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!