Enhancing Business Excellence Air Academy Associates Rick Murrow

Enhancing Business Excellence Air Academy Associates Rick Murrow CEO, Air Academy Associates Copyright, 2014: Air Academy Associates

ENHANCING BUSINESS EXCELLENCE Agenda Business Strategy Drives Improvement Efforts Sustaining the Improvement Gains Strengthening Business Excellence Customer Value Human Capital Knowledge-Based Management Sample Survey Results Enterprise Projects that Drive Shareholder Value Next Steps. . . Taking Action 2 Copyright, 2014: Air Academy Associates

THE BUSINESS STRATEGY From Planning to Running the Business “Plan the Business” CEO / Business Scorecard Business Unit Scorecard Voice of Customer & Markets • Customer • Financial • Internal Business Process • Employee UCL Business Measures Process Scorecard Process Measures Y's Avg LCL “Run the Business” Tools & Methodology LSS, PDCA, etc. Process Flow X's Business Excellence Business Objectives Value Stream 3 Strategic Plan UCL Avg LCL Copyright, 2014: Air Academy Associates

THE BUSINESS STRATEGY Linking Improvement Efforts and Projects To The Business Priorities Voice of Customer & Markets CEO / Business • Customer Scorecard Business Unit Scorecard • Financial • Internal Business Process • Employee Strategic Plan Business Objectives Business Measures • • PROCESS SCORECARD Value Stream • • 4 Project Results Timeliness / Accuracy Cost Reduction Revenue Growth Customer Impact “Run the Business” Project Selection Strategic Grow Top-line Grow Bottom-line Increase Innovation …products/services Infrastructure “Plan the Business” • • • Tactical Reduce Lead Time Reduce Cycle Time Reduce “Lost Sales” Reduce Mistakes Reduce Expenses Delight Customer Tools & Methodology Copyright, 2014: Air Academy Associates

SUSTAINING THE IMPROVEMENT GROWTH Achieving the “A” Curve Across Your Businesses Which curve is $ $ A C Continuous Improvement Annual Net Business Benefits F 1 2 3 4 your company on? As many as 50% of deployments end up here! Year Time “A” Curve “C” Curve “F” Curve Implementation Enterprise-wide / All functions 1 or 2 major business unit Localized Effort Leadership Alignment and Ownership Involved and accountable executives with fully aligned & committed leaders at all levels. Portfolio of projects to improve entire value streams, linked to business goals, using appropriate level tools and methodology. Led by a committed, involved and accountable set of executives and managers. Numerous cross-functional projects focusing on cost reduction, reduced cycle time, improved quality and major operational problems. Led by a single visionary member of management. Robust plan for selecting, certifying and rotating full-time professionals. 1 -3% of workforce dedicated, with > 20% parttime. Mixture of full-time and parttime resources approaching 1% of workforce, with some linkage to succession plan. Part-time only resources for selecting and leading projects. Implemented with other business improvement initiatives to address a clear business need. Competing priorities limit the involvement and benefits. Limited to proof-of-concept. fails to gain broader acceptance because it is not aligned with mainstream business objectives and related measures. Attribute Projects People Transformational Impetus 5 Viewed as “the way of doing business”, with both tactical & strategic projects. Involves owners, customers, suppliers and entire workforce, for growth, technology leadership, value creation & culture change. Limited numbers of projects focusing on manufacturing and related functions to establish proof-of-concept. Copyright, 2014: Air Academy Associates

TIME SPENT ON BUSINESS EXCELLENCE IS CRITICAL In a “Chaotic” Organization 6 Source: George Hanson - Empire State Advantage Copyright, 2014: Air Academy Associates

TIME SPENT ON BUSINESS EXCELLENCE IS CRITICAL In a “Conventional ” Organization 7 Source: George Hanson - Empire State Advantage Copyright, 2014: Air Academy Associates

TIME SPENT ON BUSINESS EXCELLENCE IS CRITICAL In a “World Class” Organization 8 Source: George Hanson - Empire State Advantage Copyright, 2014: Air Academy Associates

