Creating a Lean Business System white paper

Creating a Lean Business System
Prof. Peter Hines

Creating a Lean Business
System
Professor Peter Hines

© S A Partners 2013

Prof. Peter Hines


This white paper provides an overview of The Lean Business Model®, how it was
developed, and how it can be used by enterprises that have decided to embark
on a journey to create a Lean Business System.

The Lean Business Model® should be distinguished from the traditional Five
Principles of Lean. The principles describe what it is for an organisation to be
Lean, whereas the Lean Business Model® gives a framework for how
organisations can create their own Lean Business System.

The approach described here focuses upon making Lean Thinking ‘a way of life’
and reaping the resulting benefits. It looks at the elements that need to be in
place to complete a Lean transformation. Used well, the approach and the
interventions and tools that lie behind it can provide any organisation with a Lean
roadmap that is specific to them.


Prof. Peter Hines

1. Background

The approach is based on research undertaken in Toyota Motors in 1994. This
followed the classic Womack/Jones/Roos book 'The Machine that Changed the
World' which identified that Toyota was not just the best auto maker in the world,
but by far and away the best wherever it operated in the world.

The Toyota Source

The model and approach is a distillation of what made Toyota much more
successful both internally and in its wider supply chains. The research identified
five elements behind this success:

 Using Policy Deployment to focus everyone in the same direction
based on what adds value to their customers or, in essence,
focusing everyone in a common aim of achieving what external and
internal customers (the business) require.
 Deploying through a series of common cross functional processes,
the most important of which Toyota describe as quality, cost and
delivery. This does not just mean the classic “QCD” measures but
deploying through these core processes.
 These top-down strategies and structures are then improved through
bottom-up assessment of the capability of each process and their
constituent value streams; from this assessment, bottom-up plans
are created to take the organisation from current state through a
series of future states towards an ideal state. Each future state is
checked (catch-balled) against the goals of the business before
implementation. We call this Value Stream Management.
 Within this a set of tools is applied contingent on circumstances, i.e.
pulled by the customer and business need, rather being thrown at a
business (pushed).
 Finally, these 4 focal areas are applied in the extended enterprise,
up and down the wider supply chain. In the Toyota context, this is
generally through the kyoryoku kai or supplier associations.

Our Approach

Since this original research work, a blind spot about people has been recognised.
Equally, we should not try to simply copy what Toyota did in different
environments. So we have adapted the outcomes of the research to use our
language and to enable application in a wide set of sectors. It has become
known as the Lean Business Model.


Prof. Peter Hines

2. Lean Business Model®

We use the term Strategy Deployment, not Policy Deployment because the word
policy has different connotations in Japan. Its purpose is to align and engage
everyone with the external customers and with the goals of the business.

Value Stream Management (note: not Value Stream Mapping) encompasses
understanding, and managing to a result, the key elements of Customer Value
and Waste for the important business processes. The techniques involved
include mapping to diagnose the current state, dreaming about the ideal state
before deciding upon a realistic future state to achieve.

The Tools and Techniques comprise the set of implementation tools that are
chosen to suit circumstances. Firstly, they enable the detailed implementation of
the planned improvements from Value Stream Management. Secondly, they
provide the practical tools for people to practice Continuous Improvement. In
Toyota this became known as the Toyota Production System or more recently the
Thinking People System.

People Enabled Processes are the organisational foundations of a Lean
transformation. Processes are cross-functional and the important processes
need to be owned and managed across these functions to enable migration to a
Lean organisation. People are given prominence in our adaptation of the model
to give them the appropriate emphasis with the basic enablers being the
workforce skills, engagement and continuity.

The Extended Enterprise part of the model is the final piece of the jigsaw and it is
through this as much as anything else that Toyota’s practice is truly distinctive.
Working down the supply chain is essential to ensure that Customer Value is
understood and that it is not filtered out. Working up the supply chain is
essential to align all elements to deliver that Customer Value. At the same time
working on the processes that cross organisational boundaries in the supply
chain enables elimination of the inter-company waste (i.e. that caused by
another organisation in your organisation) as well as the intra-company waste.

The most significant distinctions between Toyota and its competitors are:

 The consistency and penetration of Lean Thinking deep into its supply chain.
This is not surprising when you realise that less than 20% of product cost lies
in their factories.
 The rigour, discipline and consistency of the internal application.


