Building digital transformation on the foundations of lean management is a challenge. Bernd Schreiber, Willem Romanus and Yong Lee discuss how to use lean principles to radically simplify the value stream and explain why digital shortcuts typically fail
Lean management, after enabling outstanding company performance when incorporated at the center of a corporate transformation, seems to have exhausted its potential. Even in companies for which lean once transformed ways of working, the limits of what can be achieved have almost been reached. Many companies have developed ‘lean fatigue’, and managers have become frustrated with results that are increasingly incremental. Executives have undoubtedly heard many variants of the declaration “We’re through with lean – it’s time to go digital!”
The idea of doing away with lean and trying something new that offers potential for radical improvements has refreshing appeal. However, although digital can appear to be an unrelated replacement for lean, abandoning one in favour of the other can end up being risky.
Eschewing lean principles entirely can even affect the success of a digital transformation project. We propose implementing a digital transformation with lean principles at its heart.
The potential of digital technologies to transform performance is widely recognized. However, most companies struggle to find the right approach to effectively grasp the benefits of this digital promise. Indeed, choosing from among the plethora of new options provided by digital technologies is a real challenge.
Typically, it is unclear where to start and how to prioritize a company’s efforts and resources to drive tangible results. While some companies have been able to achieve radical performance increases of up to 50 per cent or more, many have become stuck in situations in which initiatives happen in silos, efforts lack coordination, and successes are limited or even nonexistent.
Recent experience has shown that integrating lean principles into digital transformation can be a highly effective way of achieving radical simplification of the process. It allows companies to identify and apply the most effective levers for the digital journey.
Companies that rely on lean principles achieve relatively high performance levels compared to their competitors. A recent Arthur D Little automotive study classified the lean lifecycle into three phases and determined annual company growth rates in each phase. Using a key automotive productivity indicator (‘hours per vehicle’), the correlation with lean implementation was analyzed (see Figure 1).
Performance growth of up to 8 per cent was common during the Lean Exploitation phase. This decreased as performance improved, and tended to stabilize at around 1 per cent in the Lean Excellence phase. Digital technologies have the potential to make further step-change improvement across all phases. Similar trends have been identified in other industry sectors.
Whatever the industry, outstanding lean organizations tend to be strong in the three ‘lean pillars’:
Pillar 1: Leadership and culture
Whether in daily routine or in times of transformational change, leadership and distinct roles and responsibilities provide the cornerstone for effective collaboration. Clearly formulated expectations, derived from top management’s vision and based on cross-functional understanding, help to make management and delegation effective. This mindset nurtures the culture of continuous improvement.
Pillar 2: Targets and performance management
Continuous improvement and transformation start with setting clear targets. These targets need to be designed both vertically (the organizational hierarchy) and horizontally (reflecting the required end-to-end value-stream orientation). Performance management assures the effectiveness of measures taken through better leadership quality and clear focus on the waste-free value stream.
Pillar 3: Kaizen platforms
First, design a lean value stream on the greenfield. Simplify the value stream radically by eliminating interfaces through consolidation and integration: make the value-add visible.
For each process step, especially for the non-value-adding ones (waste), ask why this step needs to be processed by an employee, and with what technology it should be automated. The immediate use of mature technology building blocks on standardized processes will deliver more reliable processes with fewer failures. Significant increases in productivity are the result of shifting the focus from eliminating waste to creating value-add. The greenfield value-stream design will differ radically from the current value stream: it reveals its digital potential.
2) Which remaining non-physical (information) process steps can be radically digitalized?
Second, automate and digitalize manual information processing and standard decision-making. Strive for a fully automated target condition in which the employee is just monitoring and confirming automated quality gates. Reduce manual intervention to zero. Especially for high-frequency routines in which employees transfer data between programs, or even for very complex decisions, RPA, artificial intelligence or decision-supporting systems, radically simplify administrative information flows.
Digitalized information flow not only produces fewer failures and accelerates workflows, but also creates new value and optimization opportunities.
The ability to effectively and efficiently digitalize an organization’s value stream is, unquestionably, a source of future competitive advantage. Identifying and integrating the most appropriate digital technology into the value stream requires profound understanding of all related business processes, as well as of the technologies on offer and their relative maturity.
As with lean management, developing the required capabilities and establishing the necessary mindset throughout the organization remain top-management issues. The more employees and managers adopt this new lean digital mindset, the sooner efforts to digitalize will succeed in delivering step changes in business performance.
Bernd Schreiber is a Partner in the Frankfurt office of Arthur D Little and leads the Global Operations Management Practice. Yong Lee is a Manager in the Frankfurt office and a member of the Global Operations Management Practice. Willem Romanus is a Principal in the Brussels office and a member of the Global Automotive & Manufacturing Practice.