Organizations over the past decade have invested millions, if not billions, of dollars in continuous improvement programs with the aim of removing waste and, ultimately, cost from their operations. Many articles have been written on the drivers of success or failure of such programs.
The intent of this paper is to view the challenges from a slightly different vantage point, to analyze why programs designed to remove wasteful activity, often through a lack of consideration of three areas—Strategic Alignment, Selection of Improvement Opportunities, and Performance Management, end up wasting significant amounts of continuous improvement resources thereby undermining the philosophy and intent of the programs.
Strategic Alignment
A key issue we observe in many organizations today is that their continuous improvement programs have become increasingly disconnected from the organization’s strategy and have evolved as standalone entities focused on efficiencies and cost. They are, therefore, much more focused on the operational context, i.e., “doing things right” (better), rather than on the strategic context, i.e., “doing the right things,” which means finding solutions to concerns related to products and markets.
Executives are measured by how effectively their organization’s strategy is executed. And while the increased profits that come from an effective continuous improvement implementation are welcomed, it is rare that an organization can save its way to growth and glory without also enhancing its capabilities to innovate and expand. To align operational initiatives with strategic goals, continuous improvement must be targeted at areas deemed to be of strategic importance. This is critical to the successful execution of the organization’s strategy.
One size continuous improvement doesn’t fit all parts of the organization. The kind of daily discipline required in a manufacturing environment may be unnecessary, or even destructive, in R&D. There is no arguing that it is important to have discipline in product and service development, but not to the extent that it discourages or crushes creativity in what is a source of competitive advantage for the organization.
Selection of Improvement Opportunities
Today as you read this, thousands of people are working to improve products, services, and processes that should be eliminated. Too many continuous improvement projects are so focused on gaining efficiencies that they don’t challenge the basic assumptions of what’s being done or the value of the product or service being improved. This unnecessary, low-value project proliferation is often fed by belt-and-badge systems where individuals are required to undertake either different types of projects or numerous projects that have to progress through hierarchies in continuous improvement structures.
When an organization has a disproportionate amount of low-value products or services, we term this “complexity.” These low-value activities have a disproportionate cost/value relationship, and are responsible for a significant portion of a company’s overhead or cost structure, but generate little, if any, profit.
Complexity is never planned. Over time companies add products, services, or features in the hope of attracting and retaining customers, boosting market share, or reducing costs. Typically all functions play some role—sales, engineering, R&D, customer service—in introducing new offerings or features.
As an illustration of the complexity definition, in a medium-sized manufacturing firm, the top 25% of customers represented 78% of total sales; 25% of products accounted for 83% of total sales; 25% of parts held equated to 89% of inventory; and 25% of suppliers amounted to 91% of the purchasing spend for the business.
A consistently repeating pattern of these results taken over a 12-year period leads to a variation of the Pareto Principle of 80/20, the rule of 50/5. This rule states that the lower 50% of an organization’s products, services, or customers will account for less than 5% of the organization’s value added.
The application of the Pareto Principle involves focused management on the top 20% of those products, services, or customers in contrast to the rule of 50/5 which focuses on eliminating low-value activities or managing them more efficiently.
In the example used earlier, by contrast, the comparable data for the lower 50% of activities as a percentage of total sales was: Customers 4.5%, Products 3.8%, Inventory 4%, and Purchasing 1.1%.
Whilst not producing value, these items must still be supported with activity and resources. Inventories requiring floor space, customers serviced by sales representatives and marketing, and low-volume products run through operational departments. The presence of this low value is one of the primary drivers of organizational cost inefficiency.
Many companies need far fewer products in their portfolios than they currently offer. Targeting improvement initiatives at this has far broader impact than improvement for improvement’s sake. We have seen businesses reduce complexity by 50% with no negative effects on profitability or competitive position. Companies who address complexity experience higher growth and profitability. By targeting continuous improvement in this way increases management’s attention and focus and provides the resultant profitability to secure funding and resources for other strategic initiatives.
Performance Management
Continuous improvement projects and programs, both large and small, always invoke change within organizations. But only a few adequately address the waste within the performance management system that works against program success.
Most, if not all, customer improvement programs have a certain proportion of change elements in them. These change elements focus on employees’ behaviors during their work within an improved process. So let’s examine this dimension and identify opportunities for waste that could creep into continuous improvement programs.
Resistance to change is a well-known symptom of many change initiatives within continuous improvement programs. The management of resistance to change is a vital part of any continuous improvement program. Once resistance has built up, it takes a lot of extra effort (re-work) to get the change initiative back on track.
Here is a list of issues that are commonly observed:
- People are frustrated about the new process: nobody asked us!
- People resist the new process: “They have not looked at it from this angle…”
- People boycott a new process and get away with it.
- People are confused about the new process: we do not understand!
- People do not support the new process: we do not care!
- People are frightened by the new process: will I lose my job?
