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IS I.T. THE FINAL LEAN FRONTIER? Where a lean transformation can be ruined and where traditional thinking doesn’t always fit Organisations and interviews featured in this edition include: Renault-Nissan Consulting, APMG Lean, Lean IT Association, Suiko Construction, Norwegian University of Science and Technology IN THIS ISSUE: Price it right: a case study in an American hat manufacturer. Transformation, Behaviour, Sequence and Adaptive Lean IT Systems: How to maintain a lean IT transformation. Why do we need lean IT? The problems with making IT lean
EDITOR’S LETTER
Dear reader, It is with great pleasure that I would like to introduce myself, as the new commissioning editor of the Lean Management Journal. I am really excited to get started here and immerse myself in the world of lean and the wonderful community of people who are so passionate about it. For this, my first issue, the theme is lean IT. While 5S, gemba, kaizen, value stream mapping, andon and other tools and techniques are well used and known in manufacturing, law and other industries it is sometimes far more difficult to implement lean theology and practice into IT.
Nick Rich introduces the issue by talking about how IT can help to identify value. EDITORIAL
Commissioning editor Fred Tongue f.tongue@hennikgroup.com
Managing editor Victoria Fitzgerald
v.fitzgeral@hennikgroup.com
Editorial director Callum Bentley
c.bentley@hennikgroup.com
DESIGN
Art editor Martin Mitchell
m.mitchell@hennikgroup.com
Designers Alex Cole
design@hennikgroup.com In order to receive your copy of the Lean Management Journal kindly email lmj@hennikgroup.com or telephone 0207 401 6033. Neither the Lean Management Journal nor Hennik Group can accept responsibilty for omissions or errors. Terms and Conditions Please note that points of view expressed in articles by contributing writers and in advertisements included in this journal do not necessarily represent those of the publishers. Whilst every effort is made to ensure the accuracy of the information contained in the journal, no legal responsibility will be accepted by the publishers for loss arising from use of information published. All rights reserved. No part of this publication may be reproduced or stored in a retrieval system or transmitted in any form or by any means without prior written consent of the publishers.
We have a piece by Niels Loader discussing the difficulties with translating traditional lean techniques to IT and how to overcome them. He talks about why we should take lean IT more seriously and why it isn’t just another department.
Malcolm Jones talks about value mapping, more accurately about four lane mapping, how it works and how to use it. There is a piece by Michael Webb about sales and lean, why they don’t get along and how to make the two get along.
Torbjørn Netland continues to look critically at how 5S is being implemented and how it should be done properly, in part two of his look at the topic. Our very own Callum Bentley catches up with Renault-Nissan Consulting to see how two car manufacturers came to become lean masters. We also have our usual piece from Bill Bellows who talks about state of mind and how it can help the decision making process. Joe Bell reads How to Succeed with 5S and lets us know if it is worth reading. Lean news, events and the best of online all make their usual appearance as well. In a world where so much focus is put on business performance, adding value and cutting cost the bottlenecks that IT can create are important to address. If an organisation wants to be agile one of the first ports of call needs to be the IT systems. IT is now more important than ever to the success of a business and as the importance increases so too does the amount firms spend on IT infrastructure and ensuring that it is as streamlined as the rest of the organisation. I am really excited to be with the LMJ and we have some really exciting things coming in the very near future, so stay tuned. This should be a great issue and I hope you all agree.
Fred Tongue, Commissioning Editor.
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C ONTE NTS OC TOBE R 2015
C O N T E N T S
04 Introducing the editors 05 Lean News 07 European Lean IT Summit 08 Introduction
Introduction to the issue by Nick Rich
PRINCIPLES & PURPOSE 09 Why do we need Lean IT?
How to apply traditional lean thinking to IT by Niels Loader
12 Transformation, Behaviour, Sequence and Adaptive Lean IT Systems
Mike Orzen tells us what IT organisations need to do to become lean.
15 Four Lane Process Mapping
Malcolm Jones tells us how to streamline administrative processes.
26 SECTOR FOCUS Operational Excellence demands you should never waste a good crisis
Richard Lyle writes about how the construction industry has bounced back.
30 SPECIAL FEATURE Three Reasons Sales and Marketing are Allergic to Lean and why cracking the Code Today is so important Michael Webb tells us how to cure sales aversion to lean.
34 OUT OF THE BLUE
Bill Bellows is back with his monthly piece, this month about investment thinking.
36 BOOK REVIEW
Joe Bell gives his thoughts on Succeeding with 5S.
37 LEAN ONLINE
18 5S We Are Doing It Wrong Part 2
We are given more in depth analysis at how we should implement 5S by Torbjørn Netland.
21 CASE STUDY Price it right
38 EVENTS 39 SUBS FORM
A case study in a hat manufacturer by Smriti Neogi and Kurt Middelkoop.
24 SPECIAL FEATURE Q+A with Renault-Nissan Consulting
Elizabeth House, Block 2, Part 5th Floor, 39 York Road, London, SE1 7NQ T +44 (0)207 401 6033 F 0844 854 1010 www.hennikgroup.com. Lean management journal: ISSN 2040-493X. Copyright © Hennik Group 2015.
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INTRODUCING YOUR EDITORS Our experienced editorial board members contribute to the journal providing comment against articles and guiding the coverage of subject matter.
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JOHN BICHENO
TORBJØRN NETLAND
University of Buckingham, United Kingdom
Norwegian University of Science and Technology (NTNU), Norway
RENÉ AAGAARD
BRENTON HARDER
JOSEPH PARIS
Novo Nordisk, Denmark
Commonwealth Bank of Australia, Australia
Operational Excellence Society
JACOB AUSTAD
PAUL HARDIMAN
NICK RICH
LeanTeam, Denmark
Industry Forum, United Kingdom
Swansea University, United Kingdom
BILL BELLOWS
SARAH LETHBRIDGE
STEVE YORKSTONE
President, In2:InThinking Network
Cardiff Business School, United Kingdom
Edinburgh Napier University, United Kingdom
DAVID BEN-TOVIM
JEFFREY K. LIKER
Flinders Medical Centre, Australia
University of Michigan, USA
More information on our editorial board, their experience, and views on lean is available on the LMJ website: www.leanmj.com
LMJ LEAN ENTERPRISE DEVELOPMENT SINGAPORE
LEAN PRINCIPLES SAVE STATE HUNDREDS OF YEARS’ WORTH OF WORK A backlog of state work that was expected to take 150 years, is now on track to be finished by March 2016. The Vermont Department for Environmental Conservation has spent two years planning and implementing lean processes that have led to the vast improvements.
Singapore recently announced the launch of a pilot scheme called Lean Enterprise Development. The scheme is set to allow SMEs to increase the amount of foreign workers a firm can take on as long as the organisation is undergoing a business transformation. Singapore currently has a Dependency Ration to prevent firms relying too heavily on foreign workers. Under the current ceilings the work force cannot be made up of more than 15 or 20 per cent foreign workers, depending on where the workers are from, their skill level and the size of the business. With the Lean Enterprise Development these ceilings will be raised temporarily to allow firms to grow and become more competitive. Manpower Minister, Lim Swee Say said, “This is not a scheme about giving more foreign workers to companies or increasing the quotas for companies. This is helping companies become more manpower-lean, right, strengthen their Singaporean core.” The Association of Small and Medium Enterprises (ASME) backed the scheme, saying it will help businesses add more value to their operations as they seek to improve processes. ASME said this will encourage companies to innovate and raise productivity, with the room given to tap foreign manpower during the transitional period. Sectors like food and beverage, engineering and manufacturing stand to benefit from the initiative, the association said. Mr Kurt Wee, president of ASME, said, “It’s a scheme that looks at capability needs, the transition period of time that you need to go through and during that period of time, whether you might need some flexibility between local or foreign manpower adjustments.”
One of the processes that has seen massive improvement is the audit process for clean and drinking water infrastructure that ensures the project has been finished on time and in budget. The old process involved a 12 page review that had to be read and reviewed by four people before it could be signed off. According to officials the backlog has been cut by 69 per cent.
GE IS AHEAD OF SCHEDULE THANKS TO NEW LEAN MANUFACTURING GE recently launched a new top load washing design accompanied with an expansion of their manufacturing plant in Louisville. The new line is ahead of schedule thanks, in part, to the new design of the factory. The work stations are designed ergonomically to help employees, minimising time that parts are handled throughout the process and other lean techniques. The plant has improved their flexibility and productivity by implementing pattern scheduling to produce a richer mix of models. Michael Land, quality leader for the program, said: “Think of jelly beans, instead of having to make 500 blue jelly beans and then 500 of green, our new process allows us to make two green, one red, two blue and so on, so we can quickly and efficiently respond to customer demand with the washer model they need.”
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LMJ WINNER OF LEAN STARTUP MACHINE ANNOUNCED IN JAKARTA An on-demand home repair service called Home911 was announced as the winner of the Lean Startup Machine held in Jakarta.
NEW LEAN TRAINING COURSES ACROSS UK Utah based Shingo Institute has signed a three year deal with The Manufacturing Institute that will provide courses across the UK and the rest of the world. The Manufacturing Institute is a charity based in Manchester and was the first European partner of the Shingo Institute. The Shingo Institute has been described as ‘the Nobel Prize of manufacturing’ and the charity has helped several organisations earn the accolade in Europe. Shingo Institute executive director, Ken Snyder said, “We’ve worked well with The Manufacturing Institute for 8 years now and we’re excited to continue such a productive relationship. The wonderful people there have become one of the mainstays that enable the Shingo Institute to accomplish its mission of helping leaders transform their organisations.” Mark Leeson, Head of Business Development at The Manufacturing Institute said: “Many of the companies we have taken on a Shingo journey have enjoyed fantastic successes and we are really proud of that track record. “We have just announced a series of Shingo Discover workshops at great companies like PZ Cussons and Jaguar Land Rover and we are looking forward to welcoming manufacturers keen to learn more about the Shingo model.”
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The event took place from 4th till 6th September, with the participants taking part in workshops and talks that put emphasis on direct involvement and creating value. When speaking about the event and what participants can take away, lead organiser Ikhsan Rahardian said, “By practicing these methods, it is expected that participants will have direct experience in talking to customers. That way, they can understand what the customers really want and come out with a proper solution.”
If you have any news you think would interest and benefit the lean community please let us know. Send submissions to the commissioning editor Fred Tongue: f.tongue@ hennikgroup.com
LMJ
EVENT The 5th annual Lean IT Summit
8-9 October, Paris
Simplified customer experience + faster value streams + end-to-end people collaboration + innovation through fast experimentation = recipe for a successful digital transformation. The 5th annual Lean IT Summit organised by Institut Lean France and the Lean Global Network will take place 8-9 October in Paris. There will be many opportunities to: Meet the CIOs who are successfully deploying Lean:
Malika Mir, CIO of IPSEN Pharma and Khuloud Odeh, VP IT and CIO of Urban Institute. Discover how Lean startup principles accelerate innovation in large companies with Susana Jurado from Telefonica and Yves Caseau from AXA. Hear the tale of the 7 year long Lean IT journey at Italian bank BNL Learn from those who pull the flow in IT to better serve their customers And meet the IT people who manage their projects with Lean.
Speakers include Kent Beck, the inventor of Extreme Programming, the Lean IT pioneers Steve Bell, Mike Orzen and RĂŠgis Medina and Lean IT practitioners from manufacturing companies Toyota, Faurecia, Solar, as well as service companies Suez Environnement, AG2R, BlaBlaCar and SopraSteria.
In addition, and to make the most of your stay in Paris, the Institut Lean France is organising 3 masterclasses on the eve of the Summit (Oct 7). Those are usually great opportunities to learn from expert practitioners how to address specific situations.
