LEAN STRAIGHT TALK SERIES #2
In the medical field there is Sutton’s Law which states that when diagnosing, one should first consider the obvious. It suggests that one should first conduct those tests which could confirm (or rule out) the most likely diagnosis. It is taught in medical schools to suggest to medical students that they might best order tests in that sequence which is most likely to result in a quick diagnosis, hence treatment, while minimizing unnecessary costs. The law is named after the bank robber Willie Sutton, who reputedly replied to a reporter’s inquiry as to why he robbed banks by saying “because that’s where the money is.”
So what does all of this have to do with Lean? If we apply the sale logical thinking, the money (e.g., largest opportunities) of Lean exist within the professional, knowledge-based transactional processes. Look at your P&L and Balance Sheet – It’s obvious! However, organizations spend the majority of their efforts in manufacturing. Willie Sutton would not approve of this type of Lean thinking. Our latest Lean Straight Talk Series post sheds new light on the rationale and urgent need to shift your Lean focus to the transactional processes.
Traditionally lean has made great inroads of improvement in the manufacturing floor in taking waste out of processes and thus reducing lead-times and cost. However, Lean as widely practiced has failed to recognize where the most significant root causes, detractors, and constraints of operating performance exist from a total business perspective. Here are a few facts to ponder:
- The majority of root causes of manufacturing issues occur up front in the transactional process space of the organization. The operating issues and their associated wastes in sales and marketing, forecasting and demand management/SIOP, capacity and resource planning, new product development, detailed product/process design, supply chain management, quality management, program and project management, field reliability, etc. are the primary drivers of manufacturing wastes. It’s too late to deal with these issues in manufacturing, it’s a much better operations strategy to predict and prevent these issues in the first place.
- As the transactional content in processes increases, so too does the complexity of improvement. The concept of process has rapidly morphed away from hard assets to knowledge-based transactional processes with a high degree of professional, technology, and human content. Transactional process improvement in the global enterprise network, and the improvement kata behaviors and cultural attributes to harvest these magnificent opportunities are yet to be mastered by most organizations. Furthermore, many organizations do not understand how to approach and adapt Lean, and reel in these incredible breakthrough improvements in operating and business performance.
- Most of the transactional process opportunities are hidden, unknown, undisclosed, or undiscovered. Because they are unknown, nobody understands the magnitude of impact and opportunities for improvement of the business without further mining and assessment. Many organizations are puzzled about where and how to begin this new focus of strategic improvement. Make no mistake about it – These are the largest untapped opportunities for improvement.
- In many situations, the diminishing returns of Lean manufacturing is a dwarf to the enormous, undiscovered opportunities in the global transactional process space. Harvesting these new opportunities requires an evolution to an enterprise-wide, organization-centric and culturally grounded Lean Business System . . . a for real, holistic Lean Business System that simultaneously develops new and higher order improvement talent, and nurtures the right aligned behaviors and cultural attributes of a great improvement kata.
These trends are pretty obvious (like Sutton’s Law). So . . . What is preventing many organizations from capitalizing on their transactional opportunities? The majority of organizations have not deployed Lean strategically using a total business system approach. Sure many organizations claim to have their “XYZ Business System” but it is in name only. It really isn’t a total business system approach at all. A true business system approach evolves enterprise-wide to new customer and market needs, adapts rapidly to a higher order of operating requirements.
New Challenges Of Transactional Improvement
Beyond the missing business system model, adapting Lean to the professional, knowledge-based transactional space is extremely complicated and requires creative thinking. Complex transactional processes include a lot of unpredictability, professional judgments vs. hard data, a high degree of informal activities underlying a formal process, and fuzzy cause-and-effects in space and time. Many of these types of challenges have the presence of reflexivity – circular relationships, interaction properties, and interconnectivity between causes and effects. In essence, causes and effects are multidirectional and affect one another, so neither can be easily assigned as causes or effects. Furthermore, causes and effects are relative at any moment.
These are very real challenges in the complex interconnected network of professional, technology-enabled, and knowledge-based transactional processes. Transactional processes are much more complicated because of their interconnected, convoluted, and cross-enterprise scope, lack of standardization, unsighted (invisible) transaction magnitude and velocity, and of course the human element of originality and workarounds in daily operations. You simply can’t get at these hidden opportunities by doing the same things, same approaches, same thinking as Lean Manufacturing.
In order to move Lean beyond the factory floor organizations expand their notion of process to include the enterprise-wide, interconnected network of transactional activities that contribute significantly to the customer experience. Lean on the factory floor is a diminishing proposition when compared to the larger digital transformation and operating model innovation possibilities. The Gemba is now the total business enterprise, the whole business of delivering unmatched customer value and loyalty. Lean manufacturing is still important, but a relatively small piece of the Gemba.
How To Achieve Transactional Process Improvement Successes
Today, a very high percentage of Lean/CI initiatives are not meeting leadership’s expectations. A major reason is the failure to capitalize on transactional process improvement opportunities. The content, cost, and relative influence of internal operations has shifted to knowledge-based transactional processes, yet many Lean/CI initiatives have remained focused on the production floor for decades.
How does an organization step up, expand their Lean horizons, and achieve new breakthroughs in operating results? The following steps are helpful in shifting focus to the transactional process improvement space:
- Understand the complex nature and importance of transactional business processes. The operating environments in organizations have changed faster than the capacity and capabilities of their resources to improve it. Success is highly dependent upon a paradigm shift to nimble and efficient strategy and opportunity alignment processes, supply chain processes, time-to-market processes, cash-to-cash processes, engineering processes, customer service processes, sales and marketing processes, and many other “people plus technology” processes in organizations. This requires a large, enterprise-wide leadership commitment to pursue and harvest these new opportunities.
