Manufacturers
have an advantage in process innovation because their processes are material
intensive and therefore largely visible.
They get to see their process every day.
They see what works and what doesn’t.
As a result they take action to improve what they see.
Mass
production replaced the craftsman era of manufacturing in the early 1900’s. Craftsman that worked on a product from
beginning to end were replaced by specialists in an assembly line, each using
standardized parts to create some portion of the final product. Mass production techniques “catapulted Ford to the head of the world’s
motor industry and virtually eliminated craft-production companies unable to
match its manufacturing economies.”[i]
The
principles and practices of mass production were soon adapted to business
processes. The flow of paper in the
office was not much different than the flow of material on the assembly line. Mass production gave us the serial business
process; each step of the process standardized and performed by specialists.
Beginning in
1950 Taiichi Ohno helped to develop the Toyota Production System for their
heavy manufacturing operations. The term
Lean was coined by International Motor Vehicle Program researcher John Krafcik
to describe the Toyota Production System “because
it uses less of everything compared with mass production – half the human
effort in the factory, half the manufacturing space, half the investment in
tools, half the engineering hours to develop a new product in half the time.”[ii]
Lean has now replaced
mass production as the primary method for innovating manufacturing processes.
Its rise has been rapid. Heavy
manufacturers outside of Toyota first began to adopt Lean in the 1990s, with
other non-heavy industry sectors beginning to adopt Lean in the 2000s.
Lean is
referred to in this book as Heavy Lean. This
distinction is made because Heavy Lean was originally developed to support
heavy manufacturing; with its heavy machines and heavy parts. The practices of Heavy Lean were developed
with all of this heaviness in mind.
Monday, October 24, 2011
Tuesday, October 11, 2011
Chapter 1 Summary
- The advent of computers broke the constraints associated with paper-based processes, but by so doing also broke the control structures and visual cues used to manage information processes.
- Process is a flow of activities that when executed consume resources for the purpose of creating value.
- The purpose of process is to create customer value, not to control the resources of an organization. Different levels of process control may be required depending on the value being created.
- The cost/benefit of an information process can be determined by analyzing the incremental value created by each activity as well as the incremental cost to produce that value. Summing the total value and cost of all of the activities of a process establishes its cost/benefit.
- The process cookbook model provides recipes for completing individual activities but is not sufficient to govern the interactions between multiple chefs creating multiple dishes from multiple recipes for multiple patrons.
- It is possible to tell the approximate age of an organization by looking at its process rings-on-a-tree since processes are continually added but rarely taken away.
- The bottleneck principle: People downstream of a bottleneck are given more work to stay busy until they too become a bottleneck. This principle applies until all process activities are bottlenecked.
- Fit is a process strategy for maximizing the value created from available resources. Function is a process strategy for minimizing the cost of the individual activities of each process.
- Together Fit and Function address the issues of the process cookbook, process rings‑on-a-tree, and process spaghetti to increase an organization’s competitive advantage.
- Glean implements the strategies of Fit and Function to glean the maximum customer value from the available resources of information processes.
Chapter 1.9: Process Strategy
Operational
Excellence is a philosophy for increasing the efficiency and effectiveness of process
Function. Michael Treacy & Fred
Wiersema in the Discipline of Market Leaders describe operational excellence as
an unrelenting focus on driving down costs.[i] They refer to both the tangible and
intangible costs of:
·
Operating
cost
·
Total
ownership cost
·
Inconvenience
cost
Where
inconvenience cost includes the intangible costs stemming from annoyance and
irritation.
But
as Michal Porter points out, operational excellence is necessary but not
sufficient to maximize the value of process.[ii] To glean the maximum value from an
organization’s resources requires more than operational excellence. It also requires that the processes of an
organization fit in value alignment with each other. A process without Fit can be highly efficient
and effective at creating redundancies and wasted effort. It could result in an organization going
really fast in the wrong direction.
Value
Optimization is a philosophy for increasing process Fit. Value Optimization is an unrelenting focus on
increasing value. Operational excellence
takes a transactional view for reducing costs.
Value Optimization takes a system view for increasing value. Together they help organizations achieve one
or more of the following:
·
Produce
a fixed customer value at a reduced cost
·
Increase
the customer value produced at a fixed cost
·
Raise
competitive differentiation
Applied
together, the philosophies of Operational Excellence with its focus on Function
and Value Optimization with its focus on Fit create highly efficient and
effective processes. Figure 1.11 is a drawing by the artist M. C. Escher called “Day and
Night.” Function is represented by the
efficient flight of the geese. Fit is
represented their ability to fly both day and night; and by the smooth passing
of two flocks of geese, without a single ruffled feather. Together the combined strategy of Fit and
Function enables the geese to complete their migrations efficiently and
effectively.
