Continuous Improvement Isn't Enough — Senior Execs Seek Business Transformation

Steve Spear not only lectures at MIT and leads workshops on continuous process improvement throughout the US and Europe, but he has also authored a book on the topic called The High-Velocity Edge. Most interesting is how close Steve gets to his subject; he’s not content to observe from afar. For example, he embedded himself into a Toyota team to develop a tier one supplier and has since then worked with Toyota on supplier leadership development. He worked with a hospital’s clinical staff to eliminate terrible complications like infections and patient falls while increasing capacity and reducing cost; he also helped develop and deploy the Alcoa Business System at Alcoa. Steve’s clients range from healthcare providers to manufacturers to food service companies to high-tech companies — making him conversant in businesses producing everything from potato chips to microchips. As a result, he not only speaks as an academic authority, but can also claim insight into how work gets done in the real world.

Steve will speaking at Forrester’s Business Process Forum, which will be held on September 22 and 23 in Boston, and recently participated in a teleconference with Craig Le Clair and me. You can download that teleconference free of charge here.

What follows is an excerpt from the Forrester report “A Battle Cry For Clarity In Business Process Improvement Approaches.”

Connie Moore: We’d like to take a look at business process innovation and transformation. Companies talk with us about these pressing topics all the time; they usually fall into two camps, although those camps aren’t mutually exclusive. The first camp focuses on continuous improvement and operational excellence, whereas the second one tends to say, “Let’s re-imagine our process completely,” and focuses on transforming how they operate their businesses. What do companies talk to you about? How do they view process improvement transformation?

Steve Spear: First, let’s be clear: Continuous improvement and transformative process redesign are not mutually exclusive. They both require taking something that is understood imperfectly, learning how to succeed, and bringing that new knowledge into direct use. In the case of continuous improvement, that learning might be localized, high-speed, and regular; in the case of transformative redesign, it might be greater in scale and scope but less frequent. In both cases, success depends on having a systematic approach to the design, operation, and improvement of the complex systems on which we depend. Let me explain that position.

No matter what the industry, organizations now face tremendous competitive pressures because of revenue challenges, which is quite different than before the Great Recession hit, when the competitive pressure was to keep growing and doing whatever they were doing. But now the pressure is to realign with a very changed marketplace. And their customers — whether commercial, noncommercial, or individual customers — are significantly more budget-conscious and want to have their needs satisfied in different, less expensive ways. This requires different thinking from executives who used to believe that staying competitive was a matter of additional fine-tuning. The reality is that companies can’t simply fine-tune their processes anymore and stay competitive. So that raises a whole host of problems, such as: If you have to make changes that are more profound than localized fine-tuning, how do you do that?

Just to give you an example: Beverage makers must cut expenses by enormous percentages. That's actually hard to do; the production process consists of water in and colored, nicely flavored water out. To reduce costs, they must cut the amount of water and energy the processes consume by a very large percentage. The pitfall many organizations run into is thinking every challenge they face is unique, which may or may not be true. But because they approach the problem with a unique mindset, they think constructing a solution requires a unique fix. And so they pursue a continuous improvement event that is somehow distinct from another continuous improvement event, which is yet again distinct from something more transformational.

Connie Moore: You’re definitely right. Fine-tuning or continuously improving your way to a level of operational excellence that makes a dramatic difference in this economy is a huge effort and may not yield major results. But trying to transform a process — or better yet, transform the business — is an even bigger undertaking, with significantly more risk involved.

Organizations Need A Scientific Approach To Designing Processes

Steve Spear: When working with organizations, I have tried to impress upon them that designing, operating, and improving complex systems of work is actually a basic science. There are some fundamental principles that, if practiced, mastered, and applied, you can apply across the broad spectrum of challenges that companies face. Think of the huge benefit if we approached the design, operation, and improvement of complex operating systems in such a professional fashion.

Organizations design processes using the build-or-bust mindset. They don't have a basic science to guide the design of processes, the operation of complex systems, and the improvement of those systems. Without a systematic methodology, system design and operation is idiosyncratic — subject to the whims of whoever is in charge — or imitative, because the best approach is benchmarking. However, a small minority are guided by a basic science of systems, like how to design things to capture your best known approaches; how to design things to indicate very quickly where your best known approaches are failing so that you have to improve; and how to make improvements in a disciplined way so that you can learn and develop new knowledge.

This systematic approach gets to the root cause of any problem: ignorance. We can do root-cause analyses many steps back to something physical, but when we get right down to it, the fundamental problem is that we didn’t understand a situation well enough the first time to design the system perfectly. That’s why a problem exists.

The rare few who work off a basic science of complex operating systems understand that whatever root-cause analysis they do, they have to go back all the way to the ignorance that they brought into the original design with the rigor of what you can call A3 thinking and Lean or DMAIC and Six Sigma. But fundamentally, it’s the scientific method. Bring in the scientific method, apply it to that ignorance, and convert that ignorance into useful knowledge. People who work off this basic science of systems are much quicker to design good solutions, whether it’s small-scale continuous improvement, a larger-scale transformation, or even applying the same basic science when they recover from major disruptions like a financial crisis, market failures, or manmade or natural disasters.