Thanks to rising costs abroad, a need to protect intellectual property from foreign competitors, and a growing consumer preference for American goods, U.S. manufacturing is turning around.
As a result, manufacturers are looking to create an adaptive strategy that does not just consist of maintaining survival mode, but forming a much more competitive organization.
Lean transformation is a proven, highly effective strategy for increasing enterprise value. Based on the principles of the Toyota Production System, lean describes a problem-solving approach and organizational culture change that drives continuous improvement. Its focus on identifying and eliminating waste has the ability to maximize efficiency in organizations of all types and sizes.
While many organizations have turned to lean to create an adaptable environment that values continuous improvement, successful implementation of the methodology has proven to be difficult. Recent studies show that failure rates for lean programs range between 50 and 95 percent.
The reasons transformations fail vary from a lack of employee engagement to inadequate management to poor cross-functional collaboration. More often than not, however, points of failure can be traced back to the same root cause: an incomplete or inaccurate understanding of business opportunities prior to lean implementation. Company leaders often become caught up in simply “doing” lean rather than using lean to turn their strategy into action and cultivate a culture of customer satisfaction and employee motivation. They do what they can rather than what they should, often because the “should” seems impossible. This traditional approach effectively sets limits on the improvement potential, sabotaging the transformation before it even begins.
To launch a successful lean transformation that significantly increases enterprise value, organizations must overcome these common barriers to a change initiative. It requires a meticulous diagnostic approach to implementation that identifies existing opportunities and constructs a roadmap for achieving results. Companies should consider four phases.
Phase I: Data Capture and Preparation
An effective diagnostic should be a business-minded assessment, not an academic exercise for lean zealots. It requires a blend of business acumen combined with an experienced eye to see and imagine what’s possible. The approach must replicate the mentality of a prospective new business owner. That means using real data and taking nothing for granted.
Using a proven set of data requests and analysis, the data capture and preparation phase accomplishes the following objectives:
Define the value offered by the company
- Reveal a clear picture of the company’s financials
- Gain a solid understanding of the customer perspective
- Confirm the fundamental business strategy and goals of the leadership team
- Outline clear targets and expectations
- Define breakthroughs
- Determine the scope of the lean transformation
- Prioritize needs and determine the critical business areas to focus on
Because nothing is assumed, all subsequent evaluation is driven by a trustworthy source of knowledge that increases the potential for improvements.
Phase II: Current State Assessment
The current state assessment is arguably the most important part of the diagnostic. This is where organizations can rapidly uncover the improvement potential.
During this assessment, each business function in the end-to-end business process is analyzed to identify waste and improvement opportunities. It’s intended to be a team-based exercise, putting the pen in the hands of the people who actually do the work. And it doesn’t take place on a computer screen or a conference room wall; it’s a “go-see” process that takes place where the work is done. This combination of onsite observations, employee input, and business data is what makes scalable improvement possible.
By asking the critical question “So what?” when problems are spotted, the team works together to find potential solutions that when implemented will solve the problems and add value to the enterprise. Strengths are identified and capitalized on, and best practices are solidified—especially between business units or territories, where differences can be significant.
The team then assembles a dedicated data room where findings from the assessment and answers to the ‘”So what?” questions are summarized in a prioritized and structured manner. The visual, tangible presentation of this information can have an enormous impact on the success of the transformation. Leadership is often humbled to see how large the improvement opportunity can actually be, and everyone becomes excited and motivated by the ability to visualize the possibilities.
The current state assessment highlights your company’s strengths and weaknesses, using data rather than opinions. This drives commitment to the true potential of the enterprise, helping answer the question, “What’s the size of the prize?”
Phase III: Strategic Option Evaluation and Selection
Now that the “what” has been defined, the next step is to determine the “how.” During this phase of the diagnostic, the team determines which strategic options for pursuing the identified goals are viable. The requirements and impact of each option are evaluated, and new breakthroughs are defined. An improvement hypothesis makes it easy to objectively rank and compare options.
Then, it’s decision time. The team looks at the possibilities and makes a commitment to what they will do. Important factors to consider are:
- Impact on enterprise value
- Impact on customers and employees
- Difficulty, risk, and/or cost of implementation
- Contribution to the cashing-in strategy
- Impact on overall strategic goals
The ability to thoroughly evaluate and then choose strategic options puts the expected benefits, costs, and plan of action clearly in focus for the entire company—before any action is taken. This provides an important opportunity to assess the level of appetite and commitment that exists within the business to make it happen.
Phase IV: Benefits Hypothesis and Report
The final phase of the diagnostic is a comprehensive report that summarizes the key outputs and findings from each of the prior three phases. It is essentially a record and reference of what the team found, what they committed to do, how they plan to do it, and what they expect the results to be. A clear, time-based roadmap for achieving the desired results is developed, taking into account the size of the business, the level of effort required, the availability of resources, and the culture of the organization. This provides the answer to the question, “How heavy is the lift?”
By implementing a culture of transparency and communication, a diagnostic approach to lean implementation helps ensure each individual understands what they are expected to do and how it will be measured. It gets people at all levels of the organization—from the C-suite down—invested in the lean journey, and helps them understand the purpose of every activity, allowing them to play an active role in defining the challenges, goals, and metrics.