1. Operational Excellence
Establishing a Culture of Quality
Prof. Dr. Thomas Friedli
April 5th ,2011

2. Agenda Models & Patterns of OPEX programs 1 The Cultural Challenge 2
Summary 3

3. New drug approvals are not keeping pace with rising R&D expenditures6
New drug approvals are not keeping pace with rising R&D expenditures
Number of NMEs first launched onto the world market
Global R&D expenditures 50 45
R&D expenditures ($ bn) 40
Number of NMEs 35
-50 %
+70 % 30 25 20
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008*
2009*
2010*
2011*
Source: CMR Factbook (2008)

4. The New Economics of Innovation
Historical
revenues
Revenues with greater
price pressures and
shorter cycles
Historical margins
Dollars
Margins in new environment
New fixed development and manufacturing costs
Historical fixed development and manufacturing costs 6 12
Years from product launch
Product
introduction
Source: Pisano, HBS

5. %
Why should you care about manufacturing? – Cost structure on Company level 5% 3%
13%
R&D
Manufacturing
General & Administration
31%
53%
Sales & Marketing
63%
Margin
22%
20% 4%
Brand-name companiesBrand-name companies
Generics manufacturerGenerics manufacturer
Contract manufacturerContract manufacturer
Source: University of St.Gallen, Benchmarking Industry Report (2009)

6. Pharma has no Track Record of Thinking in Process Improvements!
Pharmaceutical Manufacturing has traditionally focused on end- product quality!
The Pharmaceutical Industry has not focused on developing a scientific understanding of their processes. This leads to a high rate of internal failures such as reworks and rejects!
Pharmaceutical manufacturing processes are often complex and include many non-value-added activities!
Pharmaceutical manufacturing tended to view individual sites independently!
The role of leadership and "human effects" had been neglected!

7. A Framework for thinking about Operational Excellence
OPEX Framework
Effective Management System
Direction setting
Management commitment and company culture
Employee involvement & continuous improvement
Functional integration & qualification
Operational Performance
Preventive
maintenance
Housekeeping
Effective
technology
usage
TPM
Process
management
Customer
integration
Cross -
funct.
product
development
Supplier
quality
TQM
Set
up time
reductions
Pull system
Planning
adherence
Layout
optimization
JIT
Stable running machines
Stable processes
Low inventory
Standardized
replenishment
Low abseentism
& fluctuation
High continuous
improvement rates
Low absenteeism &
fluctuation
Flexible
workforce
Self
directed
teams 1 2 3
equipment
processes
Source: University of St.Gallen

8. The Evolution of OPEX in the Pharmaceutical Industry
"Pre-OPEX"
200x
201x
"Best Practice
Transfer"
"Transformation"
"Integrated Operations
System"
Level of Operational Excellence
Source: Friedli et al. - Pathway to Operational Excellence (2010)

9. The current phase of leading companies!
"Transformation"
Phase
Operational Practices & Tools
Innovation and Change Management
Managerial and HR-based Practices
Training Program
Quality System and Process Control
Coaching and teaching
Coaching techniques as well as leadership practices such as Gemba are added to OPEX training concepts
HR gets more integrated into OPEX
Role of Leadership
To solve problems and to improve their daily work
Improvements often struggle to stay sustainable, payoffs are not as high as expected
Discussions about the role function of operations leaders as coaches and teachers got a key issue
Companywide Initiatives and Programs
Companywide tool-boxes
Common language and holistic view of performance. Different initiatives cooperate with each other
Process Understanding
More sufficient techniques like real-time controlling
The foundation of process understanding has reached a reliable level for the first time
Large Scale Change Process
Large scale transformation processes focusing on organizational set-up
Innovations and changes are driven by Senior Management and Site Leadership Teams
Change pattern: Unfreeze- Transition - Refreeze
III. "Transformation" phase
Source: Friedli et al. - Pathway to Operational Excellence (2010)

10. Wyeth: Setting a Focus on Redefining Leader's Role1
Source: Wyeth; Friedli et al. – The Pathway to Operational Excellence (2010)

11. MerckSerono: Defining a Suitable Deployment Structure
Source: MerckSerono; Friedli et al. – The Pathway to Operational Excellence (2010)

