Unlocking the Value of M4.0
Deliberately shifting culture through practical behavior changes is the key to more agile and sustainable manufacturing. By Joe Dettmann and Jason Fehr
In any company with manufacturing operations, you will find pockets of excellence where an enlightened leader has built a team that functions like a fine watch. You might say they have a culture, a way of working, wherein each person knows what to do and how to do it well as part of a team. There is a connectedness supported by shared understanding and a focus on getting results. These teams move as one, addressing constraints and challenges and handling them in stride. They protect and create value for the team through deliberate action, but action that comes naturally because they are a part of something.
What if an entire function, or even a company, could work this way?
A growing number of manufacturing companies are taking more purposeful steps to drive behavior change – which, at scale, you might call culture change. The conversation at the executive level has rightfully shifted from “should we” to “how do we,” where leaders not only recognize the role that culture plays in unlocking the potential of Manufacturing 4.0, but also make investments in behavioral analytics and behavioral science to drive change.
As ongoing crises have both necessitated and allowed for behaviors to change quickly, culture is now well recognized as an intangible asset that separates the great companies from those that are just good. Manufacturers of all sizes need to build a culture that suits their operational environment – one that focuses on the few, practical behaviors that are both good for the business and for the people.
The First Line of Defense
Corporate culture, defined simply as the behavioral patterns of the people in a company, is now measured, managed, and reported on by most leading companies around the world. On average, more than 50% of a company’s market value is now derived from intangible assets, and, for some industries, that value can be as high as 80%.¹ In other words, the health of your culture can go a long way toward defining the health of a business across all industries, including manufacturing.
A workplace culture typically comprises three parts: mindset (how you think and influence as leaders), behavior (what you actually say and do), and skill (the ability of your people to perform). These three elements can drive a company forward, and, when they work in concert, the result is an organization built around leaders who convey a consistent message about how things are to be done and a team that has the skills to drive the right performance.
The health of your culture can go a long way toward defining the health of your business.
The next step is creating an environment that both creates and protects value through its people. Day-to-day personal behaviors, based on shared beliefs and aspirations, more powerfully influence an organization’s actions than formal mandates or controls. Without a cultural foundation of integrity in place, an organization risks failure. But, with that foundation, an organization can innovate, manage risk, adapt, and meet stakeholder commitments.
The following are behavioral accelerators that can bring you closer to these goals and create value in your organization:
- Make values real on the ground with behavioral expectations and modeling
- Break down into small behaviors what you need people to do so that they can be nudged in the flow of their work.
- Leverage your value proposition to attract talent and customers
- Link performance metrics and incentives to the behaviors you need
You should also be aware of risk and potential negative behaviors that could impact your performance. Ensure that your culture (normative behaviors) matches what your control environment calls for. These can easily be taken for granted in a company that hasn’t been through a difficult situation related to behavior by its personnel. Be sure to continue that and take steps to ensure that your code of conduct is followed and that decisions align with your company’s risk appetite. Create value by increasing the presence of value-creating behaviors and protect value by decreasing the presence of value-eroding behaviors.
Breaking Down Behavioral Barriers
At its core, behavior change is simple, but not easy. To bring new value, we need people to use different words, to make choices in their day-to-day work, and to actually behave or perform a little differently on a task or in a meeting. Those are seemingly simple, small things, but they are not easy to shift. Breaking behavior down to something simple to do in the flow of one’s work is what makes change possible.
To illustrate, at Ernst & Young LLP, we had a manufacturing client looking for ways to unlock innovation in its business. We defined what innovation meant behaviorally and very specifically through a series of leadership discussions and focus groups. We met with people out in the field and helped the company develop a strong operational, practical working definition for what innovation looked like in daily practice. Then we talked about steps that could be taken to free people from unnecessary constraints so that their ideas could come forward.
In this case, it wasn’t about doing more, but about doing less so that they could do new. Redundant efforts were eliminated, unnecessary approvals were removed, and meetings were shortened and better managed. People then started to have more time to think and improve things around them, and not just participate in meetings or operate a process.
Many leaders can relate to their biggest barrier to unlock innovation – bureaucracy. As we went through a process of defining FROM-TO behaviors, we came to find out the company had, on average, 17 layers of approval for a relatively small, $50,000 capital expenditure in the company. Nothing will stifle innovation like that type of bureaucracy. What we did to ultimately unlock innovation, but more specifically, unlock small behaviors on the ground, was reduce the number of steps from 17 layers to five.
