Inc

4400 Ben Franklin Blvd.

Durham, NC 27704

800.438.5535 www.tbmcg.com

| 10.08 | LeanSigma®, TBM and the TBM logo are registered trademarks of TBM Consulting Group, Inc.