Obstacles to Implemeting Lean

At the heart of continuous improvement is the matter of change.  In order to improve the process, we must change it.  However, not every change results in an improvement.  We would not bother to make a change if it didn’t result in something positive, yet many changes we make result in little real improvement.  Why is there is there such a mismatch between our expectations for change and the results?

In 2007, the Lean Enterprise Institute surveyed Lean practitioners about the biggest obstacles to their Lean Implementations.  Most practitioners cite “resistance to change” as the biggest obstacle; from every level of management, the middle, front line, and employees as well. 

Note that unrealized financial value ranks very low in obstacles, indicating the practitioners do not connect the lack of bottom line results to organizational resistance.  Rather, they seem to be focused on implementation “maturity”, which is another way of saying that the organization is using all the tools.  These results indicate that there is a disconnect between the goals of lean practitioners and management; emphasizing tool adoption over results achievement.

Why is everyone resisting the change?  Why wouldn’t the organization want to use these tools?  Certainly the lack of results is part of the problem, but it doesn’t explain the seemingly universal resistance.  To find the answer, we looked at a management fad from the past, Total Quality Management (TQM).

Malcolm Baldrige National Quality Award Research Results

To get insight into the reasons for CI success or failure, look at the Malcolm Baldrige Award, the award for business excellence in the United States.  The award establishes benchmark practices  and processses for business excellence, “To enhance the competitiveness, quality, and productivy of U.S. organizations for the benefit of all residents.”.  It has been criticized as being irrelevant to organizational competitiveness because many of the early recipients of the award subsequently failed.  In recent years this issue has been corrected and the award is focused more on the results the nominees achieve, with the tools adoption taking a secondary position.

Quite a bit of research has been done on the relevance of the Baldrige Award criteria.  In the spring of 2000 a study was commissioned to answer the question, “Is there a causal link between the Baldrige Criteria and actual performance of firms?”[1]

The research had several significant findings related to our discussion.

First, the most significant driver of system performance is not process, but leadership.  Leadership pervades everything the organization does, but those organizations that score well in leadership, score well everywhere.  This doesn’t mean that tools are not important, but they’re not as important as the core skill of leadership.

Process management is twice as important when predicting customer satisfaction as when predicting financial results.  We can conclude that having good processes are important to customers, but there is not a straight line from process excellence to financial performance.  So you might have happy customers, but unhappy stockholders.

The lesson for management and continuous improvement program directors is that the soft skills of leadership are very important to delivering results and that the program, to be financially successful must have strong leadership from the real leaders of the organization.  The real leaders must be commissioning, guiding, and delivering real accountability to CI teams.  CI and business excellence initiatives cannot be delegated to the “business excellence department”.  Leadership must be fully engaged in continuous improvement. 

Continuous Improvement and Business Excellence is not something to be added to the work of managers, it is the work of managers. 

A recent study done by the London School of Economics and Stanford University shows that a standard of management practice is linked to the favorable financial performance of the business. The way an organization is managed has a strong effect on its performance. It also states that “Management excellence is a matter of internal policy and not just the business environment”

The study cites practices such as:

The study shows that practical management techniques actually do deliver financial results for the company, yet many organizations do not even attempt to implement such practices. “For companies, the research is good news, suggesting that they access to dramatic improvements simply by adopting good practices used elsewhere.”, says the authors.

The study of 4,600 factories in 12 countries, referenced in the September 8 issue of The Wall Street Journal, found that, “a one-point increase in a factory’s management rating (on a one-to-five scale) translated to a 25% increase in labor productivity and a 65% increase in return on invested capital.”

These results, which Harvard Business School said are, “pioneering work,” and, “a real innovation in the study of management,” led experts to conclude that, “common management techniques such as setting targets, monitoring performance and ‘lean’ manufacturing actually help companies become more productive and profitable.”

Another convicting – and humbling – finding in this research relates to the apparent inability of factory managers to accurately assess the strengths or weaknesses of their own leadership skills.

“Good management appears to be so strongly linked with good performance that it might be reasonable to expect all firms to make better practices a priority,” shares a Stanford University report about this research. “The techniques of good practice are, after all, available in the public domain in a wide range of easily accessible forms. Yet many firms are still poorly managed…The majority of firms are making no attempt to compare their own management behaviour with accepted practices or even with that of other firms in their sector. As a consequence, many organizations are probably missing out on an opportunity for significant improvement because they simply do not recognize that their own management practices are so poor.”