RECOMMENDED READING: Download the preliminary program here: www.lean-itsummit.com/media/2015/06/ Preliminary_program_Lean_IT_ Summit_2015.pdf
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INTRODUCTION WRITTEN
BY
NICK
RICH
Lean IT: What’s the Big Idea? Lean IT can make its mark solving business problems in a fast and flexible manner
I
nformation Technology (IT) and Lean have enjoyed a rather unusual relationship. On the one hand, many lean processes have resisted automation preferring instead to use manual systems and to refuse automation until the last improvement idea has been implemented. It hard wires a system and that system is difficult and costly to unpick when it fails to deliver. Such was the problem when IT decided and imposed what was good for staff who managed flow using technology to justify almost any change in a business. On the other hand, IT has an enabling power that can provide vast quantities of big data, it can help capture the voice of the customer and it can compress time to the point that it can revolutionise a business model. It can transform industries and market expectations. Just look at the flexibility (personalisation) and delivery prowess of Dell computers, on-line electronics, the transformational power of streaming films rather than renting DVDs, the use of subscription services rather than buying software CDs, smartphone banking and the insight of customer value created by the Tesco Clubcard™. The owner of a phone can literally access the globe, 24 hours a day and, at the click of a button and in multiple languages, seek crowd sourcing
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funds for a new business idea or disgrace a multinational corporation by providing feedback on a poor service or product. Digital healthcare represents another unchartered edge and the application of IT to patient records, quicker diagnosis, better self-management of medicines as well as creating a new generation of patients who are more informed and more likely to research the surgical performance of a surgeon they have yet to meet, has only just begun. The IT world also brought the innovation of agile in the management of project processes. Debate as to whether this approach is lean IT, or not, tends to generate more heat than light in the same way the differences between lean and six-sigma were debated in the past. It is not a case of pledging to one cause or another – these are both solutions to business problems and this is where lean IT can make its mark – solving business problems in a fast and flexible manner. In the past, manufacturers in particular, were hoodwinked into buying IT solutions that promised much and delivered little. The millennium bug was once going to stop the world unless a new IT system was purchased. Service improvements could not take place because it cost too much to change IT screen formats and inflexible service
scripts were simply read out loud to an unhappy listening customer. ERP systems had some but not all the modules to run correctly and consequently didn’t run very well at all. Finally “the computer says NO” is British humour but probably the most effective and permanent way of upsetting any service user, patient or customer. The challenge therefore remains; how can lean make a full and practical use of IT? And how can IT be used it to enhance customer value, compress time, improve flexibility and go far beyond its use as a tactical activity to become a source of innovation and the reason why we can deliver beyond expectations. After all, IT holds much promise for a return to lean principle No1 – that is to understand value and help to build business models to deliver this value profitably. Using IT to join up the value stream maps that now pervade most businesses may well see IT bring new levels of effectiveness and new levels of efficiency – delivering on the promise that IT can provide and help businesses to deliver more too. This edition of the LMJ will provide you with new insights into value generation and expose new ways of converting information richness into value through harnessing the competitive power of lean IT.
PRINCIPLES & PURPOSE
Why do we need Lean IT? A WAKE-UP CALL
It is often moments when the seemingly obvious is challenged that new insights are provided. We had been working with lean in IT organisations for many years without really questioning why lean IT was necessary. I was in a meeting with the IT management team of a large pension fund, facing a videoconferencing screen. At the other end of the videoconference were four people, two internal employees and members of the Lean Competence Center (LCC), and two external lean consultants. The pension fund had requested our support in understanding why the lean team had been quite successful in the business processes, but had failed quite
spectacularly when it came to applying lean principles within the IT organisation. “What do you do differently?” was the first question from the LCC team. This question resulted in an exchange reminiscent of a great tennis rally. Our team named the tools we use, which was followed by a quick “we do that, too” response from the LCC team. As this exchange progressed, we collectively realised that it was not the tools used that differed. Nor was it the principles, since these are universal for every lean organisation, IT or otherwise. What is it that makes lean IT different from lean applied to IT? Looking at the use of lean, we see an abundance of variations. In fact, initially
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WHY DO WE NEED LEAN IT? NIELS LOADER
lean was synonymous with what is now called lean manufacturing. As lean principles were applied in areas other than manufacturing, we saw the development of lean services, lean healthcare, lean government and, of course, lean IT. This diversification is a result of the acceptance that the context within which lean principles are applied is important in determining the way the principles are applied. In an average lean manufacturing plant, a lean practitioner will readily recognise the andon cord, the way employees can stop the production line to ensure errors are not passed forwards. Even though the tools used in lean manufacturing and lean IT may be exactly the same (e.g. Value Stream Mapping, Kaizen problem-solving, Visual Management), it is necessary to understand the context for a lean practitioner to be effective within IT. The key difference can be found in the dynamics of an IT organisation. To understand why lean IT is required, we need to look at the characteristics of IT organisations.
CHARACTERISTICS OF IT
What is so specific about IT, and what are the aspects that make it difficult for lean practitioners? Rapid changes The most obvious aspect is the fact that the capabilities within IT change at a break-neck pace. This means that there may be several ‘generations’ of technology and knowledge within a single IT organisation. As a result of the explosion of capabilities within IT, language has been developed to ensure that IT people can distinguish between the various technologies and possibilities. IT people speak their own languages and have their own culture, to such an extent that in a large IT organisation infrastructure and application people may have difficulties understanding one another. The proliferation of jargon
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also leads to communication difficulties with non-IT colleagues. This is the first barrier for lean practitioners trying apply lean principles to IT. Invisible Secondly, IT is invisible. The visible bits of IT development and operations are basically people and hardware. But what these visible bits actually do is quite difficult to grasp. The way IT measures performance, the way we steer the IT organisation and drive results are intangible for business management. This can lead to perceptions that do not match reality. Going to the IT gemba (‘the place where the work is done’) demands an understanding of what is actually going on, and this means looking through the invisibility of IT and understanding what really happens. The ability to see and understand what is waste and what is not, is not always logical. Diversity of Work In an average business function, the type of work done by particular people tends to be relatively uniform. The units of work tend to resemble one another. Within IT, there are, in essence, eight different units of work: operational activities, incidents, service requests, problems, standard changes, nonstandard changes, advice and plans. Each has its own time requirements and necessary work. This, in itself, is not a problem. The difficulty arises when we realise that the average IT employee is confronted with each type of work on a weekly, if not daily, basis. Understanding and managing this dynamic is quite challenging, not only for the lean practitioner but also for IT people. IT: A Supporting Department? A critical characteristic of the context of an IT organisation is that IT is seen as a supporting department. This is a flawed assumption on two levels. Increasingly, IT is part of the primary process. Many business decisions
or functions have been built into information systems for efficiency, consistency and/or quality control purposes. The people building and maintaining these systems are no longer just there to execute requests from The Business but are increasingly knowledgeable about the business process and can contribute intensively to the improvement and further automation of the business process. IT is, in fact, a business-withina-business. In contrast to other supporting departments (like HR, Legal or Finance), IT contains the full range of business functions. It develops products and services, and is expected to do its own research into what is best for The Business. IT ensures that the products and services run in production, and provides support and maintenance for these products and services. IT tends to manage its own finances because these tend to be complicated, especially budgeting and cost allocation when business units use shared platforms. The HR for IT is increasingly seen as a separate, specialist discipline (see the development of the e-Competence Framework). Often, IT departments need their own specialised purchasing and legal support to deal with the requirements for contracting external parties. Altogether, IT should be viewed as more than a supporting department.
LEAN TOOLS WORK FOR IT
Fortunately for the lean practitioner, IT has not stood still and allowed its characteristics to turn it into a black box. There is a huge body of best practice frameworks and models that help to understand how IT actually works. The problem is that these invariably depict an end-state; the way IT should work. The challenge for lean practitioners is to work out how the IT organisation works today. And this is where the lean tools you know well are useful.
PRINCIPLES & PURPOSE
IT is, in fact, a businesswithin-abusiness. In contrast to other supporting departments (like HR, Legal or Finance), IT contains the full range of business functions
Experience has shown that IT organisations benefit immensely from visual management with the associated communication cascade. Defining the right Key Performance Indicators is a challenge for most IT organisations, and ensuring that managers steer the organisation based on the facts that are available is an area where lean tools are a great help. IT is used to change, lots of it. The paradox is that getting IT organisations to adopt a continuous improvement mindset is not as easy as it may seem. IT people are used to solving problems, the root causes of incidents. But instituting the behavior and attitude required to consistently improve the quality of IT products and services is an area in which most IT organisations benefit from lean principles. Ever since the introduction of best practice models in the 80’s and 90’s, IT has realised that it needed to improve to ensure it could satisfy customers. For many years, the approach to ensuring that IT organisations deliver what customers want was an insideout approach. This meant focusing on defining and improving IT processes based on an industry best practice framework, or taking a controls approach to ensure that IT did the right thing. Experience has shown that the most effective way to get IT doing what is necessary for the customer, is to take an outside-in approach. This means starting by defining the customer and ensuring that the IT organisation improves to help the customer achieve their goals. This is what applying lean to IT aims to stimulate. But defining the customer of IT is not as easy as it may seem. We saw that IT increasingly is part of the primary business process. This means that the customer has moved from being an employee of The Business to being an end-customer. IT therefore directly impacts the image and profitability of businesses.
THE NEW LEAN FRONTIER
In five years of lean IT transformations, IT is one of the areas where lean principles have been shown to have a phenomenal impact on performance and capabilities, leading to a responsiveness that ensures the customers of IT can take
the steps they need. In fact, there are cases in which the business has asked the IT team supporting them to slow down, as the business was not able to assimilate all the changes, that it had requested itself. As a result of being seen as a supporting department, IT organisations have been managed on cost. IT was always an expense, and IT people and technology were seen as expensive. The result is a focus, bordering on obsession, on resource usage. To this day, IT organisations focus on making sure there is enough work. The lean challenge has shown that focusing on flow efficiency is a huge cultural challenge that has been tackled through Agile/Scrum-type techniques. However, the basic principle of flow is still a long way from being common practice within IT organisations. One lesson from years of working in IT organisations is the importance of time. Within lean, we tend to look at time from a process perspective. Within IT, we must look at time from multiple perspectives: unit of work, person, team, process and organisation as a whole. Successful application of lean within IT requires a fundamental vision of what IT actually delivers, how it deliver services and the way IT organisations work, combined with the ability to initiate change and the knowledge to cut through the complexity of IT. Lean requires that IT organisations focus on the customer value. It means improving processes rather than try to implement end-state processes. IT organisations must focus on achieving flow efficiency and continuous improvement to achieve the real benefits of lean. At the same time, IT needs lean practitioners who can see through the technological and organisational complexities, who understand the language of IT people and who can understand the processes and associated data in IT. For the lean practitioners seeking a new challenge, IT is the new lean frontier. In the spirit of Taiichi Ohno, let me leave you with a question for the next time you are in an IT organisation: what is the andon cord of the IT organisation?
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Transformation, Behaviour, Sequence, and Adaptive Lean IT Systems T
ransformation is today’s buzzword. It seems everyone in the lean community is talking about transformation. This makes sense given that we’ve spent the past several decades attempting to understand, copy, and adapt the improvement tools of Deming, Ohno, Shingo, and others and getting mixed results. Today we have only a handful of companies we might describe as Lean Enterprises and Toyota remains as the undisputed archetype. So what is transformation and why are so many companies pursuing it? Transformation is often described using words such as radical change, metamorphosis, revolution, and overhaul. Perhaps the most important aspect of a true transformation is that it is irreversible. This is the characteristic of lean transformation that has eluded most organisations. Granted, they have trained their people in the tools and core concepts, experienced process improvements through kaizen, made changes to the physical environment, introduced lean management systems, and have realised measureable results.
TRANSFORMATION I S R E A L LY H A R D T O SUSTAIN
But what many organisations discover is that the momentum and energy required to keep their transformation going is being provided by a small group of people (usually the Process Improvement team, a cadre of lean coaches, or a charismatic lean champion). If they stop leading the charge, improvement work and the underlying transformation immediately begin to taper off. It’s as if organisational
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momentum is a large stone that needs to be constantly pushed up hill – if we stop pushing, it quickly rolls back down! Transformation and Organisational Momentum
LEAN IT IS ESSENTIAL
Delivering value to the customer is a common objective of practically every organisation in existence. In order to accomplish this, it is essential to deliver services, products, and information which meets customer-defined quality, at a price they are willing to pay, and at a pace that matches customer demand. With the advent of the Internet, smartphones, and unprecedented access to information, customer expectations of quality, value, variety, convenience, and delivery have been increasing rapidly and there is no end in site. In order to meet customer expectations, today’s business climate is categorically reliant on the flow of information. Modern-day business process improvement, a collection of principles, systems, and tools aimed at creating a culture of continuous process improvement has evolved over the past 100 years or so. Most recently,
we have been witnessing an explosion of improvement methodologies in the Information and Technology space. This comes as no surprise given our insatiable need for the information we require to make timely, informed decisions in response to ever-increasing customer expectations. In the 1980’s, the IT Infrastructure Library (ITIL) emerged as a set of standard practices for IT which focused on aligning IT services with the needs of business (a novel idea at the time). ITIL has gone through several iterations and evolved to include a continuous service improvement component that embraces many of the tenets of lean thinking. Since then, we have seen the further application of lean in IT including Agile/Scrum, Kanban, Continuous Delivery, Lean Startup, DevOps, and Lean/ Agile Project Management. I refer to this entire body of IT performance improvement as lean IT. Lean IT is the application of lean through to Information, Communication, and Technology. It’s a management system made up of two key pillars: continuous process improvement and respect for people. Lean IT is ultimately a learning system using a structured and disciplined approach to solving problems and pursuing opportunities. Lean IT focuses on engaging IT people to methodically improve IT processes in partnership with the Business to deliver more value to end users and enable the Business to deliver more value to end customers. This includes getting out on a regular basis to better understand the challenges and value equations of
PRINCIPLES & PURPOSE
end users and see how information and technology are really being used. Lean IT is about engaging people, improving core business processes, and leveraging technology to enable the entire organisation to accomplish more, create more, and achieve more with the least effort required.
