Which Business Improvement Approach Is Best For You?

Monday 9 April, 2012

by Daniel Lock

In this article, we consider three approaches to business improvement: kaizen, re-engineering and dramatic innovation. Each has its place - but the costs, benefits, and risks differ significantly. Which is the approach that will work best for you? What are the impacts of each? Discover how to assess each of these approaches.

Definitions

• Kaizen
  
  Small incremental improvement that involves empowering local teams to solve local problems. Teams are provided training, tools, and specific time in order to analyse the root cause of problems directly affecting them and implementing simple and effective solutions. The focus is only on problems and solutions within their specific circle of competence and influence.
  
• Re-engineering
  
  Those projects which require specific focus from a small team to solve more complex problems that usually span organisational departments. Activities include process mapping, collecting data to validate problems, use of statistics to ensure the right problem is being solved (root causes eliminated), and implementing management control tools to ensure the improvements stick.

• Dramatic innovation
  
  Creates a completely new business models, products and services, or ways of doing things that is completely different from the past or perhaps never existed previously. Think of fundamentally new technologies such as electricity, new products such as cars, and re-combining existing technologies such as iPhones.

The costs

• Kaizen
  
  Kaizen is very cheap. There is no need for dedicated project managers, analysts or to convene people from other departments. Most of the cost is in peoples time, a few hours a month, which is recouped easily from the improvements.
  
• Re-engineering
  
  With dedicated resources and professionals - such as consultants - can run into the hundreds of thousands and low millions, especially if software is involved.
  
• Dramatic innovation
  
  Dramatic innovation runs into the tens, and even hundreds of millions with - not just dedicated people - but dedicated research and development departments, labs. This especially expensive considering the majority of inventions do nothing.
  
  3M famously developed the Post-it notes accidentally, Xerox had Xerox Park research facilities - of which Apple captured most of the value. When they pay off, they certainly make money, but the uncertainty is extremely high. 

Benefits

Benefits vary widely, perhaps from 1% to 1,000% Improvement:

• Kaizen
  
  Given team based problem solving is local in nature and scope restricted the benefits ma only be a few percent. Added up over a year it may annualise around to around 20% to 50%. A percentage point each week can really add up. (Compounded, if you improve 1% per week in 72 weeks you will doubled productivity.)
  
• Re-engineering
  
  Re-engineering benefits are often more dramatic. When old dysfunctional process problems are fixed up, and overlaid with quality software and communication tools often a 100% lift in productivity can be achieved. Smaller re-engineering projects could easily realise 10-20 per cent gains in a few months.
  
• Dramatic innovation
  
  When it comes to innovations, who knows how much the benefits could rise to? The gains could be almost infinite.

Risk

• Kaizen
  
  With small localised team based problem-solving, the risk is negligible. Some set up costs in training and allocating time and resources to the team, which even if results are less then best, will filter into the organisation for later.
  
• Re-engineering
  
  Re-engineering of course caries more risk, but not exponential. Often there are similar examples in other departments, organisations or business from which to draw lessons. Rapid prototyping and early user testing ensures bad ideas are taken out before too much is spent.
  
• Dramatic innovation
  
  Innovation caries a lot of risk. The reality is that most companies went bankrupt in the dot com bubble, with only Amazon and eBay able to make viable businesses. Most innovations fail, and the first mover advantage usually goes to the second.

Who can do it?

• Kaizen
  
  Kaizen can be done anybody - preferably the front line. They don't need advanced stastical training, analysis or project management skills. Just some common sense and energy. Mostly only need a few training sessions and the permission from management to solve problems they see everyday.
  
• Re-engineering
  
  Re-engineering requires dedicated professionals with experience built up over time. It's not for everybody. On the bell curve of people, there are plenty of smart capable non-geniuses who will deliver re-egineering value over and over.
  
• Dramatic innovation
  
  Innovation requires a lot of luck, and anybody can get lucky. But one reason Apple is so 'lucky'  is they employ and maintain a standard of the best people in the world. These people don't come cheap.

Frequency: How often can improvements happen?

• Kaizen
  
  There is no reason why a team can't deliver Kaizen improvements each week, and certainly each month.
  
• Re-engineering
  
  Re-engineering seems to deliver well on 3 to 6 month cycles with larger transformations up to a year or two. Any longer is best broken down into smaller intervals as part of an overall transformation vision.
  
• Dramatic innovation
  
  Innovation of the truly exceptional kind doesn't happen often. Perhaps every 5 to 10 years. But if you don't plan for it and invest in it, it will never happen.

Economic impact

Simply multiplying these factors out, costs x benefits x risks x impact; kaizen comes in at medium, re-engineering at high, and innovation at medium in terms of economic impact
Innovation is worth an extreme amount when it happens, but only when it happens. If you're a bio-tech company, then this is your bet and investors know it.

What's best for you

Re-engineering makes the most over time. However this doesn't mean you should only follow this strategy. The team-based Kaizen sessions can uncover great problems for the re-engineering team to investigate and will ensure the re-engineering advances are continuously improved over time.

When it comes to dramatc innovation, history shows dedicating budget to research and development pays off. You just don't know when - but if you're not out their looking for it with intent then it may never come your way.

Author Credits

Daniel Lock is Principal of Daniel Lock Consulting, a firm focused on organizational and individual performance improvement. Contact him at www.daniellock.com & Blog at www.daniellock.com email Daniel@DanielLockConsulting.com and phone 0413 033 703