The authors also note a disparity between family run organizations and those that are not: “Family-run and government-run businesses are less well managed and less productive than similar plants with professional managers. Promoting successive generations of family management “significantly damages company performance,”

Remember the London School of Economics research finding above that, “a one-point increase in a factory’s management rating can translate to a 25% increase in labor productivity and a 65% increase in return on invested capital,”

You can read the article here

You can download a copy of the study here

1. The fact or state of excelling; superiority; eminence: his excellence in mathematics.
2. An excellent quality or feature: Use of herbs is one of the excellences of French cuisine.

These are two very different things. Typically, we think in general terms of business excellence in the terms of superiority, but in practice, it is often translated into the second term, to the features of the business; its products and services, its profitability, its customer relationships, or even its employee relationships. The generally accepted definition of business excellence is the use of quality management principles and tools in business management, It is the systematic improvement of business performance based on the principles of customer focus, stakeholder value, and process management.

Business excellence, as described by the European Foundation for Quality Management (EFQM), refers to “outstanding practices in managing the organization and achieving results, all based on a set of eight fundamental concepts”, these being “results orientation, customer focus, leadership and constancy of purpose, management by processes and facts, people development and involvement, continuous learning, innovation and improvement; partnership development, and public responsibility”.

In general, business excellence models have been developed by national bodies as a basis for award programs. For most of these bodies, the awards themselves are secondary in importance to the widespread adoption of the concepts of business excellence, which they believe ultimately leads to improved national economic performance. By far the majority of organizations that use these models do so for self-assessment, through which they may identify improvement opportunities, areas of strength, and ideas for developing percieved weaknesses.

“Business Excellence” is traditionally defined by tools, not the outcome of being excellent. This is the wrong approach. It’s like saying, “I’ve purchased a very good set of tools at Home Depot. Now, I’m going to build a fabulous building.” The assumption is that the adoption of tools will yield good economic results for companies and economies. This is not necessarily a valid assumption.

Business excellence is best defined by its outcome, not its process. The Malcolm Baldrige award now weights more the 50% of its award criteria on business results, not product quality. Therefore, business excellence can be better described as excelling in the important dimensions of the business: financial performance, customer relationships, product / service value, and employee relationships, over time.

None is more important than the others, no organization can be thought of as “excellent” without superior performance in all four dimensions. Moreover, when one dimension is sacrificed at the expense of another, overall performance suffers. So, the term, “business excellence” must be defined as excelling in the dimensions of its customers, employees, products/services, and profit / return on shareholder equity, over time. An “excellent” organization remains so as its environmental conditions change.

Who sets the standard for excellence? Excellence is a yardstick, against which, you can measure your organization. But who’s to say that one yardstick is better than another? Against whom or what do you compare your performance? Industry benchmarking can be misleading. You may be an excellent performer in an industry that generally does poorly in one or more of the dimensions. One executive told me, “You may be at the top of the worm pile, but you’re still a worm.” So what is the measure? Other industries? This seems like a better approach, but gathering accurate benchmarking data is a signficant obstacle.

I propose that rather benchmarking performance, excellence is a value. A culture. A tradition. A way of life. There is no single standard of excellence except what you say it is. It must be this way, because the drive for excellence must come from within – not imposed from the outside. At best, only the consequences of mediocrity can be imposed from the outside (as reality constantly reminds us). Excellence is a shared value. The entire organization knows who they are and where they’re going.

For those who would like to see their organizations become excellent, the nature of excellence says something about how to achieve it. Achieving excellence is something to be led from the top, not something organic that bubbles up from the bottom. However, a leader cannot impose excellence; he can only create the conditions under which it can develop.

The leader must create a compelling vision for excellence. The organization must have a clear understanding of why it exists. What is the value it creates in the community? Why do customers value their relationship? Why are people so important? What do we do that others do not? This vision precedes process creation and skill development, because the answers to these questions dictate the nature of the processes and the types of skills required.

In the end, excellence comes from leadership, not competition. Like a winning football team, excellence is displayed in competition. The competition doesn’t create excellence, only the results of leading with excellence as a value.