Figure
1.11: Combining Fit and Function
Flying is a function geese perform
well. But if they could not fit into a
pattern of flying day and night it would take them much longer to reach their annual
destination.
Southwest
Airlines is used as a case study for combining the strategies of process Fit
and Function. In “The Discipline of
Market Leaders” Treacy & Wiersema refer to Southwest Airlines as a leader
in operational excellence. They discuss
how airplane standardization reduces the variety associated with maintenance
and other functions; where variety is the destroyer of efficiency. In “What is Strategy” Porter notes, airplane
standardization also creates an effective fit with the process of gate
turnarounds. By executing faster gate turnarounds than its competitors, Southwest
benefits from more frequent departures and the greater use of its equipment.
The
process strategies of Fit and Function address the issues of the process
cookbook, process rings-on-a-tree, and process spaghetti to increase an
organization’s competitive advantage.
Function, with its focus on cost reduction, is by itself not enough to
fill the gaps in the process cookbook model, eliminate the formation of layer
after layer of process, or stop process bottlenecks from forming. Together process Fit and Function apply a
system-view to maximize process value while minimizing cost.
Figure 1.12 is a matrix of strategies for maximizing process value. The left side of the chart lists the two process
components: process execution and process flow.
The top of the chart lists the two process strategies: Fit and Function. Each quadrant of the chart describes the
approach for achieving the Fit and Function of process flow and execution.
Figure1.12: Process Strategy Matrix
Focusing on only one process strategy, such as applying operational excellence to just quadrant #4, leaves on the table opportunities to maximize value and minimize cost.
Each
quadrant of the process strategy matrix includes a strategy for maximizing
process value and minimizing cost. Each
strategy can be used independently or in combination with the one or more of
the other three. However not applying
all four strategies of the process strategy matrix at the same time reduces
opportunities to maximize value, lower cost, and therefore increase
competitiveness.
Glean
implements the strategies of Fit and Function to glean the maximum customer
value from the available resources of information processes. Later chapters will discuss the principles
behind these strategies and practices for their implementation.
[ii] Michael J. Porter, What is Strategy?, Harvard Business Review, November-December (1996)
Chapter 1.8: Process as a Competitive Advantage
Eiji
Toyoda did not begin to develop what became to be known as the Toyota
Production System (or Lean as it is called the USA) as part of a process
improvement program. He did so to help
Toyota become more competitive. In 1950
Toyota was “determined to go into full-scale car and commercial truck
manufacturing, but it faced a host of problems.”[i]
·
The domestic market was tiny and
demanded a wide range of vehicles – luxury cars for government officials, large
trucks to carry goods to market, small trucks for Japan’s small farmers, and
small cars suitable for Japan’s crowded cities and high energy prices
·
The native Japanese work force was no
longer willing to be treated as a variable cost or as interchangeable parts
·
The war-ravaged Japanese economy was
starved for capital and foreign exchange.
·
The outside world was full of huge
motor-vehicle producers who were anxious to establish operations in Japan and
ready to defend their established markets against Japanese exports
In
the thirteen years prior to 1950 Toyota had produced a total of 2,685
automobiles. When compared to the 7,000
automobiles produced per day produced by a single Ford plant in 1950 it was
apparent that Toyota would not be able to compete with Detroit’s ability to
mass produce a wide range of vehicles using the same practices.
Eiji
Toyoda engaged the Toyota workforce in a continuous incremental improvement process
that indeed changed the world. In 2008,
for the first time in 78 years, Toyota sold more cars and trucks around the
world than GM; the former number one automobile manufacturer.[ii] Toyota achieved its objective of becoming
more competitive.
Michael
Porter describes companies as “a system of activities in which competitive
advantage reside.”[iii] These activity systems are not merely a discrete
collection of independent activities that can be optimized to perform a
particular “function.” They must “fit” together
as part of an integrated system to create a sustainable competitive advantage.
Such systems, by their very nature,
are usually difficult to untangle from outside the company and therefore hard
to imitate. And even if rivals can identify the relevant interconnections, they
will have difficulty replicating them. Achieving fit is difficult because it
requires the integration of decisions and actions across many independent
subunits.
