Flying High: An aircraft manufacturer adds $400 million in bottom line value after a cultural transformation
- Aircraft manufacturer
- Recently sold by large defense contractor to become a private enterprise answering to investors
- New leadership sought fast results related to speed of production and cultural transformation
- Addition of $400 million in bottom-line value
- Change to a customer-centered culture from a bureaucratic, top-down culture
- Speed-to-results project led to delivery of 23 aircraft when 6 of that type had been forecast for the year, resulting in $27 million in revenue
When hit by a perfect storm, most businesses are wiped out. For one high-profile business jet and small aircraft manufacturer, the impact of the global economic crisis coupled with the cold realities of being purchased jointly by an investment bank and a private equity firm knocked it down, but not out.
For nearly 20 years the company was a subsidiary of one of the world’s largest military defense contractors. That allowed operational, financial, and cultural issues indicative of a struggling organization to go unaddressed.
Now, the small business had to earn investment dollars, raise its own capital, and answer to investors. And the military-style, top-down leadership of the defense contractor was no longer effective in a $3.5 billion, 6,000-person business struggling for survival.
In early 2009, a new chief executive was brought in. He quickly realized he’d inherited a bloated company too big for the realities of the marketplace, and the culture of the organization couldn’t drive the transformation required for company survival. Within a month, he called Insigniam.
The Insigniam Impact
Interested in quick change and fast results, the CEO engaged Insigniam to help the company deliver two high-impact, high-profile results that would signal the start of a new era. The two projects were wildly successful and led to a two-and-a-half year partnership to revitalize the business in the midst of the worst economic circumstances to hit the modern small jet and personal aircraft markets.
By the end of Insigniam’s engagement, more than $400 million had been delivered in bottom-line value, and the company’s corporate culture had been transformed from a bureaucratic, top-down relic to a lean, entrepreneurially minded meritocracy.
Right Sizing to Match Reality
Executives, management, and every employee needed to understand that the company did just three things: it built, sold, and serviced business, personal, government, and special-mission aircraft. Everything they did needed to directly support those efforts. People’s attention needed to move from the effort exerted to the work and results produced. People needed to understand that customers paid for the company to do something once, not multiple times due to poor quality, inaccurate instructions, improper execution, or, simply, errors in communication. Lastly, with the global markets continuing to suffer and the company’s competitors becoming more ruthless, the organization needed to shed any extra weight to survive.
Speed to Results: A Complete Turn-Around of a Failing Initiative
One of the two initial projects was resurrecting a phoenix from the ashes of failure. Thirteen years earlier the company invested heavily in a groundbreaking, state-of-the-art jet that would be the enterprise’s flagship vessel, securing the company’s place as the leader in the industry. In 2009, the program was in shambles.
The company was counting on 18 of the $20 million planes to be produced and delivered in 2009; at Memorial Day, one plane had been delivered with only five more likely by the end of the year. Each plane delivered in 2008 and 2009 had more than 400 errors coming off the production line. Cost overruns were in the millions per aircraft, and all goodwill and partnership between those involved in the program had been devastated.
Insigniam began working with the project team not on the future, but on the past. People needed to unhook from the vicious circles and damaging conversations that permeated the program. This allowed team members to recognize the root causes of the dysfunction, as well as how each individual contributed to it. In three days’ time, people were able to see what was actually possible for the program.
The team then made a promise. Instead of five deliveries in 2009, it committed to 23. The chief executive accepted the team’s promise, knowing that even getting close would be a significant win. The team, with Insigniam as its coach, went to work.
Over the next six months, people no longer trafficked in ‘estimated completion dates’ for tasks, but made promises and then honored them. They no longer blamed abstract groups like ‘Engineering’ or ‘Quality’ but made direct requests of people who could resolve an issue. Team members identified what wasn’t working and attacked issues instead of explaining things away. Most importantly, they focused on what honoring their promise would mean to the corporation and their belief that they could deliver the extraordinary.
At the end of the year, the promise was kept. Twenty-three aircraft were delivered to customers, the last of which was free of error or defect. Quality and reliability of the planes produced was in the 99th percentile, while person-hours per aircraft dropped by more than 2,400 hours, and overall material cost per plane fell by 10%. More than $27 million dropped to the bottom line as a result of fulfilling this promise, resulting in an ongoing annual savings of more than $3.5 million per plane.
Manufacturing Became a Team Sport
Typical of any assembly line, workers on each of the five production lines were assigned a specific station. More often than not, the product they received from the previous station was poor. Problems were being pushed down the line until the plane arrived at the last station as a completed airplane replete with errors. Through a series of leadership and management training efforts, new principles were adopted to systematically alter the way planes were built. If the line needed to stop, each employee was empowered to do so. In a year’s time, one line alone produced 37 perfect planes, and the manufacturing organization reduced its spend on waste and rework by $35 million.
Resentment Replaced with Ownership and Partnership
For one initiative, Insigniam partnered with McKinsey & Company. McKinsey’s employee morale survey revealed that morale was in the lowest 25% of the thousands of people from all the other companies with which McKinsey has worked. In interviews, many long-tenured employees were experiencing deep frustration, resentment, and a feeling of real detachment from the company they once loved and to which they had immense allegiance. Insigniam was asked to work with 1,100 people over 18 months in a frontline leadership, management, and operational execution program to embolden the lean initiatives being implemented in the plants, as well as transform employees’ relationship and engagement with the company. In just three months, the McKinsey follow-up survey found employee morale had jumped 12 points and nine months later was in the 60th percentile. Moreover, each cross-functional work team that participated contributed to a total of $24 million one-year cost savings.
A Cultural Transformation with Significant ROI
What began with two breakthrough projects quickly developed into a full organizational transformation. The company went from a bureaucratic, top-down leadership approach to being organized around giving customers what they wanted, with collaboration across work groups. The new behavior and financial results are measurable, showing the ROI of cultural transformation. Although much of the work was the “soft issues” of how people worked together, the results were hard to deny: more than $400 million in bottom-line value was produced.