Lars Magnus Ericsson was skeptical about engineers with academic qualifications. On the other hand, no¬body can doubt that he understood quality and processes. Hemming Johansson says Lars Magnus could see in detail how equipment had to be constructed “so that it could be manufactured in the simplest and most rational way”. In other words, Lars Magnus’ attitude matched perfectly with what today is a watchword at Ericsson, operational excellence.
“Operational excellence means that every day, every hour, every minute we have to improve our processes,” says Hans Vestberg, head of Global Services until 2007, and then CFO. “And the central point is that we are an organization that learns quickly. A mistake made today in China must not be repeated in Russia tomorrow.
“And it is important thing that every employee understands what the concept means for him or her.”
For the work on operational excellence, Svanberg recruited Joakim Westh from Assa Abloy, where he had been working with the same concerns.
FINDING SMARTER WAYS
“It’s about an approach to everyday procedures, always thinking about innovation and finding smarter and simpler ways of reaching the targets for quality, delivery times, customer satisfaction, the enthusiasm of your staff, sales, purchasing, shorter lead times. It’s a question of creating a new culture and that takes time – a lot of time. We are talking about six, seven years – perhaps eight,” Westh says.
The process can be described with a simple model:
“The perpetual challenge,” says Westh, “is that it is relatively simple to work with this when the company is doing badly. Everybody is motivated and understands that changes are needed. It is more difficult to keep enthusiasm alive when we are the most profitable in the business.”
There is no patent medicine for sustaining enthusiasm. “But the single most important thing is to make sure that as many as possible are participating, both in laying down strategies and implementing them. We began to roll out this process from the top down, with the 250 top managers. Then it went on to the next stage in the organization. In 2007 we began the work of involving the entire company.”
One area that required rapid action was, as we have seen, Ericsson’s inability to deliver on time. “Delivery accuracy was 60 percent,” Westh says. “That was totally unacceptable.”
Mats Granryd was appointed to head Ericsson’s Supply unit – the organization that ensures that the right products are delivered to the right customers at the right time and the right price.
“There were problems throughout the supply chain,” he says. “And often there were mistakes at the very beginning, for example in the forecasts. A local account manager for an operator in India, for example, has to gauge what his customer is likely to order in the year ahead. He knows from experience that it is difficult to get equipment delivered so he adds a couple of percent for safety’s sake. He sends this forecast up through the organization where others have had the same experiences and so they add a couple of percent as well.
“In the end, that’s out by an awful lot of percent.”
It means that the people planning production have poor basic information with which to work. Then add long lead times and a culture that says it is okay to change orders after they have been placed. “It is as if a customer ordered an Audi but when we have nearly built it we are told that he really wanted a VW Golf,” Granryd says.
“The principle that we tried to stick to, one size fits all, was inadequate, in other words. There is an enormous difference between supplying an operator in China who is setting up an entirely new GSM network with hundreds of base stations and delivering one incredibly complex AXE exchange to Telia in Sweden.”
A system with ‘100% Clarified Orders’ was now launched. This meant that each order had to be accompanied by a standardized template that indicated precisely what was to be delivered, the delivery date, terms of payment and everything required to enable the different units to know right from the start what they were supposed to do.
Author: Svenolof Karlsson & Anders Lugn
Mats Granryd, head of Ericsson India 2005–2008, and then head of Ericsson UK.
Ericssons operational excellence philosophy