From lean to lasting: Making operational improvements stick
By focusing on the
“soft” side of lean and Six Sigma initiatives, leading global companies gain
substantial, scalable, and sustainable advantages.
For companies seeking large-scale
operational improvements, all roads lead to Toyota. Each year, thousands of
executives tour its facilities to learn how lean production—the operational and
organizational innovations the automaker pioneered—might help their own
companies. During the past 20 years, lean has become, along with Six Sigma, one
of two kinds of prominent performance-improvement programs adopted by global
manufacturing and, more recently, service companies. Recently, organizations as
diverse as steelmakers, insurance companies, and public-sector agencies have
benefited from “leaning” their operations with Toyota’s now-classic approach: eliminating
waste, variability, and inflexibility.
Yet in our experience,
organizations overlook up to half of the potential savings when they implement
or expand operational-improvement programs inspired by lean, Six Sigma, or
both.1Some companies set their sights too
low; others falter by implementing lean and other performance-enhancing tools
without recognizing how existing performance-management systems or employee
mind-sets might undermine them. Still others underestimate the level of senior-management involvement required; for example, they delegate
responsibility for change programs to their lean experts or Six Sigma black
belts—practitioners who are technically skilled but often lack the authority,
capabilities, or numbers to make change stick.
The broader challenge
underlying such problems is integrating the better-known “hard” operational
tools and approaches—such as just-in-time production—with the “soft”
side, including the development of leaders who can help teams to continuously identify and
make efficiency improvements, link and align the boardroom with the shop floor,
and build the technical and interpersonal skills that make efficiency benefits
real. Mastering lean’s softer side is difficult because it forces all employees
to commit themselves to new ways of thinking and working. Toyota remains the
exemplar: while many companies can replicate its lean technology, success on
the softer side often eludes them.
Some companies,
however, overcome the challenges and get more from their
operational-improvement programs. Against a backdrop of growing economic
uncertainty, their success can be a source of inspiration and enlightenment for
industrial and service companies and for public- and social-sector
organizations looking to extract greater value from these efforts.
Soft is hard
Making operational
change stick is difficult. Operations typically account for the largest number
of a company’s employees and the widest variation in skill levels. Units often
are scattered across dozens or even hundreds of sites throughout the world,
function independently, and have distinct corporate cultures—particularly if
M&A has fueled a company’s growth. Each facility may specialize in
different products or services and face unique pressures from customers,
competitors, and regulators. These factors complicate efforts to design,
execute, and scale operational-improvement programs.
Consequently, many
companies emphasize the technical aspects of their programs over the
organizational ones. That approach is understandable. Technical solutions are
objective and straightforward; analytical solutions to operational problems
abound in lean and Six Sigma tool kits; and companies make significant
investments to train experts who know how to apply them. What’s more, the tools
and experts actually are invaluable in diagnosing and improving operational
performance.
Overlooking the softer
side, however, drastically lowers any initiative’s odds of success. Some
companies, for example, rush to implement the tool kit without ensuring that
their employees—including managers—are prepared to work and lead in new and different ways. In such cases, “initiative
fatigue” and even distrust may set in, and efficiency gains fizzle out as the
black belts move on to other projects.
At times, such an
improvement initiative first appears to be successful but is later found to be
insufficient to meet the company’s main objectives. An aerospace manufacturer,
for example, wanted to increase production of a product with rapidly growing
sales. The company’s lean experts, assigned to plan and run the initiative,
quickly identified productivity-enhancement opportunities and began
conducting kaizen projects.2On the surface, the program was
working: the number of projects and employees trained in the new approaches—two
indicators the company tracked—were increasing. But management’s inattention to
the softer side created difficulties.
Since the program’s
goals weren’t adequately defined or communicated by senior managers, the
experts focused on what they could achieve—primarily easy wins, including
technical changes to redesign assembly processes and to improve the
effectiveness of certain machines. In retrospect, these changes, while broadly
useful, did little to help meet growing demand for the product. Meanwhile, some
of the company’s salespeople, long frustrated with what they saw as the
shortcomings of the operations group, began circumventing the
production-scheduling system in order to speed their own products through the
queue. That undercut many of the efficiency gains the experts managed to
create.
