Managing productivity

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ISBN 978 0 9564337 3 2
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Managing productivity
Collinson Grant is a management consultancy that helps to improve the
performance of employers in the private sector, in Central Government and
in Healthcare. Our work focuses on costs, organisation and people. Helping
clients to understand productivity and all the means available for measuring and
improving performance has been an important feature of our work for many years.
Increasing the productivity of direct labour in manufacturing was one of our
firsttasksintheearly1970s.Sincethenwehaveappliedmanydifferentapproaches,
including the adoption of Lean principles and continuous improvement.
The notes at the back summarise what we do.
www.collinsongrant.com

Contents
Section Subject Page
1 Introduction 1
2 Why is productivity such a problem? 5
3 What improves productivity? 11
4 Managerial controls and measures 21

5 Lean and its focus on the customer 31
6 Running a Lean programme 43
A short history of a long march 63
7 Understanding change 69
8 A Lean approach to measuring change 77
9 Managing the cost of payroll 97
10 Productivity of assets 109
11 The need for continuous improvement 115
12 Summary – ‘Why not?’ 131

Some supplementary notes
Productivity in the UK now
Notes on quotations

Raising productivity
1
The first and worst waste is over production. That generates the
second worst waste, inventory. And these create or mask all the
other wastes in your organisation
2
Assume that the current processes and operations are the worst.
Throw out the accepted norms. Reject the status quo. Do not
accept excuses
3
The only way to understand a problem well is to observe it
directly, then ask ‘Why?’ five times to find out its cause
4
All programmes of change encounter resistance, so it is better to
use the ideas of many people than the knowledge of one
5
When making improvements, use people’s wisdom, not the firm’s
money. The cheaper and simpler the solution, the sooner it will
be adopted
6
Once something has been changed, go back and improve it
again. Insist on generating the same results, but in half the time
7
The only way to stop people reverting to the ‘old ways’ is to make
physical changes
8
Keep thinking ‘double the good, and half the bad’.

1. Introduction
This book is about productivity and how to increase
it: how to get better returns from the application of
finite assets.

1
This book is about productivity and how to increase it: how to get better returns
from the application of finite assets.
To get more (or the same) for less is the Philosophers’ Stone – for managers,
politicians and economists, and in any enterprise or system that measures
inputs and outcomes, from national economies to the smallest workshop.
This review concentrates on practical steps that operational managers can
take to improve results in all types of business and in the public sector. It
brings together good practices from different disciplines and pays particular
attention to the theory and application of Lean.
Background
The emerging economies are enjoying enviable growth, as their larger and
mainly younger workforces improve their education, skills, and abilities to
acquire and use tools and techniques. But in the developed world, falling
birth-rates and ageing workforces are making it increasingly difficult to
sustain what Adam Smith called ‘the natural progress of opulence’.
The countries of the West can only hope to keep on increasing their wealth
if the higher costs that result from rising living standards are matched by
increased productivity. For the paradox is that only if more is produced
by fewer people can employment be sustained or improved. This presents
managers with a difficult and enduring challenge. A recent report by the
McKinsey Global Institute has highlighted this phenomenon and the
implications for businesses in the United States.¹
Collinson Grant has helped lots of firms renew themselves. These have
included large manufacturing and service businesses in most industrial
sectors, government departments and not-for-profit organisations.
Some companies have been competing in expanding, profitable markets:
others in declining sectors, where margins have been squeezed hard. Yet
more are threatened by rapidly changing technology, or by large, unforeseen
increases in the cost of materials – let alone international shifts in economic
and political power. Frequently managers have to act quickly to restore
profitability and investors’ confidence. Falling productivity can be difficult
to turn round.
1 Introduction
¹ ‘Growth and renewal in the United States: Retooling America’s economic engine’ – McKinsey Company 2011.

2
Since we live in an age of innovation, a practical
education must prepare a man for work that does not
yet exist and cannot yet be clearly defined.
Cicero - Roman Statesman and Orator
Our work has gone under many descriptions: improving gross margins,
restructuring, reducing costs, applying Lean, and turning companies round.
But the basic goal has been the same: to achieve better financial results by
improving effectiveness, removing wasted effort and making fundamental
improvements in productivity to help cope with new, more challenging,
circumstances.
Because this book concerns productivity, it has a lot to say about Lean.
That practice now pervades many efforts to improve. It complements and
strengthens established methods, sometimes re-interpreting them and
applying its own language. Lean introduces powerful new ways of thinking,
butalsoreinforcesthesoundmanagerialpracticesthatwehaveadvocatedfor
many years. It has been adopted by some of the most successful businesses
in the UK and elsewhere.
We also set out a few notes on the eventful history of productivity and on its
importance to national economies.
“
”

5
2. Why is productivity such a
problem?
Why do inputs always seem to grow faster than
outputs? How is it that managers always seem to
need more members of staff?

7
Managers trying to boost productivity find that the problems lie with people:
that their initiatives meet resistance from instincts that lie deep.
The average manager sees productivity as a batsman sees the ball. He knows
that a straight bat down the line of the ball is the way to stay in and build
an innings. But the natural instinct is to swipe across the line; which can
produce a big hit if he gets it square, but is risky if he misses.
The manager knows that organising work to minimise inputs and costs and
maximise outputs of goods and services is the right way to reduce unit costs
and speed up delivery. Up go the company’s profits and everyone’s living
standards. So why do most of them play a cross bat – taking every risk as
they add people to the team, increase complexity and build up inventory?
They must know that this raises costs and lowers productivity, when they
should be improving the productivity of the assets they already have.
Good sportsmen have learned to curb their natural instincts. That demands
time and practice. It is hard, just as the acquisition of managerial skills
and disciplines is. Cricket and management are simple activities with
well-known techniques. But they are not easy to do well, because the best
way is not the natural way.
There are many insightful aphorisms to remind us of the shortfall in
productivity. It is a truth universally acknowledged that:
‘Work expands to fill the time available’,
and its companion too is rarely challenged:
‘It is the busiest person who has time to spare’.
Experience shows that, without managerial attention, the workforce can
grow faster than the work it is employed to do.
This may be because:
‘Managers are always looking to enlarge their teams’.
2 Why is productivity such a problem?

8
Managers see bigger teams as the route to better jobs with more responsibility,
money and security. What is more, they do not want rivals near any of that.
Employees have frailties too:
‘Employees make work for each other’.
And at Collinson Grant our experience has often been that:
‘People naturally elaborate work rather than simplify it’.
Left alone, work always evolves into more complex forms. Well aware of this,
Tesco started to put all proposals for change to the test of:
‘Does it reduce cost? Does it simplify? And is it good for the customer?
Thesegeneralisationsaresupportedbyevidence. Leftunchecked,employees
multiply. Efficiency and effectiveness slump. Productivity dwindles. That is
why advocates of ‘lean thinking’, such as Tesco, want the customer, not the
employee or manager, to define ‘output value’.
Every healthy organisation will have a policy and a method for removing
those activities and costs that gradually accumulate but which, on checking,
are seen not to add value from the customer’s perspective.
This book draws on our diverse experience. It offers advice on how to
improve productivity, avoiding common pitfalls. Lean thinking is a powerful
tool for attaining improvement and sustaining its momentum. We introduce
its basic concepts and show how they should be applied in practical settings.
And we consider other mechanisms for controlling the costs of labour and
increasing productivity.
Any intelligent fool can make things bigger and
more complex. It takes a touch of genius and a lot
of courage to move in the opposite direction.
Albert Einstein
“
”

3. What improves productivity?
For such a ‘simple’ concept, productivity has many
manifestations. Its origins can be traced back to well
before the industrial revolution, since when war and
the motor car have driven it on.
11

Background
In any enterprise, productivity – at its simplest – is output for input.
Productivity = Output
Input
Outputs and inputs should be measurable and related to costs. Each element
should be under managerial control. Managers should be responsible for
productivity and command the means to improve it.
This model expands the definition to include money and outcomes.
It introduces other measures: economy, efficiency and effectiveness.
Utilisation (of people and assets), waste and quality are other factors.
If productivity is the ratio of outputs to inputs, there are three general
approaches to boost productivity:
Action one: Increase output without increasing input
13
3 What improves productivity?
Organisation
Cost-effectiveness / value for money
Money Inputs Outputs Outcomes
Economy Efficiency Effectiveness
Productivity =
Output
Input

14
Action two: Decrease input without decreasing output
Action three: Increase output and decrease input
Lots of people suppose that raising productivity means increasing output.
It ain’t necessarily so. Higher output is only a gain if customers buy it. So
output needs defining carefully. Making more products or providing more
services than are required is ‘overproduction’, leading to (wasted) inventory.
A better equation for productivity might be:
Because all managerial activity can (and should) be linked to productivity,
there are lots of ways to start describing how performance can be improved.
In the first instance, and ignoring any potential overlap, we shall consider
five elements:
n Managerial and financial controls
n Lean – the productivity of processes and organisations (and much more)
n The productivity of labour, and related controls on the costs of employment
n The productivity of assets
n Continual improvement.
Productivity =
Output
Input
Productivity =
Output
Input
Productivity =
Quantity of orders fulfilled
Input

15
Factors of productivity
A number of factors contribute to these five main elements.
Scale, markets and external factors
The first consideration for productivity is scale. If the inputs and outputs
under consideration are to be found at a national level or in a single sector
or industry, initiatives may involve government, industrial consortia and the
trades unions in such action or investment as might ultimately affect Gross
National Product.
These scenarios exceed the scope of this book. But the Appendix compares
the performance of the UK and other economies. It highlights the influence
of:
n an ageing population (as we have already mentioned)
n the regulatory framework in which companies operate
n the dominant sectors in an economy (how fast investors tend to move into
expanding and out of declining industries)
n fluidity in the labour market – competitive forces and cultural norms.
These all point to the importance of productivity in the company.
Managerial controls
Some managers know little about what is actually going on in the operations
for which they are accountable. Others become complacent, hiding behind
the high margins in soft markets that so often conceal poor or deteriorating
productivity. Accurateandtimelyinformationisthestartingpointifmanagers
are to control effort properly and take action to improve productivity.

16
Productivity in the United States: the challenge
As populations in developed economies level off, the effort to sustain
growth and prosperity depends more and more on increases in
productivity. The McKinsey Global Institute recently² listed seven
priorities for the United States:
n to achieve better productivity in the public and regulated sectors
(including education and healthcare)
n to reinvigorate innovation
n to develop talent and the full capabilities of the population
n to build better infrastructure
n to enhance competitiveness by reducing regulation and creating a
better environment for business
n to face up to the challenge to use energy more productively
n to foster best practice by harnessing and sharing the capability in
different cities and regions.
The researchers concluded that these challenges, though daunting, were
realistic. Productivity had to increase or youth would see its standard of
living barely rise. Yet there was confidence that the US economy would
maintain its strength.
Lean – processes and operations
Lean is the name for a set of tools, techniques and values, initially involving
specialists who work with other managers and the staff to take diverse
measurements and integrate them into a broad assessment of the whole
business. The aim is to make it self-sufficient in continuous improvement.
Lean is the heir of Method Study, Work Measurement, and Value Chain
Analysis; of manufacturing engineering and of workplace design; and
of some behavioural techniques developed continuously since the 1930s.
These tools have had three aims
n Economy – to reduce the cost of inputs to processes
n Efficiency – to reduce the time and cost per unit from processes
n Effectiveness – to increase the value added to the output – its utility and
quality from the customer’s perspective.
² ‘Growth and renewal in the United States: Retooling America’s economic engine’ – McKinsey Global Institute, February 2011.

17
Lean, the latest and most focused of all efforts to boost productivity, places
a distinctive emphasis on defining waste and wastefulness, aiming also to
reduce inputs and increase outputs to match customers’ demands. It often
starts rather than finishes with such fundamental questions as
n ‘Should we be doing this anyway?’
n ‘What does the customer really want from us?’
n ‘How much of what we do is not being sold to the customer?’
The structure and composition of teams
Productivity is often expressed as output per person or per hour worked. So
the size of the workforce for any given output determines productivity. How
teams are put together to organise and share their work affects the number
of people and hours needed.
Ways of evaluating and changing how organisations are designed to work
are touched on in Chapter 9 and given a more thorough examination in the
companion volume, Managing indirect costs.
Departmental methods and measurement
Lean emphasises how the entire process adds value for internal or external
customers. But efforts towards efficiency and effectiveness in separate
departments should not be ignored. Chapter 8 advises departmental
managers in factories and offices to standardize work (in units), measure
outputs, search for lower unit costs and track reductions.
Motivating
Tools and techniques alone will not effect improvements: imaginations must
be fired. Chapter 9 reviews different approaches and shows how changes in
rewards can work.

18
In innovation as in any other endeavour there is
talent, there is ingenuity, and there is knowledge.
But when all is said and done, what innovation
requires is hard, focused, purposeful work.
Peter Drucker
Terms and conditions of working
Unless higher productivity lowers unit costs, an organisation cannot collect
the financial payback that alone justifies all initiatives and improvements.
So the cost of inputs matters. Later we discuss how to manage pay and
premiums, and the costs of absenteeism and of the payroll in general.
Materials and utilisation
As manufacturing processes have become more efficient and direct labour
has become a smaller part of the costs of production, raw materials and
components have become a larger one. But now the cost of the goods, though
important, may even be exceeded by the costs of procurement – of selecting
suppliers and of processing the requisition, purchase order and goods
receipt. But while reports on purchasing continue to focus on price, buyers
will train their efforts on that alone, ignoring the total cost of acquiring and
using materials and components.
Maintaining improvement
Continuous, organised effort to improve productivity will find its reward.
A better way can always be found. But if that effort falters, progress can
stumble and productivity fall.
In Chapter 11 we look at how improvement can be maintained.
“
”

4. Managerial controls and
measures
Measurement and control are fundamental
managerial activities. Little can be achieved unless
these disciplines can be applied rigorously and
consistently.
21

23
If managers are to be ultimately accountable for productivity, they need to be
able to measure and control it. But productivity, like Newton’s apple, seems
destined to fall. Sensitive and timely measures are required to force it up.
Managing by walking about the office, service centre or factory floor to see
and touch day-to-day activities reveals a lot, but not enough. Only tracking
the few, vital indices will alert a manager to potential trouble and create the
opportunity to intervene before it is too late.
Measures of performance should be like beacons: the visible signs of
what managers think important. They should shine a light on financial
incentives, but certainly not on them alone. Inappropriately defined or badly
administered measures can distract attention and distort effort.
The many possible measures of performance can highlight different aspects
of productivity, depending on how a service is provided or a product made.
What follows will focus on the effectiveness of people; on the application of
equivalent units; and on the overall design of controls. Measurement also
forms a crucial part of Lean.
Measuring the effectiveness of people
Productivity was originally associated with machines, manufacturing
processes and outputs. But it is equally applicable to services. Here the
emphasis tends to be on people, since the application of other tangible assets
may be much less in comparison. (Some services, however, particularly in
finance, rely heavily on complex IT and automated processes, and devote
considerable time to measuring their productivity.)
In a less automated environment it is useful to focus on three inter-related
factors:
4 Managerial controls and measures
Utilisation How focused are people on their principal tasks?
Performance
Quality
How productive are they when working on these
main tasks?
How useful are the outputs – and are they
‘to specification’?

24
Collecting data
What are the best ways to measure utilisation, performance and quality?
Process activity analysis (PAA)³ categorises each activity as ‘core’,
‘improvement’ or ‘support’ and indicates how much time people spend
on it. It highlights overlapping and duplicated tasks, and wasted and
over-concentrated effort. A separate analysis of work should reveal the
outputs and determine capacity, rework and any redundant products. Other
means of measuring quality are used to adjust the desired outcome to the
final customer.
The data can be combined to provide a powerful index of:
Overall People Effectiveness (OPE)
OPE should be the first means of assessing the current performance of a
unit and the scope for improvement. It can be used at the start of zero-based
budgeting to measure an organisation or to indicate the available spare
capacity if demand is increasing.
The analyses provide copious information (that should be verified) about
the method of work, the time lost, and the managerial and supervisory
control. They find anecdotal evidence of the opportunities for increasing
productivity – usually welcomed by the staff that is already aware of the
weak points in a system. The presentation of data by department (as shown
below) provides a useful graphic summary of current performance.
How focused
are people on
their principal
tasks?
How productive
are they when
working on the
main tasks?
How useful are
the outputs –
and are they to
‘specification’?
Utilisation Performance Quality
Overall People
Effectiveness %
From PAA
survey data
From analysis
of work content
QA systems and
PAA survey data
³ Managing indirect costs describes Process Activity Analysis more fully.

