Indigenous Case Full Story

Indigenous Designs – A founding ‘B’ (Benefit) Corporation:

This case shows how Integral Operations Finance helps transform a decade of successful business development work delivering on mission and market development into achieving the critical mass needed to propel the business toward sustained profitability.

This Dollar Trend graph above was used for presenting to Series B Round Investors. It shows the actual financials from 2009 and 2010, with projections through 2015, to sales of $20 million. When all the dust settled, 2011 turned out to be both profitable and positive in terms of Operating Cash Flow. The now (2014) five straight years of modest profitability show a signifiant and consistent improvement pattern for the whole organization.

Pioneering co-founders, Scott Leonard, CEO, and Matt Reynolds, Presidents, the co- founders, and a dedicated team have been pioneering by building the leading fair-trade organic clothing company in the US for over a decade. The company has built a network of suppliers in the Andes that over time has been comprised of nearly one thousand weavers, stitchers and knitters in South America who were and are being paid a fair traded wage. The company has provided training and materials to allow many of these women to work from their homes while providing top quality clothes to the after-action sportswear and socially responsible fashion markets in North America.

Building on their foundation of one of the most unique supply chains in the industry, Indigenous has been responding to the increased market pressures since 2008 by putting lots of attention to cost control and improved financial performance. A new finance director was brought in to help support that effort, making great progress on numerous fronts, including the constant challenge of effectively refining inventory management.

After using the Financial Scoreboard to provide a simple overview of the financial side of the company that everyone in organization could understand, the whole staff worked on building a short list of Key Performance Indicators (KPIs). That process began with developing a Value Chain that listed the sequence of value-creating activities that Indigenous does to generate satisfied and loyal customers, as well as all their financial results. They also surveyed everyone in the organization to gather a comprehensive list of all the constraints, or disconnects from every part of the operation.

In a four-hour problem-solving and rapid-prototyping session (called a Kaizen in Lean Manufacturing), the whole team was able to connect all their key disconnects to the related value-creating activities. They then developed over a dozen candidate KPIs by asking themselves the question – “What are the most relevant behavioral and financial data points that will give us a way to measure how well we are improving the situation described by this disconnect?” The last step was to then pick the 3-5 candidate KPIs that they whole group agreed provided the most opportunity for enhancing overall company performance.

We start from the CEO’s perspective: “We spent over a decade building a sustainable and equitable supply chain to the standards of our vision for fair trade commerce. When I looked closely at Integral Operations Finance (IOF), I knew it would help us, as it

was now was the time for everyone to understand how we are financing what we have built, and measuring financial performance so that we can improve it. I believe it was Lord Kelvin that said “To measure is to know. If you cannot measure it, you cannot improve it”.

There comes a time in the evolution of a CEO where one recognizes the importance of being truly in sync and flowing with P&L, Balance Sheet and Cash Flow statement all at once. As the CEO I lead a dance with our organizations financials, if possible, never being out of step as we flow across our own business landscape. We had made a number of good attempts prior to the 3 Bottom Line approach to do that sync, but, unlike the Financial Scoreboard, they turned out to be either to simplistic or too complicated to be both useful and sustainable as ongoing practices. 

As CEO I believe in a self-audit approach. I got a lot out of both the simple tools and personal learning process of the CEO Reality Check as a skill building as well as a whole system business modeling exercise. I was very also happy that the groundwork I had done with my own self-auditing process made it so easy and seamless to hand off the IOF project management to my Finance Director when the time came for that step.

This one-page Performance Measures Assessment was conducted with Scott as the senior system to create a 2009 benchmark for then recording any subsequent changes over time in the structure and performance measurement improvements.

One of the key lessons came to me in the form of silence. My commitment to the process was to be present, but to “not talk” during the deep dive into the financials through 3 Bottom Line analysis with the entire team. It was surprisingly valuable to allow my whole team to struggle and tussle with what financial statements really were all about.

Although it was personally almost painful to not come to their aid at times, it was profound to see them make their way through it together in the half-day Kaizen, without my direct assistance. We had done a tremendous amount of work as a whole to optimize our margins, and it was great the way the simple pictures and color-coding helped everyone to see more clearly what we had all accomplished with expenses and inventory efficiencies especially.

In the 2nd Kaizen the disconnect clarification and validation process was so powerful because it allowed employees to engage and take ownership of the material they had submitted prior, that was then related to both value-creating activities and driving the development of the candidate system KPIs.”

