How Does Lean Improve Productivity?

Improving the Productivity in Small and Medium Businesses (SME’s) is what gets me out of bed every day.  In New Zealand, SMEs have some of the world's worst productivity statistics in the OECD. There are many factors that impact productivity, therefore there is no silver bullet that alone will make a significant impact. But wow! What an opportunity for New Zealand Businesses! That is what excites me everyday.

It doesn't take long for people who I come into contact with to realise I am passionate about Lean, the simplicity of it and how it can help teams break the shackles of daily firefighting and feeling that there is never enough time.  That passion aside, I don’t profess that Lean is the saviour to the woes of New Zealand’s productivity, but I passionately believe it can have a significant impact. In particular the SME sector which is often referred to as the backbone of NZ’s economy. The role I play in this situation is to help owners, managers and leaders understand where they are at in terms of their performance.  To simplify aspects of Lean so that it can be attainable, realistic for all of those small businesses.  Decades into the history of Lean, it can still be perceived as something that is only for big business.  This is far from the truth, as I have previously talked about how Lean is perfect for really small businesses.

So how can Lean have a positive impact on the performance and productivity of a company? To answer that , let’s do a quick refresh about what Lean is.
For a small to medium business, my focus to Lean is about helping a team to establish a culture of improvement. These businesses have tended to start with a subject expert and grew the business from there.  What processes and systems which worked at the beginning tend not to support effective and profitable growth.  So teams need to adapt, change and continuously look at better ways, smarter ways at doing the same thing.  It is about improving quality at every stage of the process so that every team member can influence and improve quality. The culture is about establishing a team focusing on the right things for the business, making sure the right people are doing the right things. 

In summary, incorporating Lean Thinking to a small business allows the team to keep improving the processes to work smarter with a focus on quality.  More often than not when I am invited to visit a business one of the first comments I hear is “we just don’t have enough hours in the day” or something that is becoming more common “we just can’t find enough staff”.  While that may be true in some cases, the majority of companies are struggling because there is significant ‘waste’ in their business.  The physical workspace is unorganised, messy with little or no system to it.  Team members spend a significant proportion of their time looking for items, tools, information - the list can go on.  Errors or defects are just a daily occurrence that leadership have just become accustomed to firefighting - that is where the leadership often spend the majority of their time.  Overall it can be a collaboration of chaos.
Because a medium business is often managed directly by the owner, the focus more often than not is on the Profit & Loss budget.  This approach just lends itself to a mentality that to make more money we need to increase revenue and turnover.  This is not a sustainable framework.  Owners begin to demand more out of their team often requiring longer hours because there has been no change to the ‘system’.  The downward spiral kicks in as demand is met by hiring more staff into an already pressured environment. All this achieves is lower margins, so more pressure is applied to up the turnover even more. Revenue increases but so does the expenses thus starting a negative spiral affecting the overall sustainability of the business.

Efforts to improve the process so that the product or service is delivered more efficiently can lead to even great profit margins (I conservatively estimate 20% in most cases) without the added stress of additional workload. Improving the capability and capacity of a team is one of the benefits of applying Lean Thinking to a business. Improving communication, planning and certainly processes can have a major effect on the sustainability of a SME. The conversations are focused around understanding where the problems are by measuring the key aspects of delivery. By moving the attention away from the $$$$ and towards performance teams can begin to figure out where they can get better.

Using a sporting analogy - the All Blacks can’t figure out what aspects of their performance but the final score line alone.  They rely heavily on a range of data and information such as missed tackles (errors), meters gained, time spent in different parts of the field - team based performance data. Individual statistics can also inform the different players' aspects of their performance as it attains to their role in the team and how they contributed to the game plan.

It is only through identifying and improving these aspects of their performance that it will influence the final outcome on the scoreboard.  In respect to a business, it is improving the different aspects of the business through measuring its performance to guide continuous improvement activity and eventually making a positive impact on the company’s bottom line. This is the focus of Lean Thinking for a business. Improving how it uses its most valuable asset - people, in the most efficient and effective way. Creating an environment in which every team member is engaged in their work and also empowered to make it better, even by 0.5%. Over time this makes a huge difference to all aspects of a business and especially the productivity and performance of the company.

By taking this approach it also enables the business to look at other aspects that can further enhance productivity. This might be the use of technology or automation.  It can also open up opportunities for further R&D around introducing new products or services.  These are all options that are in control of the business. It is through the efforts of continuous business improvement that will lead it towards maximising the opportunities for the business.

This approach isn’t about pushing more work to people to complete, resetting goals as they achieve targets.  Rather it is empowering your teams to think differently about how they approach the tasks they complete in their job and continuously ask themselves - ‘is there a better way to do this’?  That better way may improve speed and efficiency or it might be to improve quality so there is less rework.  Either way it is about improving the capacity and capability of our precious resource - people.  This is where the direct link between implementing Lean Thinking and productivity lies.

This is not an overnight success strategy.  Creating a culture of Lean Thinking takes a long time.  The more mature organisations often describe after 15 - 20 years that they are only just scratching the surface.  It is not a last minute survival strategy.  The gains I often quote are the result of at least a couple of years of hard work investing in the future business. However once the momentum of business improvement has started it will bring about the desired changes and can dramatically influence the productivity and viability of the business.


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