What to Do When the Economy is Freezing?

Picture: the new Helsinki Käpylä (Kottby) Elementary School under construction in January 2024.

If your business is facing problems due to a freezing economy, chances are that this is a strong sign of long-term neglection of improving key processes in your company. This means that your business cannot cope properly with changed customer demands as the market shrinks. In such a setting your business needs to really shine to be successful. In practice, this translates into providing a more attractive overall offering to your customers: either more bang for the buck, less bucks for the same bang, or even more bang for less bucks. Sometimes even this does not help: you need to introduce a new, or at least sufficiently improved bang—and market and sell it sufficiently well—to please the customers and get a sufficient amount of money flowing in the right direction. After all, your business needs to be profitable to survive in the long run. Just cutting the price won’t thus do the trick, even if you would get the money flowing. You need to improve the time, quality and costs in all relevant processes, including also the process improvement process itself. Preferably before your business is at stake.

But how do you really deal with the bang for buck dilemma? Actually, the dilemma can be swiftly and cost-effectively solved just by a proper management of the process improvement yield level in key processes. It’s thus just a classical high-performance process improvement task. Why settle with a process improvement yield level of less than 3% than your key processes should be subject to a level at least 75%? Very few would drive a car, year after year, with a traction of 3%, or less. But when it comes to the company performance and the improvement of it, many do. Time to shape-up your improvement activities?

Is Your Organization Driving with Zero Improvement Visibility?

Original Title (in Finnish): “Ajaako organisaatiosi lasit jäässä?”

Original Publisher: The Finnish Pharmacists’ Society

Publication: Proviisori Journal 1/2012 (pages 24-26)

The article is the third in a series of three articles providing a general introduction to high-performance process improvement.

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The improvement planning quality and dynamics in many organizations are comparable with a car with zero windows visibility except for one tiny clear area at the rear. Increasing the visibility of the rear window does not improve the visibility of the windshield. Already the data collection method affects which windows areas may be clear. Focusing on wrong issues wastes a great amount of opportunities and resources.

The key issue in process improvement is no more the identification and decrease of quality costs, but the identification and realization of opportunities regarding three closely interrelated wholes. These are the improvement activities, the activities to be improved and the produced output. 

The quality costs include all costs due to not producing the output correctly from the outset. There are four types of quality costs: external and internal, appraisal and preventive.

The real quality costs represent 15-75 percent of an organization’s revenue depending on the industry. The reported or perceived quality costs are typically only a fraction of this amount because they cover only a part of all quality costs. Utilizing the quality cost concept it is possible to grip issues related to productivity. This is, however, only the other side of the coin, as one needs to cultivate also the effectiveness.

In high-performance process improvement the opportunities are reviewed based on the gap between the current and desired ambition levels regarding the improvement activities, the processes and the outputs. The ambition level differences can be quantified via three cornerstones, i.e. time, quality and money, the effect of which together form a considerably greater value waste than the quality costs.

The value waste due to lost opportunities is billions on a national level. This waste affects negatively the satisfaction of all stakeholders, and more generally on the employment level, the tax revenues and the well-being. This value waste is many times not disclosed simply because traditional improvement methods and systems do not identify this issue. You cannot know what you do not know.

 

The Quintet of Process Improvement

In addition to decreasing waste, quality defects and variation, high-performance process improvement requires that you master many other issues concurrently – with scarce time and money resources. There are five key issues, implemented via a process approach, that provide the solution to this challenge :

1. The assurance of the improvement effectiveness and efficiency.
2. The management and improvement of the improvement performance at different ambition levels – in addition to improving the performance of the operations.
3. The seamless improvement of both the processes and the produced output at ever higher ambition levels – in addition to improving processes or the output in isolation.
4. Improving large and complex wholes and networks – in addition to improving local processes or functions.
5. Identification and realization of opportunities – in addition to identifying and decreasing quality costs.

An end-to-end perspective regarding the improvement value chain provides concrete means to manage and improve this complex whole in a good way. When the concepts of the Kano model to output development are integrated seamlessly to process improvement work and the required processes that deal with research, development, marketing, sales, production, delivery and after sales of the offered outputs, a great synergy momentum is created compared with applying the concepts of the Kano model in isolation.