The outputs can be used for internal benchmarking, to set priorities for
action and for plotting progress.
How much have we produced?
Collinson Grant was commissioned to examine working practices and
find the best way to reduce costs at nine factories of a sector-leading
batch manufacturer. New and consistent managerial controls enabled
local managers to recognise and eradicate a relatively straightforward
error in calculating the amount of output in each production run. The
annualised savings at the first plant where the mistake was found were
£0.7 million. The Group as a whole is now saving £3.4 million each year
from reduced expenditure on materials and machine running time.
Equivalent units as a measure of productivity
Equivalent Units are a common ‘currency’, in which the conversion cost
of different products can be recorded to provide an accurate figure of
manufacturing output and efficiency, independently of the mix of products.
They are useful in measuring the movement in unit and labour costs.
EUs supplement rather than replace accounting and control systems. They
can be used as part of an integrated approach to managerial controls and
marginimprovement,butarestilleffectiveasastand-alonecontrol,provided
that the organisational structure supports them.
25
Account processing
Overall people effectiveness = 53.1%
Utilisation rate = 73.4% Performance rate = 86.2% Quality rate = 84%
Time lost
1,843.5 hours
Type of loss
73.4% of time
spent on core
activity
Time lost
700 hours
Type of loss
16% of time
spent on
correcting
15% of
output
Time lost
702 hours
Type of loss
‘Standard’ time
for volume and
type of work =
4,384 hours

26
The adoption of EUs may also, but does not have to, involve the introduction
of transfer pricing between operators (factory managers) and traders (sales
managers).
EUs are established by calculating a ratio for the unit conversion cost of each
product. The major product in the group is given a value of one. To calculate
the total conversion costs for each product, direct costs are applied to
products,whereverpossible,andthetechniquesofactivity-basedaccounting
are applied to the allocation and apportionment of indirect costs.
Thecostsofoperationsarethenmonitored.Theequivalentvalueforproducts
processed is calculated by multiplying actual volume for each product by its
EU and then totalling the EUs. The financial transfer value of the output is
the actual volume of the product multiplied by the standard transfer price
for each product. Comparisons are then made between current and base
periods for apparent change in volume, actual change in volume (based on
EUs) and change in transfer value. The costs of labour are monitored through
the use of target hour values for various products.
Applying equivalent units
Over the last fifteen years we have supported a multinational
manufacturing business in its drive to maintain market leadership
in costs and productivity. The organizational model is based on
value-chain principles, flat structures, strong managerial controls and
powerful incentives. It is designed to improve profits while managing
declining volumes.
Equivalent Units have been a big part of the manufacturing strategy. We
have helped line managers to understand their underlying principles
and apply the rules consistently. This has allowed the company to
ratchet unit costs down as volumes have declined or stagnated. As
the company has expanded by acquisition throughout Europe and in
Africa, we have used Equivalent Units to maintain rigorous controls.
The commitment of senior executives to a sustained approach has been
rewarded by steadily increasing profitability in what remains a highly
competitive market

Uncertainty Opportunity
Is the specification of the
material or component still
appropriate?
Processes are being continually improved.
Different materials with improved properties
at lower cost can result in cheaper
specifications. Who is responsible for new
specifications? How are changes tracked?
What improvements do purchasing reports
show? How recently has the specification been
reviewed?
Has the product
undergone value-analysis
in the last two years? Was
it ever value-engineered?
Selected value analysis of crucial products,
materials and components can trim costs
and boost reliability. Reports on purchasing
and engineering should reflect this type of
continuing programme.
Are we getting the best
from our suppliers?
Suppliers can introduce new materials
without telling their customers. They may
also be able to reduce prices if there is mutual
benefit in reducing costs. Managerial control
reports should reflect actions and progress.
Is too much material being
wasted during set-ups or
changeovers?
Many organisations do not adequately
measure, let alone control, how much
material is wasted when preparing a process
or machine. Well-established, statistically-
based disciplines are not understood or
applied. So simple measures of time and
materials can yield significant benefits.
Has the performance of the
process begun to decline?
The performance of processes deteriorates
over time, if they are not managed and
maintained. Different techniques can be
employed to prevent this, to maintain
effective control, and to determine the causes
of problems. Statistical Process Control,
Inspection and Taguchi are the most obvious
starting points.
27
Maximising yield
Improvement is frequently about asking the right question:
Some of these factors will be influenced by initiatives on Lean, as described
later.

28
Some comments on controls
To exercise sustained, positive pressure on productivity, managers need
to understand how to design and apply effective managerial controls that
integrate power with responsibility, encourage the staff to perform better
and reward excellent performance.
In a balanced organisation:
n the line structure is designed to be capable of managing the organisation’s
processes and functions properly
n in that structure, each job has relevant and meaningful measures for
which the jobholder can be held accountable
n the effective measures for managing processes and functions are the same
ones for which managers are held accountable.
Measures should form an integrated hierarchy that reflects the structure of
the organisation. At the highest level, measures are primarily financial; at
the lowest they are operational. Integrating them properly makes it possible
to understand variances and the action that should be taken. This is most
easily illustrated in a simple triangular diagram:
Directors and senior
executives
Sectional and
departmental heads
The operational
and clerical staff
Base operational and financial data
Operational and prime financial results
Operational
(with some financial) ratios
Financial
results and
ratios and key
operational measures
First-line team leaders
and supervisors

5. Lean and its focus on the
customer
Good managers in well run enterprises are
instinctively close to their customers and eschew
waste. Lean is a reinterpretation of these central
values and much more.
31

33
Productivity in a Lean context can be summed up in three simple statements:
n To improve productivity is ‘to enable organisations to satisfy customers in
a way that minimises the application of effort’
n It is up to employees throughout the organisation collaboratively to
‘recognise,’ ‘categorise,’ and ‘eliminate’ all forms of waste; to tackle its
causes (not the surface effect); and to stop it recurring
n To increase productivity, do not think about making people or machines
work harder; rather find ways of eliminating non-productive effort or
replacing it with value-adding activity.
Lean always defines value or output from the perspective of the customer.
An activity that adds value is any operation that directly and positively
changes what is done to meet customers’ demands.
Conversely, any activity that does not add value is deemed wasteful.
Practitioners in Lean learn how to distinguish between activities that do and
do not add value for the customer.
Waste
Waste is a key concept in Lean. It takes many forms. People and processes
waste time, space, buildings, products, services, and so on.
In any business that is failing, the waste may get so dense that it ‘strangles’
the organisation. Once employees and managers absorb and act on the
notion that waste is
‘everything and anything that does not add value’
all kinds of waste can be revealed. People who could see no waste before
begin to see excess in the way most operations are performed.
Take a simple illustration. The value of screwing two pieces together lies in
fastening them so that they will not come apart. Everything that does not
serve this function is potentially waste: the way items are counted, the way
the screws and screwdriver are picked up, the rotation of the tool, the way
the screwdriver is replaced.
5 Designing cost-efficient organisations

34
Only the final turn of the screw actually achieves the fastening.
Classification of waste
Defining different types of waste helps to focus action on where it will have
most effect.
Waste can be classified in three ways:
‘Muda’ or Operational waste – capacity exceeds load
‘Mura’ or Waste arising from unevenness or inconsistency – capacity
exceeds load or vice-versa
‘Muri’ or Overburden waste – capacity is overtaxed by an unreasonable
load.
Operational waste can be further sub-divided:
Over-production waste
This is processing what is unnecessary, when it is unnecessary, and in an
unnecessary amount. Costs rise, and resist recovery. This, the worst form of
waste, contributes directly to the retention of inventory, and naturally leads
to all the other forms of waste.
Inventory waste
Inventory shows the health of an organisation: the less the better.
Unfortunately, managers like the comfort of inventory, and tend to hoard
it, pleading the demands of lengthy runs and schedules. Creating inventory
avoids dealing with operational problems. And the cost of the capital it
absorbs, and of the other waste it camouflages, not being itemised as a head
of cost in the operational manager’s budget, easily go unnoticed.
Conveyance waste
Moving things in and between facilities, picking them up, shifting them
around, setting them down and stacking them depresses productivity and
takes up space. And an item can incur idle time waste or defect waste each
time it moves.

Defect waste
Human error causes defects, and defects generate activities that do not add
value: rectification or disposal work; resolving complaints; more inspection;
and disruption to the normal flow of goods or services.
Processing waste
People used to a job can lose sight of its original function and ‘sleep walk’
through it – a habit particularly common in administrative tasks. It is always
worth asking about the basic function of the operation, which will or will not
justify its continuation. For example, an expensive, computerised enterprise
planning (ERP) system may be less effective than a few white boards.
Operational movement waste
Most movement, largely caused by problems of space and layout, adds no
value but does add to the costs of products and to the fruitless movements of
people during the working day. A Lean approach concentrates on reducing
the movement required: by the feet; then by the hips, shoulders, arms, hands,
and fingers. On a higher scale, occupying more space than needed wastes
money and may be a cause of other wastes such as operational movement.
Space should not be used just because it is available.
Idle time waste
People or equipment that are waiting to work cannot be adding value: idle
time disrupts the flow of effort and slows productivity.
Applying imagination to the search
Good managers think objectively and analyse rationally. Modern industrial
and commercial life continues to throw up new problems of waste associated
with what managers and employees do.
Some examples may be arguable or look superficial, such as tea and coffee
breaks in designated but distant staff rooms instead of at or near the
workplace. (In Italy, though, urban office workers often take mid-morning
coffee at the corner café. This is said to be justified by a need to support
administrative processes with close interpersonal exchange!)
35

36
New technologies can be a serious cause of waste. Sending copies of e-mails
to everyone you know dumps your banalities on others who do not need to
know, and wastes their time. Copying all e-mails to the boss usually indicates
an ego trip, a political play, or a serious lack of self-confidence. Companies
should have protocols to deal with this epidemic of wasted time and money.
To recognise waste requires some liberation of the imagination. Waste
exists everywhere: from transformational production in manufacture to
administrative management; from machine down time to the production of
reports on performance that do not get read.
Boosting productivity in the public sector
Some private companies recognise the achievement of tough targets
by paying handsome rewards to the big fish and performance-related
bonusestotheminnows.Butpublicbodiesrarelypaybonusesthatreally
influence behaviour, and may well pay what they do for no compelling
reason. In productivity, the public sector lags behind the private.
But many public services are highly transactional – payment of
benefits, assessment of taxes etc. It would be easy to assess inputs
(how much labour is used and its cost) and outputs (calculations done
in a certain time). And there will be a ‘process’ that connects the two,
however inefficient it might be to begin with. So examination should
quickly highlight waste, duplication of effort, unnecessary delay and
unacceptable quality. Many middle managers in the central Government
and in the health service have been introduced to Lean – with, frankly,
mixed results.
After investigating how work is done, managers are faced with options
on how to improve processes, reduce materials and effort, and increase
productivity. There is usually less urgency to take action than in a private
company where financial results are normally published monthly. Public
bodies are institutionally lethargic. Decision-making can be painfully
slow, subject to perverse conclusions and prone to unexplained delay.
And when a conclusion to act has finally been reached conditions
may have moved on. Despite all this, successful Lean initiatives do
take place in the police force, some parts of local government, the

37
NHS and a few large government departments. They overhaul working
practices and train the staff to eliminate waste and strive for continuous
improvement.
‘Local’ productivity can be boosted measurably, but might not cut cost
for the organisation as a whole. To avoid redundancy, and to maintain
the staff, the status quo and the belief that any employment, however
inefficacious, is better than none, public servants are often moved
sideways, or given artificial or unproductive duties. It remains to be
seen whether the current economic crisis will result in a ‘real’ increase
in their productivity.
Inventory
Inventory is a recurring theme in Lean. Many organisations and their
managers consider it a necessity and show it in their accounts as an asset.
Its cost is not a profit and loss item. When markets are booming and sales
brisk, it may be tolerated. But when stock is dead or turning slowly, and
demand slack, it is too late to offload the heavy burden. To write it off does
hit the profit and loss. From a Lean perspective, though, inventory is always
a waste, whatever the business conditions.
The only exception is a business that holds stock as a service for customers
prepared to pay a premium for rapid supply from stock. Other customers
have no wish to pay more for what has sat on a shelf for months.
It is well known that Dell Computers organises supply to customers from a
factory that carries no finished goods; and that Toyota has long been famous
for having no inventory of parts but a just-in-time process that was almost
the first and finest example of lean thinking.
The problems of inventory can be enumerated.
Inventory requires capital investment – plus the cost of interest.
Inventory uses space – it can cramp work or demand investment.
Inventory has to be moved – and movement is not free.

38
Inventory invites damage – the more it is handled, the more likely it is to be
defective. And dealing with returned goods is very expensive for a company,
involving physical and administrative activity.
Inventory creates unnecessary managerial costs – storage, transportation
and administration all soak up managerial time.
Inventory eats up energy – not much can be safely left at ambient temperature
at all times of the year.
These effects may be only the tip of the iceberg. Inventory conceals other
problems, harder to spot, analyse and solve.
Holding excess stock allows managers to disguise their failure to satisfy
customers; to streamline the supply chain; to match capacity with demand;
to keep machines running; to optimise products’ life-cycles; and to meet the
myriad other problems that beset the company. Think of a problem and the
chances are that a manager’s immediate solution is to create some inventory
to cover the tracks.
Lean’s 5S principle – a revolution in the workplace
The principles that underlie all Lean improvements are known as the 5S.
In theory, factories and offices devote 70% of their space to storage, making
them largely wasteful warehouses. Employees, confined to the small space
left by all that clutter, are less connected, walk farther, and spend more time
managing files and work in progress.
5S aims to cut the mess down to what is really necessary.
There are five simple principles.
Sort – to separate the ‘essential from the non-essential’
Set – to configure the essential to eliminate waste
Shine – to restore essential items to perfect condition
Standardise – to ensure essential items remain in perfect condition
Sustain – to embed and improve the new conditions.

39
The most fundamental of these are ‘sort’ and ‘set’, as success there provides
a gateway to the other three.
Although 5S usually starts on the shop floor or the office block, it is not
purely a campaign to clean or organise the workplace. It is a powerful
lever for improvement, which can be applied physically to a workplace or
conceptually to a process, to an organisational structure, or to a design.
Consider, for example, an organisational structure. The first ‘S’ (sort) reveals
the essential and non-essential positions of jobs in the structure. The second
‘S’ (set) invites the task of restructuring the essential positions to create
better organisational control over flow. The third ‘S’ (shine) re-examines and
cleans up the positions’ roles, responsibilities, and accountabilities to suit
the new organisation. The fourth and the fifth ‘S’ put systems in place to stop
the structure from getting out of kilter with the organisation’s needs.
Work flow
Once the application of 5S has reduced waste, higher productivity often
comes via the associated techniques of managing ‘flow’, ‘levelling’ and
‘standard operations’. Work should flow through a process continuously,
without waste, idle time, rework, or activity that adds no value.
If employees or machines are working at different rates, producing an
unbalancedflow,thecorrectiveactionisnottoadjusttheflowatdepartmental
level, but to visit the point of the process where the customer’s need for a
delivery schedule can be seen and rationalised.
5S
1.
Sort
2.
Set for
flow
3.
Shine to
study
4.
Standardise
5.
Sustain
Set the essential in
the correct sequence
to create flow.
Use visual management
to indicate clearly the
item’s correct location
Shine (clean) to study
the item / process step
to reveal defects before
they affect performance
Sort by removing the
non-essential, retaining
only the essential
Build the behaviour
and culture to sustain
improvement and
minimise the effect
required to maintain
5S condition
Create standard work
procedures to maintain
the zero condition.
Monitor 5S status by
including it on the cell’s
process control board

40
Then it is possible to work backwards, setting monthly schedules and
daily outputs from processing times. In this way the customer, not the
organisation, determines how many items are processed and how fast. Then
all operations should be standardised to ensure robustness and consistency
of performance.
A productive organisation is able to orchestrate its employees, materials,
and equipment to work in the most efficient, waste-free way, which becomes
known as the standard operation. The consequence is that all the Lean and
productivity bells are rung – minimum inventory, and maximum processing
economy, efficiency and effectiveness.
Characteristics of a highly productive organisation
The examples of the Lean approach described in this section should indicate
the comprehensive approach to improvement that characterises the design
of Lean processes.
Traditional, departmentally focused productivity still has its place. But it
may end up not achieving the expected benefits because the focus is too
narrow.
For example, there is limited benefit in improving the productivity of a
team generating invoices if another department that supplies the data is
bedevilled by interruptions, or if a later operation is dilatory in getting them
into the post.
Approch to
improvement
Primary impact
on waste
Secondary impact
on waste
Single-piece flow Over-production and
inventory
Conveyancing and
processing
Levelling and
synchronisation
Idle time and defects Inventory and
over-production
Standardised
operations
Processing and
operational movement
Defects and idle time

41
Lean seeks not only to reduce the effort and cost of billing but to streamline
the whole process, so that invoices are raised and submitted and remittances
received more quickly.
In the next chapter we expand on how each of these techniques can be
combined and applied in a systematic programme.
The great leaders are like the best
conductors – they reach beyond the notes
to reach the magic in the players.
Blaine Lee
“
”

43
6. Running a Lean programme
To make better use of assets and increase
productivity, processes must be made more efficient
and operations streamlined. Numerous techniques
– some simple, others more advanced – can be
applied to optimise performance and achieve a lean
organisation.

