Key Principles for a Lean Business System

One of the mistakes companies make when they try to create a business system or develop a continuous improvement culture is that they focus on the wrong things. They scrutinize behaviors. They spend their energy reacting to unexpected results. They bounce from tool to tool trying to find a fix for their problems.

What they often overlook, though, is that fact that their employees are often not guided by unifying principles. There is no clear corporate identity. Guiding principles are like beacons for the team, and create continuity as people come and go.

The following list of principles comes from our continuous improvement transformation model. It breaks the progress from an ordinary company to a world-class one into six phases. Each of these phases requires the adoption of certain principles to successfully navigate through it. While this is a fairly long list of principles, they are rolled out over an extended period. By the time you move to the next phase, living by the previous principles should have become a habit.

In each phase of your development, we introduce a handful of new principles to integrate into your corporate DNA. These principles are presented here in a rule format, but they are actually derived from ‘natural laws’ of business. For example, ‘Structure Your Thinking’ comes from the natural law that organized problem solving efforts tend to generate less waste and produce better results than snap judgement. Unlike values that are company dependent, these principles hold true across companies and industries.

PHASE 2: COMMITTING

In the committing phase, the key leaders of an organization turn the corner from accepting business as usual to choosing a new path. It is one of the most difficult of the phases because it entails accepting that there is a flaw in the way the business is currently being run, or at least that there is a better way to do things.

• Build Relationships: In the later phases, it is imperative that team members and the leaders in the organization work together. It takes a long time to cultivate a strong relationship, so the groundwork has to be laid early in the process of change.
• Develop Trust: An integral part of relationships is trust. It is important enough to warrant a separate principle. Team members have to feel safe and confident in their bosses. Leaders have to believe that team members will act in the best interest of the organization.
• Develop Leaders Internally: Great organizations push themselves. Weak leadership results in a lack of stretch goals, and an inability to successfully reach them, regardless of how demanding they are. Strong leadership gives an organization purpose and direction.
• Show Respect for People: First of all, treating employees respectfully is the right moral thing to do. After all, employees are people. They are not bodies, heads, etc. But beyond that it is good for business. Respect breeds satisfaction, and satisfaction breeds success.
• Think Long Term: Far too often, people think in a short timeline and don’t invest in the future. Creating a strong business system takes time and requires patience.
• Embrace Facts and Data: You can’t effectively improve without a deep understanding of things. Far too often, decisions are based on opinion and create conflict. Facts and data create clarity and alignment.
• Lead by Example: To create a continuous improvement culture, teams have to believe that leaders practice what they preach. That means that leaders must lead by example. If they require their teams to behave a particular way, they should live by the same standards.

PHASE 3: STARTING THE JOURNEY

There is an old expression that says even the longest journeys begin with a single step. The same is true when developing a continuous improvement culture. You won’t immediately reach your destination. This phase transitions the leadership team from deciding to acting and sets the tone for your Lean journey.

• Look Within: There is a tendency to focus on external factors and other people when facing barriers and obstacles. It is important to look at yourself first. This remains important throughout the development of a business system. The performance bar is continually raised. If you continue to operate at a static level, you will eventually become a barrier to progress.
• Align the Team: It should come as no surprise that great organizations have a unity of effort. Leadership tools like policy deployment and operations reviews are the tools for getting the team working together. The guiding principles on this list, though, are the bedrock of that alignment.
• Avoid Bureaucracy: Organizations without strong principles need lots of rules and policies to get things done. When you have a strong belief system, you need less bureaucracy to be effective.
• Invest Wisely: Continuous improvement is not free. It is an investment in the same way that buying a rental property has an upfront cost. Eventually, if you do the right things, you’ll get a payoff. But it is important to make sure that everything you spend has a purpose and will contribute to your overall goals. One of the best investments you will make when developing your business system is in people.
• Know Your Customers and What They Value: It is impossible to be successful in the modern, competitive world without understanding what your customers want and are willing to pay for. Pay close attention to the Voice of the Customer (VOC).

PHASE 4: BUILDING THE FOUNDATION

There are some key skills that your team will require as you develop your business system. You’ll also need some basic structure and systems. The focus of this phase is developing the required talent and building a Lean infrastructure.