TRANSFORMING IT IS EVEN MORE DIFFICULT, BUT NOT IMPOSSIBLE
Today, many companies are actively seeking the benefits of lean IT and are undergoing constant transportation in their IT group. They are often familiar with lean and/or Six Sigma and have had some success with process improvement in other areas of the business such as manufacturing, accounting, and supply chain. However, the landscape of IT, the complexity and dynamics of technology, the interdependency of its functional silos, and conflicting priorities when working with the Business, all combine to create a perfect storm of distinctive obstacles. There is a key relationship that exists in all organisations. When understood and appreciated, it can provide clarity and direction to a lean IT transformation. Let’s look at the components of the lean IT diamond and why it can be so helpful. At the top of the model, we begin with Purpose. A shared purpose is essential to create and drive a common intention, alignment, and commitment. Everyone in the IT organisation (as well as the Business) needs to very clear on why we are in business, why we are transforming, and where we are vs. where we need to be. If this shared understanding is not Figure 1. The Lean IT Transformation Diamond Purpose
IT
People
Process
in place, you can be certain to see different behaviours, erratic degrees of engagement, and the consequential mixed results. Without a widely understood and collective purpose that people can clearly see within the context of their daily work, everyone is left on their own to identify what matters most and determine what they should do (or not do) about it. If you have ever witnessed pockets of improvement (aka islands of lean), you can be assured there is a lack of understanding around shared purpose. The next component is People. It may seem obvious that people are a central ingredient in building a highly effective organisation. What is not so obvious, or at least publically acknowledged, is that many work environments are abundant with uncertainty, disengagement, mistrust, apathy, fear, and political gamesmanship. In our first book, Lean IT Enabling and Sustaining Your Lean Transformation, I noted that people are often the only appreciating asset in an organisation. When we treat people with respect and create systems and processes that position them for success, we cultivate trust, engagement, teamwork, and high levels of performance. Process represents the work we do to create value for our customers, to collaborate with our partners (the Business, vendors, supply chain, and outside resources), and to ultimately fulfill the mission of our organisation. When processes are undefined, unclear, or not consistently followed, the effort required, the time it takes, the quality of the outcomes, and the frustration of staff and customers all become highly unstable and inconsistent. The final component of the lean IT diamond is Information and Technology. It is useful to think of these two elements as distinct yet highly interdependent. With respect to information, IT is the mechanism that transforms raw data into useful and actionable information. IT, when done well, is the connective nervous system that joins people with actionable information. Concerning technology, IT is the enabler of the business – capturing, organising, and storing immense amounts of data,
automating routine tasks, building transactional records, enforcing business process rules, managing secure access, all while providing work process functionality and visibility to all functional areas of the business. The flow of complete, accurate, timely, and actionable information is a key determinant of the flow of customer value and organisational performance. When IT stops, the Business stops. When IT flows, information flows and the Business is positioned for success (of course it takes more than just great IT).
THE IMPORTANCE OF BEHAVIOUR
At the end of the day, all change comes down to altering our established patterns of behaviour. Anyone who has attempted to make a lifestyle change (such as quitting smoking or eating healthier) can attest to how difficult this is. It is interesting to note that most transformations tend to focus on training people in the new ways of doing things. We assume that if people know about a new (presumable better) way of doing something, they will automatically adopt it as their regular way of acting. Nothing could be further from the truth. If knowing about a better behaviour caused people to change their actions and develop new habits, no one would be overweight, use tobacco products, or run on less than 6 hours of sleep! We are all creatures of habit and become very comfortable with the way we’ve always done it, even when our routines become outdated, broken, and painfully frustrating. Why? Because it is really difficult to change the behaviour of others or even ourselves. This resistance to change is a universal condition that, unless addressed directly and openly, puts all transformation efforts at serious risk.
MAKE/BREAK, CADENCE, & PREDICTABILITY
There are three factors you need to know about to effectively address this issue: make/break, cadence, and predictability. So what does it take to make or break a habit? I have confirmed it requires 40 days of practicing a new
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LEAN IT SYSTEMS MIKE ORZEN
behaviour before we can even begin to change old habits. At 90 days we have confirmed and strengthened the routine. At 120 days the new habit becomes deeply engrained as a part of our identity (how we see ourselves). At 1,000 days we have mastered the new behaviour. Here’s the secret: the days must be consecutive! That’s right – if you miss a day, any day, the next day is Day One and you start counting from the beginning. I have personally used this approach to successfully affect change at both organisational and personal levels and it works. Why is this approach so effective? People like routine and predictability – we are hard-wired to repeat what has worked before and to be skeptical of anything outside the conventional pattern. Most people drive to work using the same route, walk through a grocery store selecting the same items, watch the same TV programs, and go to bed at the same time - you get the picture. By enforcing a new routine and deliberately changing our behaviour, we gradually provide the predictability and structure our human nature innately desires. When the changes make our work better, faster, less stressful, and prove to be more rewarding, that further reinforces the value of the routine and new habits begin to take deeper root.
Applying the make/break, cadence, and predictability concepts, we would include problem solving as an essential element of our daily team huddles and visual management system. On a daily basis, the team would be coached by responding to questions of inquiry designed to foster new ways of applying what was learned during the training on problem solving. The only way people learn lean is by doing lean!
THE IMPORTANCE OF WORK SYSTEMS
In the previous example, team huddles and a visual management system were mentioned. These are both examples of work systems designed to encourage the specific behaviours we want to cultivate. There are many work systems that comprise a lean management system including problem solving, daily huddles, leader standard work, training, recognition, visual management, strategy deployment, measurement, and monthly performance reviews, just to name a few.
As new work processes yield better results including more consistent quality, less rework, variability, and overburden, predictability of outcomes increases and we receive yet another dose of reinforcement – increased customer satisfaction!
It is these work systems that impact people’s behaviour most significantly by emphasising and reinforcing those actions we want to see everyday from everyone. Where many organisations get into trouble is in the sequence and timing of how and when to introduce these systems.
THE KEY SYSTEM – PROBLEM SOLVING
SEQUENCE IS CRITICAL
An example may serve to clarify this approach to creating new habits. Let’s assume you have introduced lean problem solving to your IT group as part of your transformation. People have received training in basic lean concepts including PDCA, A3, and root cause analysis. The assumption is that once people understand lean problem solving, they will use it in their daily work. This rarely happens. In most cases about 10% of your people will be self-starters and try to apply lean practices on their own. The vast majority of people attend the
14
training and think, “That’s interesting…” and then go back to work using their normal ways of getting things done. They quickly fall back to their comfort zone, which excludes the ideas and tools shared in the training workshop.
Over the past twenty-four years, I have tried many approaches and witnessed what works and what doesn’t. Here’s the bottom line: each organisation has its own culture, history, and work environment, so one size does not fit all. There is no standard deployment sequence or collection of work systems that apply universally. That said; there are some fundamental concepts applicable to all organisations. 1) Start by establishing a clear purpose throughout the organisation. This is a prerequisite for success.
2) Acknowledge that the bedrock of lean is learning and that problem solving capability is the skill to cultivate if you are serious about transformation. 3) Strive to balance the two pillars of lean: continuous improvement and respect for people. Don’t make the common mistake of falling in love with tools of continuous improvement and ignoring respect for people. 4) Create a culture of accountability by building work systems that position your people to succeed, to learn, and to grow. This is true respect for people and promotes high levels of teamwork, engagement, accountability, and ultimately performance. 5) Work systems must be designed, built, maintained, and improved by the people doing the actual work. Outside support is fine, but the frontline people must do the work.
ADAPTIVE LEAN IT SYSTEMS
Whether you are considering bringing lean IT to your organisation, currently applying it to IT operations, or determined to build a lasting transformation, awareness of the lean IT diamond and the importance of behaviour, work systems, and sequence will significantly increase your odds of success. At the end of the day, lean IT is all about effectively responding to change by continuously improving adaptive systems. In order to be effective, IT must change its behaviour and functional capabilities in response to its environment and the needs of the Business. When IT reshapes systems and technology, the adaptive change is directly relevant to achieving the goals and objectives of the organisation.
SUMMARY
For IT organisations to evolve and become more responsive to the changing needs of the Business while simultaneously maintaining the stability and security they are held responsible for, IT professionals need to understand and embrace the behaviours, as well as the thinking, of lean IT.
PRINCIPLES & PURPOSE
Four Lane Process Mapping
A Lean Approach to Administrative Process Improvement W
hat has come to be known as lean is essentially a process improvement discipline. As Shigeo Shingo outlined as early as the 1950’s when he began his relationship with Toyota, lean focuses on processes, not individual operations. Shingo was not interested in improving individual efficiencies unless they could be seen to contribute to overall leadtime and inventory reduction, a theory he called
‘stockless production’. Shingo drew a matrix model of processes (flow) and operations (individual tasks) and insisted we focus on process improvement and flow. As the Western concept of lean developed in the 1990’s Mike Rother devised Value Stream Mapping as a way of clarifying this concept. In a value stream map we analyse two flows,
those of materials and information and attempt to synchronise the two. In terms of material flow Rother utilises Little’s Law of Queues which states that leadtime through a process is equal to the quantity in the queue divided by the rate at which the process clears the queue, so that if we have 400 units of material in our operation which produces 40 finished units per hour then the leadtime is 400/40 = 10 hours. Our value adding percentage is then the ratio between the time spent adding value to each unit in individual operations, say 30 minutes, and the leadtime, 10 hours, giving a value adding percentage of 5%. It was the realisation that if we improve individual operations we are limiting ourselves to less than 5% improvement in leadtime which led Shingo to his process/ operations insight. Shingo’s insight was that there are only four categories of operation: transformation, inspection, storage and transportation. Of these, only transformation ie changing the properties of materials, is of any real value. Storage and transportation are completely nonvalue adding and, to Shingo’s mindset, inspection should be unnecessary if processes were mistake proof (PokaYoke). Personally I am willing to accept
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FOUR LANE PROCESS MAPPING MALCOLM JONES
some value in inspection if the customer demands an inspection report as part of the delivered product, but I know that this was not Shingo’s view. The other fundamental lean principle we apply is Jidoka, Toyota’s second pillar alongside JIT. In manufacturing operations Jidoka means separating the person from the machine so that people are not tied to individual operations, particularly to watching semi-automatic machines while they wait for the operation to be performed by the machine. In administrative process it means separating individuals from the process so that tasks
Window Analysis of Standards I know and practice
I know but don’t practice
I don’t know
You know and practice
Reliability
Adherence
Communication
You know but don’t practice
Adherence
Problems
You don’t know
Communication
The technique is based around two wellknown approaches, firstly an insistence on standard operating procedures (SOPs) for all operations and secondly on the industrial engineering process of ECRS – Eliminate, Combine, Rearrange, Simplify. Using ECRS we first eliminate Shingo’s insight was that there unnecessary operations, are only four categories of operation: then rearrange and transformation, inspection, storage combine the remaining and transportation operations in the most efficient sequence before simplifying the remaining operations to reduce cost or time. ECRS is itself a simplified form of Osborn’s Checklist, can be rearranged and combined to but is perfectly adequate for most uses optimise the process. (Shingo’s fabled SMED technique is to all essential purposes ECRS with the addition Ironically, Little’s Law was originally of the internal/external changeover devised to calculate how many tellers were operation distinction). needed in a bank in order to keep queues to an acceptable level, so that in applying One ancillary technique I use to discuss lean concepts to financial services we are standardisation of operations with groups returning to the origin of the concept. is Professor Fukuda’s Window Analysis, Unfortunately in modern administrative which asks whether there is a known processes it is unhelpful to distinguish standard which is followed, a known between material and information flows as standard which is not used or no known they are one and the same – the material standard. If these categories are used by is the information, and so Value Stream two individuals or two teams in a 3 x 3 Mapping is of limited benefit. matrix then it generates four categories (see illustration). Where neither party Some years ago I was introduced by can identify a standard, then this is a Boeing Corporation to a technique which standardisation problem – ie there isn’t they used to map administrative processes one, and the first countermeasure is to and which I have subsequently favoured create one. Where there is a standard over Value Stream Mapping, Swim Lane which is not known by one or both Mapping and other common process parties then this is a communication mapping techniques. I have used Four problem, which requires communication Lane Process Mapping in pharmaceutical and training. Where both parties know research processes as well as financial the standard but one or both do not use service processes, having deviated it consistently then this is an adherence somewhat from the original Boeing model, problem and the countermeasure is but have found it a very effective way of to discover why and provide further promoting process improvement in nonguidance. Where both parties know and manufacturing applications.
