Michael Bremer had an excellent post in the NWLean group on the importance of metrics, dovetailing into resource reasons why many lean initiatives fail.
I have stayed out of this discussion. But David’s statement makes a point I can’t resist commenting on. "Many of us know the true value…" Also, as other people have responded to this question they have made statements alluding to space savings from 5S, setup time $$ savings (which Michel Maudin just pointed out, is more about faster response) and a variety of other types of savings. Management teams that do not buy in to this "know the truth" are deemed unenlightened. I guess I do not see the world that simply.
I have done all of the three letter improvement programs over the last twenty plus years. They all seek to reduce cost, improve quality, and get work done faster (cycle time). A few include more meaning in work. In every case people beseeched management (leadership) to get more involved. Reported project savings were astronomical, very big numbers, yet when one went to the P&L little had changed.
I think the truth, if there is one, sits somewhere in the middle of exaggerated savings numbers and accept it on faith. A major weakness of most lean improvement initiatives from my experience is they are short on metrics. Most lean improvement projects increase available capacity. Capacity of space, of time, of flexibility, etc. The organization must use that capacity to realize any savings. Fortunately, over the last year the economy has picked up and many organizations actually did realize significant savings. If the economy was still floundering along, the savings for the most part would not have been realized.
I have given a lot of thought (even though it may appear otherwise) to this conundrum. Most improvement activities still focus on "cost reduction" type activities. Even when the cost reduced may not have a direct P&L impact.
When capacity improvement projects take place they are usually done in isolation of sales people and other revenue raising individuals. The hope is, if we build it they will come. A possibility, but not as effective as first deciding where market growth opportunities exist, then focusing on what needs to improve to make it happen. Lot of reasons for this, not the least of which includes trust and crediibility.
Project related metrics are generally very high level and difficult to trace or to really know if they were realized. Or the metrics used have no direct correlation to profitability (e.g., most of the cycle time stuff… which I’m not trashing… the correlation is simply low).
Most improvement activities are driven from the middle of the organization. This flies in the face of the disenchanged middle management claims. But think about it. How difficult is it to get resources to staff projects? When a project is done how difficult is it to sustain any gains? When capacity gets freed, how difficult is it to use it? Senior leadership involvement typically looks like here is something that needs to be done, handing it off to someone in the middle and then not worrying about it anymore, nor ensuring that adequate follow-up takes place.
Forgive me if this sounds depressing. But this has been the cycle of most improvement initiatives over the last twenty years. Most organization merit a "C" grade on the improvement activities. They do usually realize some meaningful savings. But the potential dollars left on the table are huge.
So what should be done?
Fixing four problem areas can maximize the yield from improvement activities: First improvements need to link to a meaningful business need. This can be survival or meaningful (new) growth.
Second, reported project savings must come out of a budget or get added to a revenue target, beyond maintaining the status quo. So if a project is supposed to achieve an additional 20% in revenue, that gets added to the normal current year target of last year’s number plus 5 to 10%. Same with cost reduction.
Third, once management provides a direction. They need to step back and listen. This is hard work. How do you decide between noise and real? Has space been created to encourage people to say things we may not want to hear (the emperor has not clothes type insights)? Once these inputs are received and synthesized they need to be incorporated into the future direction.
And finally (perhaps this belongs first) when people are put on improvement projects leadership has an obligation to relieve them of something. It is very easy to put one additional rock in someone’s knapsack and say please carry this. Good people typically will not complain. And good people will probably get something meaningful good done. But what is leadership saying by these actions?
- Here is something else I want you to do.
- This is important, but so is your other stuff.
- Your time must be infinite… because I (the leader) can just keep putting rocks in your sack.
- The priority is it all must get done.
This thinking, if one could call it that, is illogical. There are priorities. So if an improvement thing is "important" and people are supposed to spend time on it, management has a responsibility to remove another rock from their sack. It may not weigh has much as the new one added, but you can’ tkeep popping them in there. If leadership does not do this "good people" will ultimately burn out or go elsewhere.
The Cumberland Group
I think we’ve all seen similar programs with lofty goals, and sometimes even supposedly lofty results. But how often would we be willing to really ante up and reduce our budgets (or increase our revenue targets) by those numbers? Reality comes home to roost. And we’ve all experienced having another rock put in our sack. Jim Zabek adds in a followup post that a fifth dot point should be added: If you don’t get it all done within the allotted time, your performance appraisal will be affected.
Think about your metrics and the improvements that are claimed. Are they real? Can your team realistically achieve everything in their knapsack?