45
A network of ‘processes’ and ‘operations’
A distinction must be made between the flow of products and services (the
process) and the flow of work (the operation). Most managers understand
the main processes in the business, and how to analyse and improve them.
But to increase overall productivity they need to focus equally on how
operations work.
Processes exist to transform items or needs: to convert raw materials into
finished goods; or requests for service into services provided. A change in
process can affect the flow of the item, the time taken, the responsiveness of
the organisation, and the quality of the goods or service.
Operations change the agents (the people, machines, equipment, etc),
how they are used and the work they do on the item or need. A change in
operation improves the flow and consumption of effort, the productivity and
the costs.
Graphically, an improvement in process can be shown on the Y-axis and one
in operation on the X-axis. The diagram below shows how assets are used,
raw materials converted, needs satisfied and information transmitted.
6 Running a Lean programme
Utilised
resources
Utilised
resources
Utilised
resources
Raw
data
Request
for help
Raw
materials
Unused
resources
Unused
resources
Unused
resources
X - AxisX - Axis
X-Axis
Y-Axis
Y-Axis
Useful
information
Request
satisfied
Finished
goods
Processflowofadminstration
Processflowofservice
Processflowofproducts
Operational consumption of employees, materials and equipment

46
To make fundamental improvements in performance,
it is necessary to distinguish between product/service
flow (the process) and work flow (the operation).
Shigeo Shingo
A process is completed through a series of operations. But improving an
operation may not boost the efficiency of the whole process. Processes
and operations demand different approaches. But it is also important to
understand their relationships and how they interact.
Getting processes fit for purpose
Any disruption in a minor, supporting process soon stems the flow in the
primary process, just as a constricted capillary can affect a main artery. To
prevent such problems, lean organisations control flow, to avoid drought or
flood.
Pull not push
Traditional organisations use ‘push’ systems to organise work. The upstream
operations determine how items are moved and controlled.
But in a ‘pull’ system, the downstream operations fetch from upstream only
the items needed, only when they are needed, and only in the required
amounts. As the upstream operation is depleted, it pulls more items from
the previous operation, and so on.
This principle is more radical than it may first appear. It turns on its head
the whole tradition of production and process as learnt by many managers
in their formative years.
Using Kanban to control flow
Kanban trigger the movement or processing of items. They are the nervous
system transmitting signals throughout the organisation. When Kanban
inventory (work waiting between tasks) drops below its reorder point, an
order is issued (through the movement of the Kanban card) for the same
amount as before.
“
”

47
In a sense, the downstream operation buys from the upstream one. Hence
the cards that accompany the materials and that return with the empty
container to get more are called ‘Kanban’, which means ‘shop signs’.
This can be a good way to control inventory without having to pay
attention to small fluctuations in demand. It keeps costs low by minimising
administration and by eliminating more sophisticated systems. In fact,
purists eschew electronic or computerised Kanban, which, they claim, can
lie. Cards are more likely to be accurate because visual checks are easier and
not so easy to manipulate.
There are four main types.
n Supplier Kanban
These are used to order large quantities of items from suppliers. Also known
as ‘parts ordering’ Kanban.
n In-facility Kanban
These are used to order items from upstream operations in the facility. Also
known as ‘pick-up’ or ‘withdrawal’ Kanban.
n Work Kanban
These give instructions to operations in a process that require no (or hardly
any) change-over time.
n Signal Kanban
These provide the extra information needed when a product or service
changes and equipment needs to be reconfigured or relocated.

Example of an in-facility Kanban card
This method helps maintain the operational tempo, and efficient operations.
The number of Kanban can be determined as shown.
Number of Kanban = daily output x (flow time + safety margin)
Pallet capacity
Where:
Daily output = monthly output
workdays per month
Flow time = operation lead time (cycle time + retention
time) + flow time for Kanban retrieval
Safety margin = zero days or as few days as possible
Pallet capacity = keep quantity in pallet small and have
frequent deliveries.
A word of caution. This system should be seen as an intermediate step in
transforminganorganisationintoahighlyproductiveenterprise. Manyfirms
adopted a Kanban system, only to find that it did not work as expected.
Some people think it is the essential requirement of Lean. Not so. It is just one
of several tools used to maintain a lean facility. It can reduce inventory until
stock is being turned over monthly or even weekly. But wherever there is a
Kanban, there is inventory. And a truly lean organisation sees all inventory
as waste. So the need for any Kanban should be challenged.
48
Part Name/No.
T5 casing model Y
5645446
Location Code
C 26
Control No.
L 9
Quantity
10
Box number/quantity
of boxes per pallet
2 off 4
Previous Operation
Machining of casing
Current Operation
Assembly of casing

49
Quality Assurance
Pressuretosavecostcantemptmanagerstocompromisequality. Theyshould
resist it. Consistently high quality is essential, no matter what production
system is in use. Highly productive firms tend not to be concerned with the
number or frequency of defects in general. They concentrate on each defect
as it occurs, asking – ‘Why did that happen?’ – to find the cause and make
an improvement to prevent the same defect from occurring again. Quality
assurance varies markedly:
n Level 1 – Inspectors are used superficially, or not at all. So next to nothing
stops defects from being passed on to the customer. The organisation,
reeling under customers’ complaints and wasted material and effort,
heads for a loss. Where this attitude prevails, the only way to eliminate
defects is to abandon production and either start again or contract out.
n Level 2 – Firms receiving complaints may decide to spend more on
inspectors to sort defective items from good. If done thoroughly, this will
stop the complaints. But it won’t stop the defects. And the high cost of
inspection puts the economics of production in doubt.
n Level 3 – An inspector who finds a defect works with the employees who
made it to prevent its recurrence. The aim is not to increase inspection but
to make improvements and train the staff.
n Level4–Employeeswhofindadefectdealwiththeproblemimmediatelyto
prevent its recurrence. Defects are not passed on to subsequent operations.
So all employees act as inspectors, and all items are checked for quality at
all stages in the process.
n Level 5 – Some managers scorn the idea of ‘zero defects’, preferring to
admit that ‘to err is human’. But it is necessary to distinguish ‘errors’ from
‘defects’. Errors result in defects. The way to achieve zero defects is to
prevent the errors in the first place. So inspection seeks the source of the
defects, which is usually human error.

50
The table below summarises the different degrees of quality assurance.
Where does your organisation rank?
* Source: Hiroyuki Hirano
Operations can achieve ‘level five’ quality assurance aimed at ‘zero defects’
by applying ‘mistake-proofing’ devices that warn either that a defect may be
about to occur or that one has occurred. Lean organisations tend to favour
the former: ‘An ounce of prevention is worth a pound of cure’.
A mistake-proofing system
Complex processes may be more prone to errors and hence defects, but not
necessarily. Human error does not discriminate. Managers should always
aim to reduce complexity: it adds costs. But if it cannot be avoided, a
well-planned, ‘mistake-proofing’ system might be appropriate.
Level of
quality
assurance
Approach to
quality assurance
Action to improve
quality assurance
Inspection
type
1 Lots of defects and
lots of customers’
complaints
Shut down the
organisation
No inspectors
2 Lots of defects
but no customers’
complaints
Use more inspectors Sorting
inspectors
3 Defects produced,
but are not repeated
in subseqent work
Increase industrial
engineering type of
improvements
Inspectors who
use feedback
data
4 When defects are
produced at an
operation but they
are next passed to
the next
Train all employees
to spot and remove
defects
Independent
inspection by
all employees
5 When an error
occurs, the
operation does not
produce defects
Thoroughly
implement a ‘zero
defects’ policy
Inspection at
source

51
Wrong/
defective item
Missing
item
Processing
error
Processing
omission
Processing
defect
Material
defect
Warning
Defect is about to occur
Stopped for defect
Immediately stops the
current operation when
defect is detected
Detection
Defect has occurred
Warning
device
Stop deviceControl
device
Defect signal
Signal (light or alarm)
warns that defect has
occurred
Error control
Prevents defect from
being processed.
Whenever it appears,
a defect is about to be
produced
Stop for abnormalities
Immediately stops the
current operation when
abnormality is detected
Flow control
Prevents defect from
being passed to next
operation
Defect signal
Signal (light or alarm)
warns that defect has
occurred
Defects
Mistake-proofingdeviceCausesofdefects

52
Maintenance
In a highly productive facility, a crucial aspect that is often overlooked is
maintenance. Continuous flow depends on machines and equipment that
never break down. The aim is not to repair broken equipment but to apply
preventative maintenance: to treat the causes of a breakdown before it
occurs.
Machines break down owing to physical deterioration. From the day a
machine is installed or a new vehicle delivered, its condition deteriorates.
Sooner or later one or many parts will cause the breakdown.
Almost any machine will display some symptom of ill health before it
actually breaks down. A machine may fall short on quality, or a vehicle use
more fuel than it did. The important thing is to recognise at what point it
is on the path of deterioration. Lean thinking puts this at the door of the
(properly trained) operator, not of the maintenance man. The table indicates
the common stages:
Stages on
the path to
equipment
breakdown
Symptom
Stage 1 Latest minor defects – difficult to see or hear
Stage 2 Apparent minor defect – noticeable to the eye or ear
Stage 3 Performance below expectations – difficult to achieve
atandard performance
Stage 4 Stops intermittently – frequently needs to be shut down
to make adjustments to bring the standard of quality back
in line
Stage 5 Stops – breaks down, functions so poorly that it stops
itself

53
To prevent breakdowns, operators and managers can recognise and adopt
four basic approaches to maintenance.
n ‘Preventative maintenance’ centres on daily checking and routine actions
to raise reliability, reduce the risk of faulty operation, and slow any
deterioration.
n ‘Corrective maintenance’ comprises the actions taken in response to a
breakdown, with a view to preventing any recurrence and to improving
the condition of the equipment and making it easier to maintain.
n The adoption of ‘independent maintenance’ requires managers to give
up the conventional notion that equipment is used by operators but
maintained by technicians. It is the operators who know it best. They can
recognise that an engine may sound louder than usual, or that formerly
clean parts are streaked with oil. So they should do the daily cleaning,
checking and oiling, replace parts as necessary and perform minor repairs.
It is up to the technicians to teach operators how best to maintain the
machines and do major repairs.
n ‘Maintenance prevention’ involves using data to design equipment that is
less likely to break down or malfunction and that can be maintained easily,
quickly, correctly and safely.
Improving operations
Multi-skilled flow cells
It is important to eliminate defects and raise the operating rate of workers
and machines. Increasing productivity is a means to economic survival. But
even ‘survival’ is no reason to treat people like machines. Productivity is
important, but attempts to increase it at the workers’ expense will damage
performance in the long run.
Productivity and respect for employees must coexist. What satisfaction and
sense of achievement could an employee possibly derive from doing the
same specific and specialised tasks for 10 years? Conversely, if employees’
‘needs’ were so respected that productivity was no longer important, would
that sap the organisation’s vitality and cause it to fail?

54
Multi-skilled flow cells can achieve productivity and respect for the
employee.
One-piece flow is the best way to eliminate defects, waste and delays and
to boost productivity. The basic concept is to send work – a physical item or
a piece of information – along the sequence of tasks one at a time, adding
value at each operation.
So multi-skilled flow cells are essential. The workers must gain new skills to
do the several and various operations in sequence and to inspect their own
work.
There are some essential points to consider when setting up such a system.
n Equipment – There is a temptation to invest in expensive, multipurpose
machines to maximise output, forgetting that they need only meet demand.
The whole process is more important than the efficiency of any individual
machine. Productive organisations recognise that it is the machines that
should be specialised, not the people. Machines need to be redesigned
and simplified to include only the essential functions. They should be
inexpensive, small and light, so they can be moved easily. This allows
the flow cell to be flexible and to reconfigure quickly to process different
products.
Productivity
Respect for
the employee
Behaviour
High Low
Lack of respect for workers
Minutely specialised jobs
‘Human robots’
Low High
Lack of concern for economic matters
‘Selfish’ culture
Corporate deterioration
High High
Constructive activities
Multi-skilled work, handling several
types of task
Corporate development and growth

55
n Layout – To do the processes in sequence, the equipment should be set
out as a ‘U’-shaped flow cell – a better configuration than straight lines,
as it minimises waste and allows the pace of operations to flex with the
customers’ demands.
n Eliminate operational ‘islands’ – Some operations run independently, to
their own rhythm, producing their own waste and disrupting the whole
process. Processes should have a steady rhythm, set by the customer and
extending all the way upstream. Operations should be assimilated into
cells and their work should be evenly balanced.
n Operational procedures – Managers should forego conventional
batch-and-queue processing for single-piece flow that pulls items from
upstream operations.
n People – Employees should be involved in setting up flow cells and trained
in the many skills required to handle several different operations and
tasks.
There are those that are so scrupulously
afraid of doing wrong that they seldom
venture to do anything.
Vauvenargues
Speeding up change-overs
Contrary to conventional belief, the costs of inventory and change-overs are
not constant, and large batches do not minimise them, but cause surplus
production, idle time, transport, inventory, setting-up time and defects. Now
that customers demand diverse products in limited quantities, suppliers
need to do fast, efficient change-overs to make small batches economically.
A change-over comprises the activities between the processing of the last
old item and of the first repeatable new item. These may be to change the
materials and parts or settings of the machines and to reorganise and
clean up.
“
”

56
There are two elements of a change-over:
n Internal time – on tasks when the asset (person, machine or equipment) is
stopped
n External time – on tasks when the machine or equipment is running.
Both elements must be improved to cut costs and batch sizes. This needs
four steps in sequence:
n recognise internal and external activities
n convert internal activities to external activities
n eliminate waste in the remaining internal activities
n eliminate waste in the external activities.
Reducing time in change overs
A few principles should guide efforts to improve change-overs:
n Change-overs begin and end with good organisation in the workplace.
A lot of time can be wasted finding the right items to use.
n If you have to use your hands, make sure your feet stay put. A sure sign of a
poorly planned change-over operation is that workers must walk here and
there to perform it.
Current time all internal
Recognise internal and external elements
Convert internal to external
Eliminate internal
waste
Eliminate external waste

n Do not pay for special, fine-tuning skills. Instead, standardise adjustments
so that anyone can make them.
n Standards are standard: they are not to be flexed, interpreted or fudged. If
standardisation is impossible, improvement is unlikely.
Jidoka - Separating people from machines
Many organisations introduce expensive machines to automate work, only
to find that they generate unforeseen demands for the labour they were
supposed to replace. The machine may be unable to complete an entire task
as originally hoped for, or it may produce defective goods if left unsupervised.
So automation can, if not introduced correctly, actually increase costs.
‘Jidoka’ – ‘human intelligence applied to work’ – means automating manual
work to have it done by a machine with intelligence.
Unfortunately, it is still common to see a machine with a permanent minder.
The operator has become a supervisor. Whereas to boost productivity and
cut costs, the machine should run autonomously, without supervision.
There are four stages in separating man from machine.
n Stage 1 – Manual labour – all the work done by hand – makes sense only
when labour is cheap and the work can be done very quickly
n Stage 2 – Mechanisation – some work is done by machine, the rest
manually
n Stage 3 – Automation – all the work is done by the machine. But the worker
sets it up, switches it on and stays with it, as it lacks the intelligence to
know whether it is producing defective goods
n Stage 4 – Autonomation – the machine can be switched on then left alone
to do all the work, as it has the intelligence to detect defects and if so to
shut itself down or make adjustments.
‘Automation’ frees workers’ hands to do other tasks; ‘Autonomation’ frees
their feet, so that they can leave one machine to run several simultaneously.
Do not try to separate workers from machines all at once. The steps that a
worker takes in an operation must be analysed and automated one at a time.
Bold schemes to automate complete processes in one swoop usually end up
costing more than anyone would like to admit.
57

