Why Lean Thinking fails to generate Business Impact

In recent times, we have been coming across an ever-increasing number of companies who employ Lean Thinking as their prime methodology for improving business performance and achieving Operational Excellence. Being easy to understand and, no doubt, effective in terms of engaging people in all of an organisation’s areas in Continuous Improvement, this relentless search for waste in processes and removal of it is one of the industry’s most frequently used methodologies.

Companies apply tools like 5-S, SMED, Value Stream Mapping and KAIZEN activities in their aim to improve performance. However, these activities are often deployed as a series of isolated, one-off events or projects, with improvements being claimed after the event.

But now, business leaders are more frequently asking for it to be shown where these claimed benefits have actually led to an improved position in the Profit & Loss account and, in case of working capital, improvements in the Balance Sheet. In today’s very competitive global and digital market environment, time is of the essence in terms of cost control and margin maximisation. Business leaders and Senior Management are requiring ever-faster improvements as they strive to differentiate themselves from their counterparts.

As a consequence, more Lean efforts are being undertaken, often in desperation and without focus. We are always hearing questions like “Where should we do another Lean Event?” But the desired outcomes are not materialising and there is no evidence of direct business impact.

What is going wrong?

Lean Thinking does not employ process data on a large scale. What you don’t measure, you cannot improve. A series of random one-off non-data-based Lean events won’t bring results. Neither will increasing the frequency of those type of events. Measurements and the tracking of them on a transactional level, e.g. each and every process cycle, are not essential tasks within Lean. Waste elimination might improve processes to a degree, but adherence to set standards is often not embraced thereafter.

We often see a series of Lean projects being conducted that have no direct correlation with the desired metrics that are to be improved. On one occasion, we even saw a Lean project portfolio of 125 projects, of which not one was data-based and only 6 were actually aiming to improve the business metric in focus. Taking this into consideration, how can you hope to realise business impact in financial statements?

As a Leader, what should you do to avoid falling into this trap?

Big Data – terabytes of digital information generated by a myriad of sensors – is nowadays available everywhere, but is hardly ever used to full potential. Variance Based Thinking, using real-time transactional process data, which also correlates with the business metrics you are aiming to improve, is a very powerful way of getting results. Compiling data from different database sources and analysing these data pools will deliver essential insights into hidden process variance. This is where you should focus your improvement activities, which by the way, do include the use of Lean Tools. As a result you can expect measurable and tangible performance improvements, which will be detectable in your financial statements.

What happens when you put data to work

At R&G, we’ve conducted various customer projects in which we’ve extracted real time data from sources such as machine SPCs, which after thorough analysis revealed significant lost time due to micro stoppages. Identifying the root causes of those stoppages and eliminating them delivered 12% more production capacity, which increased output and an improved operating margin in the P+L.

R&G Global Consultants is the No.1 industry partner for your organisation, delivering measurable improvements and business impact which can clearly be seen in your financial statements.

If you are interested in learning more about how the application of Variance Based Thinking (backed up by reference cases) can help your organisation make real tangible and measurable improvements, please contact us.

Mike Schmitt is Partner  for R&G Global Consultants in Germany