 

Data, Information and Knowledge

The assurance of the improvement effectiveness means that the organization or network is improving the right issues. The key issue is a good enough identification and selection of the improvement objects, considering well enough the affecting circumstances and prerequisites. To do this, knowledge is always required as knowledge is the prerequisite to make decisions. This calls for a sufficiently performing data collection, and the cultivation of data into information, i.e. an analysis, and the cultivation of information into knowledge, i.e. a synthesis.

The performance of the information process used in the improvement value chain determines to a great extent the quality of the improvement activities in practice. A elementary problem in many organizations is a lacking or defect information process. One example of this is the collection and utilization of such data that is easily obtained, but not such data that would be needed. Another common issue is the cultivation of irrelevant or even wrong data into information.

Additional problems emerge when information or emotional reasons form the decision basis. Information lacks from the outset one crucial cultivation phase that provides the understanding of the requirements and total effects of the actions. Data lacks two cultivation phases. Without a high-class synthesis (knowledge) it is impossible to make high-class decisions. Jumping from data to decision making is a big leap. Very few, if any, are able to conduct a non-trivial analysis and synthesis of a sufficient quality only based on the data provided by the performance measurement system.

The meaning of an analysis in an improvement context is not to provide ”nice to know” information, but to serve in a relevant way the synthesis, decision making and the implementation phase. For this reason score cards, satisfaction surveys, maturity and quality award models offer a misleading platform to manage the operations. These approaches may direct thinking in the wrong direction as they do not offer a synthesis but only a partial analysis. A simple “Then what?” question in the different phases of the improvement work helps many times to clarify the thoughts.

 

Garbage In, Garbage Out

Knowledge is the basis to make decisions. Assuring the improvement effectiveness means assuring the quality of the decisions. A rather small improvement in the decision quality increases the improvement gain considerably. In comparably small improvement efforts tens of decisions are made in the beginning affecting the quality of the data collection (timing, correctness, usefulness, amount, form, place and price), ending via an analysis and synthesis with the selection of the improvement objects and their implementation.

Customer and employee satisfaction surveys represent only a part of the required data, and for this reason it is not always possible, or even reasonable, to utilize this kind of data as such in the improvement work.

The management’s capability to make high-class decisions from a total perspective is affected by, among other issues, the stress and vitality level, interest, know-how, the vision and the potential external and internal pressure. Another person or another management team could end up with a total different solution. Who is right, or is nobody?

If there are problems in the data collection, analysis and synthesis phases, there is an evident risk that the principle “”garbage in, garbage out” will materialize also in the decisions. The problem areas are not often even recognized, which make the problems hard to remove.

From an improvement perspective the first issues an organization needs to focus on are the bad decision quality and the big variation of the decision quality. Implementing the wrong issues wastes a great amount of opportunities and resources. Often is advisable to improve and measure the strategy work and the quality of the created strategy. In large organizations it may also be motivated to evaluate and improve the quality of the improvement project portfolio and the quality of the project approval process.

 

Building Quality into the Improvement Plans

How well an organization is able to consider all crucial improvement aspects can be evaluated well enough based on the written improvement plan. If the quality of a process improvement plan is evaluated at the lowest ambition level, the level is on average 16 percent. This figure is based on the measured average score of 30 companies in the electronics industry. In practice such a level does not support high-class decision making, although such an improvement plan is sufficient for certification purposes.

In real life very few of us would drive with a car anywhere should the visibility of wind shield, side windows and rear window be restricted to one small area at the rear left. The selection of the data collection method and approach decides from the outset what window area can at best be free from visibility obstacles. This affects without a doubt the quality of the analysis and synthesis. If the rear window visibility is improved, this will not affect the visibility of the wind shield to any considerable degree. If clearing the rear windows lasts two hours or the whole day, it is clear that such a performance does not serve anybody. The need and motivation to move may already have vanished in this time frame. Putting in the reverse gear and driving backwards provide no lasting solution, at least when aiming at driving a long distance. This depicts the planning level and dynamics in many organizations.