58
How improvements in process and operation interact
An organisation cannot truly realise its full productive potential unless it
successfully improves its processes and operations, adopting and combining
techniques in a specific sequence to curb waste and spur performance.
Step 1 The awareness revolution – combining the 7 wastes and 5Ss
All innovation and improvement start in the mind. Once made aware of
their organisation’s situation, people will want to improve it. But the best
place to start this is not on the shop floor, in the engineering department
or at the suppliers: it is at the top. As long as the leaders persist in thinking
‘It won’t work here’ or ‘We are different’, the necessary changes won’t be
made. But once those leaders become alive to the waste in the status quo,
that awareness will quicken the middle managers and then the whole staff,
prompting change. At the start of any programme of improvement, use the 7
wastes to recognise waste and the 5S to eliminate it.
Step 2 Creating flow – combining multi-skilled flow cells and Kanban
Once the organisation is aware of its waste and has started to make
improvements, it can start to create flow – to bring to the surface the buried
waste that the processing of large batches tends to conceal. Small-scale
improvement will not weed it out. So set up multi-skilled flow cells to raise
productivity and shed costs. Then create flow between the cells by linking
them with Kanban throughout the process.
Approach to
improvement
Primary
impact
on waste
Secondary
impact on
waste
Operational
improvement
Process
improvement
Single-piece
flow
Over-
production
and
inventory
Conveyance
and
processing
Flow cells Kanban
Levelling and
synchronisation
Idle time
and defects
Inventory
and over-
production
Faster
changeover
Quality
assurance
Standardised
operations
Processing
and
operational
movement
Defects and
idle time
Jidoka Maintenance

59
Step 3 Levelling organisational pace – combining reduction in change-over
time and quality assurance
Once flow has been created throughout the processes, reducing time and
costs, the organisation should start to level its operational tempo.
Start at the point closest to the customer – the stocks of finished goods
that give firms a false sense of security by hiding from them the changing
needs of the customer and market trends. Only by reducing that inventory
can organisations meet the demand for shorter lead times. Levelling is not
trimming peaks in demand to match capacity. It is matching types of product
or service precisely to customers’ needs, breaking monthly schedules down
into daily outputs, which are then used to set processing times. To aid this,
the operational cycle times are evenly balanced and synchronised, so all
employees have an equal amount of work and are ‘doing the same dance’.
Start by reducing the change-over times of all operations to allow the
organisation to respond quickly to changing demand without incurring
extra cost. Then set up quality assurance throughout the process to make
deliveries just in time.
Nothing will be attempted, if all possible
objections must first be overcome.
Samuel Johnson
Step 4 Standardising operations – combining Jidoka and maintenance
Once flow and levelling have been set up and the organisation has less cost
and working capital, it should move on to standardising its operations.
Standard operations are those that best combine people, goods and
machine to produce good items economically, quickly and safely. They
are not the same as standard operating procedures (SOPs). To achieve full
standardisation, SOPs must be combined with the physical standardisation
of the work place: separating the people at each operation from the machine
that processes items consistently and continuously, that must never break
down and that should be carefully maintained.
“ ”

60
Improving operations and processes
Set-up reduction
Flow cells
Jidoka
X - AxisX - Axis
Levelling
Standard
operationsFlow
Y-Axis
Y-Axis
Pull/kanban
Qualityassurance
Maintenance

Adam Smith wasn’t the first to consider how work should be organised, but
he left an indelible mark on economics and management theory. Famous
for advocating the division of labour, he also introduced ideas on how work
is done (using skill, dexterity and judgement) and how many people were
engaged in it actively (employment/unemployment). In the 1770s industrial
technology was in its infancy, so Smith did not comment directly on the
impact of investment and innovation. At the time the transfer of labour from
agriculture to manufacturing was much more important.
Since the industrial revolution, managers and statisticians have increasingly
tried to measure every aspect of production, work, investment, costs, waste,
outputs and (more recently) comparative value. War has always been a spur.
How fast could 15th century galleons be built? How quickly could American
engineersmakeandshiptankstoBritainin1941?Howquicklycouldfactories
construct Spitfires and Hurricanes during the Battle of Britain?
The progress of productivity
n 380BC: Plato writes about the division of labour in ‘The Republic’
n 300BC: Xenophon amplifies the division of labour in ‘The Education of
Cyrus’
n 100AD: Publilius Syrus notes the efficiencies gained by single piece flow
‘To do two things at once – is to do neither’.
n 1000: The formation of ‘guilds’ in Europe sets standards for training and
quality and increases productivity
n 1450: The Arsenal in Venice uses standard parts and modular construction
n 1620: Francis Bacon applies deduction – the ‘scientific method’
n 1750: Henri-Louis Duhamel du Monceau writes about the division of this
work in ‘The Art of the Pin-Maker’
n 1760: Benjamin Franklin warns about unnecessary inventory in ‘The Way
to Wealth’ ‘You call them goods; but, if you do not take care, they will
prove evils’
n 1770: Adam Smith, inspired by du Monceau, recognises that the division of
labour represents a qualitative increase in productivity in ‘An Inquiry into
the Nature and Causes of the Wealth of Nations’
63
A short history of the long march

64
n 1808: Portsmouth dockyard introduces single purpose machines to
manufacture pulley blocks for ships of the line and increases productivity
by a factor of 10
n 1817:EconomistDavidRicardousestheconceptofcomparativeproductivity
in an examination of international trading patterns
n 1820: Karl Marx accepts the division of labour as a ‘necessary evil’
n 1880s: Electricity is first commercialized, but the real pay-off in industrial
productivity is only realised in the 1920s
n 1890: Frederick Winslow Taylor describes scientific management
n 1900: Vilfredo Pareto states ‘the law of the vital few’ – that for many events,
roughly 80% of the effects come from 20% of the causes
n 1901: Professor FB Crocker comments on studies of the productivity gains
fromelectricity.‘Itisoftenfoundthatthisgain(inoutput)actuallyamounts
to 20 or 30 per cent or even more, with the same floor space, machinery
and workers’
n 1910: Henry Ford invents the moving production line
n 1910: Sakichi Toyoda invents Jidoka: a way to detect a defect automatically,
and correct it at once
n 1911: FB Gilbreth studies masons setting up piles of bricks and how far they
reach to retrieve each brick, making recommendations on how to lessen
fatigue, increase morale, and raise productivity through conservation of
motion
n 1920: Fokker-Wolf invents ‘takt’ time: the time allowed to produce a
product
n 1926: Charles E Bedaux, an entrepreneur and industrial engineer, brings
his system of work measurement to Britain
n 1920s: Frank and Lillian Gilbreth popularise time and motion study and
the need to study the total working environment in raising efficiency of
effort
n 1930: The Hawthorn effect: studies show that workers are motivated by
interest shown in them
n 1940: Taiichi Ohno fully defines the Toyota production system
n 1950: William Edwards Deming teaches top Japanese managers how to
improve quality through various methods based on Bacon’s rationale
n 1955: Japanese and American governments form a joint ‘Productivity
Improvement Program’
n 1960: Japanese manufacturers adopt Total Quality Management
n 1970:Toyotaproducesmanualsforitssuppliers;otherJapanesecompanies
become aware of the Toyota production system
n 1980: The NBC documentary, ‘If Japan can, why can’t we?’ makes the world
aware of Toyota’s production system

65
n 1990: Womack et al publish ‘The machine that changed the world’; the
term ‘lean’ is popularised
n 1998: Chancellor Gordon Brown notes that the productivity of labour in
Britain is between 15 and 40 per cent below rates in the United States,
Germany and France!
n 2000: Lean is adopted by western manufacturing firms
n 2010: Lean is adopted by all sectors and expands past the shop floor to the
front line and back office
n 2020: The future – ‘Productivity’ becomes the new mantra as competition
increases between western and eastern firms, and different government
organisations compete for limited central funds.
An evolving story
Although rigorous thinking about processes can be traced all the way back to
Plato’s discussion of ‘the division of labour’, the Arsenal in Venice made the
first real attempt to improve them in the 1450s. It standardised components
to allow modular construction of ships and specialised workers’ jobs to
accelerate learning and increase productivity.
In the early 1890s President Theodore Roosevelt prophetically remarked
that ‘The conservation of our national resources is only preliminary to the
larger question of national efficiency.’ Frederick Taylor pointed out that the
remedy for chronic inefficiency lay in systematic management rather than
in extraordinary effort. He also showed that improvement was applicable to
activities great and small, from businesses, farms, philanthropic institutions
and universities to government. The main aim of management should be the
maximum prosperity for employer and employee – the result of maximum
productivity. And that demanded the training and development of everyone
in the establishment to ‘do the highest class of work’.
In the 1910s Henry Ford married consistently interchangeable parts
with standard work and moving conveyors to create what he called flow
production. Fabrication steps were set in sequence, wherever possible, and
special-purpose machines and go/no-go gauges were used to fabricate, in
a few minutes, components that would fit perfectly into the vehicle and to
deliver them directly to line-side. This was a revolutionary break from the
normal practice of grouping general-purpose machines by process to make
parts that would eventually find their way into finished products after a good
bit of tinkering (fitting) in subassembly and final assembly.

66
The problem with Ford’s system initially was not ‘flow’: he was able to turn
the inventory of the entire company every few days. It was his inability to
provide variety. The Model T was not just limited to one colour. It was also
limited to one specification. All Model T chassis were essentially identical
up to the end of production in 1926. When the world wanted variety, Ford
was unable to respond and seemed to lose his way. The fabrication shops
acquired increasingly larger and faster machines, apparently lowering
costs per process step, but continually increasing throughput times and
inventories.Evenworse,thetimelagsbetweenprocessstepsandthecomplex
part routings required ever more sophisticated systems for managing
information, culminating in complex systems for materials requirements
planning (MRP).
In the 1940s Toyota looked at this capital-intensive mass production, with its
large batches, dedicated assets and high waste, and worked out that a series
of simple innovations would make it possible to provide an alternative: a
continuous process, efficient operations, and a wide variety of high-quality
products. The secret was to eliminate waste. In the 1950s and 1960s Toyota
did so. In the 1970s it produced manuals to help its suppliers do the same,
sharing the lean approach with outsiders for the first time.
But it took almost another decade for these manuals to appear, in English,
on shop floors in the West, and yet another for the concept of the value
stream to be applied to the entire process from raw material to customer.
For the first time, production ‘pull’ was extended beyond the factory to the
partners up and down stream.
Today ‘Lean’ has been applied in all sectors: maintenance, repair and
overhaul (MRO); consumer services; financial services; central government;
the police; military organisations; healthcare; and charities. They all want
to minimise waste and maximise productivity and value to the customer.

7. Understanding change
Improvements in productivity flow from
better processes, systems and operations. But
fundamentally they depend for their success on
changing the behaviour of managers and workers.
Investing some time in understanding how this can
be achieved usually pays dividends.
69

Personal change – the emotional rollercoaster
As innovation and change accelerate, firms constantly have to adapt. But
why is change such a fuss? Why, after so much experience, does it so often go
wrong, or fall short of what is wanted? One reason may be that organisations
initiating change often set up techniques to manage and control it. They
might do better to help it rather than manage it.
Organisationalinertiasetsinwhenleadersfailtoconsidertheneeds,feelings
and responses of the people they need to carry with them. It may pay to raise
managers’ awareness of how people may react, and why. They can then plan
to handle this process positively.
Elizabeth Kübler-Ross has revealed key stages in grieving. And people do
seem to associate change with loss. The less they are involved in the change,
the more negatively employees see it, and the stronger and longer that
emotion can be. So leaders of change should be prepared to involve the staff
from the off, and to support their managers in helping employees through
the process.
How people can react to change imposed on them
71
7 Understanding change
Denial
ReducedPerformanceImproved
Anger
Bargaining
Experimentation
Acceptance
Time

72
The progression of emotions can be characterised as follows:
Denial –’I feel fine. This will not really happen, not to us.’
Denial is usually the initial, temporary defence. It soon gives way to a
heightenedawarenessoftherealityofthesituation.Paradoxically,resistance
to change often shows in better performance – an attempt to prove that there
is no reason to change.
Anger – ‘Why me? It’s not fair! How can this be happening? No, I can’t accept
this. Who is to blame? This is all because of the other department. They are the
ones who should change!’
Denial cannot continue, so it leads to frustration or anger, resentment, and
animosity towards the people associated with the change.
Bargaining – ‘Just let me continue as we are for six more months, then we’ll
change. I’ll do anything for a few more years, just don’t close the department.
We can accept a 10% reduction in funding, but we’ll need to reduce output.’
The change is coming to seem inevitable, but the impulse is to delay or
minimise it.
Experimentation – ‘I miss the old way, but everyone else seems to be getting
on with it. Perhaps not everything in the new way is bad. Let’s try this element
first to see how it goes.’
As change becomes certain, cooperation may be grudgingly and selectively
offered, as the shift from the old to the new dispensation is internalised.
Acceptance – ‘You know what, it’s going to be okay; some of the small things
still are not so good, but overall I actually prefer it the new way.’
The new environment is accepted. Morale and performance reach new
heights.
Not everyone will go through every stage, but most will experience at least
two, and many will repeat one or more. Others will get stuck. The bigger the
change and the less people can control it, the more extreme their emotional
response.

73
Getting stuck in denial is common in ‘cool’ cultures (Northern European
countries such as Britain, Germany, Denmark, and Asian countries such as
Japan and Taiwan) where expressing anger is less acceptable. Sympathy will
not free the logjam. Only a respectful but candid statement that this is how
it is going to be will suffice.
Faced with the choice between changing one’s
mind and proving that there is no need to do
so, almost everyone gets busy on the proof.
John Kenneth Galbraith
Another common response is anger. Let it run its course. As it ebbs, start to
communicate, and to bargain. Bargaining introduces at least the possibility
of a shift in attitude.
Yet another reaction is a hesitant interest, a willingness to experiment.
Nurture it, value it, and make sure that tentative efforts are rewarded.
Nothing succeeds like success.
Once a change takes root, it soon becomes the norm. But you may want
to stop the new from becoming as rigid as the old – especially if yet more
change is planned.
How managers can help the staff with change
“
”
Provide the staff
with factual
information
Provide the
staff with clear
direction
Provide the staff
with empathy,
not sympathy
Encourage the staff
to experiment, but
to remain focused
Provide the staff
with positive
information
Time
ReducedPerformanceImproved

74
Be aware the one time this approach does not work is in dire straits during
corporate turn round. That’s the one time you have to leave people’s feelings
until later – or else it will be too late.
Social networks – the company behind the chart
It is not enough for leaders to have power. In order to seek support for their
proposed changes, they need to know who else has power, and how much;
how they are organised; and whom they influence.
But simply identifying the most powerful people may not give sufficient
information to anticipate the overall dynamics of resistance and support for
change. Power accrues not only to those who occupy powerful positions, but
also to those who understand the structure of the organisation – ‘who loses
and who wins; who’s in, who’s out’ (King Lear), where the coalitions are,
and where these have weaknesses.
Social networks ease the flow of information, decisions, advice and friendship.
They constitute the tacit knowledge of the organisation: how work gets done
and exceptions are handled; who is seen as expert; who goes to whom for
advice; and who can be counted on for trust, cooperation and defence.
Research has consistently shown the existence of ‘tied dyads’ (strong
relationships between two people embedded in three-person cliques.
For example, party A may have a relationship with C, but also may have
an indirect relationship to C through B, who may then serve to alter the
relationship between A and C). These function as efficient, effective, and
trusted decision-making mechanisms. Organisational ‘triads’ resemble
magnetic fields – ‘personal forces’ by which individuals and groups attract
and repel each other. The structure of these networks is tacit in the workforce:
there is no diagram for it.
Some social networks may be for advice, others for friendship. Those for
advice are instrumental, because knowledge is vital to how work gets
done, how routine exceptions are handled, and who the perceived experts
are. Knowledge of who goes to whom for advice can be advantageous in
short-circuiting long, indirect chains for gathering information in the firm.
Knowledge about friendship, on the other hand, is useful in determining
who can trust whom, who is more likely to cooperate with whom, and who
is likely to go to whose defence in a political scrap.