- Learn how to adapt Lean to transactional process opportunities. This is easier said than done and requires new thinking and new talent. The word adapt is important – Simply attempting to port over Lean manufacturing tools and methodologies is dead wrong. Understanding how to adapt Lean to transactional processes requires a deep understanding of the interconnected business systems architecture (e.g., supply chain processes, time-to-market processes, cash-to-cash processes, engineering processes, customer service processes, sales and marketing processes, and many other “people plus technology architecture” processes in organizations). It also requires creativity, innovation, and measurement system design competencies (many of the underlying transactional details have never been analyzed or measured relative to improvement).
- Realign Lean as a higher order business system approach to strategic improvement. There are many critical elements of a true Lean or XYZ Company Business System. Organizations need to stop the generic Lean broadcasting and mimicking each other’s Lean Manufacturing/TPS initiatives and return to the basics of what they must accomplish (Jobs To Be Done). We have developed a Lean Business System Reference Model which helps clients to architect their own business system model based on their own operating requirements and cultural development needs – In their own way!
- Conduct a detailed assessment of current transactional process conditions. This assessment requires special skills far beyond Lean manufacturing. The seasoned transactional improvement expert uses the organization’s integrated enterprise architecture and other applications to trace and defrag the transaction trail like a forensic detective reconstructing and processing a crime scene to identify wastes and root causes. In practice, the differences between root causes and outcomes is often fuzzy. The challenge becomes one of identifying and isolating the right pain point segments of these transactional processes with real facts. Transactional forensics is a very appropriate name for this approach to Lean and transactional process improvement. It involves setting up deliberate process experiments for transactional stream mapping and classification to either discover the deep root causes and magnitudes of problems, and/or to verify that problems have been eliminated through the right data-driven improvements and corrective actions. In most cases, what was perceived to be the problem is not the problem at all. It is something different, often several interdependent multiple root cause and effect issues buried in the complex transactional network. Solving this puzzle is what creates the breakthrough magnitude of improvements in organizations.
- Identify major transactional process improvements that will generate breakthroughs in operating performance. Again, this is a very laser targeted approach to strategic improvement. There are hundreds of transactional improvement opportunities in every organization and the key to prioritization is Sutton’s Law. The challenge is that obvious is not so obvious to the inexperienced and uninitiated practitioner. Engage the right outside resources and increase your odds for success. One benefit of transactional improvement is that it is interconnected: The right improvement initiatives executed successfully produce both direct and interactive benefits throughout the transactional process network. Be careful, the opposite is also true especially if the proposed improvement is limited, localized, and silo-based.
- Integrate transactional process improvement and digital technology. When we hear the word digital transformation, it usually refers to breakthroughs in transactional processes using technology. The greatest improvements are not incremental. They result from innovative thinking and initiatives that will WOW customers. Leading organizations in this area develop Lighthouse Pilots to test and validate totally different and more innovative operating models, integrating end-to-end business processes and the right digitization technologies. Business improvement plus enabling technology is a powerful force. Unfortunately the two have been at odds for decades. It’s time to get it right.
Summary – Results Realized
The need and benefits of transactional process improvement are very compelling and very real. If you don’t believe us then go look at your costs of obsolete inventory, returns and allowances, new product development, customer service, warranty and repairs, inventory write downs, inefficient supply chains, long and inefficient cash-to-cash cycles, and many other indirect hidden costs.
Transactional process improvement represents hundreds of millions of dollars in new value contribution for many organizations. Think about the short term P&L impact and the longer term competitiveness of reducing returns and allowances by $30M; improving speed-to-market by 80%; adding 3 gross margin points to the P&L through less planned financial reserves; reducing supply chain time, complexity, and costs by $100M; the hundreds of millions of revenue growth, cost reduction, profitability, and competitive market position from developing new products on time, on budget, without post release quality, reliability, or performance issues; reducing the financial close and all related G/L clerical adjustments by 75%; reducing engineering changes by 50%; hitting new product features/functions out of the park; reducing the need for professionals to travel internationally to put out fires; improving advertising and promotion effectiveness by 100%; reducing operating supplies and facility costs by $10M.
These examples are actual transactional process improvements achieved in our client organizations. Professional, knowledge-based transactional processes are the new goldmine for Lean.
Need help? We do this for a living.
The Center for Excellence in Operations, Inc. (CEO) is engaged with many different clients every day, within a variety of industries, operating environments, and with different Lean/CI and cultural renewal challenges. We can get your Lean/CI initiatives back on track and operating at a much higher order, daily business system model level.
Contact one of the authors below. We will be happy to discuss your current situation and needs.
Terence T. Burton is President and Founder of The Center for Excellence in Operations, Inc. (CEO), a management consulting firm specializing in strategic and operational transformation. Terry has four decades of extensive operations and supply chain experience as a hands-on practitioner and executive in private industry, and has led consulting engagements in a wide spectrum of industries, having consulted with over 350 clients in 23 countries on their strategic and operations improvement initiatives. Terry can be reached directly at firstname.lastname@example.org
Edward A. Fagundes is the West Coast Practice Director for The Center for Excellence in Operations, Inc. (CEO), with emphasis on serving clients in the West Coast, United States region. Ed’s career spans various leadership roles in general management and as a global business system executive. He has proven expertise and extensive experience with improving business processes, developing lean transformation strategies and plans, leading the implementation of business improvement journeys to address business issues, and implementing enterprise-wide continuous improvement applications. Ed can be reached directly at email@example.com.