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No standard work to a standard but the results are not satisfactory, then there is a reliability problem and we must work to make the standard capable. The insight here is that before we start trying to improve the standard we need to know whether there is a current standard which is being used correctly. Four Lane Mapping works by describing a process on four horizontal lanes on a large roll of paper. The Four Lanes are: Process as Documented, Process as Witnessed, Process Issues and Process Improvements. In using this approach however I have found it best to start with Lane 2, Process as Witnessed. To create lane 2 we need a group of process users as well as other interested parties – CI specialists, managers and internal customers for the process. The process may encompass more than one department as information is processed to provide the result for the internal and external customers. One example is of a financial services company providing secured loans to small companies for capital investments. Brokers would put forward customer proposals to the company, who would then have to provide a loan offer, often the same day or even within two hours. The process would involve assessing the value of the asset, the creditworthiness of the customer and level of risk and would pass through a number of departments, including underwriters. Once a proposal had been made this could be live for up to 180 days before acceptance by the customer, who then required funds to be released at short notice. The project was to reduce leadtime from receipt of customer acceptance to release of funds as this was a major factor in customer satisfaction and the ability to generate repeat business. We examined
PRINCIPLES & PURPOSE
the process right from opening post and receipt of email acceptances through to release of funds. Working with the team we mapped out lane 2 and were immediately struck by a number of issues relating to duplication (“why does your department do that? – we’ve already done it”), inefficiency (“We never knew you did that – that makes our job much harder”) and sequencing (“if you could let us know you’ve done that earlier, then we could start this task much earlier”). At this point we then assemble all the documented standards and use lane 1 to cross-reference them to the process as witnessed. We are looking for divergence between the documented standard and the process as witnessed and also for gaps in the documented standards. By the end of this we had a huge number of issues documented in lane 3 of the map. As an improvement process note, I usually try to break for the day at this point (for a large process this will be at the end of day two) so that people get a chance to reflect overnight and come fresh to the process the next morning. Assembling the next day we review the analysis, pull out common themes and then begin by applying ECRS and asking which tasks provide no value and can be eliminated. To do this we examine the function of each task, asking what its purpose is and why we do it. As we had already identified a number of duplicated tasks this serves to get the group moving on developing process improvements, which are documented in lane 4. We then look at rearranging and combining tasks to give us the optimum sequence of operations, making sure we adhere to the Jidoka principle where possible and separate people from process. We may also introduce the idea of administrative kanban at this point to maintain First in First out (FiFo) through the process. Once we have the optimum sequence sketched out we can then look at individual tasks and their documented standards to see if they can be simplified in any way. The output of a Four Lane Process Mapping workshop would be an optimised sequence of tasks to accomplish a particular process,
ECRS Category
Questions
Description
Nature of task
What?
What does the task achieve?
Solution
Objective
Why?
Why is it done?
Place
Where?
Where is the task done?
Sequence
When?
When is the best time to perfrom the task?
Personnel
Who?
Who performs the task?
Method
How?
How is the task performed?
Cost
How much?
What does it cost us to present?
Eliminate useless activities
Rearrange or combine tasks
Simplify the task
improvement ideas to simplify particular tasks and an action plan to implement the improvements and develop the revised standard procedures. In regulated environments such as financial services and pharmaceuticals this will also involve obtaining the appropriate approvals for process changes and one way to approach this is to divide the proposals into ‘Dos’ – things which can be done now without any external approval or additional resources, ‘Fixes’ – those things which require some resource planning, but not external approvals and ‘Redesigns’ – those things which require substantial resources or approvals and need to go through the management approval process. I have found Four Lane Mapping to be a very useful and powerful process in a variety of non-manufacturing environments. An initial workshop can last from two days (the minimum to do any serious work) to four days (if the analysis is going to take longer than four days you might want to partition the project into multiple events). It is important to be very clear about the starting point and finishing point of the process under analysis in order to avoid ‘process creep’. Lean tools such as Four Lane Mapping are just that, tools to be used in particular circumstances. There is an old saying ‘to a man with a hammer, everything looks like a nail’ and we have to be aware of the value and use of each tool in our armoury and use them as appropriate. Where we have separate material and information flows and physical inventory or work in
Once we have the optimum sequence sketched out we can then look at individual tasks and their documented standards to see if they can be simplified in any way
process I would use a Value Stream Map. Four Lane Mapping is for reasonably complex administrative processes – to use another common image, using Four Lane Mapping on simple processes is using a sledgehammer to crack a nut. What is also important is that the team you are working with understand the basic principles – process v operation, JIT, Jidoka, ECRS. These are often best learnt through simple simulation exercises which provide an enjoyable introduction before getting down to the hard work of examining your own processes. My own experience of using this approach is that people are very often staggered by the level of improvement they can make to their processes and I am often likewise staggered by the creativity and ingenuity of the teams I am working with.
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5S- We are doing it wrong part 2
In the second part of his two part investigation NTNU associate professor Torbjørn Netland, continues to cast an eye over 5S, tells us where we are going wrong and how we can do better.
THE THIRD AND FOURTH SS: SEISO & SEIKETSU
The two next Ss — Seiso (清掃) and Seiketsu (清潔) — also share their first kanji character, 清, which connotes pure, clear, and/or fresh, and is associated with water. The latter kanji in Seiso, 掃, means “sweep”. The second kanji in Seiketsu, 潔, is a very positive character describing something pure, clean, holy, and/or free of dust and germs. Clearly both of them are related to cleaning. Seiso literally means “cleaning” and Seiketsu is a general term referring to “maintaining cleanliness” (as in good hygiene) and is a very usual expression in Japan. In Japanese primary, secondary and high schools, it is a very common practice that students have daily cleaning time, for example 30 minutes. They clean not only their classrooms, but also shared areas such as the corridors, toilets, entrance, etc. A more common Japanese word for Seiso is “Souji” (掃除). It is one of the fundamental Japanese
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PRINCIPLES & PURPOSE
customs. An illustrative example: In the 2014 Soccer World Cup in Brazil, the media broadcast pictures of Japanese soccer fans tidying up their seats and sitting areas after the games. Sticking to the letter S, the English translation of Seiso is often “sweep”, “scrub” or “shine”, even though “cleaning” would arguably be closer. Note that Seiso is not just about brushing and washing, it aims to keep machines, equipment and facilities in a functional, visual and wellmaintained state. Because “dust attracts dusts” and “litter stimulates littering”, the absence of Seiso quickly results in an impaired factory. Seiketsu is often translated to standardise which means maintaining a standard. This might result in wrong interpretations: Seiketsu is not the activity of making work standards (another important element of lean production), but rather the activity of sustaining all the three first Ss. Seiketsu is the ideal status after you have sorted, set-in-order, and cleaned up. In one sense it means creating and maintaining standards for Seiri, Seiton, and Seiso. Seiketsu is the foundation for improvement, well-being of the employees, and effective production. One of my Japanese colleagues, who moved to Europe a few years ago, provides an illustrative example: At my kid’s school, the kids rarely have opportunities to clean the shared area. Instead, the school hires a janitor for cleaning, and the parents do a big cleaning event twice a year. In Japan, we always think that it is much better to let pupils clean by themselves so that they use the areas with more care and find improvements for a better school environment. To have and keep “Seiketsu” should be a goal in the school.
HOW TO DO IT
The cleaning activities of Seiso can typically be carried out at the end of every shift. Five or ten minutes are sufficient. The obvious drawback is that such cleaning routines often mean five or ten minutes of lost production. Therefore,
we should strive to do the cleaning while machines are running. Not cleaning at all is equivalent to never brushing your teeth. It is simply a bad idea. Note that Seiso also includes other activities that help implement the “visual factory”, such as installing sky lights, painting the factory walls in light colours, and replace nontransparent covers with transparent ones. Making the factory more beautiful is important too, but not the main objective of Seiso. Seiketsu can be achieved by applying a combination of reactive and preventive actions. Reactive actions include practices like regular Gemba walks and scheduled 5S audits with the purpose of identifying areas for Seiri, Seiton and Seiso. These practices are very usual, but require a routine and sustained commitment by the management in order to be effective in the long run (which is why we need the fifth and final S). Weekly or monthly 5S audits are maybe the most used (and misused) lean tools. An obvious risk is that it favors compliance over understanding. Examples of preventive Seiketsu actions are installing ventilators, air filters, door mats, surface treatment of concrete floors, and so on. The best preventive actions are those that eliminate the cause of unnecessary items, disorder, and dirt altogether. For example, areas where dust enters the factory can be sealed permanently. Also, appropriate wardrobe and canteen facilities may be good preventive actions. Clearly, Seiketsu cannot be achieved by one-off Katazuke campaigns alone, but requires “Kaizen” (continuous improvement activities).
THE FIFTH S: SHITSUKE
The fifth S, Shitsuke (躾), is different from the first four Ss that Shingo and Ohno discussed in Toyota (4S). According to Japanese colleagues, Shistuke is a rather strange word to use in a professional business setting, because it is usually reserved for raising children or pets. Shitsuke can be translated to “discipline”, “educated” or “following the rules”. Shitsuke implies a set of rules that somebody is taught. For 5S, the set of rule is 4S. The kanji character (躾) can be split into two parts: 身 and 美. 身 means body and 美 means beauty. In this
sense, Shitsuke is the process of training the (mental) body to become beautiful – which refers to developing a healthy and disciplined organisational culture. The usual English translation of Shitsuke, “sustain”, can be misleading: Shitsuke is not about sustaining the first four Ss per se (remember that Seiketsu is the process of sustaining Seiri, Seiton and Seiso), but rather a fundamental culturebuilding process that makes sure people see the purpose of and are motivated to act on the rules of 4S. It fosters selfmotivated discipline in the members of the organisation. Shitsuke should manifest itself in deeds and habits, such as, for example, washing hands, using safety equipment and proper working clothes, respecting the work time, prioritising the team over self, following standard operating procedures, and contributing with creativity to improve the standard. Only recently we have started to understand the power of Shitsuke in the lean production literature (see, for example, the books The Toyota Way to Lean leadership by Jeffrey Liker and Gary Convis, and Toyota Kata by Mike Rother).
HOW TO DO IT
Admittedly, Shitsuke appears paternalistic—but the intention is good. In the Japanese system, the operator is taught by the foreman, the foreman by the line manager, the line manager by the production manager and so on. The relationship between a subordinate (Kohai) and a senior (Senpai, or sometimes “Sensei”, which means teacher is not “do what I tell you” or “tell me what to and I’ll do it”, but rather a coaching relationship aiming to provide guidance from someone with experience to someone without. In particular, the role of the foreman is essential for the success of 5S. It is the job of the foreman to provide regular on-the-job-training for his/her operators. The shop-floor operators should implement and sustain 4S through Shitsuke. Just as for the other Ss, there are practical methods that can assist the Shitsuke process too. On-the-job and class room training are obvious activities. Others include information billboards and slogans, daily team meetings on the shop-floor,
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5S- WE ARE DOING IT WRONG PART 2 TORBJØRN NETLAND
regular newsletters, town hall meetings, “gemba” walks by senior management, showing performance indicators on team boards, offer rewards and recognition, and perform checklists of adherence to standards. But none of this will be successful if the management style is that of “command and conquer”. Managers need to lead by example to develop the right culture. There is no quick fix in creating discipline towards a 5S culture. On a day-to-day basis, managers must be visible, enthusiastic, and supportive. Teams should be empowered with budgets and time set aside for 5S activities. Everyone in the organization should be trained and developed. An effective way to do this is the “train the trainer” system, where the responsibility of 5S gets disseminated in the organization. Building a good 5S culture takes years.