If these issues surface, you may not get the desired results out of your continuous improvement initiatives. Processes will not live up to their full potential if the people within the process are not fully committed and engaged. Therefore performance management plays a central role within every change program. If it is forgotten or neglected, people will not change their behavior. It’s as simple as that. Enough reason to look at the performance management systems within continuous improvement programs and understand the origins of waste.
First of all let’s understand the fundamentals of a performance system.
The KT Performance System is a simple but powerful tool to explain and predict people’s performance. There are four components that influence the performance (response) of an individual in any kind of situation:
1. Situation: the immediate setting in which the performer works.
The danger of waste comes in many shapes and forms.
- Expectations are not really measurable. This room for interpretation leads to wasteful discussions with no winners, only losers at the end.
- Expectations have not been clarified with the performer. An announcement during the morning briefing or via the organization’s intranet cannot be regarded as an efficient way of clarifying expectations. Too much is left out. These missing bits nurture confusion, frustration, and misunderstanding. In other words, employees spend too much time interpreting this unclear information. And most of the time, the unclear information is interpreted in a negative way.
- The performer does not agree that the expectation is attainable. The performer has not been involved in the design of the new process. Important points have been missed or were underestimated. Half way through the implementation everyone realizes they should have asked an “insider.”
- The signal to perform is not clear. Many companies have installed Lean, Six Sigma…and many employees struggle to pick the right tool at the right time. A survey conducted amongst 200 of our clients in various industries shows that in successful continuous improvement initiatives, employees know exactly when to use which tool. On the flip side, unclear “triggers” was one of the main reasons named for failure.
- Multiple or competing priorities have not been clarified. Continuous improvement programs in matrix organizations especially suffer from this. If you have to follow two chiefs, which one do you follow? In the worst case you just sit and wait or you follow the one that causes you the least stress. The continuous improvement initiative loses momentum when the wrong people are followed for the wrong reasons.
- Adequate resources are not available. Friction and frustration is generated by the gap between management vision and the resource reality. Transferring a vision into detailed and realistic resource requirements takes some time. If it is not done upfront, continuous improvement programs lose because of the waste that follows later. Our survey revealed a distinction between successful and not-so-successful continuous improvement initiatives: Employees either have adequate time and financial resources allocated for such programs or they do not. Common sense but not common practice.
2. Performer: the person or group that is expected to perform
- Has the continuous improvement manager all the necessary knowledge, skills, and capabilities to meet the performance expectations? If not, are they willing to be trained? Can they be mentored or can they partner with someone who already has these skills? Is there time to make these adjustments? Without the requisite capabilities, the continuous improvement initiative could stall. Worse, because of inept leadership, more waste is incurred.
- Do the people affected by continuous improvement programs know WHY they have to change? If this understanding is not there, frustration will grow. People will neither comply with nor commit to the changes. And the initiative could die before it even has the opportunity to take root.
3. Consequences: events following the response that could increase or decrease the probability its occuring again, given the same situation
- How well has the continuous improvement team thought about positive consequences (C+) for positive behavior? How well are they planning to remove negative consequences (C-) for positive behavior? A behavior change usually comes with unpleasant side effects for employees. “We have always done it like this” is an often-heard phrase. People have adjusted to the job requirements and found the best way to handle the process over time. Now they need to change. This is a negative consequence for them. If continuous improvement teams begin to think about consequences after the first symptoms of dissatisfaction surface, it is usually too late to address without a huge amount of extra effort or rework. But if you want to change a behavior successfully, you need to focus on positive consequences. Our research shows, that the successful companies have realized that.
4. Feedback: performance-based information the performer receives to modify his/her behavior
- No feedback at all is provided against agreed to performance. In such a situation, employees do not know whether they are performing well or poorly or how they should modify their behavior as the system monitoring them, could be the manager or a quality auditor, seems indifferent to the results.
- No feedback in combination with positive consequences for inconsequential results will cause behavior to change, but not as you would like to see it. Take this well-known example relating to one of 5S’s phases: systematic cleaning. Employees do not execute the required standard cleaning procedure at the end of a task. For them this situation reveals a potential for positive consequences. No cleaning equals more spare time and less effort. In addition to that, and for whatever reason, they do not receive any kind of feedback. So what are the chances that they will do the cleaning procedure on the next day?
- Feedback loops are too long, especially in the early phase of an anticipated behavior change. Giving feedback needs to be planned and practiced. Time will be well invested if your continuous improvement team develops standardized feedback loops. “Feedback” is basically your tool to readjust behavior and prevent it from drifting off-target. A common reason for waste observed in environments with immature human performance systems in place is the combination of providing positive consequences for negative behavior and not installing feedback loops.
There is no doubt that continuous improvement programs have delivered, and will continue to deliver, results. The aim of this paper is not to discourage these efforts but to encourage attention to aligning the selection of improvement opportunities with company strategy and harnessing the power of the performance system to deliver better and more sustainable results.