Fit
is a process strategy for maximizing the value created from available
resources. Not only must activities be
designed to maximize the value created by their parent process, they must also
be designed to help maximize the value of as many other processes as possible. Fit looks for relationships between otherwise
seemingly unrelated process activities that if strengthened would result in
greater value produced by the activities as a whole. The strategy of Fit is for each process to
fit-like-a-glove with the other processes of an organization.
Fit
is the companion strategy to Function.
Function is a process strategy for minimizing the cost of the individual
activities of each process. Whereas Fit
focuses on process value alignment, Function’s focus is on cost reduction. Fit and Function are the Yin and Yang of process
strategy. At least one, preferably both,
are necessary to achieve a competitive advantage.
As
Porter describes, for a company to compete:
It must deliver greater value to
customers or create comparable value at a lower cost, or do both. The
arithmetic of superior profitability then follows: delivering greater value
allows a company to charge higher average unit prices; greater efficiency
results in lower average unit costs.
Toyota
achieved a sustainable competitive advantage by delivering greater value at
lower costs than GM and the rest of the automobile industry. They achieved
process Fit and Function by continuously looking for ways to reduce the cost of
each activity; as well as how each activity could increase the value of other process
activities; including those of suppliers and customers.
[i] James P. Womack, Daniel T. Jones and Daniel
Roos, The Machine that Changed the World,
HaperCollins (1991)
[ii] Inside Wheels.ca, Toyota Knocks GM from No. 1, The Associated Press (2009)
Chapter 1.7: Process Spaghetti
With paper reduced, people are
the most visible component of any process.
Not only are they easy to spot, but in many information intensive
organizations they are the most expensive resource. When it comes to improving processes, this
makes people, and the work they do, targets for scrutiny. One of the unwritten laws associated with any
expensive resource is that it must be busy all of the time.
Suppose somebody in an
organization is not busy. What happens? They are given more work to do. They may be given work that is part of their
current process, or it may be work from another unrelated process. What probably wouldn’t happen is an analysis
of why their current activities did not keep them busy.
Because of their roots in paper,
the activities of most information processes are performed in a serial order. Each activity is executed one-at-a –time and
the next not started until the prior is completed. Since paper was expensive to copy, parallel
processes were rarely used. Because of
the process rings-of-a-tree phenomenon, the serial process flow model is still prevalent
even after paper is eliminated.
A natural characteristic of any
serial process is that it creates bottlenecks.
An example of this is a highway. Where
one section of a highway can be smooth sailing, the next section can be stop-and-go,
followed by a section where traffic is again flowing freely.
A bottleneck in a serial
process slows the amount of work getting through just like a bottleneck in a
highway. If work starts to pile up
behind a bottleneck, the people downstream of the bottleneck will soon run out
of things to do. Then what happens? They are given more work to do.
Another characteristic of a
serial process is that bottlenecks can independently move up and down a
process. Watch the bottlenecks of a
highway and you’ll notice that some bottlenecks always occur at the same
location while other bottlenecks appear to move randomly up and down the
highway.
The same occurs for serial information
processes. One day a bottleneck could be
located at one activity in a process; and the next day at another. Bottleneck locations change as the mix of
work and the available resources change. If a bottleneck moves, people with plenty of
work to do, may suddenly not have enough.
Then what happens? They are given
more work to do.
As bottlenecks shift from one
location to the next, the cycle of handing out more work to keep people busy continues. If a bottleneck is temporarily removed so
that someone downstream now becomes too busy, nothing is usually done other
than to ask them to work harder. But the
bottleneck moves again so that the same person now has too little to do, they
are given more work.
Finally, the ongoing effort to
make sure everyone is busy results in a status quo where everyone always has
too much to do. This status quo is
called process spaghetti.
Figure
1.10
is a depiction of the bottleneck principle of process spaghetti. Process A, B, and C are each serial processes. Each box indicates one or more activities
executed by one or more people. The
first activity of each process is numbered A-1, B-1, C-1; the second A-2, B-2,
C-2, etc. Note that the same people are
responsible for executing the activities of A-2, B-2, and C‑2. In this example these people originally only
had activity B-2 to perform. But over
time they were given the work of A-2 and C-2 to keep them busy.
People downstream of a bottleneck
are given more work to stay busy until they too become a bottleneck. This principle applies until all process activities
are bottlenecked.
As process spaghetti begins to
develop it causes even more spaghetti.