CONCLUSION
5S is extremely popular in industry. It is often celebrated as the first “tool” to implement in a lean journey. Unfortunately, countless firms never make it beyond the first Ss, and then they regress to no S. As this discussion of 5S shows, 5S is not a tool, but rather a full concept that builds a foundation for any professional business. Introducing the two first Ss, Seiri-Seiton, result in an orderly, effective and logical workplace. Adding the third S, Seiso, makes the workplace clean, functional and attractive. These three Ss are good housekeeping practices and create “visual control”, which is a wanted result of any 5S project. The fourth S, Seiketsu, is about sustaining the result. And the fifth S, Shitsuke, is about building discipline in the organisation towards the idea and standards of 5S. Let’s face it, remembering five Japanese words (even remembering five sequenced words of your native language) is a challenging task. It is much better to understand the underlying idea of the concept. Not forcing a translation of 5S into words starting with S, I find the following suggestion to be more correct (see Imai, 1986, and Hirano, 1996, for similar translations): Seiri – Sort items to retain, return and rid
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Seiton – Organise items in the workplace Seiso – Clean the workplace Seiketsu – Maintain Seiri, Seiton and Seiso Shitsuke – Discipline the organisation Individual perceptions of 5S differ widely. Very often it is wrongly perceived as a mere tool for tidying up and cleaning. These are indeed essential elements of Seiton and Seiso, but do not capture Ohno’s and Shingo’s original idea of 5S. We can hardly blame anyone for this limited understanding of 5S. First, there are different translations of the concept— some more correct than others. Even best-selling books on lean production get 5S wrong, most often misinterpreting Seiketsu and Shitsuke. Second, 5S is not a very intuitive concept; Seiketsu is integral for Seiri, Seiton and Seiso, and Shitsuke is integral to Seiketsu and a higher-level characteristic of the organisational culture. Third, because companies usually do not understand Shitsuke, the other Ss can never be sustained. This leads to cyclical restarts of incomplete 5S projects. Fourth, 5S itself has a direct cost, but doesn’t save a penny; the benefits are plentiful,
but indirect and hard to measure. Fifth, 5S is not sexy; it makes people start daydreaming of the weekend. We all know that a certain level of industrial housekeeping is needed, but can we ever succeed with 5S? Here is my conclusion: Try not to make 5S a goal in itself. It could probably be a good idea to never introduce (or re-introduce) 5S as a “tool” for your company. Focus instead on the leadership part, building the right discipline and culture in your organisation towards the objective of 5S: Create, maintain, and improve an efficient workplace organisation with high levels of visual control.
整理 Seiri
整頓 Seiton
清掃 Seiso
清潔 Seiketsu
躾 Shitsuke
Good luck with getting 5S right!
RECOMMENDED READING: If you want to study the concept of 5S further, I recommend you the following books: Imai, M. (1986). Kaizen, the key to Japan’s competitive success. Random House Business Division. Ohno, T. (1988). Workplace management. Productivity Press. Osada, T. (1991). The 5S’s: five keys to a total quality environment. Asian Productivity Organization. Hirano, H., & Talbot, B. (1995). 5 Pillars of the Visual Workplace. Taylor & Francis. Hirano, H. (1996). 5S for Operators: 5 Pillars of the Visual Workplace. Productivity Press. Kimura, K. (2014). Untitled manuscript about 5S. Unpublished manuscript. To learn more about Shistuke (the fifth S) see the following books: Liker, J., & Convis, G. L. (2011). The Toyota Way to lean leadership. McGraw-Hill. Rother, M. (2010). Toyota kata: managing people for continuous improvement and superior results. New York: McGraw-Hill Professional.
CASE STUDY
Price it right a case study of an
anonymous American hat manufacturer about how to choose a price point IMPORTANCE OF KNOWING THE COST
LEAN ACTIVITY BASED COSTING
With the globalisation of the market, customers have the choice to get a cheaper hat more quickly from Mexico than from the U.S. This hat manufacturing company faces the challenge of making a variety of good quality hats at a competitive price in a customer’s market. It becomes more important than ever to understand the profit’s equation which states that the profit is the result of the difference of selling price and the cost price of a product (Arthur, 2008).
In this article, the concept of LABC is used to find the cost of various non- value added activities in the hat manufacturing company. The annual value stream minutes can be calculated as
This study was made at a hat manufacturing company in Texas which was established in 1920. It is a family owned business and the tradition of making hats is passed from one generation to another. The company manufacturers felt hats and straw hats in various different styles. With the various permutations and combinations there are more than 1000 different hats to choose from. Based on the 80-20 principle, the project focuses on straw hats with western style.
In the customer’s market, selling price is determined by the customer. In this era, if the manufacturers want to make a profit then they will have to keep the cost price down. However, the minimum cost price of a hat should be estimated by combining cost of material per hat and cost of value added activities using the concept of Lean Activity Based Costing (LABC).
Lean principles help to see and eliminate wastes from the processes (Hopp & Spearman, 2000). “Waste” is defined as any non- value added activity that the customer is not willing to pay for (Rother, Shook, & Womack, 2003). Activity Based Costing is associated with identifying activities in a process and assigning the cost of each activity (Libby, Libby, & Short, 2007), (Katja Antikainen, 2005). Lean Activity Based Costing (LABC) is a concept of identifying the wastes in the process and assigning a cost to each of them. Tom Pryor describes a method where value streams cost per minute can be calculate in his article, “A Financial thermometer for lean operations” (Pryor, 2010).
= (Available working days in a year) x Production hours per shift (hr) x conversion (60) minutes x People per shift x Percent factor per shift.
=250
days year
x44
people shift
x8
hr day
x60
minutes hr
x0.85 percent factor
= 4,488,000 min / year (1: Source: finance department of the company)
CASE STUDY PRICE IT RIGHT
Table 1: Annual Resource cost (Source: Finance department of the company) S/NO
RESOURCE
COST
1
Direct labour for straw plant only
1048170
2
Depreciation (30% for straw plant)
96300
3
Maintenance and Supplies (Felt and straw + Repair + Labour for maintenance) (25% for straw)
208964.5
4
Utilities (30% for straw)
126290.4
5
Space (Property Tax + Insurance) (30% space)
211067.4
Table 1 shows that the annual value stream resource cost is about $ 2,156,149 per year for the straw plant only. The annual value stream resource minutes are 4,488,000. According to Pryor, value stream’s average cost per minute can be calculated as (Pryor, 2010): $2,156,149 per year
6
Indirect labour: Material Handler (office + supervisors + other) (20% for straw)
190358.4
4,488,000 minutes per year
7
Cost of Capital (10% for straw raw material, Work in Progress and Finished goods)
275000
Annual Resource Cost in Dollars
TOTAL COSTS:
$2,156,149
Process Study was done to ensure that all the processes are listed and are followed in the proper sequence as established by the experts Figure 1: Value added and Non- value added activities in the process
Annual Available Time in Minutes
= $0.48 per minute
= Value Stream’ s average cost per minute
DATA GATHERING PROCEDURE
In order to find the wastes in the system, data was gathered using process study and inventory study supported by time study. In the following section the studies are discussed in detail.
PROCESS STUDY
Process Study was done to ensure that all the processes are listed and are followed in the proper sequence as established by the experts. Figure 1 shows the actual sequence of activities in the process that has both value added and non-value added activities in it. For clarity, in Figure 1 the value added steps are shown in green and the non-value added steps are shown in two different colours. Travel is shown in blue and inventory staging is shown in yellow. As shown in Figure 2 inventory can be seen between every process step. A casual walk through the facility shows stacks of hats piled up on the tables. Figure-II shows the number of inventory (dozens of hats) between stations. The maximum inventory of 117 dozen hats was between stations First Press, Lacquering and dry oven. Each time the hat is dipped in the lacquer, it has to pass through the oven and then pressed in the first press machine. Depending upon the firmness desired by the customer, hats are dipped number of times in the lacquer. Batches were made of hats that require same number of dips such as single dip, double dip etc.
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CASE STUDY
Figure ll: Inventory count in dozens of hats between stations.
COST OF HOLDING INVENTORY USING LEAN ABC
The snap shot of total inventory in the system as shown in Figure-II adds up to 291 dozen hats. The total number of hats is 3492. The value stream’s average cost per minute was calculated to be $ 0.48 or 48 cents per minute. Considering the present situation with the inventory in the system the cost that is tied up in Work In Progress (WIP) should be =Number of stations x Average time per station x cost per minute x Number of hats between stations =11 stations minutes x 5.06 station
x 0.48
dollars minute
x 3492 = $93,295.
ROOT CAUSE OF THE PROBLEM–CHEAPER TO MAKE IT BY 20 DOZEN
The study found that the grouping and regrouping was done many times throughout the operation floor to make a batch of similar hats. On further analysis the root cause of the problem was found to be a belief. The operators and management thought that it was cheaper to make by 20 dozen. The basic changes in the market and customer behavior now and then has led to the concept of small or no batches and thus, challenging the company’s assumption of making hats in an economic batch size of twenty dozen thus pushing back production tickets with less than 20 dozen hats.
COST OF WAITING USING LEAN ABC
The idea of making 20 dozen hats in a batch is hampering the process with many orders of less than five hats. These orders, which are seen frequently, take a low priority as compared to the
larger orders of 20 dozens, which are generally made to stock. There was a live example on the operation floor where a production ticket with the week number 50 was pushed back because there were only five hats in that ticket. This study was carried out in week number 52. So, the ticket was pushed back for two weeks in a hope that there would be more hats of the similar kind, which could be grouped together. The current lead time on the straw hats is 4-6 weeks for this company. When the order is not fulfilled on a first come first serve basis, then it creates a waste of waiting, as happened when the production ticket of week number 50 was pushed back for two weeks. The value stream’s average cost per minute was calculated to be $ 0.48 or 48 cents per minute. Considering the example where the order was pushed back for two weeks, the cost that is tied up in Work In Progress (WIP) is calculated as: Number of weeks x Number of minutes in a working day x average value stream’s cost =2 weeks x 5 x60
day hr x8 week day
minutes dollars x 0.48 =$ 2,304. hr minute
Hence, the delay of the hat for two weeks made the waste cost $ 2,304.
DISCUSSION AND SUMMARY
In this economy staying lean is the key to run a business profitably. The problems discussed in this paper are common to most of the manufacturing companies. When the concepts of lean manufacturing are explained with the help of costing then profit margins become very transparent to the management and the workforce.
Quantifying the wastes can help explain the importance of being lean. In an ideal world the product should be priced considering the value added activities in the process only. But, in practice every process has non-value added activities/ wastes such as waiting, over-production, batching, travell etc. Product cost estimated by combining the material costs with the cost of activities using the concept of Lean ABC can be used as a tool by management to estimate if there will be a potential loss or a gain. For example if the cost of non-value added activities estimated by Lean ABC is greater than the selling price of the product then there is a high probability of loss. Continuous improvement is required to eliminate the wastes from the process and bring the product cost down.
REFERENCES 1. Arthur, J. (2008). Double your profits: Plug the leaks in your cash flow. Denver: Lifestar Publishing. 2. Hopp, W. J., & Spearman, M. L. (2000). Factory Physics. McGraw-Hill publications. 3. Katja Antikainen, T. R. (2005). Activity Based Costing process of a day surgery unit - from costing to comprehensive management. Frontiers of E Business research. 4. Libby, P., Libby, R., & Short, D. (2007). Financial Accounting. Mc Graw Hill. 5. Pryor, T. (2010, January). A Financial thermometer for lean operations. Wiley Interscience- The journal of corporate accounting and Finance, pp. 85-91. 6. Rother, M., Shook, J., & Womack, J. (2003). Learning to See: Value Stream Mapping to Add Value and eliminate MUDA. Lean Enterprises Inst Inc.
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Q&A DAVID HOWELLS
A helping hand LMJ catches up with Renault Nissan Consulting Managing Director, David Howells to see how two famous brands combined to offer expert advice on operational excellence.
