Can You Fight Inflation with Process Improvement Efforts to Keep Afloat?

Picture 1: staying afloat. A view from Helsinki’s South Harbor with M/S Silja Symphony on tour to Stockholm and M/S Ocean Majesty and M/S Amorella to the left at Katajanokka Harbor.

The short answer is most likely, but it depends on what improvement performance your solutions actually provide.

You can improve your operations to match a rather high inflation level, potentially even without increasing the price of your outputs to the paying customer, and without cutting the profit level that the owners and financiers need to be happy. In some cases the process improvement work may even result in a scenario where it may be possible to both increase the price and sell more. But there are some “catches” to the improvement work that should be understood, both when fighting inflation and taking the improvement work beyond traditional reactive improvement work, or pseudo improvements due to getting or keeping a quality certificate.

Your company’s ability to unleash unrealized, and many times also undisclosed, improvement potential depends fully on your current and past process improvement yield (PIY) level (see Picture 2 below for a PIY calculation example). If this has been low (<10%) for a long time, then there is a great potential for improving the company’s value proposition through a sustainable and systematic process performance increase. This performance increase affects both the top-line and bottom-line of your company’s financials, depending of course on how you position your offerings. Here it may be even possible to both increase the price and sell more. This scenario is a rather hard improvement task to solve, but it may be done if both the performance and performance increase of the key processes shine constantly regarding the core process (order-delivery process, incl. invoicing), the research and development (R&D) process, the marketing process, the sales process, and in some cases where applicable also the after sales process. There may be also other processes such as the administration process (incl. general management, human resources, finance, etc.) and the maintenance process that have to be properly considered to improve the whole. These processes may be either global, international, national or local, depending on the company structure and your company’s geographical reach. From a high-performance process improvement (HPPI) perspective this does not matter as can be observed via the process definition used by all high-performance process improvement compatible improvement solutions:

“A process is the interaction of people, machines, materials and information to produce a certain service or product.”

Fromm, H. 1992. “Das Management von Zeit und Variabilität in Geschäftsprozessen.” CIM Management. 5, pp. 7-14.

Simply put, process improvement means thus enhancing the interaction of these four process components. How well this interaction works is directly related to the process performance that can be measured with regards to time, quality and costs. This performance, on the other hand, is probably the most important factor to satisfy the stakeholders in the long run. How to improve systematically and result-oriented the interaction of the four process components for each relevant process, well enough and using as little resources as possible (cp. the improvement time, quality and costs), is the essence of high-performance process improvement. In the end, the question is how to organize and improve over time the four process components so that their interaction has an optimal impact on the process performance and stakeholder satisfaction. To really do this, you need solutions fit for the purpose, i.e. that are designed from the outset to be HPPI compliant, because there are so many issues that need to be considered, optimized and implemented thoroughly. In practice, every single improvement effort has to be customized, including also the improvement education and training at the individual level.

Based on the above it is easy to analyze, as a “by-product”, the shortcomings of e.g. the improvement work based on lean thinking. Solutions based on the lean concept do not contain any actual component, logic or systematic solution assuring the improvement effectiveness and the improvement performance from a total perspective. As a result, the real-life process improvement yield is, and will be low, until the end of time, as there is not even a theoretical possibility to increase the ambition level of the improvement work after the lean concept has been implemented throughout the company “by the book”. The “Then what?” question cannot be answered properly, unfortunately. Another issue to bear in mind is that the interaction of the four process components may also deteriorate even if you think you are improving your operations. Here many IT/ERP projects may serve as an example. Also, you can test the performance of lean solutions simply by adapting these solutions to the improvement work itself.

Improving sufficiently the costs, time and quality of your key processes provides a good protection to inflation concerns, although it is important to notice that also the improvement efforts themselves have to be effective and efficient. In addition, it is crucial to keep in mind that the real-life average PIY level for a company is only at a 2-3% level, often despite all the improvement efforts throughout the years.

If your company truly runs its improvement efforts at a PIY level >85%, then you should revise the ambition levels both for the key processes and the improvement work. Analyzing the processes at a higher ambition level may provide clues about the undisclosed improvement potential that would provide the means to fight inflation and provide competitive flexibility towards crucial stakeholders (customers, employees, owners). This setting is, however, more or less hypothetical as a PIY level of 85% even at the basic ambition level is rare. The theoretical output of the applied improvement solutions applied in many companies, such as e.g. lean concepts and related tools, restricts the score to a 60% PIY level. If practical issues are considered then the ceiling will be reached at about a 15% PIY level. Getting a real-life PIY score higher than 7-10% is thus likely due to a miscalculation/misunderstanding of the PIY.

To swiftly get a realistic view of the unrealized improvement potential for a specific process, it is advisable to first check the workable improvement options and likely financial outcomes using the improvement plan VISTALIZER® Report. This solution can be delivered using the Microsoft Teams or Zoom solution as the communication platform.