The result, in fact, was
chaos: line workers later showed executives a schedule indicating that one
machine, chosen at random, was to perform 250 hours of work during an 8-hour
shift. This revelation spurred the executives to refocus the program,
investigate the organizational factors behind the difficulties, and ultimately
identify much more far-reaching solutions—starting with an effort to get sales
and operations to collaborate in setting production priorities and to work
together on a daily basis.
Getting started: Set high aspirations
Such examples show that
neglecting the organizational components of an operational transformation can
delay or even derail it. Top companies, by contrast, attend to the softer
elements of an initiative throughout its whole course, starting with the
earliest, aspiration-setting phases, when senior leaders identify the key goals
and start to communicate them. That helps companies to establish a stronger
foundation for change and to set more achievable, and often much higher,
ambitions than they otherwise could. A better understanding of the cultural
starting point enables top companies to determine where they should focus at
the beginning of a program, when to implement its various elements, and how to
achieve their goals.
Consider the experience
of a North American power generator that used cultural insights to combat
skepticism about the scope of the efficiency improvements attainable in a
nascent initiative. This kind of doubt is common when companies lack a
self-evident catalyst for change—say, a takeover or a looming bankruptcy. The
power generator responded by sending its managers to visit a company, in
another process-intensive industry, that had recently implemented a lean
program. There the managers saw similar improvements in action and heard the
enthusiasm that line managers and union leaders expressed for them. That
experience was instrumental in helping the managers address their own
employees’ uncertainties about how much improvement was possible.
Likewise, greater attention to corporate culture helped a global chemical company launch an
efficiency-improvement program across its network of 300 plants. The company’s
abiding respect for science and for highly educated experts at first biased
managers in favor of solutions based on new technology rather than line-level
process improvements. After conducting a pilot project, however, executives saw
that about 60 percent of the value it generated came from new work processes,
not new and more efficient machines. That realization changed the design of the
program and raised its goals—in some cases, by a factor of three. The company
now expects the program to have an annual impact of more than $1 billion.
By contrast, companies
that misread employee mind-sets and other cultural elements squander time and
resources. A large logistics group that tried to overhaul its transport
network, for example, overlooked the way years of inadequate capital investment
would affect the program’s ramp-up. Why did the company make this mistake? It
turned out that the gradual decline in capital spending had, over time, led the
company’s maintenance workers to assume that their skills weren’t valued, so
the seriousness of many problems had gone unreported. The company’s executives
found that the goals of the program were therefore initially unattainable.
Making change happen
After accounting for
the way culture and other organizational factors will affect the goals of a
program, leading companies put what they learn into action. They reap bigger,
more sustainable benefits by balancing the program’s hard and soft elements and
developing their line managers’ lean leadership skills.
Take a balanced approach
The experience of a
North American distribution company that sought to address higher customer
expectations and eroding margins in its network of 70 distribution centers
shows the virtues of a more balanced approach (Exhibit 1). The company looked
beyond technical changes, to the ways that organizational structures and
processes—and even the mind-sets of employees—could affect its ability to meet
the goals it set.
Operations leaders
identified labor balancing as an important technical improvement: they planned
to create teams that would combine two roles—“pickers,” who located products to
fill customer orders, and “packers,” who loaded orders onto trucks. The new
system was supposed to increase productivity by redistributing labor more efficiently
to meet shifting demand. The company didn’t stop at such technical fixes,
however. In parallel, it revamped its performance-management system to
encourage the new ways of working. Pickers had been measured quantitatively
(primarily on speed, not accuracy), packers qualitatively or not at all,
depending on the site. Executives now combined the existing metrics into a
team-based system aimed at helping the company’s trucks depart on time. This
change not only balanced speed and accuracy but also pushed workers to
collaborate and to focus on a common goal. In addition, the company created a
prominent visual tracking system to reinforce the new behavior by showing
employees, in real time, when shifting workloads required their immediate
attention.
