Monday, November 9, 2009

The Journey to Whole Business Improvement

Why do change management initiatives fall short of the mark after delivering such promising initial success? Why are gains in one area of the business difficult to duplicate in others? Why are many businesses disappointed with the results of their improvement initiative? Why are the concepts of lean manufacturing difficult to apply outside the factory? How can I engage the entire organization in the improvement plan? These are the questions answered in this brief discussion on whole business improvement by applying “Lean Thinking”.

How profitable is your organization? Profit is the lifeblood of business. Every business needs profit. Without it, they will not be in business for long.

This graph from,

shows the typical profit margins for selected industries. Most fall between 1 and 20%.

A company with a 6% profit margin must generate $983,000 in sales to pay for a $59,000 improvement project. Is that what your employees think about when they propose that new computer system?

Most manufacturing operations have a profit margin of less than 8%. While the target gross profit margin is typically much higher (35%), the finance and G&A costs erode that number significantly.

While other industries can generate higher profit margins, we commonly hear the following statements in traditional organizations:

• It takes too long to get products through the process.
• Administration costs are climbing faster than sales.
• We need more people.
• Problems with our products go undetected until our customers are using them.
• Things are fixed, but they don’t stay fixed.
• Our inventory is too high. Yet we don’t have what our customer wants in stock.
• We tried that before. It won’t work here.
• You don’t understand the culture here. That’s not the way we do things. Its different in our industry.
• We have quality teams, continuous improvement teams, ISO programs, re-engineering efforts, balanced scorecards, six sigma trained black belts. Its like the flavour of the month program, yet we are not seeing the results in real numbers.

When you hear the word Lean, what do you think about? “Manufacturing”, is the usual first response. “Lean Manufacturing”. Toyota is the example most often used. Toyota and Cars. Assembly line manufacturing. That’s what most people think Lean is.

Manufacturing is also the first place many people look to implement improvements. Yet manufacturing processes typically account for less than 20% of the total process lead time (the time it takes from when you get a customer order, to when you cash the cheque).

It may seem surprising, but Lean thinking has nothing to do with cars - or manufacturing. It is about eliminating waste and solving problems in processes. Any process.

The challenge with lean is in seeing the problems, identifying the waste.

In most manufacturing operations, only 5% of activities add value for the customer. Adding value means (1) it changes the thing going through the process, (2) the customer is willing to pay for the activity, and (3) it is done right the first time. This implies that 95% of what we do does NOT add value and is potential waste. In offices, the waste is even higher.

Managers and supervisors will only see 2% of the waste.

In office and administrative service environments, supervisors and managers only see 2% of the waste. They are too far removed from the daily work to see the waste.

The people doing the work have learned to live with the waste. They may have created work-arounds in the system to get things done. These, in themselves, add more waste.

What are these unseen wastes? The time it takes to find a document. The extra signature required on an expense statement. The rework on a proposal because the correct template was not used. The time it takes to walk across the building to photocopy a report. A power point presentation made, just in case the boss asks for it. The meeting that does not start on time or runs too long. The manager who “walks the floor” to “see what is going on”.

In a typical office, it is assumed that if people are at their desks and look busy, they are adding value. All seems well, especially if they have a good attitude.

A purchasing person who works hard, never takes breaks and is always helpful will be seen as a stellar employee. The fact that he takes 25% longer to complete the task due to poor training or lack of resources will be overlooked.

When we apply Lean Thinking in an organization, we look at how we do the work, how the system can be improved, what waste we can find and eliminate. Its not about the person doing the work - whether they are a “good worker” or not. Its about improving the work methods, standardizing processes, providing training and increasing skills.

Lean thinking is about is solving problems, elegantly, with innovation

Learning to identify and eliminate waste is fundamental to lean thinking. We must learn to see waste, and systematically eliminate it.

Thinking of problems as opportunities is not something we are trained to do. With lean, we need to learn to treasure problems - celebrate finding them – this is our opportunity to improve!

Once we clearly see the problem, the root cause must be identified. This requires some structured problem solving. We need to avoid treating the symptoms. Unless we identify the true root cause, the problem will re-occur.

Once the problem and its root cause is clearly understood, we can create solutions. An elegant solution can be a single tiny idea that changes everything. Quite often, this solution is not spending capital.

An elegant solution is one in which the desired effect is achieved, with the least amount of effort. John W. Gardner, the former US Secretary of Health, Education, and Welfare, once said, "We are continually faced with a series of great opportunities brilliantly disguised as insolvable problems."

Elegant solutions are not obvious, except in retrospect.

Organizational Change.

Leaders like silver bullets. Take this tool, transplant it to my organization and everything will be magically fixed.

That’s the flavour of the month.

We end up with so many tools and initiatives underway that we can’t support them all. We keep dropping the ball.

Lean requires a more systematic approach. It has some well known tools to use, but requires discipline, structure and mentoring to make it work. This is why so many organizations report they are disappointed with their lean initiative results. The tools are applied without the systematic approach. “Lean does not work here”, they say.

A flaw with Lean is in the tools themselves. They are simple and when observed in the factory, they seem like common sense. So leaders take the tools from the plant floor and transplant them on their office or service organization. They don’t transplant easily. I don’t see accountants and engineers respond well to tape outlines for their stapler and keyboard.

Truth be known, Lean Thinking works anywhere. Health care, offices, engineering design, sales teams, construction projects, mining industries. Anywhere work gets done, Lean Thinking can be applied. However, it takes a strategic and systematic approach to be successful.

How do I do that?

Working on how we do the work.

A key limitation of traditional improvement initiatives is that they focus on ...

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1 comment:

Norm said...

Another similar post that you may find of interest:

NBI - Making sense of business improvement - Blogged