12. Example of an operational excellence iniative – Right First Time by Pfizer 2003
The Right First Time (RFT) Strategy is key to achieving the PGM Mission: “We will be the world's leading supply organization and an innovative and powerful competitive advantage for Pfizer.” RFT is a science-based approach that will have a dramatic impact on PGM (Pfizer Global Manufacturing) business performance by transforming our competencies, technologies and ways of working, thereby establishing PGM as the industry benchmark in innovation. RFT will be fully realized when PGM becomes an agile supply organization driven by highly capable processes and a diverse team of highly engaged colleagues
The target of Right First Time is to enhance the effectiveness of processes

13. RFT: The 5 priorities Relentless Process Focus colleagues/ culture
international institute of management in technology (iimt)
Prof. Dr. Stephanie Teufel
RFT: The 5 priorities
Relentless
Process Focus
colleagues/
culture
performance
organisational
initiatives
Behaviour of Leader and Values
Communication
Method 1
Knowledge Management
Performance Measures
Automation
Value Stream Mapping
RFT Organisation
Performance of Suppliers
Communities of Practice
process
understanding
paradigm shift
Notes:
Archival Knowledge Storage
Process Analysis Techniques (PAT)
Six Sigma methods
IT Systems (Catalyst and PharmInvestigator)
Launch of new products
Risk Assessment
Manufacturing Science
Process Capability

14. RFT Leaders on Site Level
Right First Time Organization
Sponsors
Overall Strategy
RFT is virtual!
RFT directly
reports in the
line functions!
PGM RFT Leader
Global Communication
& Leadership
RFT Area Leaders
Local Communication
& Leadership
RFT Leaders on Site Level
BB + GB + YB
RFT ist eine virtuelle Organisation. Keiner der RFT Area Leader berichtet an den PGM RFT Leader. Die RFT Area Leaders berichten an ihren jeweiligen Area Operational Leader und sind Mitglieder der Area Führungsteams.
Das war bewusst so geplant, da wir wollten, dass RFT als Organisation sich immer der Anforderungen der Tagesbetriebs bewusst ist und mit diesen integriert ist.
Kein unabhängiges und von den täglichen Realitäten nicht betroffenes Team.
Auf dieser Grundlage werden wir enge Arbeitsbeziehungen und den Austausch von Informationen zwischen den Kollegen, die mit RFT-Verantwortung betraut sind, auf globaler Basis fördern.
Local Initiatives
Communication
Training
Local Metrics
Implementation

15. international institute of management in technology (iimt)
Prof. Dr. Stephanie Teufel
RFT Methodology
100% 5% 1%
Notes:

16. Agenda Models & Patterns of OPEX programs 1 The Cultural Challenge 2
Summary 3

17. The Key influencing Factors for a sustainable Implementation of OE
Project Mgt.
Linkage to daily job
Project Selection
Project Portfolio Mgt.
Sponsor Commitment
Plant Identity
Training
Mgt. Engagement Understanding
Interplay
General Plant Culture
Knowledge Mgt.
Site Leader
OE leader
Implementation of OE into the Organization
Usage of OE language
Understanding of OE initiative
Plant Mgt. of OE
Problem – Method Matching
Integration of corporate initiatives
Identity of OE program
Belt Selection
Communication

18. Circle of Key Influencing Factors
Heritage
Corp. commit-
ment & support 1 6
Management Commitment
Culture 5 2
Integration
Structure 4 3
Processes
People

19. 6 5 4 3 2 1 Operational Excellence Culture Integration Processes
Management Commitment
Structure
People
Processes
Integration
Culture 1 6 5 4 3
Operational
Excellence 2

20. Basic Categories of Model
Site Culture/Background
Management
Commitment
Structure
Processes
People
Integration
Culture
Corporate Commitment / Support

21. „Tension Lines“ for Evaluation of Sites
Extreme 1
Extreme 2
hinders a
sustainable OE
implementation
fosters a
sustainable OE
implementation

22. I. Site Culture / Background

23. Site Culture / Background
Management Style
Functional and hierarchical barriers lead to islands/silos
Problem orien-tation leads to cross-functional discussions
Open, culture of discussion, flat hierarchy, Process Management
Command & Control-
hierarchical

