Operations management, and its underpinning philosophies, have evolved dramatically over the last 100 years. Henry Ford made a step change from traditional craft manufacturing in the early 1900s and Toyota made another in the years following the Second World War. Proctor & Gamble is a more recent example of a company that has redefined the role of operations in the competitive world of modern business, while corporations such as Toyota are the benchmark used by companies trying to redefine their operating models. But despite the many books, articles and white papers written, few have had success in replicating the culture that characterises the outcomes of the Toyota Production System (TPS).
Many books written on Lean implementation have typically (and adequately) described the end state and the techniques that have to be adopted to reach that end state. Significantly less have described implementation, the organisational design (skills, structures, rewards and process changes to deliver the selected strategy) and change management that needs to be in place to make the transformation sustainable. Consequently, companies attempting implementation have often applied the techniques as isolated projects that are then never adequately embedded into the daily operational work routines.
A company wanting to replicate the TPS needs multiple functions to synchronise improvement work across a web of global sites and offices. To sustain the change, companies need to incrementally build individual competencies while simultaneously inspiring people to embrace often fundamental adjustments to how they do work, as well as providing a clear vision of their role in helping the organisation execute its strategy. Orchestrating and managing this change cannot be done using standard project management techniques from a central programme office.
The transformation from a functionally managed organisation to one that is process-based and designed with the ability to always meet (and even shape) demand, is a complex set of organisational development, front-line execution and systems improvement work that needs to happen simultaneously. Increasingly, companies are realising that a comprehensive management system is required to clearly define the work to be done and to manage the competencies, procedures, processes and people that ultimately influence a performance-driven culture.
Over many years, CCI has done substantial work to research and define what systems need to be in place to enable effective implementation. It subsequently defined and formulated the term ‘Integrative Improvement System’ (iiS) to encapsulate the broad range of components and features a system requires to effectively manage this transformation. A diagnostic tool (iiSd©) was also designed to enable a company to assess and benchmark its current systems against those that have made the Toyotas and Proctor & Gambles of the world successful.
Components and features of the iiS
Successful systems require three key structural components to effectively drive the transformation process — maturity-based transformation, functional integration and sustainability through a three-tiered system. A complete management system requires that these three structural components to ensure implementation sustainability, effective transformation, and an integrated approach to improvement.
The framework described below sets the parameters against which the iiSd assessment is made.
Benchmarking your improvement system
The accompanying illustration depicts five stages of evolution in continuous improvement (CI) systems through which successful world class companies would typically have evolved in their respective CI journeys. If it is acknowledged that companies who have succeeded in finding the ‘holy grail’ of culture-based CI have done so through their management systems, it would be necessary to understand these management systems’ critical features.
Companies in Stage 1 manage their operations as a cost-adding function only. No formal improvement initiatives are in place.
The focus is to minimise operations’ potential negative impact to the organisation. External experts (corporate personnel or consultants) are used for decisions on strategic operational issues, and CI is done at the sites without a standard approach. Transformation processes and competency development requirements are neither documented nor understood.
Companies at Stage 3 follow industry practice and seek competitor parity. The planning horizon for investment decisions is generally within one single business cycle only. Capital investment is often regarded as the primary means for catching up to competition or gaining a competitive edge.
Integrative Improvement System
Companies at Stage 4 have now migrated towards a complete management system, rather than just managing a set of disconnected point solutions or projects. They have defined best practice (and the maturity-based execution process to get there) across all their functional systems and have developed a diagnostic tool that measures current status. All CI methodologies have been incorporated in to a shared platform with the functional improvement methodologies, and the entire organisation is engaged in improvements across the supply chain. The management system, with implementation detail and training programmes, is available in multiple languages to enable engagement across multiple geographies.
Stage 5 organisations have a demand-sensing, end-to-end value network in place, driven by engaged employees that are good at detecting problems, and then ‘swarming and solving’ the problems to build new knowledge. All aspects of the internal and external supply chain are used for competitive advantage. These organisations are learning at multiple levels — not only about improving processes, systems and practices — but also about improving the learning process.
Objective of the iiSd ©
The iiS diagnostic has been designed to evaluate a company’s ability to implement and sustain a CI culture. It measures a company’s systemic ability to effectively manage all aspects of change across multiple themes such as strategy, standardisation, integration, results and tracking, etc. The diagnostic has more than 140 questions across these themes.
The iiSd can be regarded as a measure of the improvement potential available in an organisation, of how well it has defined its operational strategy and the capability to effectively deploy this strategy, and how balanced current initiatives are against the critical assessment themes. The iiSd also acts as a benchmark against what other organisations are doing and serves as an indication of the gap between current systems and what is required to get end-to-end business improvement.
It should be noted, however, that the iiSd is not a tool to measure business performance — some industry leaders may have low iiSd scores because that industry as a whole is in the early phases of improvement initiatives.
Analysis of results
An initial high-level survey across 85 companies showed that 70% of companies were between a Stage 2 and 2.5. To validate this initial survey, a more detailed database is being built. The current detailed database extends across 16 Fortune 500 companies, all advanced in their respective industries.
The industry results are shown on Figure 1.
The survey indicated that organisations below a Stage 4 are unlikely to successfully replicate the long-term performance culture exhibited by the world’s leading corporations such as Toyota. A typical output from the diagnostic is indicated in the progress chart (see Figure 2).
So far, the iiSd has revealed that existing systems in most Fortune 500 companies do not have the capability to drive the required transformation that will deliver superior performance over the long term. What has thus become evidently clear is that, to ensure the building of sustainable advantage across the end-to-end supply chain, companies will have to seriously consider developing an integrative improvement system capability