It turns out these layers were just bolted on over the previous 15 years. It was an old process that no one really understood or needed, but no one had ownership or took the time to examine and simplify it. You get into a conversation where a leader says, “Well, I have to send this to finance because finance requires it to go up to this person.” What the leader doesn’t realize is that the person in finance is saying, “I don’t need that. I don’t even look at that.”
It’s often a matter of work simplification to allow people the space and support to actually do what comes naturally to them, to make an idea better, or to serve a customer differently. It’s unlocking the potential for value that’s already there. It just takes a willing and aware leadership team to clear such obstacles out of the way. That’s a different, more meaningful message than talking about what agility means or creating a list of six things you have to do to be agile. Blueprint what needs to be, find the things you can clear out of the way, and have a process in place to stop behaviors that might be holding a team back from delivering what it naturally wants to.
Address Behavior Change Directly
If transformation of any sort is on the agenda, you have to be prepared to go at behavior change as deliberately as you would putting in a new technology or shifting a business process. Bringing people along shouldn’t be an afterthought or relegated to HR. Behavioral analytics and behavioral science practice are too good today for business leaders to ignore.
Behavior is said to = motivation x ability x a prompt. Blueprint behavioral changes you need, create the psychological safety that motivates people to lean into their natural skills, then prompt them consistently on the expectation to work that way. If you don’t make team-level behavioral expectations clear and consistent, you will be hard-pressed to sustain any form of change.
The potential for M4.0 lies in the on-the-ground teams who can adapt and tinker each day.
Building this in teams aggregates to a culture where each person and the collective have this mindset. At the same time, it needs to be an environment in which concerns can be addressed without fear of reprisal. If you’ve got a mid-level manager who works on the floor and has grown frustrated at the layers of approval necessary to get a needed expenditure approved, he or she needs to have a safe channel to express that. What if there was a new piece of equipment that could save the business serious time and money, but the process for bringing ideas was so risky or heavy that the manager just didn’t bother?
In our experience, these cultural barriers are everywhere in companies. Top-down innovation processes are going to yield only so much. The potential for M4.0 lies in the on-the-ground teams who can adapt or not, tinker or not, each day. Imagine each local leader rolling a rock off of the productivity path each day. In time, an avalanche forms, and you hit a behavioral tipping point where a new operational culture takes hold, one in which ways of working fit with strategic agendas.
We see many companies where transformation agendas are ambitious and sophisticated, and where leaders have lost the practical connection to what’s happening on the floor.
Prioritize the Boulders
The path to realizing M4.0 will be blocked with institutional boulders, like antiquated incentive systems, and the aforementioned small rocks that you need local leaders to roll each day. Senior sponsorship direction in prioritizing what boulders matter most to go after is key.
At the senior level, identify the big boulders, like governance, operating model, performance systems, rewards systems, and business processes, that must change to shift and sustain new ways of working. Prioritize one boulder at a time so that senior leadership can put their collective shoulders into rolling it forward.
Outside of the senior leadership team, identify the influencers who are open-minded and ready to do things differently. With these people at the forefront, run new behavior plays through a behavioral playbook. Over time, these new behaviors create new norms that can be promoted to other teams as a new way of doing things.
Although we often recognize small or tech companies as best able to drive modern cultures, size and age are not barriers to a healthy, differentiated culture. Heritage, history, and purpose are huge advantages if you tap into and celebrate them well. And they can be as inspirational as any progressive mantra of a tech company. This point needs emphasis: Being large and having a rich history are advantages, not disadvantages. There is no shortcut to instilling legacy and wisdom in your culture. If you have those, even if they are shrouded in current challenges, you have something great on which to build. But build you must – every organization of any size, shape, and age must shepherd its culture to stay fit over time.
In many instances, manufacturing companies have built a legacy of creating quality products and consistently responding to the needs of their customers. The leaders of these companies should have a system in place that ensures that this history becomes embedded in the company’s culture and thus is continuously passed from one generation to the next. When new employees are hired, they are paired with mentors who can share their experiences and lessons learned to create a sense of belonging and an obligation to carry on the traditions of the business.
As manufacturers confront changing dynamics in their industries, and new ways to get work done, consider the impact of these changes on your culture. It’s not about transformation or making wholesale changes. Rather, it’s about shifting the workplace environment to ensure that your team has the mindset and the training it needs to evolve with the times to drive your company’s competitive position in the market. M
1 Brand Finance (2018). Global Intangible Finance Tracker (GIFTTM) 2018 — an annual review of the world’s intangible value – https://brandirectory.com/download-report/GIFT.pdf.