Thus armed, leaders charged with running a programme of improvement can
anticipate resistance, mobilise support for action or change, and exercise
unofficial power.
If you want to make enemies,
try to change something.
Woodrow Wilson
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“
”

8. A Lean approach to measuring
change
Lean uses numerous techniques for measuring
progress and assessing what more needs to be done.
Knowing precisely where you started from is an
obvious, but sometimes overlooked, advantage.
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79
Evaluating progress
Benchmarking has become a popular method for managers who want to
mimic the high performers in their field. But do remember that the best a
copycat can do is a perfect imitation. And by the time you have mastered that,
the model has moved on. Firms deciding to improve their productivity had
far better gather evidence on their own organisation, understand their own
‘status quo’, and recognise the various forms of waste impairing performance
and inhibiting improvement.
Managers do tough jobs. Demands for decisions are relentless. Information
is incomplete. Even the best executives make mistakes and face constant
criticism from people inside and outside their companies. Managers facing
one decision after another can’t possibly make the right choice every time.
As Hippocrates recognised, ‘Life is short, art long, opportunity fleeting,
experiment treacherous and judgement difficult’.
So it is important to get enough evidence to inform decisions without
being drowned in a sea of data. Measures affect behaviour. And traditional
measures such as return on investment and earnings per share can
discourage the continuous improvement and innovation that today’s
competitive environment demands.
When making change to improve performance, it is important to use a
balanced set of the ‘vital few’ relevant measures that accurately reflect the
overall intentions of the programme and provide enough evidence to allow
the right decisions to be made. Organisations that have made successful
and sustainable improvements in productivity tend to focus on four aspects
of performance, using simple measures coupled with absolute targets that
move the organisation forward each and every year.
n Employees’developmentandorganisationallearning–100%ofemployees
involved in improvement
n Quality – 100% yield
n Timeliness – 100% of flow time is working time
n Cost – 100% of working time is adding value.
8 A Lean approach to measuring change

80
Lean organisations fear that success can lead to arrogance, to complacency,
and ultimately to corporate failure. A simple and balanced set of measures
helps them to stay focused on the remaining gap between current and
ultimate performance. They minimise the focus on ‘how good we are’ and the
attendant complacency. To reflect this approach, measures of performance
should always be negative. Do not measure quality, measure failure – then
track down the reasons for it. If you want to check deliveries, you will learn
more from those made early or late than from the ones sent on time.
Evidence-based management is conducted best
not by know-it-alls but by managers who profoundly
appreciate how much they do not know.
Jeffery Pfeffer
Measuring improvements in processes and operations
In Chapter 6 we argued that an organisation cannot truly realise its full
productive potential unless it improves its processes and operations,
adopting and combining techniques in a specific sequence to curb waste
and spur performance.
There are accompanying sets of measurements to monitor and support these
improvements at each stage of deployment.
Step 1 The awareness revolution – combining the 7 wastes and 5Ss
When starting to transform the performance of an organisation, concentrate
onmeasuringthe‘human’aspects.Someorganisationstrack5Sperformance,
but this tends to beautify the workplace rather than make it highly
productive.
In transforming productivity, express all measures as percentages, and go
at the right speed. Too fast, and ‘initiative fatigue’ may set in before any
substantial improvement has been made. Too slowly, and the employees
may lose interest and the programme stall.
Everyfirmisdifferentandshouldsetitsowntargets.Thefollowingguidelines
are useful.
“
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81
Engagement – aim to involve 35% of the staff in improvement each year. In
three years, everyone will have chipped in his two penn’orth. If only 5 to 10%
take part, it may take a decade to involve everyone!
Pace of improvement – aim for 5% to 10%. If, say, four to twelve people
take part in each improving activity, this will support their engagement.
Treat improving events as ‘inventory’. Do not have too many open at any
one time. Launch them in ‘single piece flow’ and try to get each one done
before launching the next. For example, if an area with a staff of 150 is being
improved, a good pace of improvement might be 8% – one improving event
fully completed each month.
Support for improvement – aim to start a programme of improvement by
placing 1% of the staff in the improvement team dedicated to the effort. As
success builds and the organisation becomes more productive, strengthen
the team. Of every 20 employees freed by the improved operations, add one
to the team.
Engagement =
Number of people who have participated in an
improving activity
Number of people in the area being improved
Pace of improvement =
Number of improving events in the last 12 months
Support for improvement =
Number of people dedicated to the programme

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Step 2 Creating flow – combining multi-skilled flow cells and Kanban
Wehavealreadystatedthat,whenoutputisbeingraised,productivityshould
always correlate directly with customers’ demand. Making more products
or providing more services than are required is ‘overproduction’ of waste
inventory. It follows that the operation’s tempo or cadence (also known as
takt time) should be set by customers’ demand.
Once the takt time has been established, the minimum number of people
required in that process can be determined by dividing the sum of manual
cycle times by the takt time.
As the multi-skilled flow cells (or work stations) are being set up and
linked through a series of Kanban, the efficiency of the operation and the
effectiveness of the process need to be measured and managed.
Operational efficiency should be measured through ‘line balance efficiency’,
and can be calculated to quantify how much of the capacity of the process
is being used.
Effectiveness should be measured through ‘line balance ratio’, and can be
calculated to quantify how work is shared between work stations.
Takt time =
Available time
Customers’ demand
Minimum staffing =
Sum of manual cycle times
Takt time
Line balance efficiency =
Takt time × number of staffed work stations
Line balance ratio =
Longest cycle time × number of staffed work stations

Step 3 Levelling organisational pace – combining reduction in change-over
with quality assurance
The efficiency of a changeover should be measured as a proportion of
the cycle time. It is always difficult to set a target for this measure, but if
mixed model processes and ‘levelling’ of schedules are to be achieved, the
changeover time should be approximately one tenth of the standard cycle
time to process an item.
Too many firms measure quality at the end of their processes. The
effectiveness of quality assurance should be measured by the ‘rolling yield’
through the complete process. This is calculated by multiplying the yield
of each operation in the process. For example, if a process consisted of four
operations, and if each operation had a yield (right first time) of 80%, the
rolling yield effectiveness would be 41%.
Step 4 Standardising operations – combining Jidoka and maintenance
‘Jidoka’ aims to automate operations, using fewer people to process more
items with increased consistency. The efficiency of automation should be
measured as the proportion of human operation in the automated cycle.
For example, if an operator oversaw one machine for a week, the operator
might work 40 hours and the machine cycle might amount to 30 hours – an
automation efficiency of 75%. If the operation were to be improved so that
one operator could oversee two machines, the automation efficiency would
increase to 150%.
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Changeover efficiency =
Elapsed time between the processing of the last
old item and of the first repeatable new item
Cycle time to process one item
Rolling yield
effectiveness
Operation 1
% yield
Operation 2
% yield
Operation 3
% yield
Operation 4
% yield
= × × ×
Automation efficiency =
Sum of automated ‘machine’ cycle times
Operator’s time spent

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Overall equipment effectiveness
Automatedproductivitydependsonequipmentthatneverbreaksdown. Total
productive maintenance aims not to repair broken equipment but to treat
the causes of a breakdown before it occurs. The maintenance regime should
be measured through ‘overall equipment effectiveness’. This is calculated
by multiplying the three performance elements – machine ‘utilisation’,
‘performance’, and ‘quality’ (similar to ‘Effectiveness of People’).
For example, a machine with a utilisation of 80%, performance of 85%, and
quality rate of 95% would have an overall effectiveness of 64.6%.
Overall equipment effectiveness (OEE) Potential utilisation of assets
Utilisation rate =
Available time – downtime
Available time
Utilised time
80%
Downtime
losses
20%
Performance rate =
Net operating time
85%
Speed
losses
15%
Quality rate =
Quantity of defects
Quantity of output
Value operating time
95%
Quality
losses
5%
Overall equipment
effectiveness
64.6%
Total operating loss
35.4%
OEE = Utilisation × Performance × Quality
Speed rate × Net operating time
Speed rate =
Ideal cycle time
Actual cycle time
Net operating time =
Output × actual cycle time
Available time − downtime

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Measuring the continued rate of improvement
The maxim, ‘What you can’t measure you can’t manage’, remains as true of
learning as of any other corporate objective. The costs of processing tend to
fall as productivity rises.
But the focus on output ignores what organisations learn. As they improve
their operations, processes and productivity, they get better at improving
them.
The ‘half-life’ curve offers a way of comparing internal rates of improvement.
It measures the time it takes to boost a specified performance by 50% (a
nominal figure derived from studies of successful improvements in diverse
companies and from the ‘lean thinking’ that offers to ‘double the good and
halve the bad’). Half-life curves work on any measure of output (not just on
costs or prices), can easily be put into operation, provide a simple yardstick,
and offer ready comparison between groups. So rather than believing
the traditional ‘law of diminishing returns’, organisations should seek to
accelerate their rate of improvement and actively monitor and manage their
‘half-life’ curves.
This is a pivotal phase in the transformation process. Too often firms start
to disseminate incomplete methodologies to be applied by employees
lacking sufficient skills or experience. Middle managers quickly rebel and
the momentum for change is lost. Discipline and patience are required to
avoid this common pitfall.
A disciplined approach to managing improvement
Using an A3 paper template
Toyota introduced a simple method for employees to think about the
problems they encounter and to learn from solving them. The data, analysis,
causes, actions and results are all shown on a single sheet of A3 paper. This
is a powerful way of solving problems. It contrasts markedly with fruitless
meetings in which the participants struggle to deal with a problem that has
scarcely been defined.
The objective is to use sound data and/or direct observation to prompt a
systematic analysis, focused discussion and rapid consensus on the best

86
way forward. Properly applied, the methodology speeds up decision-making
and boosts productivity.
The A3 template follows a logical and standardised structure – who, what,
where, why, how, and when? It presents data simply, so that they can be
quickly assimilated. And it promotes the sharing of information and provides
a forum for learning about past failures and future opportunities.
A3 templates have been improved and refined many times over a number of
decades, and there are now different designs for specific uses.
n Managing and reviewing programmes of improvement
n Developing strategy through value stream analysis
n Designing processes
n Running improvement exercises
n Managing complex and ‘messy’ problem-solving.
The Improvement A3 is the base document and should be used on most
occasions. Other formats are slight variations that ask some other specific
and relevant questions.
(7). Confirm results and sustainability
(8). Improve the improvement processes
(5). Develop and validate solutions
(2). Quantify initial status
(3). Quantify target status
A3 Creation date: Improvement project: Sponsor’s
signature:
IMPROVEMENT A3
Team Leader:
Issue number and
date of issue
1
Events status
Facilitator:Team launch date:
Completion date:
(1). Clarify and validate reason for action
Team:
2 3 4 5 6 7 8
(4). Determine and validate the cause (6). Complete all actions

Using the A3 template
Each improving activity has a sponsor and leader. They define the problem,
specify the starting point and set the target for improvement. Hence:
n Box1–acleardescriptionofwhatneedstobeimproved,basedonevidence
validated with data and/or observation.
n Box 2 – the starting point. A yardstick against which future change can be
measured, taking into account the multiple aspects of any situation, cost
versus quality etc.
n Box 3 – the realistic goal for improvement, using the same measures as
above.
Once this framework is established, the sponsor and leader approve
the template and send it to the chosen team of employees to consider
possible action. The separate members of the group spend up to two weeks
considering the challenge that has been set before meeting to consider what
might be done:
n Box 4 – the team’s task is to understand and find what is causing the gap
between the present and desired states. The conclusions are summarized,
prioritized, and recorded.
n Box 5 – further work to draw up solutions and to assess costs, benefits and
the impact on future performance is then recorded.
The sponsor and leader at this point confirm that proposed solutions match
the causes; the causes correlate with the gap in performance; and the gap
with the initial assessment in Box 2.
n Box6–Allimprovementsarerecordedandtheirstatusisupdatedregularly
– commenced, in progress, completed etc.
n Box 7 – the resultant effects on performance are recorded and monitored.
The A3 sheet remains ‘live’ until the targets set out in Box 3 have been
achieved.
n Box 8 – provides the opportunity to review success / failure and learn from
the exercise. Once completed, the A3 is then distributed throughout the
company to transfer knowledge and experience.
Used effectively, the A3 process facilitates a shift from authority (who owns
what) to responsibility (what is the right thing to do). People earn the right to
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88
take an action by focusing the question on facts rather than on opinion. A3
management is neither ‘top down’ nor ‘bottom up’. It clarifies responsibility
by placing ownership squarely on the shoulders of the author-leader of the
A3. Authority to make changes is pulled by the leader in a lean manner:
on-demand, just-in-time, single solution flow.
The seven ages of a highly productive organisation
All the world’s a stage,
And all the men and women merely players;
They have their exits and their entrances;
And one man in his time plays many parts,
His acts being seven ages.
William Shakespeare
Some initiatives, be they to boost quality or culture, or even stave off disaster,
generate only lukewarm results. Others may fail miserably.
Leaders should realise that change is not an event but a process. Progress is
in phases that take time to work through and complete. But skipping stages
creates only the illusion of speed, rarely a satisfying result. And if victory
is declared too soon, momentum and hard-won gains can be lost and the
desired change thwarted.
As Shakespeare’s Jaques said of Man, leaders and employees pass through
seven stages in an organisation’s change into a highly productive entity.
Understand these stages and you will you boost your chances of success.
‘Get ready’ – Infancy
Aware that performance is not sustainable, but as yet unable to change
it, managers seek possible ways to improve and to give the employees at
least an inkling that the status quo is not acceptable. If this is not done, the
employees might well resist change.
“
”

89
‘Steady’ – Childhood
They start to analyse data to find the causes of its poor performance, to design
a new model and decide how to create it, and to tell the employees what is
going on. The leaders set a programme and a method of improvement and
encourage employees to contribute to any analysis and to question and test
the proposed solutions. Otherwise the improvements may not be focused on
the right problems, and employees may deny responsibility.
‘Go’ – Teenager
Progress is in fits and starts as employees learn how best to do it. Emphasis
is on raising the performance of one product or service rather than them all.
Leaders, accepting that mistakes can be made, demand worthwhile results –
‘half the bad, double the good’ – and that benefits are reflected in the bottom
line. Employees become fully involved and work to the new standards. This
‘consolidation’ reduces the risk that the programme might be seen as just
another toothless initiative and the leaders as less than serious.
‘Go quicker’ – Young adult
After the first improvements, the same products or services are given a
tougher challenge – to improve as much again, but faster. Only once the
staff has become proficient and learned the lessons can it move on to other
products or services.
‘Go broader’ – Adulthood
Now there is sufficient competence and confidence, it is time to spread
new skills throughout the firm – to improve all products and services in
all departments and functions. Leaders should clearly enunciate a new
ETHOS: there is no going back! The ‘company’ should still try to learn from
mistakes and make more refinements to working methodologies. Increased
productivity and service are noticed by customers and can speed up growth.
As the organisation becomes aware of its new-found competence, arrogance
easily sets in. If it is to continue to improve, managers need to remain humble
and open to new ideas.

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‘Go deeper’ – Wisdom
Production, service and support will have passed through four or five cycles
of improvement. The demarcated roles and responsibilities of departments
and their employees will start to blur. Leaders need to redefine the
departments and jobs. As waste continues to be stripped away, each
employee’sresponsibilitieswillgrowinaloosestructureofsemi-autonomous
teams. All employees should be focused on the ‘three zeros’ challenge; ‘zero
waiting, zero defects, and zero waste’.
As new skills are honed and experience in their application increases,
employees’ dependence on internal improvement teams should diminish.
This is a telling moment; leaders should plan for this and consider the
improvement managers for senior positions.
‘Go farther’ – Altruism
Organisations sometimes try to improve their suppliers when their own
internal processes and performance are well below par. This should be
attempted only during the later phases of a programme. The objective is
to extend the approach beyond the business’s boundaries; to improve
the processes for upstream supply and downstream consumption. The
work should be collaborative throughout the value chain. Leaders should
stimulate innovation and welcome new ideas. They should also be willing to
make more changes in the organisation to benefit suppliers and customers.
Once organisations work together harmoniously, the end product, service,
and value offered to the customer can be completely redefined.
The risk of not doing this is that the firm may be left behind as competitors
improve, overtake, and compete for customers.
A programme to improve an organisation should demonstrate the
effectiveness and efficiency it seeks to promote. The activities should flow
without pause. If they fail to generate the expected benefits, stop them
and resolve the problem. Ensure that each stage provides a solid enough
foundation for the next.
To reiterate: declaring victory too soon can lose momentum and hard-won
gains and jeopardise the entire effort.