24. II. Corporate Commitment / Support

25. Linked, but not always to the most critical objectives
Corporate/OpU Resources for OE
Corp./OpU
resources available
in case of emergency
Corp./OpU resources
available on request
Corp./OpU resources
available- when
they are needed
No Corporate/OpU
resources available
OE Aligned/Supportive of Site Objectives
Linked, but not always to the most critical objectives
Indirectly linked
to objectives
Linked to main
strategic objectives
No link

26. Engagement of OpU/Corporate Support People
Low number of site visits
Average number of site visits
Highly engaged, high number of site visits
Not engaged

27. III. Management Commitment

28. Commitment of Site Managing Director
Focus on mimimal fulfillment of OE-objectives
Shows Support for OE projects
High Commitment,
proactive promotion of OE
Low Commitment
OE Site Leader
Delivers inputs for Site Strategy Setting
Partly involved
in Site Strategy Setting
Not involved in Site Strategy Setting
Fully involved in Site Strategy Setting
Relationship between Site MD and OE Leader
Different positions on several strategic issues
Different positions on several tactical issues
Complementary, completly aligned, synergistic
Contradictory, Not the same agenda

29. Commitment of Site Leadership Team (SLT)
Minority of the SLT engaged and highly
commited
Majority of the SLT engaged and highly
commited
Engaged and highly
Commited- engaged with projects
Not engaged and
commited
Management of OE
Managed as a relevant
Initiative
Managed as an important initiative
Managed as an integrated, strategic initiative
Managed as me-too
initiative

30. Understanding of Middle Management
OE seen as unrelated to them
OE seen as important but not necessarily for them
OE seen as strategic and vital to their success
OE seen as technical- somewhat narrow focus
Level of OE Project Sponsors
In most cases member of SLT
Middle management
or lower
Partially member of the SLT
Member of SLT

31. OE and Plant Objectives
Communication
Structured and well executed
communication strategy
Communication doesn`t reach shop floor level
OE only mentioned at
some dedicated events
Communication takes place on all levels
OE and Plant Objectives
Linked to less important objectives
Linked to main
objectives and part of
a clear site vision
Indirectly linked
to objectives
No link

32. Black Belt Selection Criterias
Selection criteria is capability
Selection Criteria is interest
Selection criteria
is availability of person
Selection criteria
is leadership potential
Green Belt Selection Criterias
Selection Criteria is interest
Selection criteria is capability
Selection criteria
is availability
Selection criteria
is leadership potential

33. IV. Structure / Organization

34. Available Working Time of Site OE Leader for OE
almost 0%
less than 50%
more than 50%
100%
Organizational Integration of OE at Site
Created a new dedicated position
for OE & also embedded in functions
Integrated in existing
Function:no site-wide level OE role
...

35. OE Steering Committee OE Achievements Only formal existence of SC
Single members of SLT are engaged in the SC
Only formal existence of SC
no SC
SLT leads SC
OE Achievements
There is no celebration of achievements at all
Achievements are communicated with posters
There is a team event for each successful closure of a project
Achievements are celebrated systematically

36. V. People

37. Understanding of OE on Shop Floor Level
Technical methodology not seen as applicable at shop floor
Makes daily work easier and more efficient
helps to solve single problems
focus on support of competitiveness
Spread of Projects over Organization
Spread to
most
functions
Limited to one function
Limited to few functions
Spread to
all functions

38. Training (1) Workforce Knowledge of OE
OE specific
trainings
Adequate number
of green and
black belts
50% trained
in basic under- standing of OE
100% trained in
basic understanding
of OE
Training (2) Role of Training
Seen as means to
start
a change of
mindset
Mainly seen as technical, but also engagement related
Seen as an enabler for engagement
Seen as technical and project related

39. VI. Process

40. Standardization of Project Management- Include capture of
OE Project Engagement
projects are only started with pressure from outside
projects are regularly started from inside and finished in most cases
projects are regularly started, but often lose momentum
projects are started regularly from inside and get finished on time
Standardization of Project Management- Include capture of
business benefits
not explictly
defined process- some benefits identified
Key Projects
chartered & benefits captured
Disciplined project management across Site- advanced benefits captured
No defined process