Let’s start at the beginning. How did Renault Nissan Consulting come about? David Howells: 25 years ago, Renault was in dire straits and as a result, internal people were charged with finding ways we could do things better. They discovered some things worked better in our organisation than others and that some improvement methods work better than others. One other thing they discovered was when there was an external consultancy involved, things just seemed to go a bit faster and a bit better. So based on that they decided they would create their own consultancy, the Renault Institute which we sat on the outside of the organisation reporting into the top board. It was very successful. We searched worldwide for best practice and made that applicable to the Renault organisation which brought about significant change. We decided very early on to open the doors to the external market because we wanted to share the experience, it would
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be good for the brand and the prices we charged the external market could help subsidise the internal day rate. When the alliance came along with Nissan in 1999 we changed to Renault Nissan to Renault Nissan Consultancy. What are the primary business areas you
The criteria for who we can work with is, can we do a great job and can we transfer the knowledge
focus on? DH: We structure ourselves in four service streams. We have a consulting stream, a training stream, managed service and assessment service. Primarily for our external focus, the non-Renault or Nissan work, we look to consulting and training. We consider those two things quite separately. Within consulting, we really focus on operational excellence support right across the board from top team coaching right down to hands-on implementation of lean. Really what we’re finding more recently in terms of the primary areas of our business is the practical application of lean within organisations. We don’t position ourselves and we don’t seek contracts where we
DAVID HOWELLS Q & A
would go at a very strategic level. But once a company has defined a strategy, more and more of the areas that we provide are in the successful deployment of that down through the organisation.
value streams, the front end and the downstream piece are as important as the manufacturing piece. Getting those aligned to the customer is very important.
It’s about the practical application of lean to drive continuous improvement through an organisation, not the theoretical, highfalutin stuff.
2. We need to do more work in support functions to get them focused on strategic intent first of all and also their role in supporting manufacturing functions.
How have you seen the mind-set of manufacturers change towards operational excellence over the past decade? DH: It’s quite interesting when we talk about the manufacturing sector. If you think about it, there are quite often service activities within manufacturing organisations and within service organisations there could be deemed to be some manufacturing. We tend not to get too hung up on whether it’s a manufacturing or a service customer, we just work with clients to try and help them
They are the two things we’ve seen over the past couple of years. We’re talking about the practical application about policy deployment. At a strategic level, it can be really complex for people to see the wood for the trees. The deployment of policy deployment at a practical level is something that we pride ourselves on.
If we played back the 10 years, it would be typical for a programme of ours to be largely focused on training. Within manufacturing a large organisation might embark on a six sigma programme, for example, and we would be commissioned to provide It’s about the practical that training and it would application of lean to drive start and finish when we continuous improvement through deliver that.
an organisation, not the theoretical, highfalutin stuff
accelerate what they want to achieve through operational excellence. The second thing is that if I was to focus on manufacturing organisations, we find they still struggle a bit in terms of understanding the voice of the customer through their organisation. The manufacturing organisations we meet are somewhat mature in some aspects of lean within their domain, but not outside of that. We have two manifestations of that. 1. Getting the voice of the customer articulated throughout the organisation. If you think about the
Now more and more in manufacturing, it’s a much more blended approach to try and drive that culture. Organisations are realising there is only so far you can take it by relying on some sort of serendipity having trained a number of green belts or blacks belts, but actually you need to enable them to not only understand what they’re trying to drive towards, but get them to make the examples they’ve learnt fit into their work environment. I think a number of organisations found that, so more and more our shift is towards subsequent coaching of individuals and of teams in a sort of project management office environment to achieve the benefits of training programmes and six sigma. That’s been a noticeable shift in the past five years or so.
What do you see companies getting wrong in their journey for operational excellence most of the time? Are you seeing any trends emerge? DH: There’s two trends, firstly their inability to identify and communicate their strategic intent. The second thing is they totally underestimate first line supervision. It’s the thing that translates the policy deployment from above to the application of that to where the actual work gets done. The articulation of strategic intent and the quality of first line supervision. If you vet those two things right you have half a chance. What is the average amount of time you spend with one business? DH: In truth, two years is long for us, we normally work in months. Our whole ethos is about transferring knowledge. If it’s two years and we haven’t transferred the knowledge then we don’t consider that a particularly successful project. With the plethora of lean consultants available, how do you set yourselves apart? DH: Recently a client said “you’re big enough to cope but small enough to care.” We don’t position ourselves with some of the bigger consulting companies, but with circa 150 consultants across Europe we’re not just a man working out of his bedroom. First of all our strap line is “showing the experience,” and what we mean by that is in most of the value stream we’ve had experience working for both Renault and Nissan and so we can be confident working in design to after-sale and all points in between. The second thing is that we are an in house consulting group. The criteria for who we can work with is, can we do a great job and can we transfer the knowledge. We have some advantages in terms of our relationship with Renault and Nissan and what that means in practical terms is we have a number of lean schools across the world. Primarily there’s a large lean school in France and in Spain and we’re currently in the process of creating a service school in the UK. We can implant those right in the factories and we can make those available to the external clients and that seems to be very well received in terms of the practical learning of lean.
www.leanmj.com | October 2015
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SECTOR FOCUS
CONSTRUCTION
Operational Excellence demands you should never waste a good crisis Richard Lyle, Director of Suiko’s Construction Practice casts a lean eye on the construction industry with the quest for Operational Excellence to restore confidence, boost the economy and achieve a competitive advantage...
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SECTOR FOCUS
A
s the UK economy continues to lick its wounds and works hard to rebuild a more rosy future, it is a useful time for reflection and improvement. Whilst very few industries emerged unscathed, in the construction industry there is no disputing the level of chaos and damage caused by half a decade of economic quagmire. The construction industry may have dragged itself into the recovery position, but the scale of the impact remains an ongoing concern for many organisations, business leaders and policymakers across the sector.
In our view, postrecession Britain now provides a timely platform to propel the change agenda forward in the construction industry with renewed vigour and purpose, to a new stratosphere where the pursuit of operational excellence is business critical for survival
During the downturn, the industry witnessed a dramatic catalogue of events which not only paralysed trade, but affected widespread confidence and morale. Now as the sector recovers, insolvency levels have risen and the order books are looking healthy again - the industry continues to be tested. Supply chain prices and building material costs inflate forcing some building firms to import goods from overseas. And all this at the same time as businesses try to work out their underbid contracts of the last few years. The challenges are profuse. At the height of the recession, building firms laid off 20 per cent of their workforce. The Office for National Statistics (ONS) estimates the loss of human capital across the UK workforce between 2008 and 2012 was £1.1 trillion. As a direct consequence, the skills shortage continues to cause a major headache for all. School leavers and graduates were not actively encouraged to enter what was perceived to be a vulnerable and unpredictable industry. As a result, the UK is struggling to rebuild a skilled and sustainable workforce and as such, the traditional building trades are in demand with electricians, plumbers and bricklayers in stringent short supply. Despite recent healthy growth in output, the house building sector remains volatile with the provision of new homes an increasingly important topic of national and political debate. Latest reports indicate the lack of skilled tradesmen across the sector will threaten the Government’s ambitious 100,000 new homes target.
Whilst some smaller house builders and construction firms have managed to roar out of the recession, the larger main contractors have not been so lucky. At the height of the recession, many top-tier contractors were forced into making suicidal agreements which led to unsustainable fixed-price public contracts. As we see repeatedly in the media, after years of underbidding, some larger main contractors are still wearing their battle scars and working relentlessly to release the shackles. It is no surprise that the imbalance of supply and demand has led to crippling margins, which has only served to compound and perpetuate adversarial cultures across the supply chain. The loss of skilled employees and capital investment has played a significant role in the trials and tribulations of the construction industry, not to mention the loss of goodwill. The industry’s already tarnished reputation, has taken a serious battering, which will no doubt take years to repair and decades to fully recover. The answer to the problem of rising prices, lack of skills and continued margin pressure is not and cannot be for contractors to continuously put up prices. Businesses need to think about how they operate and deliver projects in the most cost effective and timely manner, whilst collaborating with both clients and the supply chain
BACK TO THE FUTURE
Needless to say, there have been numerous well documented attempts at major reform within the construction industry. In recent times, most notable are The Latham and Egan reports that respectively set out to prescribe a code for how the construction industry should work and behave for the common good of the supply chain. Well before the events of the most recent economic downturn, it was Sir Michael Latham’s report ‘Constructing the Team’ in the early nineties, which urged the industry to eliminate adversarial culture, by putting an end to costly and lengthy arbitration processes - and called for collaborative working practices between the client, contractor, sub-contractor and consultant.
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SECTOR FOCUS CONSTRUCTION
Latham’s influence on the construction supply chain was monumental and was echoed by Sir John Egan’s ‘Rethinking Construction’ (1998) and ‘Accelerating Change’ (2002) which cemented Latham’s thinking and strengthened objectives with renewed conviction. Egan was quick to demonstrate how the UK construction industry was under-achieving, by highlighting the significant losses in profitability and poor capital investment in the areas of research, development and training. We are reminded of Latham and Egan’s combined principles with Andrew Wolstenholme’s ‘Never Waste a Good Crisis’ report, which sets out to review Egan’s progress during the economic crisis. Wolstenhome’s conclusions are unanimous in every sense that the need for change is an industry wide imperative and an opportunity that should not be wasted.
THE PURSUIT OF OPERATIONAL EXCELLENCE
Without a doubt, the downturn of the economy has given way to a much more widespread and common acceptance of lean thinking and an
The overall programme must be made a strategic priority, with a clear framework to provide guidance on what needs to be done
appetite for operational excellence. The uncertainty and unrest, has forced many organisations to rethink and ramp up their lean operational procedures, with
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many focusing heavily in the areas of rigorous cost control and cost avoidance. However, it is high time for large blue-chip organisations to put an end to ‘troubleshooting’ and ‘tactical fire fighting’ to reduce cost. Adopting true operational excellence guiding principles involves more than simply rolling out a series of project recovery programmes. The sustainable answer requires longer term strategic thinking. A survival mindset has carried many construction business leaders through the depths of recession, but looking beyond this to a much more robust future now requires a different kind of attitude. For an organisation to meet and exceed its potential, it needs to focus on developing a culture that listens to customers first, and then makes the necessary investments to exploit the immediate opportunities for growth. The first principle is to create customer value in order to achieve a competitive advantage. Organisations that achieve a level of stability in the primary processes will generate far greater business benefits in terms of cost, profit and cash in the long run, through the development of wider business and end-to-end thinking. In our view, post-recession Britain now provides a timely platform to propel the
change agenda forward in the construction industry with renewed vigour and purpose, to a new stratosphere where the pursuit of operational excellence is business critical for survival. In order to restore the necessary confidence and trust to boost the bottom line, significant change is critical. We believe the industry needs to take stock and move forward together; creating a unified culture where the pursuit of Operational Excellence is the norm and not the exception.
MAKE IT HAPPEN
We firmly believe the first principle of Lean is to create customer value in order to achieve a competitive advantage, but the real question is how an organisation achieves this – to really make it happen? In order to introduce, embed and maximise the benefits from lean and ultimately business excellence requires both the ability to scale up across the whole organisation (in all functions and along the value stream) and the ability to make the new ways of working stick and be sustainable. To embed exceptional practices, however, it is more about changing mindset than tools, developing a culture which encourages enabling behaviours. Self
SECTOR FOCUS
discipline and ownership are key attributes for everyone, for it is this that maintains the processes’ sustainability. The organisation’s leaders need to demonstrate commitment to the journey. Instilling a culture where deviation from the vision and process is not an option. A prerequisite for success is to have clarity around the commitment that people are expected to make, after all, it is about embedding a way of working that involves everyone throughout the organisation. Everyone is required to play a part in making the change happen, throughout the organisation.