In car driving, as in improvement work, it is problematic to focus only on one issue as the whole is what matters. In different situations one has to consider and prioritize things right. Without a high-class logic to create high-class improvement plans the organization does what it knows, not what it really should do. When talking about plans, it is utterly important to understand that if only one part of the operations is covered by the plan, then the low planning coverage, e.g. one process out of five, will not provide a sufficient improvement momentum to create a great impact.

Gaining and maintaining a sufficient improvement effectiveness is a very challenging task. The problem cannot be solved without a high-performance logic to create process improvement plans. With modern methods an improvement plan with an 100 percent quality level is achievable in about 14 days consuming less than one working day for the attending key persons.

 

Towards Very Satisfied Stakeholders

The improvement results are not only about improving the absolute performance, but also about improving the relative performance compared with the competitors and other organizations. A higher improvement yield than the reference group improves both the absolute and relative performance. The improvement performance increase is not only counted in euros, seconds or quality defects. The question how much better the organization is able to satisfy the changing and often contradictory needs and requirements of its stakeholders, first and foremost its customers, employees and owners, is more important. The total satisfaction of these three stakeholders is the core that needs to be treasured when improving the operations. If these stakeholders are dissatisfied from a total perspective, then there is no basis to satisfy other stakeholders either. Just remaining in the same spot requires that the improvement work advances with the same speed than the needs and performance requirements increase or change.

 

Swamp There, Water Here, not Dry Anywhere

The fact that the others improve their operations also with the same low performance level provides only an expensive illusion regarding the current improvement level of the own organization or even a whole industry sector. Increasing the speed in this improvement swamp is not possible without increasing considerably the costs or affecting negatively the quality.

Swamp running is a skills sport where the stumbling and decrease of energy lower the motivation even for a seasoned runner. When the energy level is close to zero, then you find yourself even more far out at the swamp – and lost. This provides the swamp specialists with new opportunities to help the customer out of the mire. This will of course newer happen. After the investment a new, slightly different swamp with mirages will appear.

Wading in the improvement swamp towards new mirages is surprisingly popular. The years pass by, but the same problems, such as e.g. information quality and IT system related problems, remain. In such a mode it is hard to find any positive aspects.

When the performance of the organization is sufficiently bad, or is not improving according to the plan, then the easiest way to tackle the issue is to lower the ambition level, or refer to bad management. The root causes of the problems will not vanish by improving the effects. The structural problems of the improvement methods cannot be fixed with good management.

 

An Aha! Moment is Needed

Getting on the right track requires embracing a new improvement perspective and often also an Aha! moment. Satisfied customers, employees and owners do not show as such that the organization is performing well. Not until the customers, employees and owners are very satisfied, the right track has been found. In addition, efforts have to be conducted to increase the satisfaction of other stakeholders as well, and to that the mentioned three stakeholders are very satisfied also in the future.

The world, the organizational requirements and improvement needs have change a lot during the past few years, not to mention since the days of the quality gurus. The pace of the change does not show any signs of slowing down. The improvement performance needs special attention during good, mediocre and bad times. A high process improvement yield assures for any organization that this is the case. This simple principle will go a long way. The time for high-performance process improvement is always.

Are Your Improvement Methods Old Scrap?

Original Title (in Finnish): “Ovatko kehittämismenetelmäsi vanhaa romua?”

Original Publisher: The Finnish Pharmacists’ Society

Publication: Proviisori Journal 4/2011 (pages 24-26)

The article is the second in a series of three articles providing a general introduction to high-performance process improvement.

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The value chain of process improvement consists of two interconnected processes: the diagnosis and implementation. The objective of the first is to assure the improvement effectiveness, whereas the objective of the second is to assure the improvement efficiency. Many improvement methods have in today’s dynamic circumstances only a nostalgic value – just like old scrap cars.

The diagnosis comprises the required analyses and syntheses, the objective of which are to assure the improvement of the right issues in the given improvement setting. The implementation embraces the improvement education and training, the practical realization of the identified improvement potential, and the follow-up. The objective of the implementation is to assure that the improvement objects are improved in the right way. It contains also analysis and synthesis phases that fine-tune the planning and execution. The total management and improvement of improvement activities, in today’s ever-changing circumstances, with scarce time and money resources, set new performance requirements to both the applied improvement methods and the improvement method development.