Prof. Peter Hines

The Lean Business Model®

The model has been further developed in our enterprise to be not only a
blueprint for the creation of an organisation’s Lean Business System but also as
basis for their Lean Maturity Assessment – a business-wide diagnostic.

3. Processes and Value Streams

Processes

We can find academic definitions of a process. For example: “Patterns of
interconnected value-adding relationships designed to meet business goals and
objectives” Dimancescu et al, 1997. We use a more pragmatic definition: “A
cross functional set of interconnected activities that add value to meet business
objectives”.

It is easy to recognise some processes because they are very tangible, such as


Prof. Peter Hines

Order Fulfilment. However, care needs to be taken to define the scope including
the start point and end point. Other processes are much less familiar, such as
Licence to Operate, comprising all the approvals, authorities and governance
requirements that must be met, for example in meeting Health, Safety and
Environmental legislation. Processes always have a sequential aspect to them
but many activities may be in parallel as well as some in sequence. They are
cross functional and the key ones are cross organisational, extending up and
down supply chains. We call these Core Processes.

Value Streams

The term Value Stream was popularised by Womack & Jones in their classic text
“Lean Thinking”. It was originally conceived to encompass product design and
product delivery. However, in common use it has generally become regarded as
little more than a series of specific Order Fulfilment processes. This has not only
weakened the concept but led many firms to limit their total Lean activity to this
single process, hence precluding them from ever achieving a truly Lean Business
System.

X and 2X

So why does this matter? Well consider the following figure. In most businesses
we find that the CEO or Managing Director, when asked, will describe the future
of their business in terms of increased profit and growing turnover.

However, where these businesses employ a Lean approach they typically only
focus on the Order Fulfilment process. Although this is useful and reduces waste
and cost it rarely leads to a complete Lean Business System. It creates capacity.
However, this capacity is often not used, leading to illusory savings. Have you
ever added up the savings claimed in a Lean programme and then failed to see
them hit the bottom line?


Prof. Peter Hines

In order to harvest these savings within a Lean Business System it is also
necessary to fill this capacity. This is rarely done by working in Order Fulfilment
as benefits here are more likely to yield cost savings than increase Customer
Value. As a result it is necessary to identify, diagnose and improve other
processes more likely to add value to customers such as Order Creation (winning
new business) or Innovation (providing a wider and/or better range of products).

When we have seen businesses adopt this business-, not just value stream-,
approach we have seen that they achieve not only real cost savings but wider
margins and increased turnover. We call this X and 2X as the profit potential
yielded filling this capacity is always at least twice that of just creating the
capacity. Why? Well, in effect the people, facility and overheads are already paid
for and so new work yields very high margins.

4. Lean Business Model® - Blueprint for a Lean Business
System

The Lean Business Model® not only provides us with a blueprint for
implementation it is also a diagnostic tool that helps clients to see where they
are in a journey and which interventions should be done early and which done
later – i.e. it provides the building blocks for roadmaps to create a Lean Business
System.

Think of the 5 elements of the model as 5 pieces of a jigsaw. The benefit of
getting all of the pieces in the right place at the right time is that you are able to
see the whole picture. The same is true of the Lean Business Model®. Over the
course of a transition to develop a Lean Business System, organisations must
systematically complete the whole of the jigsaw to get all of the benefit from their
investment. One helpful way of understanding the model is to take ‘a journey’
around the model.


Prof. Peter Hines

Let’s start with Strategy Deployment

The purpose of Strategy Deployment is to align and engage everyone with the
external customers and with the goals of the business. It is a process that takes
the vision and strategy of an organisation and translates it into both Key
Performance Indicators (with targets) and selected change projects. These KPIs
and projects are then deployed into the organisation, ensuring that there are
people accountable for the achievement of the targets and delivery of the
projects at all levels. The vehicle that is used for deploying the KPIs and projects
as well as sustaining the management process is the Business Cockpit.

Depending on how you go about Strategy Deployment you will also engage
people in the vision and strategy as well as align them. This will make them feel
some element of ownership and cause them to bring energy to what they are
doing as well as doing the right things.

