Think Lean, Grow for Free – October 1, 2014
By: Scott W. Bivens
Several forms of waste plague just about every type of business. Whether a start up, growth company or government organization, countless amounts of effort, energy, and money are invested in activities that just don’t add value to the business or its customers. In fact, this very thing works counterproductive to goal achievement, while pulling even the most established businesses to the wastelands of ineffectiveness. Trust me, this is one place you don’t want to be.
Astonishingly, many studies have shown that as little as 5% of the work in any company actually adds value to customers. This is why understanding some basic Lean concepts will come in handy whether you are producing or selling goods, or providing a service. Lean principles, in short, are all about reducing waste, while meeting customer expectations at the lowest possible cost.
Defining value is is one of the core concepts of Lean, and can be simply stated as whatever the customer is willing to pay. Think about that for a second…is what you are doing in your business on a daily basis something that your customer, whomever that may be, is willing to pay for? Although this is an abstract concept that can range from conceptual to literal, it should get the juices flowing about how actions and investments translate to value.
If this value added work only makes up as little as 5% of the whole, then the remaining 95% shows up as non-value added. This can be sorted into two groups, one for things done that are required by the business, and the other is made up of strictly waste. Business requirements can include regulatory, compliance related items, and safety efforts for example. These things may be essential to the business, but the last time I checked no customer is going to pay extra for a cup of coffee just because there have been no barista injuries at their local coffee shop this year.
The other non-value added area, waste, is the black hole that is constantly pulling at organizations’ resources. It typically shows up in the forms of correction, overproduction, motion, movement, waiting, inventory, and over-processing. How many times have you been pulled into a fire drill to correct issues that could have been avoided? In my career I’ve had entire days consumed with this type of fun. This is pure waste, and just one example of how easily non-value added activities can tax a company.
Understanding what the customer values, what waste exists, and its impact on the business is imperative for optimization. For mature companies, waste reduction may mean increased profitability. These same concepts may remove bottlenecks in government processes where customer/constituent satisfaction is important. For startups, and nearly all other businesses, thinking lean could be what allows your company to grow for free.
Scott Bivens is a Partner at Growth Strats, LLC.