How am I going to decide what to do?
Singleness of purpose is one of the chief essentials for
success in life, no matter what may be one’s aim.
John D Rockefeller, JR.
To achieve the desired performance, an organisation needs first to work out
what is causing the shortfall, and then how to get the most benefit from any
effort to improve.
Computer-based spreadsheets can make data easy to analyse, although their
automated graphing can, as below, be baffling.
What are the services? Are higher numbers better or worse? Are the figures
percentages, complaints, minutes lost or what?
Often managers cannot see the information for the teeming data.
One effective way to recognise underperformance and its causes is to
combine the ‘Pareto principle’ with ‘plan-do-check-act’ (PDCA).
The Pareto principle
In 1906, the Italian economist, Vilfredo Pareto, observed that 80% of the
land in Italy was owned by 20% of the population. 20% of the pods in his
91
“ ”
JuneJuneMay
Quality Performance
100
90 80
130
30
70
40
110
40
Service ‘A’
Service ‘B’
Service ‘C’

92
garden contained 80% of the peas! And so on. As a rule, 80% of the effects
come from 20% of the causes.
This holds good in business. 80% of sales come from 20% of clients. 80% of
value lies in 20% of stock. Fixing 20% of bugs in IT would eliminate 80% of
crashes. 20% of patients use 80% of health care. 20% of criminals commit
80% of crimes. 20% of customers in financial services generate income:
80% cost money.
So, nurture the 20% of processes that add value and eliminate the 80% that
add none.
Plan-do-check-act
‘Plan-do-check-act’ (PDCA) was made popular by Dr Edwards Deming, the
father of modern quality control. The concept is based on the scientific
method, a fundamental principle of which is iteration – once a hypothesis is
confirmed (or contradicted), repeating the cycle will extend the knowledge,
just as souls in Purgatory rise as they circle.
Combining Pareto and PDCA
A graph sets out knowledge to be understood. This works best if it follows
PDCA.
Heretheheadingistheplan,themainbodydoestheanalysis,theconclusion
checks the findings and the action box shows what will happen next. The
graph is clear, meaningful, and easy to understand. But, well presented as
it is, showing the largest and least causes of complaints, it may still not be
all that useful.
The data should be reanalysed until the 80/20 distribution is found.

The graph below incorporates PDCA and Pareto.
An investigation of customers’ complaints in January
Standardising the graphs used in the organisation teaches all employees
how to read, understand, and present analytical work done by colleagues.
So it may be worth setting some corporate standards. For example, all Pareto
graphs should:
n strive to find the 80/20 relationship
n be structured in a PDCA format
n have no more than nine categories
n colour the 80% – the important bit – red
n match the left hand vertical axis to the size of the sample
93
312
188
30 28 23 19 12 9 4
50%
80%
85%
89%
93% 96% 98% 99% 100%
Numberofcustomercomplaints
Cumulativepercentage
North
W
est
CentralSouth
East
South
W
estNorth
EastSouth
W
est
North
East
Conclusion The North West and Central regions accounted for 80% of
customers’ complaints
Action Investigate the reasons for complaints in these regions

94
Further iterations of analysis should seek the 80/20 distribution, and
should be repeated until the causes are found and means of improvement
specified.
For example:
Cumulativepertcentage
30 28 23 19 12 9 4
50%
80%
85%
89%
93% 96% 98% 99% 100%
An investigation of customers’ complaints in January
Level one
Pareto analysis
32
10 4
80%
90%
94%
97% 99%
100%
An investigation of customers’ complaints made during January in
the North West region
Level two
Pareto analysis
15 15
5 5 5 3 2
40%
80%
85%
92%
94% 96% 98% 99% 100%
An investigation of customers’ complaints made about the service
centre during January
Level three
Pareto analysis
412
Conclusion The North West and Central regions accounted for 80% of
customer complaints
Action Investigate the reasons causing complaints in these regions
Conclusion 80% of complaints made in the North West were concerning
the service centre
Action Investigate the reasons for complaints about the service centre
Conclusion The majority of complaints were made about service on
Monday and Wednesday morning
Action Investigate what is causing service failures during these times
312
188
250
100 100
Cumulativepertcentage
NumberofcustomercomplaintsNumberofcustomercomplaints
CumulativepertcentageCumulativepertcentage
CumulativepertcentageCumulativepertcentage

95
There are many ways to analyse losses in performance: ‘value stream
mapping’; ‘process activity analysis’; ‘capacity analysis’ et cetera. We reckon
that the starting point should always be to create a ‘data story’ through
multiple layers of Pareto analysis structured through PDCA. This will focus
attention and suggest the most relevant tool or technique.
Money, money, money
Good service, high standards and committed employees are all very well.
But ‘Money makes the world go around’. Change gets mandated only if it
will produce a financial benefit. So it is important to show that it will.
The cost of purchases is a vital part of the profit and loss statement. But
this is primarily determined by the price of commodities and by original
equipment manufacturers (OEMs). There is not much scope for competitive
advantage there.
The second, and usually the largest, internal cost is people: their salaries;
and the facilities required. And that depends on their productivity. If that
goes up, the size – and cost – of the staff should go down.
Next, sales and revenue can be boosted by improvements in quality and
lead time. Reducing inventory is a start. But the real benefit comes from
being a responsive supplier. Cutting lead times by 75% can double or even
quadruple the rate of growth, say from 2% to 4% or even 8%.
Then there is quality. Few leaders recognise how closely quality and financial
performance are linked. But they are. Firms perceived as excellent generate
high returns on investment. But disappointed customers disappear, never
to return. Worse still, they tell others. Remember, it is cheaper to retain a
customer than to acquire one. To improve quality is one of the best – and
cheapest – marketing efforts that a firm can make.
This prompts a virtuous cycle: processes speed up; productivity rises; stock
is turned over more often; lead times shorten; customers pay faster; fixed
and working capital are reduced and net margins increased; debt declines;
and marketable assets rise in value.

9. Managing the cost of payroll
People are difficult and expensive to manage.
Nobody wants to do more for less. Governments
don’t seem to understand that excessive regulation
increases costs and stymies innovation. It takes
sustained effort to reduce complexity and get better
value from the workforce.
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99
Classes of payroll
However lean processes might be, even today most depend on managers
and their teams – on payroll.
Many operations, in manufacturing and administration, now carry a much
diminished element of payroll: companies have relaxed formal controls over
staffing and the cost of payroll in consequence. Nevertheless, the total cost
of employment remains significant for most organisations. It is a visible hit
on profit and loss, and there are many options available to cut it, probably
more than for the cost of manufacturing materials.
Furthermore, employees still hold the key to the efficiency and effectiveness
of many processes. It is the size of the staff and its rate of remuneration that
have the highest propensity to increase if not given systematic attention.
Traditionally, costs, particularly payroll, have been classed as direct (varying
with volume of output) and indirect (varying less than proportionately or not
at all with output). The distinction between direct and indirect has usually
been associated with the production payroll and the administrative payroll.
This particular classification is no longer worth using. The words continue
to have meaning, but the old basis for the distinction does not. Nearly all
payroll - whoever it pays and whichever the process at which they work – is a
semi-variable cost. And when there is a change to a process, volume should
increase or payroll cost should fall, or both.
A strategy for controlling the costs of employment
As a matter of routine managers should:
n Reduce the staff or working time whenever volume goes down, but resist
increasing both when volumes increase.
n Reduce the numbers of grades and the number at which decisions can be
made.
n Have a good system for tracking the number and types of employees.
n Recover annual pay awards in increased productivity.
n Quantify outputs in units (even in administrative departments) and
publish them.
9 Managing the cost of payroll

100
n Use accurate measures for productivity, including unit cost.
n Create an atmosphere in which there is an expectation that productivity
is a continuous, upward path and that improvement is natural, to be
expected, and part of everyone’s job.
Productivity and jobs
Research by the University of Cambridge’s Institute for Manufacturing*
has highlighted the dilemma that if small firms increase productivity,
they shed jobs. In revealing that Gross Value Added per Employee is
considerablyhigherinadvancedmanufacturingbusinesses,itcelebrates
the contribution of the UK’s scientific and technology firms. And it notes
that success in boosting productivity and applying Lean has sometimes
ignored the potential for growth. Foreign direct investment has also
promoted improvements throughout the supply chain. The researchers
conclude that the emphasis on productivity alone is not enough. Smaller
firms must have robust plans for growth as well.
* ‘Stimulating Growth and Employment in the UK economy’ – University of Cambridge – July 2010
Stop spending on more members of staff
Each employee represents a daily investment. The total annual cost of his or
her job can be up to an additional 50% of salary once the time and total cost
of an employer’s obligations have been met.
The obvious costs of pension, national insurance and benefits may account
for half of the addition, but space and furnishing (including car parking,
recreation and refreshment areas) is substantial. Teams generate a need for
team leaders. There is a cost to paying people, for the HR department and
training, and so on. At least half of a company’s total costs are to do with the
size of the staff.
Techniques to boost productivity emphasise getting value by maximizing
the outputs from people and processes. But the first step is economy – do we
really need extra heads?

If a new job or task looms up, the last question is ‘Should we recruit?’ Ahead
of that are ten other questions.
n Is the new job or task consistent with Lean in that it will add value to what
the customer buys? Or if not, is its function essential to run the business?
n How did the need for the job or task arise? Investigate the who, where and
why of the apparent need.
n Can we stop doing something we do now in order to take on the new job or
task?
n Can we change or improve our process to avoid taking on an extra
person?
n Can the job or task be done somewhere else in the company where there is
some slack?
n Could we make an internal transfer, so avoiding an increase in the total
staff of the company?
n Can the task be added to someone’s current job? Why not try it and see?
n Is a bit of overtime the solution?
n Instead of recruiting a new whole person, would a temporary, contract or
part-time job be a solution?
n If you are the manager – how is your work load?
Abitofsimpleformality–aticklistofthealternativessubmittedinsupportof
an application to recruit – might slow the rise of the payroll. Most companies
in distress (or administration) have formal procedures for authorising
recruitment. So why not use them all the time? And the cost of recruitment
itself is highly variable. An audit of many large companies reveals myriad
and conflicting mechanisms for finding new members of staff, often highly
inefficient.
Real and imaginary jobs (Conker health and safety manager)
The public sector, particularly local government, has come in for a lot of
criticism about the creation of new jobs – not without some justification.
Bureaucrats are given ever-increasing responsibilities to provide new
services. But there is rarely a critical review of how the duty should
be executed and whether a current employee could take it on. The gut
reaction is to create a new post – before considering the cost. And the
government’s attempts to reduce red tape rarely seem to succeed!
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102
Grade structure
Unit costs are controlled by paying the right rate for the job, and no more.
There can be two potential problems.
The first is whether, because of change in technology or for other reasons,
employees have become overpaid for what they do. The solution to this may
not be available at a stroke, but a solution, long-term if necessary, should be
sought. It is difficult to reduce unit costs in such an exercise, but at least it
should be possible to arrest further decline.
The second is whether the jobs can be de-skilled further in order to drive
down cost by designing them for members of staff who can be paid at lower
rates for less demanding work.
Of course some jobs demand skills that legitimately increase. In that case the
return can be sought by making the processes more efficient and effective
and so reducing the staff or increasing the output.
Structure and composition of teams
How teams are put together and managed affects the numbers employed
and the cost of the process or processes on which they are engaged.
Any organisation, department or unit can optimize its cost by paying
attention to the design of its structure. The technique involves analysis of
the layers in the hierarchy and the spans of control under managers. It is
often the case that managers do not ‘manage’ and excessive supervision
creates lethargy and delays decision-making. ‘Team building’ is often given
considerable attention. But getting the structure right in the first place is
usually the best starting point.
This subject has been dealt with more thoroughly in Collinson Grant’s book,
‘Managing indirect costs’.

The best executive is the one who has sense enough
to pick good men to do what he wants done, and
self-restraint enough to keep from meddling with
them while they do it.
Theodore Roosevelt
Productivity in complex manufacturing
Sophisticated teamwork is necessary to boost performance in
manufacturing, according to research by Stanford Graduate School
of Business and others.* A study of steel mills in the United States
producing high-quality products found that problem-solving teams
with various skills could boost output considerably, particularly used
on really knotty problems. Team working seemed to stimulate workers
who otherwise might not have contributed. The researchers commented
that investment in this type of ‘HR’ initiative should go hand-in-hand
with major capital investments.
*Stanford Graduate School of Business – Research papers – Journal of Labor Economics 25, 4 (October 2007):
Measuring time
Traditional manufacturing plants, and some offices, have always used
measures of standard cost to assess productivity. These methods can be
accurate and have stood the test of time. But it is important to be clear just
what is being measured and how the exercise might yield improvements. For,
while it is possible to exercise control through time standards, it does not in
itself do much to lever up productivity.
The basic methodology is straightforward. A ‘standard’ task is assessed for
its work content and rated according to how much time an average worker
should take to complete it. The cost per hour or minute can be calculated for
each unit of labour.
‘Normal’ activity can then be observed and the outputs measured against
units of input. This gives a measure of labour efficiency. Productivity and
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104
cost variances can also be calculated as an aid to product costing but also to
control labour costs. Variances arise as a result of inconsistency in rates of
output, mix of employee grades used, unbudgeted overtime or uncontrolled
incentive payments, and other unexpected events.
One reason for variances may be that the standard method has not been
used. But sometimes the operator, far from reducing productivity by failing
to follow the standard method, employs a method that improves it. While
good in itself, this can have the effect of paying higher incentive bonuses
in which the savings from lower unit cost all go to the employee, leading
to disparity in how bonuses are calculated and stirring up problems in
employee relations.
Traditional methods and measurement techniques have lost favour as
technology has changed methods more and more often. Effort put into
measurement in earlier times is now put into design and Lean projects.
Terms and conditions for working
Annualised hours
In many sectors, demand varies with the seasons or other factors. Earlier
responses might have been to build up stock in quiet periods ready for
busier times. But lean thinking demonstrates just how wasteful this is.
A fixed labour force means fixed costs and lower margins when times are
slack. When there is a sudden upturn in orders, it may be necessary to use
overtime or additional temporary members of staff to meet the demand. This
has a number of disadvantages:
n overtime is rarely stable or predictable, so managers have to rely on the
goodwill of the workforce and the incentive offered by the premium rates
to provide the required labour. This raises costs
n temporary labour can be expensive to recruit, to manage, to supervise and
to train.
When there is a downturn, the options are equally messy. Redundancy
is costly and cumbersome. Natural wastage often means that the better
qualified and more productive workers leave. Temporary lay-offs damage
morale and take time to administer.

105
So employers in this situation have negotiated annualised hours contracts to
containcostsandincreaseflexibility.Oftenthisisinaunionisedenvironment,
but that does not mean that officials will necessarily be obstructive. On the
contrary, they may view the arrangement as a means of stabilising annual
pay in industries prone to seasonal fluctuations. More entrenched resistance
might come from those workers used to getting frequent and well paid
overtime.
Well planned annualised hours strike a balance between economy,
efficiency and a reasonable life-work balance for employees. The savings
for the business are shown in reduced manpower, less overtime and better
utilisation of people.
Shift working
Shift working is always difficult to plan. There are elaborate templates to
fit every possibility. Workloads vary, skills change and before long inputs
and outputs are out of kilter. If attractive shift premiums have been offered,
workers will naturally resist change. But they and their representatives must
be made to realise that working patterns are not set in stone and must be
open to negotiation. Some of the methods of payment include:
n flat-rate allowances per hour, shift or week, in addition to basic day rates
n fixed percentage additions to the day-work rates
n basic rates of wages with shiftworkers getting a higher rate than day
workers
n paying a standard annual amount to all employees working that particular
shift
n extra allowances for hours worked outside the normal daily hours.
It may be important to recognise that in some circumstances prolonged shift
working may affect employees’ health. An employer should take note of
these concerns in planning new arrangements.
Containing costs
Other ‘add-ons’ can also get out of hand. Premium rates for weekend and
bank holiday working should all be subject to review. A standard working
week is no longer a universal concept. Similarly, extra payments for call outs
or standby can be particularly costly.