A truly lean business will strive to understand and deliver value from the customer’s point of view, with the optimum level of resource (e.g. people, capital, knowledge, research, design, overheads)
The overall programme must be made a strategic priority, with a clear framework to provide guidance on what needs to be done. People need to have the right tools to deliver the expected results. The tools and techniques, when used appropriately, will help them see more clearly, measure, focus, problem solve, collaborate and as a result be more effective. There are many factors to consider along the way, but a fundamental tipping point is often the actions and behaviours of the leadership and management. Typically the most senior leaders understand the strategy and have the vision to see the value. The staff typically will go ahead with this approach as it often feels like common sense. However, middle managers can tend to play piggy in the middle lacking the longer term strategic vision and not fully understanding their pivotal role. It is critical for the process to be reinforced by the leaders in the business exhibiting the right enabling behaviours. Other fundamentals should include recognising success and communicating progress. Unless already normal
practice it is best done in a structured way by integrating it into the change activity. Keep it simple and relevant to the audience. Strategic change and programme management does not have to be complicated, although it does require an investment in people and time resources to work best. Building the right infrastructure from the beginning will pay dividends later when trying to keep the programme on track. Like any investment, up front planning will reduce the level of rework later and ultimately accelerate the pace of change. Programme governance (the process and tools what will be deployed to keep the programme on track) is another aspect of making it happen that doesn’t always get the focus it merits, until things go wrong! Regular steering groups should take place to review progress to plan, address blockages, champion the programme and confirm the next steps. In parallel, all results (savings and benefits), audit and assessment scores should be tracked, reported and communicated against targets to make progress transparent. A truly lean business will strive to understand and deliver value from the customer’s point of view, with the optimum level of resource (e.g. people, capital, knowledge, research, design, overheads). It will continue to challenge not only the primary processes but all of the secondary processes needed to deliver the product or service (e.g. finance, HR, IT, legal). In short, a truly lean business will strive to achieve a unique competitive advantage through Operational Excellence and as such will push the boundaries of conventional business process and relentlessly challenge and eliminate all non-value-added activities.
FURTHER INFO: If you are interested in learning more about what Operational Excellence can do for your organisation, look out for Suiko and Cranfield Business School’s latest white paper, authored by Andy Marsh, Managing Director of Suiko, Cranfield’s Dr Marek Szwejczewski and Dr Bob Lillis. ‘Can your Organisation afford to ignore the benefits of Operational Excellence?’ will be launched in October and available to download at www.suiko.co.uk
www.leanmj.com | October 2015
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SPECIAL FEATURE MICHAEL WEBB
Three Reasons Sales and Marketing Are Allergic to Lean, and Why Cracking the Code Today is So Important Michael Webb discusses the reasons why sales and lean don’t get on, and how to make the two work together.
P
eter Drucker, the father of business consulting, said, “The purpose of a business is to create and keep a customer.” One can imagine his friend, Edwards Deming, responding with his famous rejoinder, “By what method?” Given the importance of sales and marketing, why isn’t operational excellence more successful there? Their goals are the same – to give the customer what they want, and will pay for. So, why do lean and sales and marketing seem so allergic to each other in most companies? In this article, I will describe three reasons why sales and marketing are allergic to lean and operational excellence. When you realise what they are, you’ll see why you need to crack this code today.
Department store merchant and marketing pioneer John Wanamaker famously complained, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” The same could be said for money spent in sales or virtually any other commercial function. The typical B2B company’s sales operation is filled with collateral and the website’s customers don’t read, poor-quality sales opportunities, and proposals that don’t sell, not to mention products and services not enough people will buy. The challenge is distinguishing the value from the waste.
Practitioners of the lean philosophy typically do a great job improving ways to fulfill demand. Often enough, they are successful at expanding its applications to logistics, engineering, administrative, and service functions – until they reach sales and marketing.
It’s a big challenge. Companies that research sales and marketing tell us that the track record for successful product launches, achievement of sales quotas, and return on sales investment in most companies are nothing to write home about: 62% of companies had difficulty making target revenues in 2014 (Forrester Research) 42% of all sales opportunities end in “No Decision” (HubSpot) A pass bet at a craps table has better odds than the average sales forecast (CSO Insights)
One master black belt confided to me, “I have no idea what standard work looks
According to Google and the CEB, B2B companies increasingly avoid engaging with
REASON #1: LEAN PRACTITIONERS PRACTICE MANUFACTURING, NOT SALES.
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like in sales and marketing.” That is a pity because most sales and marketing executives don’t either.
salespeople until most of their decisionmaking process is complete. No wonder the average turnover of salespeople across all industries is around 40%. Bedeviled senior executives are trying to solve life-or-death problems like these: If we build more production capacity this year, will enough sales materialise next year for us to be profitable? Which product development initiative will create the best return on our capital? Will we get better results by spending our resources on tradeshows, websites, sales training, lead generation, or something else? Which accounts or sales opportunities should our salespeople spend time on? Which should they walk away from? Of course answering these questions is so difficult because they have almost no data for decision-making. The only certainty is the increasing difficulty of achieving their goals year after year. Of course, it would help if more lean practitioners could practice sales and marketing rather than manufacturing. Most companies have lots of people with knowledge and experience in sales and marketing. They just need to learn lean thinking. And that will happen faster as lean practitioners correct the flaws of their past approaches.
REASON #2: THE MYOPIC FOCUS ON “TOOLS”
Operational excellence (including lean and six sigma) has generally been
SPECIAL FEATURE
presented as a set of tools and even edicts. Lean training focuses on improving flow with standard work and tools such as 5S, work cells, Kanban, visual boards, set-up reduction, and others. Six sigma training focuses on the series of analytical tools applied in rigid DMAIC sequence.
the context of the system was a diversion, and potentially a costly one.
Unfortunately, the “tools” mentality is deadly – and not just in sales and marketing. If you focus on tools, you can fail to ask the right questions. Failing to ask the questions makes you prone to jump to solutions involving “standard work” and “flow” without understanding the purpose of the standards, or what precisely should be flowing. It is called “process for process’ sake.”
Of course, the lean philosophy offers principles for improving our theories. Defining the problem and systems thinking are valuable skills for bedeviled company presidents and sales and marketing VPs who don’t already have them.
Salespeople and company presidents intuitively know this. They are proven right when a practitioner tries to get them to do things like “5S” their desk or do a six sigma training project. Like teaching pigs to sing, the value is limited and it irritates the pigs. Process for process’ sake was vividly illustrated in a $5 billion manufacturing company with an explicit operational excellence strategy. The Finance VP began to demand his Sales VPs provide hard metrics for measuring and improving productivity. Unfortunately, like most sales and marketing organisations, the sales force had no operational definitions. There were no reliable measures of any of their work. Insisting they start somewhere, the VP of Finance demanded data – and improvement – around generating proposals. Sensing a problem in the making, the VP of sales asked me for assistance. I suggested he ask this question: “Is the purpose of sales to optimise the generation of proposals? Is that really what you want us to produce?” Of course, winning more of the right customers was the goal, not generating proposals. Would reducing the cost of proposals help win more of those customers? In fact, a good argument could be made that more preparation and planning (increasing the cost of those proposals) was a better idea. In this light, optimising proposal generation outside
As human beings we love to have theories for guiding our decisions. Yet we are naturally bad at creating them. It is called “jumping to conclusions.”
Lean, or operational excellence is not about tools or edicts. Instead, it is about knowing how you know what you know. Its principles put into words what is otherwise only intuitive and unreliable. They enable you to grasp what your mind should be doing and why, so you can detect when you’re not doing it. Most importantly, doing this for you is the prerequisite for helping other people detect when they’re not doing it. And that is a crucial thing if your job is leading or managing people. Now, lots of articles and speeches have been written about this. Yet lean and sales and marketing remain unintegrated. What are the remaining reasons sales and marketing don’t understand the value of operational excellence?
REASON #3: AN INCORRECT DEFINITION OF “VALUE”
When I began learning about process improvement, I was taught the common sense definition of value in manufacturing: “Value is that which the customer will pay for.” However, since I grew up as a sales guy that always bothered me. That’s because in sales, by definition, you don’t know what your prospects and customers will pay for. So, how does this help sell anything? Then, I realised what good salespeople have always known. Salespeople need to get prospects and customers to pay attention, spend time, and decide to trust them.
These actions are known as the “customer’s journey,” and getting people to take these actions is the “purpose of the business” Peter Drucker was talking about. The work of finding, winning, and keeping customers is the “By what method” Deming meant. Anything that enables customers to take these actions creates value. Everything else is waste. This principle puts into words what is otherwise only intuitive and unreliable – the sales process. It enables you to grasp what your company should be doing and why, so you can detect when your company is not doing it. In an age where customers are looking for information in places salespeople cannot go, this is incredibly important. The realignment of resources it drives is as radical – and productive – as leaning out the manufacturing floor. Unfortunately, most B2B companies pay virtually no attention to their customer’s journey. In the grip of their definition of value and waste, they focus on the product rather than the customer. Like the Finance VP who wanted to optimise proposals, they assume the goal is optimising the production of product instead of optimising profitable customers. The consequences are tragic. It reduces their senior executive’s interest in studies and experiments designed to identify new and unique customer value (as advocated in Eric Ries’ “The Lean Startup,” for example). It blinds them to the stupidity of unrelated, functionally oriented objectives in marketing selling, and servicing. It encourages them to think of the “sales process” as just another tactic for the sales department to tweak alongside sales training, territory realignment, compensation, and CRM. It prevents them from seeing sales and marketing as a vital production system, where value must be studied and increased, and waste reduced. Perhaps worst of all, this mentality can make it harder to “see” the value of layers of engineers, product managers, and market researchers focused on what potential customers might want at some time in the future. How can you prove the customer is “willing to pay for” our quality and other personnel responsible for solving technical, operational, or product
www.leanmj.com | October 2015
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SPECIAL FEATURE MICHAEL WEBB
problems that don’t happen to exist at the current moment? And, what is the value of these “relationships” the sales department is always talking about, anyway? I often talk to incredibly talented salespeople whose companies are in the grip of this mentality. Making quota is not an option, regardless of whether the marketing department provides the sales opportunities, or the service department fixes the problems. They struggle as the business loses its ability to produce products the market wants. With resources and expertise stretched ever more tightly by the company’s masters even small disturbances, such as a customer’s non-standard requirement,
Unfortunately, like most sales and marketing organisations, the sales force had no operational definitions
relocating a production line, or installing a new accounting system, can reveal unseen weaknesses. Management gets blindsided, driving losses and unreasonable amounts of overtime to recover. No one can find the words to explain what is going on and why it should stop.
WHY CRACKING THE CODE SHOULD START TODAY
Ironically, we have all seen plenty of sales processes emerge that disrupted markets all around us. Consider some historical examples: IBM dominated mainframe computers not because of the caliber of its machinery, but by the way it sold and serviced its customers. Walmart was a better place to buy things. Dominos disrupted the pizza delivery industry. Starbucks went from nowhere to dominating a commodity market by providing a store environment we didn’t know we needed. Have you ever wondered what would happen in your industry if you reduced your customer’s buying process to a single
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mouse click? In the traditional, sedate retail market for books Amazon saw the potential and we all know the result. Now they are threatening Walmart and Target. Think about what Uber, Airbnb, and Yelp have accomplished. Right now, today, your customers are aggressively attempting to leverage the Internet to help them realise, prioritise, and solve their business problems. Now ask yourself, is there is there anyone in your company whose job is to make their life easier? Instead, many B2B companies are sedately unconcerned that the marketing, the website, and the service department have different purposes than the sales department. They flog salespeople with sales training, contests, coaching, etc., as if individual contributions were the best way – indeed the only way – to improve results. They routinely expect the majority of sales hires to wash out. Instead of searching for sales supermen and women (and offering to pay them exorbitantly), these firms would do well to consider another thing Deming was famous for saying: “I should estimate that in my experience most troubles and most possibilities for improvement add up to the proportions something like this: 94% belongs to the system (responsibility of management), 6% special,” (Out of the Crisis, pg 101). The principle that value is created when the customer takes an action enables marketing and sales work to be defined in ways concrete enough to be measured. Customer behaviors like visiting to your web pages, opting-in to your newsletters, opening your emails, asking for information or assistance, and requesting proposals become data. The flow of customers on their journey becomes visible. It can tell you what is working, and where the bottlenecks are. Value and waste are revealed. Here are some typical results companies have achieved applying these principles: Aligning the work of finding, winning, and keeping with the customer’s journey: A chemical company discontinued samples to low quality prospects. Sales rose 23%.
A water filtration manufacturer’s new dealer process reversed a four year sales decline. An auto aftermarket firm became market leader, hitting its five year plan in four years. Operationally defining sales qualification criteria: A company selling hospital respirators increased sales productivity 30% in six months. An accounting software company’s forecast accuracy exceeded 90%. Better prioritisation of deal flow at a machine tool company increased margins by 1%
CONCLUSION
Now, more than ever your B2B company is being challenged. Your investors and owners want more productivity. Customers want better results. Company presidents and sales and marketing VPs are under intense pressure to improve. They need better data indicating what customers want. They need to locate the root causes of their problems. Some are realising they cannot expect improvement to happen without installing a method that enables – indeed requires – it to happen. The data and evidence needed are out there. It will be discovered by companies who are looking for it. Opportunities exist not just to improve sales and marketing productivity, but to innovate new business models, new industries, and new dynasties. Why wait for someone else to make your business obsolete, when you can beat them to it? The fact is salespeople and marketers desperately want to improve. They are not really allergic to process at all, but they are allergic to bad management. And bad management happens when businesspeople fail to apply good thinking principles. The lean philosophy provides the methods for learning and for improving. It provides the kind of thinking that leads to new and better tools for creating customers. And as more companies follow this path, they may at last move toward the vision of the lean enterprise.
