Jumpstarting Process Improvement in Your Organization: The Top 10 Essentials (Part 4 of 10)

Essential #4: A sufficient organizational hierarchy to support process improvement.  Big words, I know.  In order for process improvement to take root and prosper, the business must be organized in way that allows both the process improvement specialist(s) and the front line staff to be effective.  This structure has three elements: A dedicated position, senior leadership reporting, and breadth of influence.

  1. A dedicated position allows the process improvement specialist to focus on only one thing – process improvement.  Part-time or ad hoc specialists are mineffective when they have to balance two or more roles. The “fire-fighting” or myopic perspective of the primary job function will almost always take precedent over longer-range, higher value work.  Most literature, training, and experts propose dedicating at least one (or more depending on the size of your organization) full-time person to process improvement activities.
  2. The successful process improvement specialist must have a reporting structure that allows access, feedback, and accountability at the top levels of the organization.  For specialists to be most effective, they must have unfiltered access to senior leaders to make quick, and often business-changing decisions.   Organizational inertia (“that’s the way we’ve always done it!”) is the single biggest roadblock to process improvement.  To counteract this inertia, the specialist relies almost entirely on the leadership to help move past this dynamic.
  3. The process improvement specialist must have a bird’s eye view of the organization – one that allows him or her to see both the forest and the trees.  Too often, well-intentioned exec’s kick-start a process improvement initiative and then bury the specialist in the organization, limiting his or her effectiveness.  A better alternative is to position the specialist at a level that serves the entire organization, both strategically and operationally.

The road to continuous improvement can take many twists and turns.  Organizations have taken different approaches on to how best deploy resources.  Having the process improvement specialist in the right structure and at a high enough level will foster a non-adversarial relationship between the specialist and the front line staff.  It also facilitates quick decisions at the top allowing great solutions to be implemented expeditiously.

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Jumpstarting Process Improvement in Your Organization: The Top 10 Essentials (Part 3 of 10)

This post is third in a series by Jason Kilgore about how to implement a formal process improvement effort in your organization.  

Essential #3:  Clearly defined rules and metrics for success.  Tying back into an earlier thought, the rules and metrics must align with the philosophy and objectives of the overall process improvement mission.  For example, if the goal of the process improvement effort is to improve quality, each defect or complaint or customer return must carry with it an associated dollar-value cost – either by empirical data or by convention.  Therefore, if the number of defects or complaints or returns is reduced, the dollar-value of the project is entirely quantifiable.  How the company chooses to value such lapses in quality is secondary to the fact that the valuations (or rules) are established in advance. 

Similarly, cost savings must be defined.  Typically, there are three types of cost savings in the process improvement arena.  They are as follows:

  1. Hard cost savings – savings calculated from those costs that were incurred in the baseline year and were not incurred in Year 1.  For example, “In 2010, our cost per student was $8,657. After significant process improvement efforts, our cost dropped to $7,943.  Reductions were as follows…”  Hard savings are sometimes called green dollars – meaning tangible, bottom-line, in-the-bank savings. 
  2. Soft cost savings – savings estimated from costs associated with extraneous human effort, inefficient process, cycle times, or wasted movement.  Typically, when improvements are made to reduce soft costs, time is taken out of the process, but no workers have been displaced.  Once the time savings have been documented, it’s fairly straightforward to put a dollar value on the project.  However, since no workers have been cut, the dollar savings are theoretical.  Important? Yes.  The right thing to do? Yes.  Critical to the success of the business? Yes.  Dollars added to the bank account? Not so much. (Soft savings become hard savings when the number of workers performing the tasks is reduced.)
  3. Cost avoidance – savings calculated from money slated to be spent but was not actually spent due to a non-routine intervention.  This type of savings has several aspects.  Suppose that a company was in a position to invest one million dollars in capital to support a new product or service.  Bids were placed and a budget formulated.  If the business continued in steady state, the one million dollars would have to be spent.  However, if under the leadership of a process improvement specialist, changes were made to facilitate the new product or service in a way that required only a $200,000 investment, the cost avoidance would be $800,000.  In this case, there is not hard cost savings – the company spent $200,000 more than it did the previous year.  However, it was able to accomplish the same goal for $800,000 less than anticipated through targeted process optimization. 

Defining the “rules” – how cost savings are accumulated – is both tricky and necessary.  All are important, but cost avoidance and soft savings rarely, if ever, justify the cost employing full-time specialists.  As a general rule, I’d recommend a balanced approach to setting savings targets:  A minimum of 60% of total savings to be hard savings and a maximum of 40% of total savings to be any combination of soft savings and cost avoidance. 

Jumpstarting Process Improvement in Your Organization: The Top 10 Essentials (Part 2 of 10) – Jason Kilgore

The second post in the series on what it takes to initiate a formalized process improvement effort within your organization by Jason Kilgore

Essential #2:  Commitment to continuous improvement at the top of the organization.  While this sounds a bit cliché or you might think, “no duh,” this really is mission-critical.  Top leadership serves the most vital role in establishing and sustaining a process improvement program for three major reasons.

  1. Funding – Top management can choose to fund or not to fund any process improvement activities, staffing, or training.  If, in the minds of senior leadership, process improvement is an expense rather than an investment, the effort will fail. 
  2. Barrier-busting – Every process improvement project hits a wall at some point.  Whether the wall is of brick or marshmallow depends largely on the level of change required.  When the wall is hit, the company’s leaders will be called upon to remove the barrier.  The extent to which the barrier is removed will determine the success or failure of the project.  Company-wide success is won and lost one project at a time.  Passive leadership can destroy the process improvement effort just as quickly as a lack of funding.
  3.  Accountability – Leaders must hold those leading the process improvement charge accountable.  If not, process improvement specialists will drift – drift away from the key objectives of the organization.  They will tend to focus on novelty, low ROI, or easy projects.  Structural accountability from top management ensures that the effort is directed at the appropriate opportunities. 

While tactically, process improvement is best achieved via grassroots effort, strategically, it is a top down affair.  I had a spirited debate with a colleague on the best approach for deploying a sustainable process improvement program.  Both of us having gone through it before, I argued top-down.  He argued bottom-up.  Midway through our lunchtime debate, we finally agreed on the Oreo cookie method:  strategy must come from the top down; training and implementation from the bottom up.  Both of these require proactive leadership from those who have the power to fund, empower, and hold accountable those doing the work.