To calculate your PIY level you can use the PIY Calculator (incl. the Implications feature) in the app VISTALIZER® for Enterprises (iOS/iPadOS/Android) that also considers your company’s improvement knowledge level and ambition level (Picture 2).

Picture 2: The PIY Calculator in the app VISTALIZER® for Enterprises (screenshot of iPad Pro 12,9″).

Running high-performance process improvement efforts provide multiple benefits with only a moderate risk. In stormy business conditions you really need to consider your improvement approach so that it is fit for the purpose. Continuous improvement means that you can improve the operations sufficiently, despite the conditions. Here also the absolute and relative improvement performance, and the change of these two aspects (to the better or to the worse), should be considered to understand how your company’s is prepared for current and future challenges. In that sense it costs a lot also to do nothing. You can, generally speaking, do much improvement-wise by just assuring that you use high-performance process improvement solutions with a sufficient coverage as the improvement effectiveness (=improving the right issues) and efficiency (=improving the issues right) is by definition built-in such solutions.

Recent Updates for High-Performance Process Improvement Solutions

Much has been going on in 2020 related to the High-Performance Process Improvement (HPPI) concept so I will provide an orientation about the advances in this blog post.

First of all the implementation solution, i.e. VISTALIZER for Enterprises has entered into version 3. This brings some fundamental changes to how to use the VISTALIZER for Enterprises app as it is now only available in English and via the App Store (iOS/iPadOS) and Google Play (Android). Check out the app stores’ product pages for more information. The Swedish and Finnish language versions of the software are discontinued. With the version update, the business model for this part of the high-performance process improvement process has also changed. The app is free to download. It contains in-app purchases, or more specifically auto-renewal subscriptions with different available time periods, starting with a one-week subscription. The subscription can be cancelled anytime according to the General Purchase and Subscription terms of App Store/Google Play.

The second new issues is the launch of VISTALIZER.com, the e-commerce site supporting first and foremost the use of the new VISTALIZER for Enterprises app. The site provides PDCA review and feedback services for the practical PDCA excercise of the app (called “PDCA2”). This service can also be used for real-life PDCA documents. The site includes also a (video) blog that deals with issues related to the app. The WordPress.com blog, i.e. the one you are reading currently, on the other hand, deals with the total solution and general theory and practice of high-performance process improvement. The two blogs have thus a different perspective and emphasis.

The third issue is the recent launch of the VISTALIZER YouTube Channel. The channel provides (brief) video tutorials and feature trailers mostly related to the new VISTALIZER for Enterprises app.

All in all, the VISTALIZER improvement technology provides now organizations with a very attractive way of assuring both the improvement effectiveness (VISTALIZER for Networks and VISTALIZER Report) and the improvement efficiency (VISTALIZER for Enterprises). Increasing and maintaining a sufficient process improvement yield, with increased ambition levels, requires a HPPI solution fit for the task!

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!

Outperform Toyota by Improving the Processes

Original Title (in Finnish): “Prosesseja kehittämällä paremmaksi kuin Toyota”

Original Publisher: The Finnish Pharmacists’ Society

Publication: Proviisori Journal 3/2011 (pages 28-30)

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

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Definitions

  • A network is the interaction of organizations (units), technology, information and material (substance) to produce a product or service.
  • A process is the interaction of people, technology, information and material (substance) to produce a product or service.
  • A core process is a process that affects directly the cash flow (produces directly added value).
  • A support process is a process that affects indirectly the cash flow (produces indirectly added value).
  • A key process is an important process.
  • A value chain is a network of core processes of different organizations.
  • Process improvement is a systematic approach to satisfy the stakeholders of the organization by improving the performance of the activities in terms of time, quality and costs.
  • High-performance (process) improvement is a high-class (process) improvement using scarce time and money resources.

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Toyota is known for its improvement methods. However, any organization can improve its operations better than Toyota.

What’s the quality of the improvement methods your organization uses? How well are the methods applied? If the quality of the improvement method is low, then the implementation quality becomes irrelevant.

The improvement challenges boil down to two totally different issues: the quality of the improvement methods and the quality of implementing the methods. Anyone responsible for improvement issues in the organization should at least on a general level grasp the improvement performance of the company, and how to achieve and maintain a high-performance improvement performance in dynamic circumstances.

Improving processes is an every-day task in every industry. How good, systematic, and result-oriented the efforts are, is completely another issue. Paradoxically, the improvement performance itself has not improved much during the years in terms of time, quality and costs, despite that the competitive state and operations of both whole industries and single organizations face continuously more demands and challenges.

In process improvement, as in all activities, the crucial issue is to achieve as good an interaction as possible between people, technology, information and material (substance) to produce the desired output. How well this interaction functions in real-life is easily judged by the output quality, and by measuring the process performance (time, quality and costs). The output produced by the improvement work is the achievement of a better interaction in the focus network, organization or process.

 

The Improvement Work Needs Improvement

Operations or process improvement has as a substance field developed much in recent years, as the focus of method research and development has been put on the improvement work and the related improvement performance. It is clear that improvement methods and concepts developed decades ago have not been able to deliver even a satisfactory improvement output for a long time.

