Lean and digital: perfect partners for transformation

25 June 2018

Bernd Schreiber, Willem Romanus, and Yong Lee explain how integrating lean principles into digital transformation can be a highly effective way of simplifying the process, allowing for easier identification and application of the most effective levers for the digital journey.

Figure 1.
Figure 1.

At first sight the idea of abandoning lean and trying something new which delivers more radical improvements may seem appealing. However, although lean and digital might initially appear to be largely unrelated, ignoring lean principles can be risky, and can even prevent digital transformation projects from being successful. 

Many companies suffer from lean ‘fatigue’, with managers frustrated with results that are increasingly incremental. At the same time the potential of digital technologies to transform performance is now widely recognised. However, many companies struggle to find the right approach to grasp these benefits. Indeed, choosing from the plethora of new options provided by digital technologies is a real challenge. Typically, it is unclear where to start and how to prioritise a company’s efforts and resources to drive tangible results. While some companies have achieved radical performance increases of up to 50% or more, many have become stuck in a situation in which initiatives happen in silos, efforts lack coordination, and successes are limited or non-existent.

Recent experience has shown that integrating lean principles into digital transformation can be a highly effective way of achieving radical simplification of the process, enabling the most effective levers for the digital journey to be identified and applied.

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) as a measure, the correlation with lean implementation was analysed. (See Figure 1.)

Performance growth of up to 8% is common during the Lean Exploitation phase. This decreases as performance improves, and tends to stabilise at around 1% in the Lean Excellence phase. Digital technologies have the potential to make a further step-change improvement across all phases.

Whatever the industry, outstanding lean organisations tend to be strong in the three ‘lean pillars’ – leadership and culture; targets and performance management; and Kaizen platforms. 

However, despite the widespread understanding of these principles, many lean journeys fail. Companies often focus too much on tools rather than philosophy, and on waste removal rather than customer value. Disappointing incremental improvements and lean fatigue are common symptoms of this failure. 

The advent of new digital technologies provides huge opportunities and levers for making a further step change in performance. However, companies that simply introduce new technological devices and systems, without considering the value stream holistically, run the risk of failure. This can be because: 
• Issues related to deficient value streams and/or poor data quality are seldom overcome by using sophisticated technologies.
• Digitalisation of processes with poor (data) quality make existing shortcomings even worse.  • The local, workplace-specific application of technological gadgets seldom leads to radical simplification at the enterprise level. 
• Technologies which, at first sight, seem easily applicable may lack maturity, causing frustration for employees.
• Radical simplification requires a holistic approach to value-stream transformation.

Overcoming challenges
Overcoming these challenges requires a good knowledge of available technologies and an understanding of how and where they can affect the value-stream – and this is where the three lean pillars become invaluable. 

Every company needs to configure its own set of technological blocks, to address its organisational characteristics and priorities. Five categories of technological building blocks are defined in Arthur D. Little’s digitalisation framework, ‘Future of Operations’. This classification helps companies to trace operational needs to the relevant building block: 

• Cognitive: using pattern recognition based on (big) data for automating tasks (e.g., big data/advanced analytics, bots, autonomous transport systems). 
• Connected: incorporate machines, tasks, etc., through the cross-functional use of information (e.g., collaborative, smart machines and robots). 
• Virtual: leverage productivity by decoupling and transforming physical conditions into virtual spaces (e.g., cyber-physical systems, augmented reality). 
• Human centered: design new workplaces through the use of collective knowledge (e.g., collective intelligence, virtual workplace). 
• Value-add: define new business models through the use of new core technologies (e.g., additive manufacturing/3D printing).

These building blocks are interconnected, and so a holistic and integrated design approach is needed. They apply across the organisation, in both core operational functions such as manufacturing and logistics; and in support functions such as robotics process automation (RPA) in production planning and finance.

By adopting lean principles, including a classic lean value-stream analysis, it is much easier to identify the right areas and the levers to make the change. 

Assessing the potential
Radical shifts in performance can be achieved by embedding new (proven) technologies in the value-stream to overcome factors that have traditionally limited performance.  The full digitalisation potential of the value-stream may be derived using a design approach based on two key questions: 

1. Which physical process steps can be automated by mature and proven technologies?  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 by what technology it should be automated. The immediate use of mature technological building blocks on standardised processes will deliver more reliable processes with less failures. Significant increase in productivity is the consequence 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 digitalised? Second, automate and digitalise 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, robotics process automation, artificial intelligence or decision-supporting systems radically simplify administrative information flows.

Digitalised information flow will not only produce less failures and accelerate workflows significantly, but will also create new value and optimisation opportunities through the digital visibility of big data.

Lean digital capability
The ability to effectively and efficiently digitalise the value stream is, unquestionably, a source of future competitive advantage.

Identifying and integrating the most appropriate digital technology into the value-stream requires a good understanding of all related business processes, as well as the technologies on offer and their relative maturity. 

As with lean management, developing the required capability and establishing the required mind-set throughout the organisation remain a top-management issue. The more employees and managers that adopt this new lean digital mind-set, the sooner efforts to digitalise will succeed in delivering step changes in business performance. 

To be successful and overcome typical barriers, companies need to ensure that lean principles are well integrated into digital transformation efforts. It is vital to: 
• Select the right building blocks based on their specific value creation potential. This requires a broad and profound knowledge of state-of-the-art technologies. 
• Use lean principles to radically simplify the value stream. A digital greenfield design can be used to identify the digital potential in the value-stream.
• Avoid digital shortcuts, as they typically fail or lead to disappointing or unsustainable results. 
• Start developing a lean digital capability, which will form the basis for a long-term and sustainable competitive advantage. This implies a cultural change in the organisation and requires top-management attention. 

Completing these four actions will help achieve radical shifts in performance levels by combining digital and lean. It is time to go digital – but lean principles are still more needed – maybe more than ever before – to help transformation efforts succeed over the long-term. 

Bernd Schreiber is head of global operations management at Arthur D.Little; Willem Romanus, is a principal at Arthur D Little; Yong Lee is a manager at Arthur D. Little.

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