106
Careful analysis of processes and tasks is needed to establish accurate
manning. Fundamental management science suggests that efficiency
(productivity) comes from breaking tasks down and ‘sub-dividing’ labour.
But some processes are far more complex than they used to be and need
to combine workers with very different skills into an effective team. Indeed,
research shows how teamwork aids productivity in complex processes.
Services are also provided in many different ways – demanding flexibility
and resourcefulness from employees. Clearly, optimum results are achieved
when the right skills are available to resolve problems and reduce errors.
Managing absenteeism
Good managerial disciplines and consistent behaviour yield results.
Absenteeism can be managed effectively, given the right commitment and
tools. Managers in the public and private sectors often use ‘The Bradford
Factor’. It measures the frequency and duration of absences, providing
managers with objective evidence to challenge persistent offenders. An
analysis will reveal when people are away and the nature of their illness.
This gives a clue as to how sickness absence can be managed and what
support employees might need.
Paying for results
Having the people with the right skills to do the job is vital. Effective
recruitment is always expensive, but is always worth the effort. But there
is no point in paying more than is necessary to ‘recruit, reward and retain’.
Many reward structures get out of control because they are too complex.
Others just need fine tuning to the changing conditions in the labour market.
Many firms come a cropper when devising bonus or incentive payments.
These must be linked to measurable indicators of performance, be time
bound, not contractual and include caps on maximum payouts. When times
are hard, increases in basic pay should be self-funding and ultimately linked
to what the enterprise can afford.
Employee relations
Good employee relations can easily be upset when new working practices
are introduced. And fully integrated supply chains can dramatically increase
the disruptive power of just a few workers. In the United States a strike at two
of General Motors’ suppliers forced the virtual shutdown of all GM’s North

107
Americaoperationsandoneofthelongesteverstoppagesintheautoindustry.
The dispute at United Parcel Services over a new collective agreement in
the 1990s highlighted the latent power of the unions and the employer’s
apparent unawareness of its vulnerability. British Airways’ problems are
a manifestation of a dissatisfied (but relatively well paid) workforce. It all
demonstrates the immeasurable value of keeping the workforce onside –
and investing sensibly in maintaining good communications.
There are good examples also of unions embracing lean ideas and the job
enrichment that they should bring. Good negotiators will obviously use
enhanced co-operation as a lever to secure better terms. This is perfectly
reasonable and part of the ‘quid pro quo’.

10. Productivity of assets
It should be possible to measure the performance
of every asset on the balance sheet – otherwise
what’s it doing there? A wide view of productivity
helps managers to focus efforts on the areas of best
return.
109

Most companies initiate action to improve the productivity of their assets.
They create just-in-time inventory systems, improve the turnover of working
capital, contract out non-strategic activities to more efficient suppliers, and,
in some cases, take the first steps toward reconfiguring their entire supply
chain.
These steps are necessary and important, but often do not go far enough.
Confronted with increasing pressure from investors to improve value for
shareholders, managers need to think of more radical improvements.
Maximising the productivity of assets is a primary contributor to value
for shareholders. So increasing their efficiency is more than just another
programme for operational improvement. It is a fundamental part of value
management (and staying in business). When executives’ compensation is
linked to movements in the share price, estimating the impact of operational
improvements on the creation of value helps build strong internal support
for initiatives.
Many companies still approach this task in a piecemeal fashion. Either
they focus on a single asset in isolation or they multiply internal projects
for improvement without paying attention to the dynamic interactions
between them. Managers should understand how improvements in one
class will affect performance in others. And they need to do so not only
inside the business but also along the entire value chain. By recognising
those interactions and acting on the total system, companies can manage
trade-offs and focus their efforts on the improvements that yield the biggest
strategic benefit.
Too many initiatives are well-meaning efforts led by corporate members of
staff,withinsufficientownershipbythelinemanagerswhoarereallyrunning
the business. Unless local managers drive improvements, even the most
elaborate programme is likely to be ineffective. Decisions on investment (or
divestment) in new assets and productivity improvements need to be based
on rigorous business cases – particularly when the timescale to achieve
predicted benefits is long.
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10 Productivity of assets

112
Nevertheless, the corporate centre still has an important role to play.
Sometimes the greatest impact on the productivity of a company’s assets
comes not from improving the efficiency of existing assets but from making
smart choices about opportunities for investment.
As competitive forces put a premium on the efficiency of assets, companies
that pursue this stratagem aggressively are finding it a powerful mechanism
for creating new ways to compete. The payoff is not only enhanced use of
assets and substantial improvements in value for shareholders but also
more competitive strategies and, in some instances, a radical restructuring
of the business.
Sustaining success
Some businesses acquire monolithic structures without realising it, but
then suffer as falling demand places pressure on previously satisfactory
margins. We have worked with leading companies whose cost bases –
planned when markets behaved very differently – were beginning to
get out of control. Measuring the contribution of assets and assessing
how they add value is the starting point. Establishing new managerial
accountabilities that are linked to productivity creates a fulcrum to turn
round a weakening financial position.

115
11. The need for continuous
improvement
It is not uncommon for apparently unknown
companies to come from nowhere and overtake
established market leaders without appearing to
break sweat. Peter Drucker, in a celebrated article
in Harvard Business Review, pointed out that the
newcomer invariably enjoys a tremendous cost
advantage, often in the region of 30 per cent.
Companies that fail to change invariably fail.

A flexible and focused organisation
Highly productive companies use multifunctional teams, often organized
around a specific product or service. The team then adopts responsibility
for traditional managerial and supervisory tasks, sometimes with a rotating
team leadership. Activities previously performed by indirect functions, such
as procurement, materials handling, planning and control, maintenance,
and quality control are integrated into the team’s tasks. This can herald
resistance by the administrative function, causing it to feel that ‘we are
losing control over what is happening in the organisation’.
Conventional management accounting systems were designed for
environments dissimilar to those which face companies adopting lean
concepts. The underlying assumption is that production exists in a stable
environment. In contrast, improving productivity changes the operating
conditions of the system, thus requiring frequent changes in the accounting
system. As cycle times are radically reduced, it becomes less important to
keep track of each separate step in a process. Management accounts should
retain their important controlling function but not adhere too rigidly to
pre-conceived concepts of manufacturing, supply chains and the
demarcation of labour.
Individual reward systems related to volume produced are far less common
now, having often been replaced by collective rewards. Total payroll is often
a lot more than the result of time worked at a negotiated hourly rate.
All managers have to overcome inertia when making change. Most
organisations are populated with sensible people and usually led by smart
managers. Why is anything but incremental change so difficult, even for
well-run companies? To remain successful over long periods, managers and
organisations must become ambidextrous – able to make incremental and
revolutionary improvements in productivity.
Almost all successful organisations evolve through relatively long periods
of stable growth punctuated by radical step changes. To succeed in the long
term, firms have to reorient themselves by adopting new strategies and
structures that are necessary to accommodate a double-digit increase in
efficiency.
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11 The need for continuous improvement

Change, complexity and inertia
Managers are responsible for designing their businesses in ways that add
value and meet customers’ needs. There should be a coherence between
strategy, structure, cultures and people to drive short-term performance.
When done effectively, evolutionary continuous improvement is a crucial
component of success. But as a company matures its structures and systems
become overly complex. A structural inertia sets in – resistance to change is
rooted in the size, complexity, and interdependence of structures, systems,
procedures and processes.
With every act of creation, first
comes the act of destruction.
Pablo Picasso
The dilemma confronting managers is clear. Day-to-day they must drive
forward many small, continuous improvements to reduce costs and increase
efficiency. In the longer perspective, they may be required to destroy the very
improvements and standardisation that made the organisation successful.
This means operating in a world characterised by periods of relative stability
and incremental change, and other times of rapid revolutionary change.
While respecting the past, managers should be willing to change to meet
the future. Ambidextrous organisations learn by the same mechanism
that sometimes kills successful firms: variation, selection, and retention.
They promote variation through strong efforts to decentralise, to eliminate
bureaucracy, to encourage individual autonomy and accountability, and to
experiment and take risks. The corporate vision provides the compass by
which senior managers can make their decisions about which of the many
alternative opportunities for improvement to invest in. Just as success or
failure in the market place is Darwinian, so too is the method by which
ambidextrous organisations learn.
Managers must be willing to cannibalise their own business at times of
transition. While this is easy in concept, these organisational transitions are
difficult in practice. Links between strategy, structure and people make early
efforts cohere. But as firms grow in size and complexity, those links become
rigidities. So change becomes more difficult. That is when revolution is
required.
118
“ ”

119
But which parts of the old régime to keep, and which to ditch? That is the
question. For, as Machiavelli pointed out, the would-be innovator gets more
opposition from certain losers than support from possible winners. That is
why only the most farsighted firms make truly radical change before it is
forced on them. Great managers are the ones willing to take this step. W H
Auden wrote:
‘The sense of danger must not disappear:
The way is certainly both short and steep,
However gradual it looks from here;
Look if you like, but you will have to leap’.
‘Sectoral’ initiatives
Many industrial and service sectors have embraced ‘Lean’ and have
enthusiastic devotees who trumpet their success in a particular industry.
As usual, the proof of the pudding... Sustained results follow from
good application, commitment from senior managers and sufficient
investment upfront to ensure that everybody is properly educated in the
principles of continuous improvement. For example:
n the ‘Construction Lean Improvement Programme’ created in the UK
triggered a wave of interest in this non-manufacturing sector. However,
the value chain in construction can be particularly tortuous and
wasteful. It creates good opportunities for understanding customers
better and improving the efficiency of operations
n financial services throughout the world have made good use of Lean
and Six Sigma. Banks and insurance companies with high volumes
of transactions and large numbers of employees have used these
techniques to secure significant gains in productivity in their highly
competitive markets
n retailing and wholesaling – any business that is tempted to hold
large inventories and where customers’ demands can change quickly
can clearly benefit from Lean thinking. Wal-Mart, first in the United
States and then later when it acquired ASDA, was one of the first to
use this approach. But it faced massive competition from Tesco, which
has developed a comprehensive lean business model. The successful
British retailer has grown dramatically by getting its customers exactly
what they want, where and when they want it, and at lower costs

120
n the ‘IT’ industry has also invested in lean methodologies, its most
celebrated example being Dell Computers, which rose rapidly to
become the largest supplier of PCs in the world and reined in costs
and improved service. Dell turned the manufacturing process on its
head by deciding not to build any computer until it had received a
firm order. More recently the company has taken some knocks for the
quality of its customer service – proving that it’s all too easy to take
your eye off the ball even in a very successful enterprise.
Festering and fostering
To talk is our chief business in this world.
It costs nothing in money; it is all profit.
Robert Louis Stevenson
Improvements in productivity can be fostered by encouraging employees
to ‘speak with data’. Discussions peppered with comments such as ‘I think
output has increased’, or ‘we feel that the best option is...’ are too vague,
slow decision-making, allow new ideas to fester and lose momentum. A
good way to nurture a disciplined and professional approach to improving
productivity is to insist on argument based on reliable evidence.
If robust data are requested every time a change is proposed, people sit up
and take notice. Examine the logic behind that evidence and people will
become more disciplined in their own thinking. Treat the organisation like
an unfinished prototype, encourage experimentation and capture learning
from these activities, even when something new fails. Decisions based on
firm facts allow the organisation to benefit from ‘enlightened trial and error’
and the learning that occurs as a consequence.
“ ”

Six standards boost productivity:
Stop treating old ideas as if they were new.
n Acknowledge and build on what came before. That leads to better ideas.
Be suspicious of ‘breakthrough’ ideas and studies.
n Most scientific progress accrues by inches. There is no magic wand.
Celebrate and develop collective brilliance.
n Effective change requires coordinated action by people who feel they
own it.
Emphasise drawbacks as well as virtues.
n Recognise the risks. That way, managers won’t balk at the first hiccup.
Use stories to embody sound practices, but back them up with data
n Don’t spoil a good tale for the sake of the facts – or vice-versa.
Adopt a neutral stance toward ideologies and theories.
n Don’t have a plank in your eye. What needs doing? What constitutes
evidence?
Liberation – the emperor’s new clothes?
Change often inspires precisely the behaviour it was meant to alter.
The western approach to change usually proceeds from vision to strategy.
It is logical. But it is not compelling. Imposed change is not liberating.
Change programmes can begin with great enthusiasm but end up in deep
trouble. After the initial excitement, reality inevitably sets in. The CEO is
tempted to anoint a new change champion, who will pursue the objectives
with tenacity. The single voice of a fervent champion can lead employees
to feel that managers are in control, driving out any sense of personal
responsibility or freedom to act.
The rhetoric of emancipation notwithstanding, employees will have
problems. They will ask their managers for help, and their managers will tell
them what to do. That is how most work gets done and how organisations
meet their numbers. And in many cases there is nothing wrong with this -
except that it encourages dependence and reduces initiative.
121

122
Real responsibility should make it easier for complex tasks to be achieved.
But when programmes of change are imposed on managers and employees
who are expected to deal effectively and openly with them but not given the
means, the organisation can end up worse off than it was to begin with.
So how do firms in the East generate commitment? – Some more thoughts on
lean
Toyota modelled its seven tools of quality control on the seven weapons
described in a seventeenth-century guide for Benkei samurai warriors called
‘A Book of Five Rings’. One approach born from the same book that goes way
beyond the western ordering is ‘hoshin kanri’. ‘Ho’ means method or form.
‘Shin’ means shiny needle or compass, direction. ‘Kanri’ means movement or
action. The phrase aims to integrate daily actions with long-term goals.
With hoshin kanri, insight and vision are not lost. Policies generated at
planning meetings are not forgotten until next year, but are used to inform
daily activities. The people who plan the work go on to work the plan,
discussing it as they do. This is based on the concept that any plan will
become stronger that incorporates group dialogue. The Japanese describe
this approach as ‘catchball’. People in a conversation ‘toss an idea around’
until consensus is achieved. People usually want to do what they believe is
right. The objective is to get all the participating factions committed to the
main aims of the business. It is a managerial system in which all employees
participate, from the top down and from the bottom up, and people are fully
respected.
Whoops! – the failure-tolerant leader
If at first you don’t succeed, try, try, try again.
Then quit. No use being a damn fool about it.
W.C. Fields
‘The fastest way to succeed’, IBM’s Thomas Watson Sr. once said, ‘is double
your failure rate’. This view is becoming more widely accepted. Experienced
managers have recognised that failure is a prerequisite to discovery. It is
difficult for a business to develop a breakthrough in productivity if it’s not
willing to encourage risk-taking and learn from subsequent mistakes. This is
shaping the way that companies plan new improvements.
“ ”

Indeed, some senior executives don’t just accept failure: they encourage
it. The objective is to banish the destructive competiveness that bedevils
many organisations and to change the culture of blame; to see beyond the
simplistic definition of failure as the opposite of success. Managers seek to
engage more closely with the employees they lead – avoiding either praise
or criticism, preferring to take a non-judgmental, analytical approach as
they interact with the staff. They openly admit their own mistakes rather
than cover them up or shift the blame. They recognise the need to take risks.
As long as someone views failure as the opposite of success rather than its
complement, that person will never be able to take the risks necessary to
achieve new rates of productivity.
Although this approach accepts risk, that does not mean throwing caution
to the wind or abandoning supervision, quality control, or good practice.
Skilled managers can tell a failure caused by sloppiness from a setback in an
exploratory initiative from which lessons can be learnt. And they do not rush
to praise or blame. They analyse. When a manager takes a genuine interest
in an employee’s work, the need for compliments declines: employees prefer
a disinterested pursuit of improvement to a facile accolade or criticism.
Do as I say, not as I do...
While companies are beginning to accept the value of failure in
the abstract, it is an entirely different matter at the personal level.
Everyone hates to fail. We assume, rationally or not, that we’ll suffer
embarrassment and loss of esteem and stature. And nowhere is the fear
of failure more intense and debilitating than in the competitive world
of business, where mistakes can mean losing a bonus, a promotion, or
even a job. Some companies thrive on an ultra-competitive ethos – but
at what cost?
While the notion of encouraging mistakes may seem counter-intuitive, it has
some celebrated champions. When Jack Welsh was head of GE, he said ‘We
reward failure’, explaining that to do otherwise would only quash daring.
Creating a culture in which people feel comfortable with failure also
requires abandoning traditional ideas about personal rivalries. The idea
that achievement is maximised when we go at one another tooth and nail
is embedded in the western psyche – and difficult to dislodge. Competition
123

124
infects co-workers with a desire to win rather than solve problems and move
a project forward. So all that one-upmanship has to go. The aim should be
to solve the collective problem, not to be costive with information and to vie
for personal credit.
Why has improvement slowed down?
The productivity of firms and countries may still be rising, but more slowly.
Why is this?
Plotting causes of lost productivity
If firms are to continue achieving higher rates of productivity, they need to
consider how productivity may be lost:
n Catastrophic losses in productivity, as the name implies, are sudden
and rare, and have one clear cause that is quite easy to put right, often by
simple techniques such as ‘brainstorming,’ ‘process mapping’ and ‘factor
analysis’.
n Chronic losses in productivity, unfortunately, resist correction. And, over
a period of time, organisations become ‘blind’ to them, even building
them into their plans.
Time
Productivity
loss
Chronic
loss
Catastrophic
loss