It is helpful to understand why Strategy Deployment is so crucial. In creating a
Lean Business System, this process plays 4 key roles:-

1. It engages the senior management team and gives them clarity of
purpose.
2. It enables the business to prioritise where it will target its resources to
best deliver the results.
3. It aligns and engages employees in these priorities.
4. Most importantly, it creates a clear link between the Lean approaches and
the results of the business.


Prof. Peter Hines

Let’s go next to People Enabled Processes

Processes are the organisational foundations of a Lean transformation.
Processes are cross-functional and the important processes need to be owned
and managed across these functions to enable migration to a Lean organisation.

The link between People Enablers and Strategy Deployment is clear – the
strategy of the business in the future and a clear understanding of its current
performance lead quickly to identify which key business processes need to be
the centre of attention and also inform how a business should organise to deliver
that result. We work with, but question, existing functional structures and start
to give people process oriented roles. We also consider the leadership
approaches and behavioural norms necessary to begin and sustain the Lean
Business System. In addition to leadership development, the basic people
enablers are the workforce skills, engagement and continuity.


Prof. Peter Hines

At the centre of the model is Value Stream Management

Value Stream Management (VSM) encompasses understanding, and managing
to a result, the key elements of Customer Value and Waste for the important
business processes.

VSM techniques involve diagnosing the process architecture, mapping these
processes to diagnose their current state and ultimately managing to appropriate
future states.

The future state conditions provide templates for how the business processes
could and should be operated along with a set of key projects that will need to be
undertaken to make these templates a reality. The link between VSM and the 2
previous elements of the model is also clear – the performance capability of
each of the key business processes is determined during the Strategy
Deployment element and the accountability for delivering the result through
processes is set in the People Enabled Processes element of the model.


Prof. Peter Hines

The fourth element is the Tools and Techniques

The key projects identified during the VSM and/or Strategy Deployment need to
be carried out in a rigorous and repeatable manner. This is where the Tools and
Techniques come in. They comprise a set of ‘hard’ and ‘soft’ implementation
tools that deliver change and improvement in a repeatable and sustainable
manner. They allow for the application of Lean in a way that everyone can
understand and can be replicated.

At any point in time, there is a core set of approaches from this toolkit, adapted
to the business that will need to be rigorously and continually practised. This is
the application of tools on the basis of pull; they are pulled according to need,
not pushed at the business in a non-discriminating manner.

This not only enables effective implementation of the initial projects but also
provides the practical tools for continuous improvement in the important
processes. It should also lead to continuous improvement becoming a habit for
the organisation. At Toyota, for the Order Fulfilment process, this core set of
tools became known as the Toyota Production System.

5. The Lean Maturity Assessment Process

The Lean Business Model® has been developed into an assessment tool that
gives a measurement of current maturity of an organisation against the model.
The quantitative Index Score is supported with a written diagnosis of the
improvements needed for the business to progress to the next stage of its Lean
journey.

The assessment has been successfully proven in a wide variety of businesses,
both manufacturing and service, and offers a clear roadmap of improvement in


Prof. Peter Hines

all areas of the organisation. The assessment is made by skilled practitioners
working through the key stages set out in the diagram below. This approach
provides the appropriate level of planning, data collection and analysis that leads
to recommendations.

Measurement System

The Measurement System is based on the academically proven Five Key
Milestones of Continuous Improvement Maturity from “ad-hoc” through to “way
of life”. Each of the core elements of the Lean Business Model® are assessed
not only from a quantitative viewpoint of - systems and procedures - but also
from a qualitative viewpoint of - values and behaviours.

In other words we measure not just what you do but also (and more importantly)
the way that you do it. This helps to build a learning organisation that not only
has the capability to maintain the gains of the improvement but is also self-
propelled to continuously improve the continuous improvement process until it
becomes a daily habit for everyone.

f
so Stage 5
stone ITY Way 0f Life
Mile ATUR
he Stage 4
T NM Autonomous 1 Autonomous Habit
LEA 2 Full Empowerment
3 External Learning
Stage 3
Deployed 1 Driven Deployment
2 Majority Involvement
3 X-Process learning
Stage 2
Formal
1 Goal Orientated
2 Selected Teams
3 Value Stream Learning

Stage 1 1 Formal Structure
Reactive 2 Only Specialists Key Characteristics
3 Team Learning
1. Ways of Working
1 Reactive Approach 2. Associate Autonomy
2 Little/No involvement
3 Adhoc Learning
3. Best Practice


