Winning at Continuous Improvement: Balancing Cost and Process Efficiency (Aug 21, 2007)

Winning at Continuous Improvement: Balancing Cost and Process Efficiency (Aug 21, 2007)

Much has been written over the years about the difference between doing the right things versus doing things right. This is the effectiveness versus efficiency challenge. The legendary management thinker, Peter Drucker captured the essence of this challenge in his famous observation, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”

Through a multitude of educational, cultural, and work experience factors, operational managers are taught to focus on the efficiency side of the competitive equation. Efficiency improvements hold an “unquestioned” position in the business improvement toolset. In improving process efficiency through lean, Six Sigma or other approach the assumption is that one need only to wait for the positive business results to accrue. Create a better process and good things will follow for the organization and customers – at least that is mindset. Build it and they will come in the form of happier customers and increasing profits.

This kind of thinking is based upon a dual assumption that continuous improvement is both the right thing to do and that it will produce the desired business results when all is said and done. As for the former, continually striving to improve operational performance is without a doubt a fundamental and essential business function in an ever more competitive world.

The second part of the assumption is the source of much discussion, debate, and disappointment – but usually not until after a gap emerges between the expectations of the particular improvement effort and the outcomes. Unlike in the movie Field of Dreams, building it is not assurance that “they” will come. In the present context, “they” refers to the appearance of each and every mandated business objective, including financial performance.

Over the years, many senior and middle-level managers have experienced firsthand the meaning of Drucker’s quote. They embraced lean principles and tackled quality problems with abandon. Waste was banished from the organization or at least controlled. Product quality rose dramatically. Yet, despite doing all the right things, many organizations failed to prosper from these investments, and some even failed precisely because of their emphasis on continuous improvement at the expense of other things they might have done to improve competitiveness.

Focus Continuous Improvement Efforts to Where They Will Have the Greatest Business Impact

With objectives in hand, managers embark upon a journey to change the organization.

Let’s look at a specific tool to illustrate a central improvement challenge facing organizations today. Kaizen blitz events (also known as Kaikaku events) are an extremely popular part of the lean toolset. Whereas continuous improvement is a systematic longer-term proposition, a Kaizen blitz is designed to create rapid change. In a bout of highly focused activity everyone associated with the process or department follows a typical pattern — ideation, analysis, future state mapping, and collecting the “best” idea(s) to move forward.

Often, the result is a re-arrangement of a product line or work area. Sprinkle in a change or two in policies to sustain the new way. In doing so, Kaizen events often produce “visible” improvements. Again, this is good. But, is it an outright win or simply a “pyrrhic victory” where the cost savings are not worthwhile for the invested effort?

A fundamental challenge, not just with Kaizen, but in any system is, how do you know which of the collection of good ideas are the “right” ones to implement given your unique situation? In fact, how can you confidently determine whether any of the ideas should be implemented at all? Sometimes taking no action is the best option – but this can be difficult in a culture where an action consistent with the operational philosophy (although misguided) is better than none.

The message is one of caution. It is imperative to understand that any continuous improvement tool can give you a sense of victory when you can actually be “losing.” In this context, losing is defined as successfully achieving a portion of the business objectives (e.g., process efficiency), but not all of them (e.g., financial, customer, growth).

Is process efficiency or quality improvement sufficient? The answer is “no” unless the continuous improvement effort is firmly tied to cost and any other internal or external factors deemed important by the organization.

As Peter Drucker presciently noted decades ago, better tools are needed if we are to transform a process efficiency concentration into a business effectiveness mindset.

“…yet our tools—especially our accounting concepts and data—all focus on efficiency. What we need is (1) a way to identify/priorities the areas of effectiveness (of possible significant results), and (2) a method for concentrating on them.”

That’s the role of Profit Mapping…

Adam Garfein