Suppose the people responsible for activities A-4 and B-3 were only
recently given activity A-4 because of a bottleneck at activity B-2. Since it’s a new activity for them they want
to make sure it’s done well, so they decide to do all of the A-4 work before
any B-3 work.
Now under this scenario, the
people responsible for activity B-4 no longer has enough to do, because B-3 is
now bottlenecked. Then what
happens? They are given more work to do.
Process spaghetti once formed
is very difficult to unravel. Suppose
there was an effort to remove the bottlenecks from Process B in Figure
1.10. If the people responsible for activities A-2,
B-2, and C-2 were told to prioritize B-2 work over everything else, then a
logjam of work would suddenly flow to B-3.
The size of the bottleneck for the people responsible for A-4 and B-3
would increase. In addition, work
flowing to A-3 and C-3 would be reduced further; bottlenecking those processes. The net result of removing the B-2 bottleneck
could be a reduction in the value created by all three processes.
A lot of progress can be made
removing bottlenecks before anyone notices a change in created value. It can take months to clear a single process
of its bottlenecks without impacting too negatively otherwise seemingly
unrelated processes.
The time and cost it takes to
unwind process spaghetti is not the only issue.
It can also be difficult to sustain management commitment. Bottleneck removal projects can quickly run out
of steam when management runs out of patience waiting for a positive result
from a Process B; while hearing about all the problems cropping up with Processes
A and C.
Chapter 1.6: Process Rings-on-a-Tree
As shown in Figure
1.9
a core sample of an organization’s processes can be used to count the layers of
process artifacts that are layered one on the other each year.
Figure 1.9: Process rings-on-a-tree
Just like a core sample taken from a
tree, it is possible to estimate the age of an organization by counting the
layers upon layers of process that naturally build up over time.
5 years: Process standardization
·
First
cookbooks are developed for internal processes
·
Activities
are tailored to the skills and personality of the individuals performing the
roles
·
Priorities
are set by a common system-wide understanding of the created value
·
Process
training is the responsibility of first level management
·
Low
variation in how different individuals perform a common process
·
IT
systems and processes are aligned
10 years: Process solidification
·
Reports
are generated that no one reads
·
Process
cookbooks are less than 60% accurate
·
Process
training is the responsibility of employee mentors
·
No
one has an end-to-end system view of how the process works
·
Processes
include workarounds due to the inflexibility of IT systems to change as the
processes change
·
Individuals
inherit their assigned activities as other people leave
·
Priorities
are set by expediting across functional groups
20 years: Process senescence
·
All
of the 10 year attributes plus
·
Process
cookbooks are no longer valid
·
The
only way to learn a job is from someone who has done it
·
No
one can explain why certain process activities exist – we have always done it
that way
·
The
number of just-in-case process artifacts outnumber the do-it-right-the-first-time
process artifacts
·
Processes
rely on IT systems that duplicate and overlap with each other
·
More
operational information is maintained in spreadsheets than in IT systems
·
Process
activities are owned by functional groups rather than the individuals within
the group
·
Priorities
are set based on the objectives of individual functional groups
30 years: Process fossilization
·
All
of the 20 year attributes plus
·
Processes
exist just to fix other processes that are broken but considered un-repairable
·
There
are entire processes that produce results of no value
·
Processes
rely on IT systems that are no longer supported by their vendors
·
Functional
groups are silos
·
Individuals
set their own priorities
·
There
is so much process variation that it is no longer possible to establish a
single definition of the value created by the process
These process rings-on-a-tree exist
for the same reason they exist in trees. New processes are added all of the time. There is no such thing as a process status
quo. Processes are in a constant state
of change because:
·
Customers
– change what they value
·
Markets
– grow and shrink
·
Organizations
– grow and shrink
·
Products
and services – added and removed
·
Management
– adopt new strategies and objectives
·
Employees
– join and leave
·
Individuals
– gain skills and capabilities
·
Information
Systems – new technologies
Each of these factors leads to process
change. While new processes are added
old processes are almost never removed. Since information processes are largely
invisible unless the process documentation is kept up to date, with time no one
knows which process activities are candidates for removal. It is very difficult to tell if:
·
Someone
still uses the process
·
Another
process or system is dependent on the process
·
Certain
activities belong to this process or to another
·
It
is worth the cost of removing
Therefore removing process is a sure
way to break something else. In fact
this is usually the only way to remove process activities. Turn it off and wait for someone to scream.
Even if a process is relatively new
there is rarely the opportunity to revert back to some prior state. Even in a short period of time other process
changes could have been layered on top of the original change so the old status
quo no longer exists.