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25–26 November 2015 | The ICC, Birmingham
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OUT OF THE BLUE BILL BELLOWS
Out of the blue: Contextual Excellence and Continuous Investment Thinking W
hen it comes to gardening, my wife has an exceptional green thumb and is an artist in our backyard. In addition to plants and a few bird feeders, we enjoy the beauty and serenity of a koi pond. Designed by our son, our pond has consumed hundreds of hours in construction time, often assisted by hand tools and an occasional power tool, such as an electric spade. We relish the time savings and labour savings, not to mention blister savings, of tools as much as any DIYer enjoys their tools. Just as pliers provide a mechanical advantage
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when tightening a bolt, tools provide an economic advantage. Without bothering to use a pencil or paper to perform the calculation, we believe our investment in the purchase and use of tools has yielded a positive return. Likewise, we believe the resources we have invested in the home improvements will yield a positive return, one that could be estimated. Is it odd to contemplate the potential return on our investment in our home? Or, would it be odd to consider the potential return on our investments in financial funds? As I proposed in my June 2015 column,
“contextual excellence provides utility in the ultimate use of interdependent parts, components, and tasks.� Contextual excellence is a pre-requisite for investment thinking. While we may not be overly conscious of our thinking about the returns on our everyday investments, I would propose that investment thinking is guiding how we manage resources, from our time to our garden tools to our money. Why else would sales or discounts in department stores and supermarkets capture our
OUT OF THE BLUE
attention, if not the ability to buy more for less? Might the appeal of more for less also attract consumers to Southwest Airlines policy of not charging baggage fees, while their competitors charge for stowed baggage, extra leg room, or, perhaps the ability to confirm seat reservations? When it comes to doing more with less, also consider how we use contextual excellence to arrange our weekend activities, sequencing errands to both maximise the number of tasks accomplished and minimise the time and energy consumed. In business circles, the concept of return on investment is far older than Adam Smith’s Wealth of Nations and remains the steady focus of investors from Warren Buffett to Richard Branson to my wife’s stock club. In simple terms, buying low and selling high, with consideration for the size of the system (including time), is the foundation of investing. Investment thinking is also a prime consideration of corporate boards of directors, from Royal Dutch Shell and BP to Boeing and Airbus, when reviewing proposals for next generation products and services. For example, will the projected accumulated sales of a new commercial aircraft in a given period of time outweigh the estimated development expenses in a given time window (does it close?), yielding the minimum required earning? If the business case “closes,” proceed on. If not, refine the proposal to achieve the needed return in the mandated time window. In the late 1990s, Harry Stonecipher, Chief Operating Officer of Boeing, was extremely proud of the reported $50 million annual investment in the education of its 240,000-employee workforce, generally achieved through reimbursement for continuing education. Included was an award of 50 to 100 shares of stock for each degree completed, with no limit on the number of degrees earned by a given employee. Workplace productivity and retention levels increased. Upon explaining the need for closing business cases for products and services, Stonecipher was asked to explain the economic return on Boeing’s $50 million. Specifically, “does it close?” Without hesitation, he replied,
“there are some things you just do!” As with reading to our kids, or coaching their childhood football teams, or investing in family holidays, we are mindful of available resources and competing demands, but are not always slaves to calculating detailed returns. We often rely on estimates, even when comparing alternatives and deciding how to invest. As needed, we use a calculator, if not a spreadsheet, to make assessments. Several years ago, my daughter and I attended a Coldplay concert at the Hollywood Bowl. While a few hours shorter than an average Bruce Springsteen concert, we both judged the evening to be a positive return on our respective investments. How many times, we could not say. As with Harry Stonecipher’s interpretation of employee education, some things you just do! Our only disappointment was purchasing two commemorative coffee mugs, for which mine did not survive its first dishwashing experience. Eight pounds later, I am the proud owner of a white mug, absent Coldplay’s signature logo, yet retaining a “dishwasher safe” label and providing a ready reminder that not all investments yield a positive return. In exposing seminar audiences to the concept of investment thinking, I have explained the ideas of an investment, associated with a return, and then ask, “Upon reflection, what percentage of your daily efforts (and decisions) would be considered the result of investment thinking?” Typically, the estimates are small, leading to questions such as: How often do you buy food for meals at home? Do you have a vegetable garden in your backyard? How often do you shop online? Do you own or lease a car? Do you perform your own car maintenance? As for a vegetable garden, answers and explanations include both “yes, I can save time and money,” and “no, it’s easier to buy them.” The frequency of food shopping is typically once a week. Online shopping, car ownership, as well as leasing varies, so does car maintenance, yet the explanations are consistently biased towards maximising return on investment.
Investment thinking is also a prime consideration of corporate boards of directors, from Royal Dutch Shell and BP to Boeing and Airbus, when reviewing proposals for next generation products and services
For some, car leasing yields a better return. For others, ownership yields a better return. All in all, audiences acknowledge, upon reflection, that a large percentage of their use of personal resources can be interpreted as investment thinking, seeking the better return. While I have never visited a Toyota plant to witness the Toyota Production System in operation, I have shared insights from investment thinking with a colleague, Tom Johnson, who has made extensive visits to Toyota sites. Based on this research, Tom has explained the Toyota Production System in terms of the ability to “Manage by Means” in his book, Profit Beyond Measure. In responding to an explanation of investment thinking, he shared a story of once asking a stamping press operator about the time needed to change the die, when shifting from producing one part to another. As he recorded the answer, the operator further explained that his quoted time “was not World Class, as World Class was not proper for this press.” Rather than focus on speed, this reply reveals an organisation that manages its resources with the synchronicity of contextual excellence. Investment thinking offers an alternative explanation of the Toyota Production System, one not preoccupied by the compliance excellence of assessing and reducing the added-value or waste of apparently independent tasks. As Tom and I have both witnessed, the deliberate use of investment thinking offers opportunities for profit beyond measure in all organisations.
www.leanmj.com | October 2015
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BOOK REVIEW Joe Bell reviews Succeeding with 5S, by Oskar Olofsson, who introduces the basic steps in how to execute 5S in a sustainable and measured way.
5
S has an image problem. ‘Tidy up and keep it tidy’ seems simple enough for anyone to understand, surely? Who needs a book on this – your mother has been telling you that for years. And when there are more complex tools now practiced in the world of lean, 5S can be perceived as, well, a bit basic. However in Oskar Olofsson’s Succeeding with 5S, he breaks down what 5S is, how to implement it and, crucially, how to sustain it. Many organisations start 5S but few successfully sustain it and this is the thrust of Olofsson’s work. Succeeding with 5S is a broad introduction to the subject. Olofsson is clearly an authority when it comes to 5S. Translated directly from Swedish to English, there is little personality in Olofsson’s writing – the tone is serious and topics are covered with a minimal precision. I liked this. This simplicity is refreshing and enlivens a potentially dry subject. Most interesting are the parts around habit-creation – in particular, creating and maintaining a system within a change-resistant culture. A great analogy Olofsson uses is brushing your teeth – initial resistance as a child, moving to acceptance and finally onto it feeling a bit weird to leave the house without doing it. This is where Olofsson is at his best:
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making the case for change and I would have liked more here: how to influence a sceptical and busy workforce, for example. Olofsson offers a couple of ideas but they feel a little vague. This lack of depth can at times feel frustrating. Step one of 5S – sorting – is the start of the 5S journey and ‘sorting in an office environment’ is something that would be of great interest to many. However this is given less than half a page and left me no clearer on how to perform this to the correct standard. Olofsson’s expertise leads him to make assumptions of the reader’s competence which is something of a shortfall. Ironically, despite Olofsson’s belief in visual management being a cornerstone of 5S he fails to extend this courtesy to the reader. Images are small, black and white and poorly formatted. This may seem like a small gripe, but a workplace image of before and after would have been tremendously helpful. Instead interviews with practitioners who had employed 5S successfully within their organisation are useful but, again, limited in their depth. If you are thinking of introducing 5S into your organisation, Succeeding with 5S is a good place to start. It points the
reader towards the general direction of success. But if you truly hope to reach your destination of a spotlessly organised workplace, a more comprehensive guide will be required.
WHAT I LIKED
Simple, straightforward and clear Informative and palatable An idiot’s guide to 5S
WHAT I DIDN’T
Image quality is dreadful Swenglish takes some getting used to Lacked depth at times
3 Joe is the Managing Director of awardwinning people and organisational development consultancy Evoke People Development. www.evoke-pd.co.uk
LEAN ONLINE OCTOBER 2015
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ROUNDING UP THE MONTH’S DIGITAL COMMUNICATIONS ON LEAN
LMJ’s social media pages are a great place to go for lots of networking opportunities and information on all things lean from around the web. Find industry experts and exciting discussions on our LinkedIn page, and follow @LeanMJournal and @fredtonguejourn for news on upcoming events and ways to get involved with the LMJ.
This month Darren Walsh, owner of BreakThrough Improvement, has written a piece all about The Lean Transformation Model. The article is over on his LinkedIn and can be found here: http://bit.ly/1Fznrmj
IMP Cons Analyzin ultores @imp co g #leanm the state and nsultores an e ly/1i0sv agement in R volution of ussia: h KQ ttp://bit . CEO L. Wilso n Jr @You ”To be # rIte in desire o novative & sa msNow ti ne mus t use #a sfy customers #lean p ra gil pic.twitt ctices” #busin e thinking & es e 1 favori r.com/bpyWE3 s #entrepreneu te r 1 retwe GL8F et Grah am C Sound a anning @lean _ d #huddle vice on makin fsl g great s #lean use # Posti… opex lea n.org/Le of 1 favori anPost/ te
Adam Grabowski has, this month, written a piece all about the 10 most important Do’s if you are a small or medium manufacturer: http://bit.ly/1XPrczg
www.leanmj.com | October 2015
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E V E N T S There is currently an expanding pool of events available for the development of the lean community. They offer both general and sector specific opportunities to renew your enthusiasm and gain new perspectives through communicating with lean contemporaries.
UPCOMING LEAN EVENTS INCLUDE:
PRIORITISING PROCESSES AT UNIVERSITY OF WINCHESTER November 4, 2015, Winchester, UK
The University of Winchester will be hosting this event based around the often forgotten area of processes. The university was a finalist in the 2014 UK Excellence Award and will give insight in processes and share the experiences that the organisation has gone through on the way to rising 27 places in the national student satisfaction survey. The event will focus on criterion 5a and there will be speakers from other organisations and authorities on the matter. To find out more or attend visit: http://bit.ly/1EDbwcn
HOW TO TRANSFORM ORGANISATIONS AND SERVICES THROUGH “SYSTEMS THINKING” November 11, 2015, Warrington, UK
The workshop aims to introduce you to Systems Thinking concepts and behaviours that can help you and your organisation in problem solving. The workshop also aims to inspire organisational learning by introducing a new way of thinking to the challenges you face. For more information or to book your space visit: http://bit.ly/1EDdMjM
UK LEAN SUMMIT November 16, 17, 18, 2015, Kenilworth, UK
Lean Enterprise Academy are holding their annual UK Lean Summit meeting in Chesford Grange Hotel, Kenilworth. The summit is to help raise awareness of new lean practice and thinking, provide practical advice on how to start or continue your lean journey and grow your network of lean thinkers. The summit will have panel discussions, keynote talks and interactive learning sessions. If you would like to learn more or attend the event then visit: http://bit.ly/1KKZkqN
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Photo courtesy of Sebastiaan ter Burg on flickr
LEAN STARTUP CONFERENCE
November 16-19, 2015, San Francisco, California, USA The Lean Startup Conference helps entrepreneurs learn from each other. Brimming with founder stories you’ve never heard, fresh case studies, and in-depth expert advice you can use the day you get home, the conference delivers advanced lessons in entrepreneurship. This year’s event has key sessions for corporate entrepreneurs, nonprofit leaders, educators, government staff and growing startups- and it includes a slew of ways to meet other attendees relevant to you. For more info visit: http://2015.leanstartup.co/
€50 $65 – £45 –
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