Lean Business System

CREATING A LEAN BUSINESS SYSTEM

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.

Contents

1 Background ................................................................................................................................. 2
2 Lean Business Model ................................................................................................................... 2
3 Processes and Value Streams...................................................................................................... 4
4 Lean Business Model – Blueprint for a Lean Business System ................................................... 5
5 Lean Maturity Assessment Process............................................................................................. 8
6 Conclusion ................................................................................................................................. 11

       Page 1 of 11                                 © S A Partners 1993‐2010

1 Background

The approach is based on research undertaken by Professor Peter Hines in Japan, courtesy of
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
So the model and approach is a distillation by Peter 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 (catchballed) 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.

The S A Partners Adaptation
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

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.

The Lean Business Model®


The model has been further developed in S A Partners 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

To understand the model, we need to be clear about 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. In S A Partners we use a more pragmatic definition: “A cross functional set of
interconnected activities that adds value to meet business objectives”.

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

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.


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.

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.


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.

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.


The Extended Enterprise is the final piece of the jigsaw

It is through the Extended Enterprise as much as anything
else that Toyota’s practice is truly distinctive.  The Extended
Enterprise element of the Lean Business Model® applies
approaches explained in the other four elements of the
model up and down the supply chain to make the entire
supply chain as Lean as it can be.

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 (i.e. what you cause for yourself).

In embracing the Extended Enterprise, relationships are developed as well as performance
improved.  Where the relationships are strategic then the best partners are selected and the
processes truly integrated.

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 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.

Programme Scoping and
Customisation

P-D-C-A
Programme Review &
Cycle Preparation and Planning
Best Practice Sharing for Assessment
for
Effective
Develop Operational & Lead Assessor Training
Strategic Roadmaps Lean & Development
Assessment
Maturity Index Scoring Assessment Interviews
and Software Graphics and Data Collection

Assessment Analysis &
Report Recommendations


The 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
es o
Stage 5
s ton ITY Way 0f Life
Mile TUR
The N M A Stage 4
LE A
Autonomous 1 Autonomous Habit
2 Full Empowerment
3 External Learning
Stage 3
Deployed 1 Driven Deployment
2 Majority Involvement
Stage 2
3 X-Process learning

Formal
1 Goal Orientated
2 Selected Teams
3 Value Stream Learning

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

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
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.

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
1
lacked cohesion and alignment. The result showed that,
although some tools had been used to make improvement,
4
3 the approach was functionally focused and never really
achieved buy‐in and alignment with the strategic goals.

2 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 principles and tools of Lean in its
4
pre‐dominantly office based activities. Other issues uncovered
included a lack of understanding of process thinking and Value
1
Stream Management in this functionally orientated set‐up.
2

This roadmap recommends that the business start with a pilot
activity around Lean tools to illustrate what tangible
3
improvements are possible. Given this relatively “quick‐win
scenario” the roadmap leads the 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
The S A Partners 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.

More information and contact details can be found at www.sapartners.com


Lean Business System

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