In fact removing a portion of a
process usually requires a new layer of patches to fix the broken dependencies
between the activities that remain. It
can be difficult to remove an obsolete activity, if any part of its output is
now used somewhere else.
As a result most organizations have
too much process, not too little. There
are processes for just-in-case processes to fix processes to link to processes
to add processes to remove processes.
With time layer upon layer of these processes build up like rings-on-a-tree.
Chapter 1.5: The Process Cookbook Model
A cookbook
contains many recipes for preparing many types of cuisine. Each recipe is a procedure for completing the
preparation of a single dish. A recipe
in a cookbook describes the ingredients to be consumed, the flow of their
preparation, instructions for each step, and a picture or description of the
value to be created.
The cookbook applies
to information processes as well. A
process cookbook provides the detailed procedural instructions to complete a flow
of activities of a single process. A
procedure in a process cookbook also defines the resources to be consumed, the
flow of activities, instructions for their execution, and a picture or
description of the value to be created.
Some chefs
prefer not to use a cookbook. This can
be a good thing. Just as a music jamming
session can be a good alternative to playing sheet music. An organization is left to decide which
processes that creativity should be encouraged and where additional process
structure is appropriate.
However, the process
cookbook model breaks down when it comes to the preparation of a meal with
several dishes. Each recipe in a
cookbook makes the assumption that the chef has nothing else to do other than
prepare that one recipe. If something
needs to simmer for exactly 5 minutes, the recipe assumes that the chef will be
available to end that activity at exactly the right time.
Nothing in a
cookbook guides a chef on how to prepare several dishes at the same time. As shown in Figure 1.8, a cookbook does not a meal make. Why?
Because a cookbook cannot predict which recipes the chef wants for
tonight’s meal. The specific
instructions covering the prioritization and scheduling of each recipe’s
activities would change based on which other recipes are selected. Therefore each recipe has no choice but to
assume it has the chef’s full attention, and if that is not the case, leave it
up to the chef to figure out how to successfully complete the entire meal.
A cookbook
helps to train on a standard approach to fix one recipe. It does nothing to help optimize the flow of
activities necessary to prepare a multi-course meal.
This burden
is complex enough when there is just one chef cooking a multi-dish meal. Imagine of a gourmet restaurant staffed by 10
chefs. Each chef could be assigned to prepare
a portion of one dish, with multiple dishes required to create a seven course
meal.
At any point
in time, the chefs could be preparing one of the seven courses for each of the
40 patrons in the restaurant; each at a different course in their meal. All of this with patrons coming and going
throughout the night - and of course none of them wants their food late or
ill-prepared.
If you were
one of the chefs in this restaurant, how could you decide, at any moment, what
was the next most important thing to do?
Where is the cookbook that covers the gourmet restaurant scenario?
This burden
is complex enough when there is just one chef cooking a single meal. Imagine of a gourmet restaurant staffed by 10
chefs. Each chef is assigned to help
prepare a portion of one dish for single 7 course meal. At any one time the chefs could be preparing
one of the dishes for any of the 40 patrons in the restaurant. The patrons could have chosen their seven
courses from 50 different recipes; with each patron at a different course in
their meal; and none wanting their food late or ill-prepared.
If you were
one of the chefs in this restaurant, how would you decide, at any moment, what
was the next most important thing to do?
Is it possible to develop a cookbook that covers the scenario of the gourmet
restaurant?
Cookbooks do
provide value. Having a cookbook for
standard recipes helps to remove variation from how different chefs prepare a
recipe. It makes it easier to train new
chefs. It can even help to document
where artistic variation is allowed and where a recipe should be followed every
time.
However a cookbook
is not enough to define all of the processes needed by a gourmet restaurant. No matter the excellence of each individual
recipe, without coordinating the preparation of multiple recipes by multiple
chefs for multiple patrons, the restaurant could still fail to deliver the
desired value to its customers.
What is required
is a system-wide view for managing:
·
Process Execution – How the consumed resources and
created value of each activity is tuned to maximize overall value created based
on the current mix of in-work and planned activities
·
Process Flow – How the scheduling and
prioritization of in-work and planned activities are tuned to maximize overall value
created based on the available resources
Each entry in
a process cookbook describes the flow and execution of activities of a single process. There are processes that benefit from this
level of documentation. What a process cookbook is unable to do is
optimize the activities of multiple processes so that when executed together
they maximize the value created from available resources.
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