Jennifer Clark, Finance Director at Indigenous Designs – IOF Project Manager

“If you had seen the kick-off helping people to understand the financials and the behavioral system, it was two very grueling days for everyone here. I can tell you on day two they were not all running to the meeting, even with the free food. And then, hours into this meeting - I wish I had a camera –the entire room just lit up – I could see it – that all of a sudden, everyone understood why they had gone through all these financial and operational diagnostic exercises together.

For me, that made my job so much easier, even if we had never gone forward from that moment – because the whole company now knew how all the pieces fit together. So we could say, now you understand; now you see you’re your place in within the work system. It has driven such an excitement. We have moved from “You have to come to these meetings” – to they can’t wait to have their huddles because they are making a difference – they know how and why they are making a difference – and how to begin continually improving their capacities as both individuals and as key performance teams. “

Kirsten Ely, PhD – COO and CFO at Sonoma State University’s School of Business and Economics reflecting on what she has witnessed in IOF implementation at Indigenous Designs (IDC). “What IOF provides is a framework and a language ... that is not taking any one or a few people’s system and imposing, as an example, the sales system, on everyone else . . . the biggest problem that people and organizations have is not having a consistent framework that they can refer back to that is well-documented, so that all-of-a-sudden when you are in the middle of something, and you think, “what do I do next? ” You can refer go back and see “This is what is I’m supposed to do” That is the beauty of IOF.

It is the framework that allows you to take two things that have typically been very disparate – the behavior and the financials – and see those connections. The beauty is that framework allows people to see they have always had a place, and with this (IOF approach) system they know what that place is.

Above is the KPI Matrix documenting headquarters’ team Behavioral Accounting framework draft from the initial KPI Kaizen. The exhibit documents all the learning the company as a whole did during the Kaizen. It provides an overview of the baseline model that could then be continually refined over time as new learning takes place in working to make the model more and more accurate to the company’s day-to-day operating reality.

During the Kaizen, teams were formed to gather more data and refine the KPIs so they would be more and more useful as tools for continuous improvement.

This 2nd exhibit shows a draft form the teams would use to make measurement change recommendations to the Executive Team, on which one member was on each team.

Indigenous Designs’ President, Matt Reynolds, share his view of the IOF impacts

“The IOF solution provided us with tools to create a framework that was much more adaptable because it was new to everybody at once.

For the Executive Team (ET), this process has added value by bringing more focus within different departments that the ET oversees, and provides a lot more structure for measuring against specific tasks that we are tackling. The process strongly encourages the team to jointly pick a few select KPI related tasks, working only on these tasks over time until problems are solved and KPI’s are maximized. An important element to the success of this program was setting up a foundation of trust and patience early on. This foundation has empowered the team to be creative and not focus merely on short-term solutions.

People want to make decisions fast. We are in a business situation, where decisions and deadlines are hitting every day. PMI’s approach creates a distinction between the rush and stepping back to solve big problems. This is a big picture project that takes the approach of steering a big ship, versus every day short-term deadlines on deck. Here we are putting together a long term strategy for solving key issues – retention rates, inventory turns, return rates, etc. in order for the ship to reach its final destination. By bringing the whole company (crew) in on this process, I really do believe it is transformative for the business as all the work relationship cooperation grows.

The IOF group process helps us focus our day-to-day disciplines toward driving big picture numbers and hitting our long-term benchmarks. There is great power in bringing this structure, framing and philosophy to our longer-term vision, while it does also help guide daily priorities.

I also appreciate the subtle element of accountability involved with the group meeting structure that does not take place when meetings are isolated. There is tremendous energy and accountability one feels when saying in front of the entire company “I am going to do this”. It ‘brings the employee back to the reason for being a part of the team’ – The process re-focuses the team, everyone wants to succeed, to be good. So it brings it back to “I’ve got to make that call – I’ve got to get back to that project and make it happen, because I said it in front of everybody”. This is really powerful, and the most effective way to create constructive change is doing it PMI’s way – by unifying everybody.

Regarding the approach of asking each team to make a very short presentation – yes, some team members were freaked out about it at first – but it made them think and work harder to communicate lots of substance very quickly. In the end, it went off great. Although it did take a little extra time out of normal day-to-day responsibilities, the end result was more than worth it, and the time impacts minimal. The team members were encouraged to ask for help and work together as a team. And now that it is done, the KPI is communicated very efficiently in the team’s own words, and therefore the team feels more responsible to follow effectively through on what was presented. A large part of this programs success is the initiation. It must be introduced in a patient, positive, and encouraging way.”

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