 

Neither Should a Ship Rely on One Small Anchor, Nor Should Life Rest on a Single Hope

There are numerous participants or actors taking part in the process improvement value chain. This is especially true in large or a bit more ambitious endeavors. The actual performance that relates to the participants’ knowledge and skills, learning and the concentration abilities, shows many times a great variation. This is an issue that is not often identified or taken into account well enough in the different improvement phases. An ominous illusion that obscures management is thus easily created from the outset between the presumed and actual improvement performance. This illusion loosens unnoticed the improvement efforts from the real world. If the illusion grows enough, it will pop with bad consequences, just as it did in the fairytale “the Emperor’s New Clothes” by H. C. Andersen.

To avoid such an outcome it is crucial to define, even on a rough level, the expected process or even project specific improvement yield level. This level determines in practice the success of the improvement effort. It provides in a fast way, if required even in advance, a strong indication of a potential illusion and the nature of it. The effort should not be executed as such if the improvement effectiveness in (pre)planning phase is not on a sufficient level (> 85 percent). Should for example the route plan of a ship cruising in the archipelago be only of an 85 per cent level, it is clear that sailing to the right quay, safely and economically, would require extraordinary efforts and good luck. The improvement effectiveness seldom exceeds 20 per cent in companies. The saying by Epictetus, “neither should a ship rely on one small anchor, nor should life rest on a single hope”, is striking.

 

The Know-How Level is the Problem

A company should allocate annually about 4 per cent of the working time to process improvement, i.e. about 10 working days for each employee per year. Not more, but neither less. Of this time, 10 per cent should be allocated to the diagnosis, the rest on the implementation.

The improvement effectiveness is directly related to the output of the diagnosis, i.e. the quality level (0-100 percent) and scope (0-100 percent) of the synthesis (the process improvement plan). Large-scale gains can be realized not until 40 percent of the personnel understand in practice the process improvement philosophy, the approaches and practical tools. Few companies have a score better than a few percent. The level is rather a few tenths of a percent. Even in comparably large companies there is in practice not even a single person with adequate process improvement know-how. A process improvement related title does not guarantee an adequate understanding level. Studying and implementing improvement tools will not do because these do not provide any means to take the operations to the next ambition level where more strenuous challenges and demands wait for their solution.

How could one then manage this knowledge and skill related, most dynamic improvement issue, bearing in mind also time based prerequisites?

The level of difficulty of this challenge is Mt. K2 of process improvement, because traditional approaches to process improvement education and training provide at best only a solution that comes half the way. Coming all the way requires the identification and management of the substance that should be mastered, combined with a sufficiently performing method that enables personal learning, and the measurement and assurance of the transferred know-how. The real quality level of the know-how is eventually measured by how well the organization realizes the improvement potential in practice.

 

Basic Mantra 3.0

Customer orientation and minimizing quality defects, variation and waste are only one part of modern process improvement. Producing defect free what customers want is the basic mantra (version 1.0) that puts the ambition level on a too low a level from the beginning. A perhaps more sophisticated version of this basic foundation related to total quality management (TQM) is to “do the right things right”, which can be considered the basic mantra 2.0. It means that the processes should both be effective and efficient. Besides customers, the company should also satisfy other stakeholders, such as the personnel and owners, as well.

The basic mantra 2.0 requires already a considerably better process improvement method performance than is possible to achieve with traditional improvement methods. Many organizations have sunk into this improvement swamp, and many are yet to sink, because the applied improvement methods have not changed despite changed circumstances and challenges.

It is not sufficient that the processes are competitive today. The essence of modern process improvement is how well the performance can be maintained and improved in spite of dynamic conditions and needs.

How is, for example, the improvement effectiveness assured, and by this also the effectiveness of the operations, if there is no verified and well-performing logic in use that ensures that the organization is focusing on the right issues? One very popular guarantor of the decision quality is the widely applied gut feeling. As the decision makers do not know of any better approach, it is applied year after year, despite having the best people dealing with the improvement efforts. Organizational changes, process models, score cards, surveys and studies, outsourcing activities and IT system projects consume time and money, and many times also nerves, often without a considerable payback and impact on stakeholder satisfaction.

