Matt's Articles

How do you value improvement?


Throughout my career, I have been confronted with this question. What is the value of the improvement? Of course the word, “improvement” sounds great, but good leaders are skeptical. They need more than just a good sounding idea. They want hard evidence of the opportunity before investing time on some new initiative or idea that is promoted as the next big improvement.

Improvement isn’t free. Blasphemy! I know. While that statement might be contrary to the dogma, the time and resources invested in making improvements is easily seen and measured: Kaizen events, countless meetings, expensive experts, time away from production, time away from the keyboard and so on. Most leaders demand to know if shaving a few seconds off of order entry or reducing the time to switch between two different products on the production line is worth the investment. Or what happens if we reduce distractions to the software engineers? What will the return be to the company? There are two answers that come to mind quickly. Both are not quite right, but let’s start there.

The first answer is what I was taught in engineering and reinforced through my Six Sigma training. That is, calculate the cost of the resource doing the work, estimate the time reduced by the improvement, multiply all that by the frequency, maybe annualize or even better, calculate a multi year savings using time value of money. Voila! You have the answer! This is acceptable. I use the method often, I teach other people to use this method. It is straightforward, easy to understand, and we can go to the budget and see the reduction in cost or increase in output. Yes, it is acceptable, but it misses something. It’s a cost accounting method that undervalues the economic gain that the organization gains through process improvement. Frankly, it misses the underlying purpose of improvement and undervalues the investment we make in improvement work.

The second answer is “We improve because we must improve.” I have found this answer in highly entrepreneurial or unstructured environments. A while back I would occasionally hear this inside of Lean organizations. “We improve because we must improve.” Forget about the measure, it’s just “the right thing to do.” For the record, I am not insinuating that Lean practitioners don’t measure. Just that I have seen where improvement becomes dogma. We adopt new practices because the textbook says we must, without much measurement to back it up. Yes, not everything that matters can be measured, but we need to think deeply about the impact of our improvement. Is it worth the time and effort to implement the solutions? It is often the case that the perfect solution is more expensive to implement than the inefficiencies of the current process. “It needs to be fixed, but not this problem and not right now.” We can’t simply wave those points off with platitudes of Continuous Improvement.

So what is the right answer? A new solution to a new customer problem is the highest valued use of our constrained time. The time that we use to address rework, complete mundane tasks, and other wastes steal from that time. The time we create to identify new customer solutions or better customer experiences is worth 10 times or 20 times the actual cost of the time saved. This is a revenue view of the impact of Continuous Improvement as opposed to just the accounting costs. A value analysis of our time prevents us from narrowly looking at just what we spend. It allows us to think bigger about the new opportunities we can create. It does this while forcing us to put a number on the situation. We should always think of our options and the potential value of those options. This is how entrepreneurs, great sales, and great business people think. People are constantly capable of higher order customer value adding work. Creating more customer value generates new and larger amounts of revenue. New revenue justifies a much greater investment in improvement activity. Isn’t this a much more positive, motivating mindset for the organization? Rather than asking, “how can we cut the work effort to reduce staff?”  we should be asking, “how can we make space for a new service, new product, or a new idea that will benefit customers, generate new business, grow the company and create new jobs and benefits for society?” This is the true value of Continuous Improvement and Lean and Six Sigma thinking.