A NATURAL PROGRESSION Business Impact Appropriate Level of Tools and Methodology Combinatorial Robust Testing Toyota Production Design Methods Demming, PDCA System Techniques Juran, T. Ohno Just–In–Time Feigenbaun, K. Toyoda Crosby Time & Motion QFD and Tolerance Division Labor KANO Six of Sigma Allocation. F. Taylor Motorola Interchangeable DOE Parts Taguchi et al Eli Whitney Advanced DOE Assembly Line Design For Six Sigma Employee Partnership Monte Carlo Mass Drucker Simulation Production Henry Ford Early Quality Efforts 9 Lean Six Sigma gr r ve i l TRIZ de alue Altshuller o v t ve ess l o n ev usi. Psychologica d b l Methods n a nd ow er a r y g tom l l a us u tin c Systematic Innovation r te a e Ideal Final Result (IFR) Emotional Methods TILMAG Battelle Institute n o C Time Copyright, 2014: Air Academy Associates

STRENGTHENING BUSINESS EXCELLENCE Understanding the Relationship Customer Value BUSINESS EXCELLENCE Knowledge-Based Management 10 Human Capital Copyright, 2014: Air Academy Associates

STRENGTHENING BUSINESS EXCELLENCE Customer Value VOC VOP • Critical to Customer (VOC) • Quality / Accuracy • Timeliness • Cost • Critical to Process (VOP) BUSINESS • Consistent and capable • Process/products monitored in real time EXCELLENCE • Change and improve when appropriate…don’t “Tinker” • Is the business improving fast enough? Knowledge-Based Management 11 Human Capital Copyright, 2014: Air Academy Associates

CUSTOMER RETENTION GRID* Critical to Maintaining and Growing Revenue (value-add) Product or Service High Value (Delighted) Satisfied Not Satisfied A dv oc at Lo e y Se al ar ch in Go g in g Go ne Not Satisfied Typically, 65% of a "Get closer than ever company’s to your customers. business comes So close , that you tell from existing them what they need customers. well before they realize 68% of “Satisfiedit themselves. " Customers” would Steve Jobs, Apple Switch! It costs between 4 and 7 times more to acquire a new customer than to keep an existing one satisfied! Dazzled Process for Delivering Product or Service (experience with processes) 12 65% Quote: Return on Behavior Magazine 4 to 7 times: Chartered Institute of Marketing * Retention Grid: Dr. Tom Connellan Copyright, 2014: Air Academy Associates

STRENGTHENING BUSINESS EXCELLENCE Human Capital Customer Value • Build Relationships • • Customers Suppliers. . . seek “ Win – Win ” Community Employees • Develop Human Capital • Train • Mentor • Reward, recognize, compensate BUSINESS EXCELLENCE • Employees Provide • Value to customer • Work processes and continually improve Knowledge-Based Management 13 Human Capital VOP VOC Copyright, 2014: Air Academy Associates

HUMAN CAPITAL Enterprise-wide Opportunities Facilities Management Financial Management Human Resources Management Administration, Leadership, Legal, etc. Sales, Marketing, and Advertising Information Technologies Company Customer Communications Operations Development and Production Planning & Design • An enterprise-wide business strategy develops human capital across all functions which then creates real customer and business value 14 Copyright, 2014: Air Academy Associates

STRENGTHENING BUSINESS EXCELLENCE Knowledge-Based Management Customer Value • • • Manage the business as a system using value streams Be process focused …VOP VOC Use data and facts to make decisions… assess, sustain, improve Understand variation … the process feels it, the customer feels it Benchmark externally … share and adopt best practices internally Use tools and rigorous process-excellence approach • • BUSINESS EXCELLENCE Improve value streams. . . don’t sub-optimize PF/CE/SOP (Process Flow/Cause & Effect/Standard Operating Procedures) IPO (Input-Process-Output) Monitor performance real-time … run charts, control charts Knowledge-Based Management 15 Human Capital Copyright, 2014: Air Academy Associates

KNOWLEDGE-BASED MANAGEMENT Begins with the Value Stream* Develop Vision & Strategy Develop & Manage Products & Services Market and Sell Products & Services Deliver Products and Services Manage Customer Service Management and Enabling Processes Develop and Manage Human Capital Manage Information Technology Manage Financial Resources Acquire, Construct, and Manage Property Manage Environmental Health and Safety (EHS) Manage External Relationships Manage Knowledge, Improvement, and Change 16 * Adapted from APQC - American Productivity & Quality Center - www. APQC. org