Prof. Peter Hines

The Assessment Technique

Through a combination of interviews, collection of tangible evidence and walking about, up and
down the structure looking at the important processes, an Index Score is compiled. The score
provides measure of Current State. In addition a Future State is developed to define where the
Business needs to be on its journey to creating a Lean Business System. By comparing the two a
gap analysis is generated

Strategy
Deployment

Value Stream
Extended Management
Enterprise

Lean People Enabled
Toolkit Processes

Reports, Recommendations and Roadmaps Assessment Overview – GG v1.0 ppt
Lean

To support the Index Score a written report is compiled against each of the 5
aspects of the Lean Business Model®, highlighting what’s working well, what’s
not working well and what may be missing. Using this diagnosis in line with the
future state vision for Lean Maturity and the Business Strategy provides the
appropriate context to create a roadmap for how to progress from the current
state to the future state.


Prof. Peter Hines

By understanding the current reality of every aspect of the Lean Business
Model® and articulating what you want to achieve (i.e. what good will look like
and what will be the tangible benefits to the business) enables you to develop a
top-level business roadmap.

At a high level the roadmap identifies which element you should place early
emphasis on and which later emphasis. As such, the model starts not only to
provide a blueprint, but the assessment also leads to a roadmap for developing a
true Lean Business System.

Examples

Roadmap 1
In this case, assessment indicated that a
manufacturing unit had worked on continuous
improvement but the process lacked cohesion
1

and alignment. The result showed that,
4
3 although some tools had been used to make
improvement, the approach was functionally
focused and never really achieved buy-in and
2 alignment with the strategic goals.

The resultant roadmap example 1 indicates a sequence and emphasis of
business improvement that chooses to focus initially on Strategy Deployment,
closely followed by People Engagement. The programme identifies that Value
Stream Management would be the basis for the application of an appropriate set
of Lean Tools and Techniques.

Roadmap 2
The second example is taken from a service
organisation which had not applied the
4
principles and tools of Lean in its pre-
dominantly office based activities. Other
1

2
issues uncovered included a lack of
understanding of process thinking and Value
Stream Management in this functionally
orientated set-up.
3

This roadmap recommends that the business
start with a pilot activity around Lean tools to
illustrate what tangible improvements are
possible. Given this relatively “quick-win scenario” the roadmap leads the


Prof. Peter Hines

business on a journey to working in wider value streams and people processes,
and eventually escalating through to Strategy Deployment.

These business level roadmap examples provide the overall sequencing and
emphasis needed in any given business situation. However, it is important to
point out that the assessment also provides specific areas for focus within each
of the 5 Key Aspects of the Lean Business Model®. In reality, there is not often a
simple sequence of one element followed by another element. There will be
parallel working in two or more of the elements at any time and new projects that
build on an element previously worked on.

As with so many other tools for improvement (whether diagnostic and/or
implementation based) this technique requires a discipline of Plan-Do-Check-Act.
Each year the assessment can provide an objective and subjective viewpoint on
the current maturity of Lean across the organisation. The detailed analysis and
index provide the business with a dynamic benchmark of world class
performance with clear recommendations on what is needed to reach the next
milestone in creating a complete Lean Business System

6. Conclusion

Our Lean Business Model® provides insight into how to make Lean Thinking a
way of life. It serves as a blueprint for transforming an organisation using Lean
as the vehicle both for continuous improvement and for radical change.

The Lean Maturity Assessment translates the Lean Business Model® into a
practical tool. It is a diagnostic intervention that provides not only a measured
outcome for the position of the organisation in terms of its Lean Maturity but also
a qualitative analysis. Outcomes from this are: a description of the current state,
the generation of a future state that is grounded in the business strategy and a
roadmap of how to close the gap – a roadmap that has been developed within
the client’s own context.

Both the Lean Business Model® and the Lean Maturity Assessment have been
applied many times in organisations of varying size in both manufacturing and
service environments. As organisations repeat the assessment process they
experience not only a growth in Lean Maturity but also see the “needles move”
on the key performance indicators.

For further information, please visit www.sapartners.com
or contact Peter at peter.hines@sapartners.com


Creating a Lean Business System white paper

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