41. Project Selection Knowledge Exchange Team Work Proactive by real
Most projects started reactive, in single cases they were generated proactive
Awareness of business needs drives most projects, project pipeline is well filled
Proactive by real
business needs
Reactive
Knowledge Exchange
Systematic use of Know How Exchange
Unsystematic use of Know How exchange
Re-invent the
Wheel
Replicate & improve is our DNA
Team Work
Results are achieved because of a real team effort
Results are achieved because of the efforts of a few
Results are achieved because of a real team effort and excellent coaching
There’s no real team work in
our OE activities

42. VII. Integration

43. Aligment of OE with other operations initiatives
Link to Daily Job
OE as burden
to daily job
neutral towards
daily job
OE as support
of daily job
OE as improvement
of daily job
Aligment of OE with other operations initiatives
Managed as comple-
mentary activities
Managed as
separate activities
Managed as contra-
dicting activities
Managed -fully
integrated
Sense of responsibility
Black Belts feel responsible for outcomes
Black Belts and Green Belts feel responsible
People closest to the job take over responsibility for improvement
There is no sense of responsibility

44. Two sites compared Site A Site B On the way Room for improvement
Corporate Commitment / Support
Corporate Commitment / Support
Culture
Culture
Integration
Integration
Structure
Processes
People
Structure
Processes
People
Management
Commitment
Management
Commitment
Site Culture / Background
Site Culture / Background
Good level for sustainable OE implementation achieved
On the way
Room for improvement
Low level

45. Agenda
Models & Patterns 1
Example 2
Summary 3

46. Some generalized conclusions concerning OE!
For the initialization of OE an outside (e.g. corporate) support and pressure is mandatory!
Next will be to gain the management commitment to OE at each site!
Project Selection has to be aligned to real needs from the beginning to ensure acceptance for OE!
To make OE sustainable a broad engagement of people has to take place – OE can‘t be ordered!
Structural/organizational measures can enforce the impact and help to communicate the importance of OE!
Make use of quick wins to bring in actively more people!
Communication is key – but communicate the right things!
Training is not only enabling people on the tool side of OE but also an important means to gain understanding and to implement a common language throughout the organization!

47. Future State: The „Integrated Operations System“ phase
Operational Practices & Tools
Innovation and Change Management
Managerial and HR-based Practices
Training Program
Quality System and Process Control
QbD and CoDevelopment
Upstream integration
CoDevelopment products, processes, and equipment are developed simultaneously and linkages are addressed to gain further improvements
Decentralized brain, and leaders become teachers
Leaders become coaches and teachers
Work line operators are expected to run reactive root cause analysis and to pro-active challenge their standardized work routines
The decentralized brain starts to spread its impact
Beyond the Tools
Bundled under one umbrella program Continuous improvement is seen as a specific mindset to challenge daily routines on every level of the company
New Training Concepts
Focus on understanding, but also on applying, leading and teaching.
New concepts like "Learn Factories" and "Study Tours" partially replace older lecture sessions
Continuous Improvement
Innovations and changes occur continuously on different level.
Senior Management and Site Leadership Teams give direction and ensure the conditions.
Change pattern:
Freeze – Rebalance - Unfreeze
IV. "Integrated Operations System" phase
Source: Friedli et al. - Pathway to Operational Excellence (2010)

48. The need for integration in next-level OPEX approaches
Align all intended initiatives with your corporate strategy and communicate the “why” of the initiative !
Establish a comprehensive reference model of your production system !
Establish a support structure on site level !
Establish a comprehensive management system for the improvement activities !
Establish a standardized process for the selection of improvement projects !
Establish a high level committee at the site !
Be precise about what kind of "Management Commitment" is needed !
Form a community of practices for Operational Excellence with outside experts and corporate management personnel !
Make sure that most of the available time of the people with responsibilities is spend where the action is and not behind their desks !

49. Our 2nd OPEX Book "Pathway to Operational Excellence"
The follow-up to our first OPEX Book in 2006
Bringing together academia's research and companies' experiences in one book
Leading company representatives describe and explain their OPEX programs in-depth, discuss successful practices and challenges
For example:
Pfizer
Wyeth
Novartis
Genentech
MerckSerono
Book Structure:
Introduction
Starting Point of Our Journey
Maps and Experiences
Exploring the Landscape
Redefining the Destination
Visit:

50. Prof. Dr. Thomas Friedli Managing Director
Chair of Production Management
Dufourstrasse 40a
CH St. Gallen