125
It is the latter that need innovative solutions. Unlike catastrophic losses,
chronic losses have labyrinthine causes. These are difficult to penetrate.
What seemed like a way out hits a wall. And there may be one cause or
many.
Understanding causal factors
‘Phenomenon mechanism’ (PM) analysis was developed to overcome the
weaknesses of conventional methods that can sometimes fail to tackle
chronic problems. The term ‘phenomenon’ refers to the event that needs to
be controlled and improved and ‘mechanism’ refers to its inputs (people,
equipment, materials, processing methodology) or any combination of
inputs. PM analysis considers all causal factors instead of trying to decide
which are most influential.
Difficulty in pinpointing cause
Single cause that varies One of multiple
varying causes
Varying complex
combinations
Cause
Cause
Cause
Cause
Cause
Cause
Cause
Cause
Cause

126
PM analyses all possible causes, regardless of their suspected contribution
to the loss. Every factor exhibiting abnormal conditions is investigated and
corrected.
How productivity is changing
The emerging economies now command over 50% of international
production and productivity is increasing faster there than in the developed
world.
Step
Conventional approach
to improvement
Phenomenom mechanism
1
Evaluate current loss of
productivity and select
theme for improvement
Clarify the phenomenon by carefully
defining and categorising abnormal
conditions
2
Understand current
condition
Describe the phenomenon in
physical terms
3 Set targets for improvement
Define all conditions that will
produce the phenomenon
4
Reform
(cause and effect analysis)
Study inputs for casual factors
5
Define and implement
counter-measures
Define the optimal conditions and
standards
6
Evaluate the results and
make any necessary
adjustments
Plan and conduct the survey –
confirm actual constituent
conditions
7
Implement new standards
and procedures to prevent
recurrence
Recognise the abormalities
to be tackled
8
Re-evaluate loss of
productivity for next
projects(s)
Implement correct measures or
improvements for each abnormality

127
All right for some
GDP per person employed (structural trend)
European CEOs have been accused of thinking that the way to high
productivity is via investment in new technology. It is not the only answer.
Higher performance can be achieved via better business processes and
smarter management. In the past 15 years, America’s productivity has
outstripped Europe’s. There has been and continues to be a disparity in
productivity between Europe and the United States.
Companies often ask such questions such as:
n ‘An internal assessment shows that 90% of our employees have taken part
in an improving event. Does that mean that we are lean?’
n ‘Benchmarking against local companies in our sector finds that we are the
cheapest. So why should we need to improve further?’
n ‘Improving productivity by 20% has cut costs by 15%. Will attempts to
improve productivity again encounter the ‘law of diminishing returns?’ Is
it worth trying to improve the same process many times?’
Advanced economies
1970
Emerging economies
75 80 85 90 95 05 10†2000
0
1
2
3
4
5
Source: The Conference Board
% increase on previous year
†Forecast

128
In essence, they are all asking: ‘We have worked hard to improve productivity.
Are we there yet? Can we stop now?’
No, you haven’t. A growing number of managers are looking to the Buddhist
philosophy of ‘wabi sabi’ that acknowledges that nothing lasts, nothing
is finished, and nothing is perfect. Quality, reliability, and productivity can
always be improved.
Wikipedia was developed on that principle. Other firms will follow.
Remember,GermanyandFrancearemoreproductivethanBritain;theUnited
States is more productive than Europe; and productivity in the emerging
economies is rocketing. ‘Are we there yet?’ No. Nor likely to be, unless there
is a constant focus on raising productivity, today and tomorrow.
You may never know what results come of
your action, but if you do nothing there will
be no result.
Mahatma Gandhi
“
”

12. Summary – ‘Why not?’
131

133
Nobody can accurately predict the future, and too much thinking prevents
action. Instead, there is a tendency to look back and cling to old processes
that are embedded in the organisation’s ‘tradition’. The only tradition we
should bother about in the workplace is the one of valuable productive
work.
That is why some successful organisations deliberately employ a leader
who has had no previous knowledge of the firm’s sector, and hasn’t become
indoctrinated with all the reasons why something cannot be done. In
scrapping old ideas, one of the first that needs to go is the attitude of excess -
of holding on to or producing more than is required ‘just in case.’ A business
ought not to drift; it ought continuously to search for new, innovative ways
to raise productivity.
So, set out to discover the best way of doing everything, and regard every
operation and process as purely experimental. If productivity rates beat
all previous expectations, then consider this as just a stage in continuous
improvement and nothing more. Greater changes are to come.
Change should not be made for its own sake. But it should be embraced if
the new way is better than the old. All leaders should hold it as their duty to
permitnothingtostandinthewayofprogress–intheobjectivesofincreasing
productivity and giving a better service. No firm is ever performing as well as
it could be. Unlock the full potential of people (and plant) and be amazed at
what can be achieved.
Our invariable reply to ‘It can’t be done’ is ‘Why not? Let’s do it’.
12 Summary – ‘Why not?’

137
Our national productivity matters – every commentator says so. So how well
are we doing? International comparisons abound, sometimes challenging
the perceived orthodoxy. So:
...at the time of printing, Japan is currently lagging behind the United Kingdom
in both the standard indicators of national productivity! (– and of course not
taking account of the recent tragic earthquake and tsunami.)
In the UK, productivity has been measured and reported on regularly since
the 1920s. There have even been Ministers of Productivity. Exhortations such
as ‘Must do better!’ appear more frequently than a Number 9 bus. We are
used to unfavourable comment on the national achievement.
Productivity matters today to national economies because it affects
competitivenessininternationalmarketsandthereforelivingstandards. Large
companies that are lagging behind attract overseas predators who think that
they will achieve better returns. The British car industry is a stark example:
although there is still a reasonably sized (and efficient) manufacturing base,
nearly all of it is foreign owned – Ford, Honda, Nissan, Toyota etc. It provides
employment but not national profit, and investment is made by foreigners
with their own agenda. And the demise of Cadburys prompted a nostalgic
response and showed how exposed UK brands still are.
Managers, in the private or public sector, have only limited influence, but
it is useful to view the ‘national’ and ‘international’ environment that they
work in: business now is so obviously global; while decisions on locating
manufacturing or service facilities must naturally consider local productivity.
The international data on productivity for G7 countries come from the
Organisation for Economic Co-operation and Development (OECD). In the
UK they are published by the Office for National Statistics.
National/international productivity
The main comparative indices used for national productivity are:
n ‘GDP per worker’ = Gross domestic product divided by total employed
workforce
Productivity in the UK now

138
n ‘GDP per hour worked’ = Gross domestic product divided by total hours
worked.
Purchasing power is adjusted to allow proper comparison. The OECD
publishes quarterly and annual data. It provides an important mechanism
for assessing Britain’s progress against its principal competitors (although
who the main ones are is becoming less clear year by year).
The latest figures for the G7 countries are for 2009. They do indeed show
that GDP per worker is higher in the UK than in Japan. But here the good
news ends. Britain is less productive than all the other G7 economies, albeit
Germany and Canada are very close. The USA leads this index, about 33
points ahead of the UK.
In the other measure – output per hours worked – the UK does a bit better
and the gap between the USA and the rest is a bit less.
But... Ministers have been keen to emphasise that our performance is getting
better. In fact, the data show that since 1991 the UK has experienced faster
growth in productivity than all the other G7 countries:
n UK GDP per worker – up by 34% since 1991!
n UK GDP per hour worked – up by 44% since 1991!
Thesefiguresobviouslymaskmyriadcomplexitiesanddon’tindicatewhether
a nation, its firms or its citizens are necessarily any better off. Patterns of
consumption, currency values, and age profiles are only a selection of the
many factors influencing overall living standards.
Why isn’t Europe performing better?
In the 1950s and 1960s, productivity in Europe blossomed as demand and
investment grew. America’s lead shrank. But then improvement slowed,
initiative stagnated, new competitors were overlooked and managers failed
to take full advantage of international markets.
Economists have tried to work out why. Perhaps welfare, comparatively
generous in Europe, puts the brake on output. But this is only one difference.
American workers put in more hours each year than Europeans do – 1,768 to
1,655 in 2009 - although the gap is narrowing. Less developed economies (in

139
Europe and elsewhere) tend to work much longer. So what else:
n Market conditions – the single market has never realised its potential.
Barriers and regulations still restrict trade. The European Commission has
conceded that a lot still needs to be done
n Regulation – there is still too much of it. The United States has its own red
tape too, but it seems to be less of a hobble there than it is in the UK
n Focusonwinningsectors–theUKexcelsinsomesectors–pharmaceuticals,
financial services, media and some parts of IT – but it does tend to keep
traditional industries going long after they have stopped providing a
worthwhile return on investment
n The size of the state – the proportion of GDP spent by the public sector
has grown remorselessly. However, the government that emerged from the
election in May 2010 seems bent on reducing the role of the State, come
what may. We shall see.
The productivity of ‘enterprises’
There is a lot of information available, from academic institutions and other
commentators. The McKinsey Quarterly has always published regularly
and reliably on the subject.4
A study – reported by the New York Times in
September 2008 – of 4,500 companies in 12 countries found that setting
targets, monitoring performance, managing people well and introducing
Lean boosted output per head.
Once again the American factories scored best. The UK was ‘average’. China
and India still lagged behind because huge parts of their populations remain
untouched by industrial production. But:
n there was a lot of variation in each country – some Chinese and Indian
plants were better than the average US factory
n unsurprisingly, multinational companies scored better – they acquired
and spread knowledge and experience more readily
n it was found that managers usually think they are doing better than
they actually are (several studies show this): which demonstrates the
usefulness of exposure to independent assessment, advice and help
n competition forces managers to improve, or their companies die: the most
productive companies are those found to be facing the most competition.
4 McKinsey Quarterly February 2006 – The link between management and productivity .

140
Manufacturing vs services
A lot of research on productivity contrasts manufacturing with services, now
by far the bigger sector. Computers have made administrative and financial
processing more efficient, but not as much as is generally assumed. IT has
caused some processes to slow down when they were supposed to speed
up. Managers bogged down in e-mail or drafting their own cumbersome
correspondence are cases in point.
On the plus side, some changes have been useful. Shared or contracted-out
services – neither now a strange or radical proposition – help businesses
concentrate on their main activities and reinforce the need to measure
effort accurately. A large part of the service sector is actually public services,
which, economists and statisticians maintain, are different and must be
measured differently. Some of this is true – but a simple attempt to work out
how efficiently inputs are converted into useful outputs is something that all
managers should be up to.
The European Money and Finance Forum in Vienna produced a report in
2009 called ‘Productivity in the Financial Services Sector’. It goes on for
329 (somewhat unproductive) pages, introducing some useful ideas on
measurement, lean, integration, technology and economies of scale. But it
also notes that an emphasis on matching the good practice of others often
misses opportunities and results in regression to the mean rather than
progression to the maximum efficiency.
Pooches promote productivity
Researchintohowproductivitymightbeimprovedknowsnobounds. An
article in The Economist* reviewed two experiments at Central Michigan
University that proved the beneficial effect of having a dog in the office.
The first showed it enhanced teamwork and boosted cohesion, trust and
intimacy with colleagues. The second revealed that a pooch promoted
loyalty to the group and to each other.
It is not reported what breed was used. Perhaps a mongrel?
* Economist Online – August 12th 2010

143
Our readers continue to enjoy the selective quotations that pepper our
publications. But sometimes their origin is not quite clear, so here are some
brief introductions.
Page reference ‘Famous person’
2 Marcus Tullius Cicero (106 BC– 43 BC) was a Roman
philosopher,lawyerandpolitician.Heiswidelyconsidered
one of Rome’s greatest orators. Read Robert Harris’s novel
‘Imperium’ to find out more.
8 Albert Einstein (1879–1955) most people know what he
looked like, but few understand what he did. Einstein’s
work on relativity, gravitation and radiation led to a Nobel
prize and inspired many of the technological advances of
the 20th century.
18 Peter Drucker (1909-2005) deserved the title ‘the father of
modern management’ better than some other recipients.
Among insights admired but insufficiently adopted is:
‘The productivity of work is not the responsibility of the
worker but of the manager’.
41 Blaine Lee (1946–2009) a founder of the Covey Leadership
Center and co-author of The Power Principle: INFLUENCE
WITH HONOR.
46 Shigeo Shingo (1909-1990) has been described as an
‘engineering genius’ who helped create and write about
manyaspectsoftherevolutionarymanufacturingpractices
which comprise the renowned Toyota Production System.
Parts of his work were not properly translated into English
until the 1980s. Some say they still haven’t been.
55 Marquis De Vauvenargues (1715–1747) a French essayist
and moralist, he was born in Provence into an ennobled
but poor family. He served in the army for ten years, then
as a diplomat before retiring later to Paris. He was a friend
of Voltaire.
Notes on quotations

144
59 SamuelJohnson(1709–1784)oft-quotedbiographer,poet
and lexicographer. His Dictionary of the English Language
(1755), the standard reference for over a century, has since
been described by Blackadder as ‘the most pointless book
since How to Learn French was translated into French’.
73 Author of The Affluent Society and other influential books,
J K Galbraith (1908–2006), the celebrated American
academic and economist, ridiculed the conventional
wisdom that free market economics would bring benefits
to all as ‘the horse-and-sparrow theory: If you feed the
horse enough oats, some will pass through to the road for
the sparrows’.
75 Woodrow Wilson (1856–1924) was the 28th President of
the United States. He introduced his ‘Fourteen Points’ for
peace in a celebrated speech to Congress in January 1918.
After the first world war he worked hard to establish the
League of Nations, for which he later was awarded the
Nobel Prize. But after he suffered a stroke, the Senate
failed to ratify a decision to join the organisation.
80 Jeffrey Pfeffer is the Thomas D. Dee II Professor of
Organizational Behavior at the Graduate School of Business,
Stanford University, where he has taught since 1979.
An advocate of ‘evidence-based management,’ he has
published widely on this and other subjects. Power: Why
Some People Have It and Others Don’t is his most recent
book.
88 William Shakespeare (1564-1616) What can you say? ‘I
could say that Shakespeare surpasses literature altogether,
if I knew what I meant’ – Virginia Woolf
91 JD Rockefeller Jr (1874-1960) had so much money when
he was born that he didn’t need to make much more, so he
turned to philanthropy (his father had created Standard
Oil). Rockefeller Jr supported many great causes in the
United States. He also funded good works overseas,
including the Shakespeare Memorial Endowment.
103 Theodore Roosevelt (1858-1919), the twenty-sixth
President of the United States, was a great many other
things as well. While he was campaigning in Wisconsin,
a saloonkeeper named John Schrank shot him, but the
bullet lodged in his chest only after passing through his

145
steel eyeglass case and the mercifully thick speech he
was carrying in his jacket. Correctly concluding that the
bullet had not completely penetrated the chest wall, he
refused to go to the hospital but delivered his scheduled
speech with blood seeping into his shirt. He spoke for 90
minutes, opening with, ‘Ladies and gentlemen, I don’t
know whether you fully understand that I have just been
shot; but it takes more than that to kill a Bull Moose’.
118 Pablo Picasso (1881-1973) the renowned Spanish painter,
sculptor and nationalist recognised profoundly that ‘Art
is not the truth. Art is a lie that makes us realize the truth’.
His ideas on feminism or on modern management may be
less appealing, but one nugget is germane to our purpose:
‘Art is the elimination of the unnecessary’.
120 Robert Louis Stevenson (1850-1894) was born in
Edinburgh and died only forty-four years’ later on Samoa
in the south Pacific. During his short life he travelled the
world, defied convention, and became one of the most
celebrated writers of the 19th century. Kidnapped is a
classic, but try Travels with a Donkey in the Cévennes if you
haven’t already read it. The donkey is called Modestine.
122 WC Fields (1880-1946) was the eldest of five children born
to Cockney immigrant James Dukenfield and Philadelphia
native Kate Felton. He went to school for four years, then
quit to sell vegetables from a horse cart. At eleven, after
many fights with his alcoholic father (who hit him on the
head regularly with a shovel) he left home and eventually
forged a career on the stage – becoming one of the most
famous comedians of his era.
128 Mahatma Gandhi (1869-1948) known as ‘Mahatma’ (great
soul) and to Churchill as a ‘half-naked fakir’, Gandhi was
the leader of the Indian nationalist movement against
British rule, and is widely considered the father of his
country. His doctrine of non-violent protest to achieve
political and social progress was hugely influential. After
training as a lawyer in London, he lived in South Africa
for twenty years before returning to his native land and
leading the campaign for Indian independence.

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