KNOWLEDGE-BASED MANAGEMENT – PF/CE/SOP Improvement Tools that Reduce Variation, Optimize Process and Decrease Cycle Time Define Measure Analyze Improve Control PROCESS FLOW (PF) OR PROCESS MAP STANDARD OPERATING PROCEDURES (SOP) CUSTOMER DRIVEN CAUSE AND EFFECT (CE) SOP 1) Soak ingredient A in ! 17 xx. x degree water for xx minutes. 2) Boil the mix, add ingredient B & filter. 3) Add xx. x yeast to ferment in tank. 4) Bottle the mixture. Copyright, 2014: Air Academy Associates

KNOWLEDGE-BASED MANAGEMENT – CONTROL CHART Control Chart … the “Voice of the Process” Control. . . Sustain Gain Q U A L I T Y Control limits extended UCL +3σ Centerline M E A S U R E S 18 LCL Control limits established -3σ Control Region captures variation natural to the original process Process trend Special cause identified Process has shifted TIME Copyright, 2014: Air Academy Associates

BUSINESS PROCESSES Process Understanding Begins with IPO and Relationship of x’s and y’s Input Process Input Variable Process Indicator Independent Variable x 1 x 2 x 3 Output Process y Process Output Variable Response Process Performance Measure Critical-to-Customer (CTC) Critical-to-Quality (CTQ) Dependent Variable y = f(x) “Transfer Function” 19 Copyright, 2014: Air Academy Associates

KNOWLEDGE-BASED MANAGEMENT – IPO Input Process Output Customer Demographics Customer Requirements Budget Pricing Strategy Sales Force Eff In T ec Syst cen rain Expe tive em tiv rie e ing nc ne e ss Knowledge C Lin. Pro e duc ompe t titio n Sales Volume Sales Process % Defects (failure to convert) Lost Sales Oriented Customer Complaints Cycle Time (lead to closure on agreement) Sales ($) / Employee Follow-Up Policy Standard Sales Proc. (SOP) Suppliers (hardware, software, etc. ) Marketing Strategy Products 20 Copyright, 2014: Air Academy Associates

PROCESS EXCELLENCE – AS A PROCESS! What are the Desired Outputs? What are the Critical Inputs? Research was accomplished and the book written! Better Continuous. Process Continuous Improvement Implementation Excellence. Realization Faster Lower Cost Improved Quality of Working Relationships 21 Improved Value for Customers, Shareholders and Society Improved Intellectual Capital Top-Line Growth Bottom-Line Growth Cultural Change Copyright, 2014: Air Academy Associates

WHAT IS REQUIRED TO DELIVER GREAT RESULTS? IPO (Input-Process-Output) Executive Ownership and Leadership Alignment Effective Support Infrastructure in-place Integration w/Existing Bus. Improvement Initiatives Selecting the Right People and Projects Integrated Training, Materials & Software Financial & Implementation Accountability Reward & Recognition Enterprise-Wide Knowledge Sharing Customer and Supply Chain Involvement Improved Value for Customers, Shareholders and Society Better Process Excellence Implementation Faster Lower Cost Improved Quality of Working Relationships Process Excellence Realization Improved Intellectual Capital Top-Line Growth Bottom-Line Growth Cultural Change Management and Leveraging Culture 22 Copyright, 2014: Air Academy Associates

WHICH INPUTS HAVE THE BIGGEST IMPACT? Understanding Relationships and Priorities Helps Identify Improvements 23 Culture Change X X X X X X X X X Top-Line Growth Executive Ownership Support Infrastructure Integration with exist Init. Right People & Projects Integrated Trg Mat & SW Financial Accountability Reward & Recognition Knowledge Sharing Customer & Supply Chain Int. Change Mgmt & Cultural Strength Intellectual Capital Inputs (x) Customer Value y = f(x) Bottom-Line Growth Outputs (y) Understanding Input-Output Relationships Helps You to get the Biggest Impact for your Improvement Investments! Copyright, 2014: Air Academy Associates

