On What Decade are Your Improvement Efforts?

Until the 1980’s the focus for most businesses was to produce something that could be sold. In the 1980’s the focus changed to improving the quality of the products and the satisfaction of customers. This was when the Total Quality Management (TQM) movement started to pick up momentum. Kaizen based process efficiency was the main concept to reach a better competitive edge. In real life, process efficiency was usually not achieved as the perspective actually covered only a small fraction of the process, e.g. some part of the manufacturing function.

In the 1990’s the focus changed to consider also the service quality and the process performance (time, quality, and costs) as the means to satisfy the stakeholders. This meant that in addition to the concepts of TQM, companies started to look for additional ways of boosting the performance of operations. With the information technology boom ahead, this was a golden age for the introduction of the re-engineering concept to assure effectiveness of the operations. However, many of the (giant) IT investments turned out to be (giant) failures in terms of functionality, return-on-investment and overall performance improvement.

In the last decade the focus changed to consider also the process improvement quality as the means of improving the business and satisfaction of the stakeholders. In practice, this means assuring the improvement effectiveness (improving the right issues) and efficiency (improving the issues right) to improve the effectiveness and efficiency of the processes. Most companies, however, still operate with a hybrid of the logics of the 1980’s and 1990’s. Toyota, e.g., tries still to cope with the improvement needs of the 2010’s (!) using the 1980’s improvement mode (!). The gap is about 30 years – and increasing. What will be the real wake-up call for these companies? Very few companies are able to reach even a satisfactory level regarding the improvement effectiveness of the organization. This flaw provides an active bias towards activities related improvement efficiency (cp. e.g. six sigma), potentially with little impact on the competitive advantage, despite hefty investments in improvement efforts during the years.

In the 2010’s the essential issue is how to improve and maintain the company’s, or value chain’s, process improvement performance, in a fast and cost-effective way, for the benefit of solving the fundamental business equation: how to lower the costs, increase the price (value) of the company’s outputs, and sell more, without constantly sacrificing the satisfaction of one or more stakeholders. This equation is the high-performance process improvement equation (the “HPPI equation”).

Briefly put, high-performance process improvement (HPPI) is the umbrella term for improvement work conducted using improvement methods and solutions that actively contribute to a high improvement yield, within a certain time and cost limit. HPPI methods assure thus the improvement effectiveness and efficiency in a fast and cost-effective way, improving all end-to-end processes and the related ambition levels of the:

1) improvement work,

2) the focus processes, and the

3) produced output.

HPPI methods make it also possible to measure the improvement effectiveness and efficiency which provides the basis for defining the process improvement yield (PIY), i.e. the improvement quality output of the methods applied. The PIY score (%) tells how well the company solves the HPPI equation in practice. Without this knowledge you cannot really understand the real speed and direction of your improvement efforts. As all seasoned skippers know, the speed over ground and course over ground are the two parameters that count when boating. Why should improvement efforts be any different?

To get a maximum improvement performance, and thus a maximum improvement yield within any given time and cost limits, five areas have to be covered properly, according to the HPPI performance criteria:

1) company network analysis and synthesis,

2) process analysis and synthesis,

3) improvement education and training (improving staff knowledge and skills),

4) the implementation, and

5) the follow-up.

These five issues provide in their largest incarnation a generic end-to-end process improvement process that complies with the requirements of HPPI.

The Process Improvement Yield Reveals Your Actual Improvement Traction

It’s striking that much is written about improving the quality and performance of processes, whereas little has been written about the quality and performance of the improvement methods themselves. If the quality of the improvement method is low, it is of little help implementing it correctly. A bad, undisclosed improvement performance not only wastes resources and opportunities, but more importantly also lulls the organization into a false feeling of security, resulting sooner or later in a harsh awakening. When asking executives or improvement experts what’s the quality of the improvement methods they use in their organization, most of the people do not even understand the question.

To achieve a mode of systematic and result-oriented improvement throughout the organization, you need to truly know what kind of performance your set of improvement methods deliver. The tricky part is not to understand the cost implication, or even the time dimension of the applicable improvement method, but to understand the quality of the delivered improvement output.

The crucial issue in process improvement, as in all operations, is to achieve as good an interaction as possible between people, technology, information and material to produce the desired output. The quality of this multidisciplinary interaction can be evaluated based on how well it satisfies the stakeholders as a whole. The desired output of process improvement efforts is the achievement of a better real-life interaction in the value chain, organization or process. Thus, the organization needs to master and improve two kinds of interactions, the one required in the improvement work, and the ones required in the wholes that are being improved. Sticking to improvement methods that do not support the organization’s current and desired ambition levels is a bad strategy that many companies do not recognize. Improvement methods should come with a best before date, just like groceries.

How well a specific set of improvement methods deals with today’s improvement needs should be judged based on how well it is able to solve the fundamental business equation: how to lower the costs, increase the price of the output, and sell more, without constantly sacrificing the satisfaction of one or more stakeholders. This can be done simply by analyzing the quality and scope of both the improvement plans and the practical realization of the improvement potential. The synthesis of such an analysis, i.e. the process improvement yield, can be quantified as a percentage point score (0-100%) that reveals how effective, efficient, and impressive the company’s improvement work is in real-life.

My analysis of the process improvement yield in some 30 companies in the electronics industry reveals that the average yield level is somewhat below 3%. To put this in perspective: What would Toyota’s estimated score be using the same analysis and synthesis logic? The well-known improvement methods of Toyota, hoshin kanri and nichijo kanri, have a combined theoretical score of 60%. However, a well-educated estimate of Toyota’s real-life score suggests that the level is approximately 15%. This score, achieved in some 20 years and maintained at that level for some additional 40 years, is more than five times higher than the average company. Although the end-results achieved by this yield level include lean thinking and the Toyota Production System, it is, nevertheless, modest from an improvement performance point of view. For a company that really wants to improve its operations in today’s dynamic business environment, it does not make much sense following the best student that did not pass the test.

What’s the quality of your organization’s process improvement plans? The quality level of the improvement plans in the average company is 16%. With such a low-quality improvement plan, it is likely that the organization improves, more or less randomly, within its comfort zone and current understanding what it can, not what is actually needed. Despite rigid and formalized project approval procedures, the actual quality of the improvement project portfolio in many large companies is so low that the customers, employees and shareholders should beware. There is no need for an organization to find or implement other improvement objects until it utilizes high-class improvement plans that assure the improvement effectiveness.

Achieving and maintaining a process improvement yield level of at least 75% within a few years should be high on any executives to do list. Such an improvement performance would work wonders in any company – including Toyota.