2/10/2020

Dear Gemba Coach,

My managers are focused on monthly sales and quarterly profits – how can a lean guy like me interest them in quality?

Well, sales and profits are not a bad place to start – the question is: what is their theory about sales and profit? The lean approach to recurring sales is sales productivity: customer’s average basket size and repurchase. Sustainable sales derive from customer loyalty. Loyalty comes from satisfaction.

Customer satisfaction customer loyalty recurring sales

What, then are the key drivers to satisfaction? Again, in lean, we’re looking at three core components to customers satisfaction:

Design performance: is the product or service design hitting the right spot both in terms of delivering the basic function customers look for, and in fitting the spirit of the times? Quality delivery: is each product or service achieving the promise made to customers. How is design realized in production to actually deliver 1/ safely, 2/precisely, 3/ quickly, and 4/ nicely Price competitiveness: is the product or service reasonably priced compared to its competitors (list price, not discounted price with promotions and rebates)?

Now the lean trick is that price competitiveness is achieved through design performance (and, in particular, capital productivity from design allowing a more thorough use of existing CAPEX) and design performance is gained through quality delivery: We learn to improve the design from studying every quality fail.

Quality delivery design performance price competitiveness

For people obsessed with an accounting view of the firm, it’s easy to see quality as a normal cost of doing business. Quality has a cost that is the cost of non-quality (throwing away rejects and reworking defectives) to which you add the cost of achieving quality (inspections, controls, audits, etc.). On the gemba, I’ve often seen the cost of non-quality reach up to 2% of sales, which in many low-margin businesses is significant as it comes straight out of the bottom line.

But although financiers are easily persuaded the cost of quality should be reduced, they simply don’t know how. All they know is giving targets line by line to reduce defectives and reduce inspection. As they have no systemic understanding of what creates quality in the first place, the cure is often worse than the disease, adding to operational problems rather than improving things.

Steaks or Two Smaller Cows?

A company is an integrated system (as in, cut a cow in half and you get steaks, not two smaller cows) so solving quality problems means pulling the thread and unraveling the causes through the entire system to understand where the problem really comes from. In general, processes are doing fine for run-of-the-mill jobs, but controls are often at the wrong place, which creates silly instructions and overburdens weak areas – leading to failures. In complex systems, causes are rarely found close to their symptoms.

I was on a hospital gemba recently with the CEO and many of the errors we investigated came down to scheduling problems. For example, one nurse administered the wrong medication to a patient simply because the container was empty and without realizing it she took the next product (which looked similar) – never realizing her mistake (luckily, in this case, the doctor realized the patient was not reacting as expected, and they corrected the situation). Very generally, a 5-why investigation will lead you down the path of:

Quality incident < logistics fail < scheduling mistake < unsuspected weak capability

Financiers who look at the world through budgets have trouble with this sort of reasoning because the logic cuts across accounting lines. Accounting simply does not allow for systemic effects, such as, in the hospital, investing in delivering drugs to the wards every day, to hold less inventory and to make sure you have a bit of everything – and have daily opportunities to notice if something is either missing or too plentiful, in order to avoid costly mistakes. All accounting sees is how much it costs to deliver one item.

Any manager will agree that quality is a key to customer satisfaction. What they’ll struggle with is:

Precise and frequent logistics are the entry point into quality;

Investigating every mistake that shows up in logistics (without necessarily solving all problems) for Manpower, Material, Machine, Methods fails is the key to understanding the systemic roots of quality issues;

Solutions emerge from everyone improving every process all the time and not through solving the largest issues by radical solutions.

The difficulty in convincing management lies not so much in making the case for quality. They would agree to any clear investment proposal that says: spend X there and the cost of quality will reduce by Y%. The hurdle to lean is convincing management that 1/ we need to make scheduling and logistics work in order to reveal where problems recur and 2/to look into issues to discover what the real competency problems are and then 3/ invest in capabilities where they are needed. I realize that this can sound counterintuitive and frustrating, but don’t try to convince your bosses. They’re the boss, not you. They were picked by the board, not you – so why would they listen?

The only way I know to do that is to practice it yourself, show results and explain how you did it.

The few people I know who, against all odds, succeeded in convincing their management to look at lean more deeply followed the same path. They took on a difficult project, they made it work using lean thinking, they shared their learning in the lean community and … finally got a chance to explain how they went about it to management. And they did so without ever mentioning lean upfront.

I realize that this can sound counterintuitive and frustrating, but don’t try to convince your bosses. They’re the boss, not you. They were picked by the board, not you – so why would they listen? Practice on your own area, or on a recognized company challenge, demonstrate success and explain locally what you do – revealing that it all comes from lean thinking late in the game when people have already agreed that what worked is smart.

It’s easy to think that lean is a matter of convincing managers to get buy-in. This assumes that lean is simply a shift of focus. The truth is that lean is a change in how we reason – from finding problems to facing them to framing issues to forming solutions from everyone’s countermeasures. You can’t convince anyone of changing how they think – they’ve got to follow their own journey to learning it. What you can do is show them interesting experiments that make them curious, so they open the lid and look at what’s under the hood, and try to puzzle it out for themselves.