LET’S LOOK AT COMPANY A’s DATA Sample Survey Distributed to a Cross-Section of Employees Survey Structure • Output: • Achievement • Importance • Input: • Achievement • General Questions • Demographics • Comments 24 Copyright, 2014: Air Academy Associates

STRENGTHENING BUSINESS EXCELLENCE Survey Results (n=66) Q-1 Output Achievement Estimate the level of achievement your Process Excellence system is currently experiencing for each output. Y 1 Mean = 7. 01 25 Q-2 Output Importance Estimate your perception of level of importance that your company places on the success of each outputs. Y 2 Y 3 Y 4 Y 5 Y 1 Y 2 Y 3 Y 4 Y 5 7. 22 6. 39 6. 77 7. 63 8. 57 7. 63 9. 11 9. 21 8. 22 Copyright, 2014: Air Academy Associates

STRENGTHENING BUSINESS EXCELLENCE Survey Results Q-3 Input Achievement Estimate the level of achievement you feel the company is currently experiencing for each of the following 10 inputs. Mean = X 1 8. 01 X 2 6. 35 X 3 6. 62 X 4 7. 25 X 5 6. 55 X 6 7. 43 X 7 6. 66 X 8 5. 90 X 9 6. 42 X 10 7. 50 Executive Effective Integration Selecting Integrated Financial Reward & Enterprise- Customer Change xxx Ownership and Support w/Existing Right Training, and Recogni. Wide & Supply Management Leadership Infrastruc. Bus. People Materials Implemention Knowledg Chain and Alignment ture in. Improveand tation e Sharing Involve. Leveraging place ment Projects Software Accountment Culture Initiatives ability 26 Copyright, 2014: Air Academy Associates

IPO OUTPUTS Importance to Company A Survey Results – Importance / Achievement of Outputs* Higher Importance / Lower Achievement Bottom-Line Top-Line Growth (9. 21/6. 77) Growth (9. 11/6. 39) Improved Value for Customers, Shareholders and Society (8. 57 /7. 01) Cultural Change ( 8. 22/ 7. 63) Improved Intellectual Capital ( 7. 63/ 7. 22) Lower Importance / Higher Achievement Assessed Achievement at Company A 27 * Output Importance and Achievement is based on sample survey Copyright, 2014: Air Academy Associates

WHICH INPUTS HAVE THE BIGGEST IMPACT? Understanding Relationships and Priorities Helps Identify Improvements X X X X X XX X Culture Change XX Bottom-Line Growth Executive Ownership Support Infrastructure Integration with exist Init. Right People & Projects Integrated Trg Mat & SW Financial Accountability Reward & Recognition Knowledge Sharing Customer & Supply Chain Int. Change Mgmt & Cultural Strength Top-Line Growth Inputs (x) Intellectual Capital y = f(x) Customer Value Outputs (y) X X X XX XX X Focusing on these Five Inputs can make a Significant Impact on Outputs 28 Copyright, 2014: Air Academy Associates

Inputs x 1 – x 10 Based on Company “A” Assessment Data and Air Academy Associates Research* 8. 7 7. 5 10. Change Mgmt. & Culture Low Performance / High Impact High Performance / High Impact 8. 7 7. 4 6. Financial & Implementation Accountability 4. Right Projects and People 8. 6 Impact on Results 7. 3 9. Customer & Supply Chain Involvement 6. 4 8. Knowledge Sharing Low Performance / Low Impact 29 1. Exec. Ownership 8. 0 9. 0 8. 2 2. Support Infrastructure 3. Integration with Business Initiatives 7. Reward & Recognition 5. Integrated Training/Software High Performance / Low Impact Current Company “A” Category Performance * Impact position based on Air Academy Associates Research. Current performance is based on sample survey

WHAT IMPACT WOULD THE IMPROVEMENTS MAKE? IPO (Input-Process-Output) Based On Gap Closure* Executive Ownership and Leadership Alignment 9. 0 Effective Support Infrastructure in-place Integration w/Existing Bus. Improvement Initiatives Selecting the Right People and Projects 8. 6 Integrated Training, Materials & Software Financial & Implementation Accountability Reward & Recognition 8. 7 Enterprise-Wide Knowledge Sharing 8. 2 Customer and Supply Chain Involvement 8. 7 Change Management and Leveraging Culture 30 Better Process Excellence Implementation Faster Lower Cost Improved Quality of Working Relationships Process Excellence Realization Improved Value for Customers, Shareholders and Society 12% Improved Intellectual Capital 8% Top-Line Growth 13% Bottom-Line Growth 11% Cultural Change 12% * Assumes Gap Closure of 50%. Predictions based on Air Academy Associates transfer function. Copyright, 2014: Air Academy Associates

