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We are as unsure as everyone else about how badly the economy could get in the coming months. The truth is that many companies are already taking steps to conserve funds and prepare for a possible recession. We’ve talked to people whose budgets for travel and training have been cut and others who are making overall budget cuts. These are traditional ways that companies cut expenses as they prepare for tough times. We’ve also heard of companies revising major programs that were scheduled for 2009. Those of us who practice Lean Six Sigma, like those in other disciplines, are forced to consider just how bad things could get. At the same time, we should also be thinking about how we can help organizations survive the problems they will face in the coming months.
A popular Lean Six Sigma argument holds that Lean Six Sigma thrives in both good times and bad. In good times, companies want to expand. They expand, acquire other companies and enter new lines of business. In bad times, companies re-examine their processes and business models to see how they can save money. In either case, they need Lean Six Sigma practitioners to help them change their processes. It’s a comforting thought and, in many cases, it’s actually true.
Consider the financial crisis that has occurred in recent weeks. Several financial organizations have merged, voluntarily or not. Others have changed their status from investment banks to traditional banks to acquire more government protections. Meanwhile, governments around the world seem focused on introducing new regulations to prevent practices that are presumed to have caused some of the current problems.
Merges always result in two sets of processes that need to be merged into a common process. State changes also require new processes and business rules to be implemented throughout the organization. And, of course, new regulations require new practices and new business rules. All of these changes require process analysis and redesign. It can be done by consultants, process professionals or line managers, but it will have to be done and it represents a great opportunity for process professionals. Firms outside the financial sector probably won’t face the big changes that will necessarily take place in that sector, but they will face demands for cost containment and, if the recession deepens, significant cost reductions.
On occasion, when we’ve been asked how to sell Lean Six Sigma to management, we’ve consistently argued that you shouldn’t try to sell Lean Six Sigma, per se. In the minds of top executives, Lean Six Sigma is just another new technology or methodology and holds little or no interest. Instead, we’ve always encouraged process professionals to sell productivity and support for whatever changes their organizations need. In the coming months, those needs will be cost containment and then cost reduction. Now is the time for Lean Six Sigma professionals to present strategies and plans to contain and reduce costs to management.
Smart Lean Six Sigma planners will want to present a menu of options. An immediate crisis requires actions that can be undertaken quickly and that produce immediate results. If the crisis drags on into a prolonged recession, then there will also be a need for changes that will take longer to implement but will deliver more significant savings. Let’s consider these two time frames independently.
Short-term cost containment
Some of the changes that companies routinely make are made without much thought, such as reducing travel and training across the board. The smartest companies have a good idea of which processes are generating the most profits, or are likely to do better in the emerging economy, and weed out those that will be less profitable, while continuing to support the lines of business or processes that will deliver the best value. results. If your organization has a good business process architecture and process measurement system in place, then it can help prioritize smart cuts. However, if you don’t, it’s too late to develop one that will help with this short-term crisis.
Many companies will consider lean programs to help make quick cuts. Lean vendors and consultants differ on the most effective approach. Some take a broad perspective that captures much of the philosophy contained in the Toyota Production System and, like other Lean Six Sigma practitioners, will drive business analysis and redesign and cultural change, as well as waste elimination. in specific processes. Others, however, will focus on waste disposal.
The problem with the latter is that it often under-optimizes overall performance. That is, you may realize immediate savings in some areas, but later find that it’s costing you more in other areas. Each company will have to decide the urgency of generating specific savings immediately rather than following a course that generates broader and more sustainable savings.
In any case, creating a few Lean Six Sigma teams that can move quickly to examine mid-sized processes and suggest quick changes to eliminate waste is probably an item you should put at the top of your menu of offerings.
Some companies will find themselves involved in quick mergers or outsourcing. The next three months will be a good time to show that your Lean Six Sigma team can move quickly and get results with a minimum of analysis. This is not the time for detailed modeling, this is the time to quickly identify the minimum information required to make intelligent decisions.
Ironically, it’s also a time to think about hiring some consultants. One of the most difficult challenges new Lean Six Sigma teams face is determining which process issues will produce the highest ROI. This determination requires considerable experience, and you probably won’t have time for a lot of on-the-job experimentation or training. We’re not talking a lot of long-term consulting: we’re talking about using consultants to review proposals and provide advice and guidance on how best to prioritize activities for implementation for short-term gains.
Long-term cost reductions
In general terms, Lean Six Sigma emphasizes broader concerns. It focuses on understanding processes across the enterprise and prioritizing and coordinating intervention efforts. The most powerful Lean Six Sigma efforts require trained process managers and monthly process performance measurements. At its best, Lean Six Sigma leads to more sustainable improvements, but it requires more training and more time to implement.
Similarly, Lean Six Sigma products, like most automation efforts, require more time and a higher initial investment to achieve significant ROI. Lean Six Sigma is especially powerful as a way to develop agility and the ability for rapid process changes, but a commitment to Lean Six Sigma will take time and experimentation to determine the best way to use it.
Most companies, in the coming months, will focus on short-term changes for immediate savings. Most companies have been operating in an expansion mode for the last few years and a good Lean team can almost always identify some quick changes that will save 10-30% of the cost involved in any mid-sized process. You probably won’t be able to keep all of your savings for more than 6-12 months, but for many it will be an appropriate response to an immediate call to action.
However, some companies may not feel the need to simply focus on short-term savings. And even those that do probably won’t focus exclusively on saving for very long. Smart Lean Six Sigma teams will want to provide an immediate response to executive savings requests, but they will also want to lay the groundwork for more sustained efforts. Therefore, even when some specific changes are made, Lean Six Sigma practitioners should point out to executives that side effects and ongoing changes will erode those savings in a relatively short period of time. Therefore, when economic times improve, or when a company is ready to launch a project that aims more at future profits than immediate savings, the Lean Six Sigma team must refocus on establishing a business process architecture and installing a Lean Six Sigma platform that lays the foundation for a more systematic process effort and more reliable long-term responsiveness.
Process professionals are essentially support people and, as such, must support the immediate concerns of corporate executives. If those executives ask for immediate savings, a Lean Six Sigma team should be able to deliver. By focusing on bloated processes that were created without much thought and/or require a lot of overhead, it should be easy to deliver significant and immediate savings. At the same time, however, the Lean Six Sigma team must leverage any credibility it develops to drive a more sustainable and comprehensive effort as the economy improves and funds begin to flow more freely once again. You don’t get to be an organization like Toyota by focusing on single savings. You get there by creating a culture that focuses on process improvement month after month. Hopefully, the current crisis will help Lean Six Sigma organizations emerge stronger than ever and more focused than ever on installing organization-wide systems to manage continuous improvement.