Beyond Continuous Improvement: Continuous Optimization (Apr 10, 2008)

Ensure Process Improvement Meets or Exceeds Business Expectations

Your organization is guided by lean principles, invests in people and lean practices, and deploys tools that help identify and reduce wasteful activities while increasing customer value. Your plant has smoothed out uneven production flows, converted to cellular operations, moved to smaller batches, transformed the culture, and so on. Your technical or business services group (e.g., call center, insurance processing, financial services, software development team) has incorporated similar lean principles to improve performance.

Despite doing all of the right things, management is disappointed that the return on investment in equipment, technology, and people has not produced the expected contributions to the bottom line – that the investment threshold did not warrant the benefits. What happened?

Continuous Improvement is Important

The leading continuous improvement frameworks are grounded in sound principles and concepts, and most organizations have very competent people involved in the deployment and adoption of the particular best practices. Given this environment, why do so many efforts produce uneven results? That is, why isn’t everyone successful?

We believe that the fundamental stumbling block is not with the people or technology, but with the lack of tools that are specifically designed to inform the practitioner of the holistic impact of any proposed change on the organization. Change does not occur in isolation, and we should stop creating solutions based on a limited view of the potential interactive impact.

Divide to Conquer Doesn’t Add Up

In practice, we have been taught to deal with the complexity of operations and performance by breaking challenges into smaller “manageable” pieces. The accepted thinking is that by making piecemeal or “isolated” process improvements, it is perfectly reasonable to expect the activities to roll up and produce a total impact that is greater than the sum of the individual pieces. Upgrade to higher technology equipment, invest in IT improvements, reduce the workforce or do more with the same, etc. The assumption is that these or other changes in isolation will produce performance gains expected by management.

Unfortunately, while these and other actions may seem like the right things to do at the time, all of the individual changes have dynamic interdependent effects on performance – and the leading continuous improvement tools are not capable of shedding light on these effects. Thus, management is literally operating in the dark.

How do you know whether any individual or collective change will bring the organization one step closer to achieving the overall business objectives? The short answer is, you don’t. This is not a philosophical debate, but a stark reality. We rely on our intuition and expertise and hope that we are making the right decision. The risks, however, are too high today. We need new tools that provide the necessary insight, complement our own expertise, and give us greater confidence that we are making the right decisions.

Continuous Improvement Benefits from a Holistic Balance

A plant manager recently shared with us that his team had at least three different and good ideas for how to reduce costs while meeting quality requirements and fluctuating demand. That is the good news. His company is in a fiercely cost competitive global business and this particular plant must quickly improve its financial performance or risk losing business. The company did not want to invest any more in the facility and expected to see radical improvement within the current asset base and capabilities.

The plant manager matter-of-factly stated that because there were “no good tools” to evaluate the “business impact” of each operational change option, he was going to implement his own ideas. It wasn’t that his thoughts were necessarily any better than the others. He admitted that he had “no idea” which improvement option was in fact the best one. His team was very competent and also had access to expert consultants.

However, since he had “to live with the final decision” he “might as well” follow his own recommendations! Thus, in the absence of an integrated method for holistically quantifying the process and business impact of his team’s ideas, his confidence in selecting the “right” option was vastly reduced. Does this situation sound familiar?

Continuous Optimization is “Guided” Continuous Improvement

Continuous optimization involves a slightly different yet wholly complementary way of thinking. It is a method of making operations as fully effective or functional as possible. The definition of “effectiveness” is not arbitrary, but comes directly from the organization’s business objectives.

Whereas continuous improvement asks, “how can it be made better,” continuous optimization asks “how do we make it most effective within its larger operational and business context.” The senior management team frankly does not care if you make the process better. They are concerned with identifying the most effective path for transforming operations to better serve customers while achieving the business objectives. Thus, you must do it all.

The central difference between improvement and optimization thinking, therefore, lies in the explicit focus on business objectives. One can be “successful” at continuous improvement by meeting the definition of success provided for the particular continuous approach (level flow, cellular design, defect reduction, etc). This is why gaps are often observed when results are rolled up through successive management levels, where process improvements do not always produce the expected benefits as defined from a financial or customer perspective.

With this definition, “effective” is always a moving target as objectives, customer needs, and internal capabilities and limitations are always changing. Thus, continuous optimization is a “guided” implementation of continuous improvement, ensuring that every change brings the organization at least one step closer to achieving its customer and business objectives. Conversely, changes that cannot achieve both process and business goals are bypassed, freeing up valuable resources to apply elsewhere.

Continuous Optimization and Continuous Improvement: A Partnership for Success

Continuous improvement and optimization should be treated as a partnership that has the best interests of the organization in mind. Business optimization requires sound strategies for improvement and improvement can be wasteful if it does not ultimately improve the business.

Partnership for Success: Attributes of Both Approaches

Continuous Improvement Continuous Optimization
– Seeks to “make it better”
– Process improvement focus
– Assumes local optimization rolls up
– Implicitly linked to business objectives
– Static approach
– “Divide to conquer” philosophy
– Seeks to optimize the business
– Holistic thinking for the larger benefit
– Process and financial integration focus
– Explicitly linked to business objectives
– Dynamic approach
– “Unite to win” philosophy

When systematically deployed in partnership these two approaches ensure that every activity – ranging from changes on the shop or services “floor” to upper management activities – move the organization at least one step forward in the optimal business direction. This partnership for success thus requires that (a) all process changes contribute in some meaningful way to optimizing the business and (b) business optimization be treated as an ongoing endeavor because operational constraints and capabilities as well as the business environment are never static. This is the domain of Profit Mapping.

Adam Garfein







Leave a Reply

Your email address will not be published. Required fields are marked *