When asked about “what is business improvement”, one expects many possible responses. A typical reply would be “improving business performance”. Such performance improvements could include financial targets such as ROI, RONA or EBIT, eliminating business waste or harnessing the latest technological advancements such as digitization, robotics or AI.
Alternatively one could also respond with common buzzword terms such as “business transformation”, “continuous improvement”. However, as this subject is evolving, the entire approach towards business improvement would also be changing. Interestingly, when trying to define “what is business improvement” it is difficult to come by any accurate definition. Most often business improvement is linked to “business process improvement”. It may be fait accompli that business improvement is considered to be dependent on process efficiency. Nevertheless is this the only factor that defines business improvement today?
I have experienced firsthand, that business improvement encompasses many theories and practices. Most notable is the recognition that only a holistic, systematic approach is feasible and sustainable. To thoroughly understand the interpretation of business improvement today we have to also look at the various techniques applied in this field. Sadly all too often continuous (business) improvement is described rather as an end in itself than an approach to “make money now and more in the future”. In view of the commonly used methods to optimize business performance, I have recognized that the primary reason for its ineffectiveness is its reductionist approach. Not surprisingly, sustainable bottom-line improvements are not achieved like this.
In this article, I will reflect on the pros and cons of typical business improvement approaches and the shortcomings thereof. Further, I will elaborate on the merits of systematic, overarching business improvement techniques. No doubt, looking at the business situation in its entirety offers better models and processes to improve the existing position.
Basic methodologies of business (process) improvement
To begin with I would like to differentiate fundamentally different approaches. The first two approaches are widely applied and accepted as suitable methodologies in the field of business improvement, the third, alternative model is my proposed approach to business improvement:
- Performance elevation
This improvement approach is primarily about elevating the performance of any existing environment, especially a business system, by working on eliminating its constraints.
- Improvements in efficiency resp. effectiveness
The other approach is performance improvement which focuses on measuring the output of a particular business process or activity, then morphing or manipulating the process to increase the output, efficiency or the effectiveness of a particular process or activity.
- The alternative model – holistic (sustainable) improvement
Besides the two mentioned improvement concepts, better opportunities present themselves in the form of a third approach arising from hard-earned improvement practice. In my business practice, I was fortunate to be involved in alternative improvement avenues, paths that would allow a holistic view of the situation of the business on three primary dimensions: physical, informational and financial.
In the practical application of this alternative model, I further recognized the importance of collecting, analyzing and comprehending relevant, accurate data from all three dimensions. Furthermore, it is crucially important to interview process participants in their work environments, allowing them to cross-verify or gather certain data or process parameters.
Besides, my most profitable knowledge gained is that we must not only “pay attention to the analytics, strategies and processes of improvement, but also the softer side of improvement, meaning people, feelings, leadership, relationships and the environment for improvement” (Stevens PJ, n.d.).
Systems thinking – the foundation of business improvement
In the discussion that follows it’s important to contextualize the solutions against the backdrop of an imaginary organization that is supposed to be “improved”. Such a situational analysis will give the discussion and solutions greater clarity and depth.
In its broadest sense, systems thinking is a framework that takes into account the interconnected nature of systems. It is also a thinking tool, which helps us look at the impact of feedback loops on how a system behaves; analyze specific situations to explain otherwise puzzling behaviors; and design interventions with an eye for potential unintended consequences. Lean Management, on the other hand, is strictly a practice, not a philosophy.
It is based on hands-on know-how about how to teach people to improve their own processes in terms of both customer satisfaction and cost management by eliminating waste. As a practice-oriented movement, Lean Management is by and large wary of abstract thinking and generalizations. Because Lean Management practices have been developed over several decades, an entire field of experience exists in terms of how to implement Lean tools & techniques. But the bottom line is: Without an understanding of Systems Thinking, it is very difficult to get Lean Management right. Conversely, without the practice of Lean techniques, it is difficult to make Systems Thinking a day-to-day reality to improve system performance in a lasting manner (Ballé, n.d.).