• Focus on Processes: Processes are the lifeblood of any business system. If people do things in a haphazard manner, you can’t expect consistent results. And without consistent results you cannot rely upon each other.
• Learn to Learn: People have three basic problems when it comes to learning. The first is that they don’t know what they don’t know. The second is that when they do see a knowledge gap, they tolerate it. The final problem is that they don’t know how to close the gap when they do identify it as a shortcoming.
• Build and Empower Teams: If you can replace your team with a robot, you’re not using people properly. Strong teams have the proper training to make decisions in the absence of leaders.
• Create Structure: Creating a business system based on a continuous improvement culture needs the right framework within which it can operate effectively. This structure doesn’t happen by accident. It needs to be planned and maintained for the business system to flourish.
• Embrace Simplicity: We often confuse technology with effectiveness. Now, technology is fine when it makes things better, but technology for its own sake is not. Look for the simplest solution first, even if it is not as exciting as other options.

PHASE 5: RAMPING UP

Once the foundation is built, it is time to start building upon it. In the early part of the ramp up, you’ll probably focus on cultivating talent (though you will still need to deliver results). While that sort of focus on skills growth never goes away, by the end of the ramp up phase, most people on your team should have at least some continuous improvement experience. At that point, there will be a subtle shift from learning and teaching as the priority to a greater focus on results. Learning should not go away, but there will be a change in the ratio of how time is spent.  Note that this phase can take a number of years. It is important to be patient.

• Structure Your Thinking: People need to think scientifically. That means that they gather and interpret facts about a problem before acting. This way of thinking is unnatural for many people. In the early days of humanity, fight or flight were the two basic responses when cavemen were presented with a problem. The decision had to be made quickly and was based upon what one had seen before. Modern problem-solving, though, tends to be ineffective when done with snap decisions.
• Focus on Flow: Every time works sits it creates a problem. It takes more energy and effort to manage it, and customers wait longer to get what they want.
• Create Standards: Continuous improvement requires a baseline the start and the ability to recognize abnormal conditions. This means that you have to have standards in place. Without them, there is no foundation upon which to improve.
• Manage Your Value Stream: Companies often erect artificial barriers within the organization. They arrange their functions as silos. That makes it hard to create value for customers. Instead, the company should be arranged by value stream.
• Improving Your Job is Part of Your Job: Companies turn the corner on their CI journey when employees start taking responsibility to make their own job better. In typical organizations, changes in work are driven by managers. When continuous improvement is part of the company’s DNA, people become dissatisfied with waste in their work and take action to do something about it.

Phase 6: Keeping Momentum

The risk during Phase 6 is complacency. Once the company gathers steam, it has to keep it. Don’t confuse this phase for steady state, though. The improvement trajectory should still be steep. It is just that it is using well-established systems with highly trained people. The stability of this phase also allows for greater experimentation with more sophisticated tools.

• Build in Quality: Every company understands the quality is important to their customers. Most, though, inspect it into their products. Great Lean companies build quality into them.
• Adopt a Zero Defects Mentality: This is a tricky principle. No company has ever achieved perfect quality. But that does not mean you shouldn’t strive for zero defects. It is a mentality more than a goal, and it results in localized pockets of excellence. Get enough of those pockets, though, and quality ends up being pretty great.
• Strengthen Your Systems: Systems put tools into context. They also make sure that you understand how a change in one place will impact operations in another. Good systems also reduce the day-to-day effort required to run an operation.
• Build Full Engagement: Employee engagement is actually the result of many other factors. Engaged employees, make customers happier, take the initiative more, contribute to higher morale, and make systems work better. The bottom line is that employee engagement helps the bottom line.
• Monitor Processes: It is important to manage operations and solve problems with actual facts and data. You don’t get that information unless you monitor processes. Pay attention to that word choice. Make the distinction between scrutinizing people and tracking processes.

Phase 7: World-Class Performance

Few companies will make the leap from Phase 6 to Phase 7. First of all, it is hard to uncover the subtle distinctions between a very good company and a great one. Secondly, even if you know what to do, it can be extremely difficult to actually accomplish it. Winning isn’t easy.

• Expect to Win: There is a fine line between confidence and overconfidence. Top-performing companies know that they have the right team and systems to take on the competition and beat them.
• Think Big: The companies that have changed the world, or at least their industry, have always done it with great leaps forward. With a strong business system in place, an organization opens up more possibilities.