Changing the mind-sets
of workers proved critical as well. Many workers in both groups, which had
viewed each other as rivals, were company veterans who strongly identified with
their roles. Pickers had traditionally felt superior, since they typically
worked alone and could be quite successful with individualized approaches,
whereas packing was more standardized. Recognizing that such factors would
breed resentment if ignored, the company provided supervisors with on-the-job
training in interpersonal skills—including coaching and the art of having
difficult conversations—in the weeks before making the technical changes. The
supervisors later reported that the integration and timing of these elements
helped the program succeed by instilling in them the influencing skills needed
to highlight the new system’s benefits (both to their teams and to individual
workers) and to convince doubters that the changes were important. (Often,
companies undermine their performance-improvement programs by introducing
otherwise useful training elements at inappropriate times—for instance, several
months before the implementation of the program, when its goals may not be
clear to the trainees.)
Within six months, the
distribution centers that had adopted the new system were 10 to 15 percent more
productive, on-time deliveries were up 5 to 10 percent, and errors reported by
customers were down by as much as one-third. Moreover, a survey of workers
found that their satisfaction levels had risen by 10 percent. Subsequent
analysis suggested that about half of the productivity gains were attributable
to the softer elements and about half to technical changes, such as more
efficient warehouse layouts.
Lead through the line
At the heart of most
big operational-improvement efforts are a company’s black belts, lean sensei,
and other change agents brought in to lead programs, spur new ideas and
practices, and champion the mind-set of continuous improvement. Companies
typically follow this template because it appears easier than significantly
involving their line leadership. Shop floor deadlines are fierce, line leaders
are busy, and many of them lack the skills to direct large initiatives. Some
executives therefore argue that line managers should focus instead on
day-to-day concerns.
Yet that is a mistake.
Large-scale change requires all employees—from the C-suite to the shop floor—to
think and work differently. Companies that use only experts to orchestrate
change programs may be fairly successful. Still, by outsourcing the
responsibility for initiatives (and, by extension, the underlying ideas) to
experts, even their own, these companies often miss significant opportunities.
Moreover, once the low-hanging fruit is gone, such efforts often lose steam as
employees slip into old habits; experts may convey the new language or
technical tools but rarely the desire to change behavior permanently, nor can
these experts build the organizational capabilities that permanent change
requires.
By contrast, when a
company shifts the attention of its line managers away from firefighting,
develops their leadership capabilities, and expects more from them, the gains
are bigger and longer lasting. Experts still play a vital catalyzing role, of
course, but now as teachers, coaches, and counselors. Line managers are better
placed to lead change efforts and to serve as long-term role models—and should
be held accountable for doing so.
The North American
power generator mentioned previously learned this lesson several months into
its improvement initiative as executives sought to fire up the program’s
momentum. This company had sent its operations experts into field offices, so
they could work closely with employees at individual plants, where they had
enjoyed significant success. Senior executives, however, observed that
enthusiasm and engagement soon started fading among the line workers. In the
words of one executive, “They were still coming to work from the neck down.”
Senior executives
therefore vowed to move the effort “out of the office and into the line.” The company
created a “lean leader” profile—a list of desirable characteristics, such as
problem-solving, coaching, and analytical skills. Management then created a
curriculum to build them through the “forum and field” approach: hands-on
training and coaching forums (on topics such as performance management, time
management, and problem solving) followed by practice in real-world
applications.
To ensure that everyone
understood the permanence of the changes, the company made weekly one-on-one
training and coaching sessions a part of its line managers’ jobs. Shift
schedules were adjusted to incorporate coaching into the workers’ routines.
(While most executives recognize the value of coaching, many fail to
institutionalize it, thus unintentionally making it seem less important.) These
brief sessions allowed workers to celebrate successes, share ideas, and measure
progress in achieving the program’s goals. Soon, employees began carrying index
cards listing the improvement priorities they had spotted during the previous
week.
The cards and related
conversations generated creative ideas—including a new way to keep coal dry
when it was shipped to the company’s power plants. These and other line-led
improvements helped significantly to raise the plant’s output and, subsequently,
to cut its fuel costs. More important, the training efforts enhanced the skills
of managers, enabling them to become the foundation for a host of additional
improvements.
To get the most from
large operational-improvement programs, top companies look beyond the technical
aspects of lean and Six Sigma and embrace the softer side. Complementing the
development of technical skills with a focus on the organizational capabilities
that make efficiency benefits real can help companies to achieve more substantial,
sustainable, and scalable results.
By David Fine, Maia A. Hansen, and Stefan Roggenhofer
https://www.mckinsey.com/business-functions/operations/