In continuously changing conditions it is crucial to do ”right things rightly, in a fast and cost-effective way”. This is true for all processes, including the improvement activities. More and more organizations have moved, or are moving, into a business environment that is formed by this basic mantra 3.0. In such a setting, many improvement methods have only a nostalgic value, just like old scrap cars.

 

Managing a Contradictory Equation

A high measurable improvement performance keeps the organization continuously competitive. In the company world the practical implementation of this strategy means a concrete solving of a contradictory improvement equation: how to lower the costs, increase the price of the outputs, boost sales, without the dissatisfaction of any stakeholder. The process improvement yield provides the understanding regarding the current solvability level of this equation (0-100 percent) for any given company. This understanding provides also a perspective of the magnitude of lost opportunities that go down the drain currently.

A similar equation providing the direction and meaning to the improvement efforts can also be defined in the public sector. Based on this it is possible to select such improvement methods that solve the total equation as well as possible.

Should appropriate improvement methods not be readily available, these can be created using reverse engineering concepts and a constructive research approach. None of the traditional improvement methods have been designed using such approaches. This explains their poor total performance and unsatisfactory fitness for solving contemporary challenges. A good way to assure the improvement method performance is to study how it has been developed, including the method’s prerequisites.

 

The Improvement Culture Cannot be Copied

The greatest quality weakness of the improvements methods used by car manufacturer Toyota is that the methods do not assure the improvement effectiveness, i.e. that the right issues are really improved from a total perspective (see also the first article in the series).

The greatest quality strength of Toyota’s set of methods is that the PDCA logic (plan, do, check, act) assures the efficiency of the improvement work, i.e. that the issues are improved in the right way. By applying an indicator that shows how well the PDCA logic has been used in the practical improvement work it is easy to define the quality level of the implementation. It should be at least on an 85 percent level for the organization to improve its operations in a sustainable way. The core of the PDCA logic is the setting and testing of a hypothesis, which is also the spine of scientific work

Process improvement based on lean thinking focuses per se on waste and quality defect (variation) reduction, especially in the production. Such a narrow perspective is today insufficient. Paradoxically, many organizations have in their lean thinking application gone unwittingly in for the end-results of the PDCA logic used by Toyota. The improvement object has not been the understanding and thorough application of the PDCA logic, which would create on the practical level the right improvement culture. This deficit is not lessened by analyzing the end-result in a systematic and result-oriented way using benchmarking.

It is not possible to improve commitment, understanding and operations in general by applying or even copying the end-results of other organizations’ improvement methods. Applying end-results omits many crucial issues such as the identification of the right improvement objects and the setting and testing of hypotheses. The organizational and cross-functional learning is also desisted in such an approach. Best practices should be utilized with caution when improving processes, because this may lead to a situation where the organization never learns the true dynamics and character of process improvement.

 

Four Crucial Variabels

In many organizations, process improvement equals the creation of a process model accompanied by a quality handbook. In a best case scenario, these issues support the organization’s quality assurance efforts. In a worst case scenario, they create a comfort zone where the executives and other personnel enjoy themselves until the organization is demolished. A process is by definition the interaction of people, technology, information and material (stuff) to produce the desired output. It is clear that without active improvement efforts, the interaction between these four variables will not remain, but declines continuously. Even good quality assurance efforts cannot stop this trend as these only affect the absolute quality level, not the relative quality level that also takes into account changed conditions.

 

About Average Thinking

Every process has a unique set of prerequisites, interfaces and priorities. Therefore average thinking should be applied with deliberation, even if it could provide from a certain perspective a tempting advantage. A soccer team cannot procure sneakers based on the players’ average feet size, even if such an approach would provide a better discount and an easier procurement bureaucracy. Each phase in the improvement value chain has to be customized, verified, prioritized and implemented in a total and optimal way, despite limited time resources.

Moving from average thinking towards precision improvement requires from a management point of view the adoption of new perspectives and the sharpening of attitudes to maintain attention on crucial improvement details as the improvement work advances.

The continuous improvement principle means that the organization’s process improvement yield is constantly on a high level. The ability to maintain a high level in the long run using resources scarcely shows that the organization has come a very long way in providing its stakeholders with a higher level of satisfaction.

Nothing delights more than real improvements achieved year after year. A good performance can always be improved, and even the best can be better!