Traditional improvement methods and concepts, such as lean, six sigma, quality awards, maturity levels, process modeling and different hand books, are from a method point of view scattered, static and stiff. Even a combined use of such methods offers at best only a low momentum to increase the improvement performance, resulting nevertheless in a bad input/output ratio. Defining the quality of the traditional improvement methods and concepts, and evaluating their time related performance (effective and calendar time) show that the shortages of such methods and concepts are severe.

 

The Improvement Yield Concept

The improvement yield of an organization, process or unit can be easily defined by measuring the quality and scope of the improvement plan(s) and the related implementation of the plan(s). The end-result is a percentage number (0-100%), i.e. the improvement yield. It tells in a practical way how effective, efficient and striking the conducted improvement work actually is.

It can be shown that Toyota, the world’s improvement icon, has evidently an process improvement yield in the range of 15%. A lot has been written about Toyota’s underlying improvement methods, and perhaps even more about the related end-results that include the lean philosophy and the Toyota Production System. In theory, the application of Toyota’s set of improvement methods, known as hoshin kanri and nichijo kanri, could result in a 60% process improvement yield level. It is remarkable that it took Toyota approximately 20 years to reach the 15% level, which means that the time performance of the applied methods is not especially good. The level has not improved in 40 years, rather declined, due to a lower implementation quality and a decreased scope, the applied methods remaining intact.

 

The Best that did not Pass the Class

The average company has a process improvement yield slightly below 3 percent. Compared with the average company, Toyota’s improvement performance is more than five times better. Despite this, Toyota’s improvement performance can be described as ”the best that did not pass the class”, because a 15 percent process improvement yield level is, after all, modest.

Passing the class with only a 15 percent knowledge level is rare, let alone with a level of only a few percent. If a drug would have such a low efficacy level, then the improvement efforts of most companies could be compared with placebos or homeopathic substances, because of the almost non-existing effective components of the methods applied. In the event of having a hint of effective components, the time factor dilutes mercilessly the impact towards zero.

When things are considered at a sufficiently low ambition level, the improvement work becomes inevitably busy work, regardless of other beliefs. The quantity of improvement methods never replaces the quality of the improvement methods, nor is it possible to solve today’s problems using yesterday’s improvement methods.

 

Process Improvement Provides Welfare

How could our organization gain a sufficient process improvement momentum? The key persons need first to identify and acknowledge the improvement performance deficit. This is not a very easy task as the consideration of the process improvement performance, including the terms and concepts, is for most people new. To get familiar with the basics takes time, besides the issue of getting rid of old perceptions and behavior that per se requires great efforts.

Getting a sufficient and correct general view what modern process improvement is, and on what level the improvement work should be in today’s world, should be on every executive’s and improvement manager’s agenda.

Every organization can in practice achieve at least a 75 percent process improvement yield in a few years, i.e. a five times higher level than Toyota’s. Such a level offers both on the micro and macro level interesting possibilities to increase the satisfaction of stakeholders, and to generate welfare. The understanding how the actual potential of the organization, or even the whole value chain, can be realized each year is in everybody’s interest, also in the individual consumer’s or tax payer’s.

 

Away from Quasi-Improvement

Implementing ineffective improvement methods has in practice led to a situation where the improvement work is conducted within the organization’s and individual persons’ comfort zones. Such issues that people are used to gain momentum, not such issues that are actually needed. A trivialization of the improvement work in combination with a strong faith in common sense feeds such quasi-improvement further.

Offering simple and user-friendly solutions to customers, in a cost effective and timely manner, requires often a deep understanding, management and improvement of very complex, contradictory and large wholes. At the same time, the company has to satisfy its employees and owners better than before.

Metaphorically speaking, organizations step on the gas with the wheels firmly in the air, without the car moving in real-life anywhere. Without speed, it is fundamentally clear that the car cannot move in the right direction even if the front wheels would be pointed in the right direction.

In practice, organizations select the improvement objects without a high-class identification and evaluation of their importance. This results in a low improvement effectiveness level from the outset. The implementation of the improvement efforts is also quite inefficient, and the follow-up of both results and the quality of the improvement work is often neglected. This is a real nuisance in almost all industries.

 

The Methods are not All the Same

Any set of improvement methods offer, even correctly and widely used, a certain improvement performance that provide the theoretical upper limit how well and fast the improvement work can advance in an organization. This limit is very low for many improvement methods, implicating that that the performance level in practice is (much) below the theoretical maximum performance level.

The selection of an improvement method locks the forthcoming improvement performance in a certain category. It is not advisable to conduct any improvement work without a thorough understanding about what can actually be achieved with the applicable methods. After this the organization should evaluate how well this improvement performance serves the current and future ambition level of the network, organizations, unit or process.

Right improvement methods, implemented correctly and promptly, produce results that make improvement work interesting, and even joyful!

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.