Unfortunately, many companies applying Lean Management have recognized that pure Lean tools interventions reinforce rather than challenge management’s assumptions, viz., that the main cost-saving opportunities lie in the standardization of work and reduction of activity-times. Yet these very assumptions run counter to the teachings of the originator of “Lean”, Taiichi Ohno. He taught systems thinking, through which managers study the way the system operates, to identify and understand what their actual problems are. Only through acting on the system and focusing on relationships and information flows, financial benefits would follow. Improved financial results are the by-product of identifying and resolving the problems in the system (Seddon, 2011) and (Seddon, 2015).
Cornerstones of business improvement activities
Before any improvement activities are initiated, fundamental clarity has to be established in the following dimensions:
- Ambition and implementation period
- Scope of processes/products
- Level of current performance, financial and operational parameters
Clarity regarding these points is imperative when starting business improvement activities. All too often “activism” and pressure to quickly make an impact are preventing the proper definition of target conditions and boundary parameters.
Mapping processes and activities are often brought to the forefront of initiatives. Value stream mapping per se however is not adding any value, yet it may help in understanding the overall situation or in generating new ideas. However, of much greater importance at the beginning of the improvement process is the wider understanding of the system, viz., the big picture of the situation the corporation finds itself in. This big-picture system approach helps to avoid sub-optimization and direct detailed process level improvement activities mainly based on assumptions.
Even though the following 3-step approach is mainly intended for service organizations, I personally prefer the clarity and effectiveness resulting from it at the very initial stage especially for manufacturing companies (Bicheno, 2012) and (Seddon, 2005).
- Step 1 would be “clarify the system” – are we looking at a business-critical core processor is this rather a supporting process environment?
- Step 2 is the “check” stage – is the definition of our system environment correct; have we detected all system issues; do we understand the system performance/capabilities, i.e., do we have supporting data?
- Step 3 is the “redefinition of the system boundaries” stage – what is to be included or excluded in the end-to-end consideration?
Upon completion of these elementary steps the outcomes should be:
- Improving action priorities – potentially there are fundamental issues or questions which need to be resolved prior to mapping value streams, i.e. should we even continue making particular products.
- Defining priorities of particular streams intended for future state design, i.e. products that have higher market or earning potentials. In this context fundamentally important is a sound understanding of the financial contributions per product.
Conclusion – to understand and to change
Besides the examination of the physical system, its processes and interconnections, equally but critically important for the success of any business improvement initiative are human resources. Production environments are complex socio-technical systems that require an integrated, Systems Thinking approach, as recognized earlier in this article.
Besides technical aspects, any improvement initiative has to foster a culture of highly motivated teamwork for coordination and problem-solving. Top-ranking improvement program leadership is required to effectively mobilize the collective intelligence of the organization. As an example: The Industrial Revolution and the rapid progress of science are a result of close interplay of theoretical and practical advances.
In today’s hyper-competitive environment, corporations are in constant search of performance improvements. It is an unresolved puzzle still as to why the above-mentioned holistic approaches & techniques have not spread through businesses: Few succeed, though many try. What is lacking I believe is an overall framework, allowing one to take the “birds-eye” perspective.
In my point of view, Systems Thinking is the missing link in this equation. Systems Thinking could significantly contribute to helping one understand the overarching thinking models, decision loops, behavior patterns and system structures.
Lean Management techniques are promising elements in helping to reduce waste, but only in combination with Systems Thinking will they merge into very powerful symbiotic processes. The interdependence of Systems Thinking and Lean Management approaches offer many potentials. I believe that the mutual interdependence of Systems Thinking and Lean Management offers a true opportunity here. “By recognizing the synergies between these two fields, we can drastically increase our capacity” (Ballé, n.d.) and ability to improve the corporation’s performance. Such change can come only from within an organization by understanding the interactions of the wider system, the behavior of the human element.
The point I am making is to not only understand common business improvement shortcomings but to change them. Systems Thinking offers the route to insight, Lean Management provides the opportunities to practice change. We can learn faster how to conduct business improvement by pursuing both jointly, in the proposed holistic (sustainable) manner.