WHAT DRIVES SHAREHOLDER VALUE? Enterprise Value Map can be Useful to Help Select Right Projects 31 Copyright, 2014: Air Academy Associates

TOP-LINE GROWTH DRIVES SHAREHOLDER VALUE Project Selection Key to Growing Revenue Where can you target projects to enhance Profitable Revenue Growth? 32 Copyright, 2014: Air Academy Associates

PROJECTS TO HELP SUSTAIN REVENUE Projects Can Grow Top-Line, as well as Plug Holes Needed Customer Upgrades and Trade ins Customer Annuity & Services Renewals Lean Six Sigma projects help stop the revenue leaks Revenue Product Sales Mix not competitive Moves to Competition Customers Not satisfied Customer losses due to Economy 33 Losses due to poor quality Cancellations Needed Process Updates Copyright, 2014: Air Academy Associates

FOCUSING ON REVENUE GROWTH How Many Projects are Aligned Here? 34 Opportunities Many Revenue Growth Opportunities Copyright, 2014: Air Academy Associates

FOCUSING ON REVENUE GROWTH How Many Projects are Aligned Here? 35 Many Revenue Growth Opportunities Copyright, 2014: Air Academy Associates

REVENUE PROJECTS Projects Can Grow Top-Line, as well as Plug Holes New Products & Services Addedss e Busin rrent u With C mers Custo Cus New tom ers Revenue 36 DFSS and LSS Revenue Projects can Drive Incremental Benefits in New Revenue LSS Projects Help Plug the Leaks to Sustain Current Revenues Copyright, 2014: Air Academy Associates

OPERATING MARGINS DRIVE SHAREHOLDER VALUE Project Selection Key to Growing Profit Where can you target projects to Reduce Cost and Increase Margins? 37 Copyright, 2014: Air Academy Associates

DIVING DEEPER INTO COST REDUCTION & MARGINS How Many Projects are Aligned Here? Opportunities 38 Copyright, 2014: Air Academy Associates

DIVING DEEPER INTO COST REDUCTION & MARGINS How Many Projects are Aligned Here? 39 Copyright, 2014: Air Academy Associates

EXPECTATIONS ALSO DRIVE SHAREHOLDER VALUE Identify Opportunities to Strengthen Operational Excellence World-class “Operational Excellence” capability Increases shareholder confidence which strengthens expectations and Increases value 40 Copyright, 2014: Air Academy Associates

EXPECTATIONS DRIVE SHAREHOLDER VALUE Focus on Operational Excellence Culture, Process Improvement, Innovation, Cross-Business Collaboration, Quality and Benchmarking Etc. 41 Opportunities Copyright, 2014: Air Academy Associates

ENHANCING BUSINESS EXCELLENCE Potential Next Steps • Continue to strengthen capability of Business Excellence to improve results across the business • Further investigate Business Excellence gaps and identify appropriate action plans to address highest impact opportunities • Grow business-excellence capability by adopting higher-level tools and methodologies to enable the next level of maturity • Systematically select processes to improve to grow revenue, improve margins, delight customers and enhance shareholder value • Consider implementing your own structured Business Excellence survey to better understand gaps and opportunities 42 • Air Academy Associates can support you, as we have supported various other companies • • Survey at either 1 – 10 Input Level or at 50 Best-Practice Level Receive anonymous predictions and recommendations Copyright, 2014: Air Academy Associates

Thank You – For More Information, Please Contact: Air Academy Associates, LLC 1650 Telstar Drive, Suite 110 Colorado Springs, CO 80920 USA Call: (800) 748 -1277 or (719) 531 -0777 Facsimile: (719) 531 -0778 Email: aaa@airacad. com Website: www. airacad. com 43 Copyright, 2014: Air Academy Associates