Digital Transformation » Go digital, but don’t abandon lean principles

“We’re through with lean – it’s time to go digital!” will sound familiar to the ears of many executives today. At first sight the idea of abandoning lean and trying something “new” that delivers more radical improvements seems appealing. However, although lean and digital initially appear largely unrelated, ignoring lean principles may be risky, and can even prevent digital transformation projects from being successful.

Successful companies have achieved outstanding performance by incorporating lean management at the center of their corporate transformations. However, even in those companies for which lean once transformed ways of working, the limits of what can be achieved have almost been reached. Numerous companies suffer from lean “fatigue”, with managers frustrated with results that are increasingly incremental.

The potential of digital technologies to transform performance is now widely recognized. However, most companies struggle to find the right approach to effectively grasp the benefits of this digital promise. Indeed, choosing from among the plethora of new options provided by digital technologies is a real challenge. Typically, it is unclear where to start and how to prioritize a company’s efforts and resources to drive tangible results. While some companies have been able to achieve radical performance increases of up to 50 percent or more, many have become stuck in situations in which initiatives happen in silos, efforts lack coordination, and successes are limited or even non-existent.

Our recent experience has shown that integrating lean principles into digital transformation can be a highly effective way of achieving radical simplification of the process. It allows companies to identify and apply the most effective levers for the digital journey.

The benefits of traditional lean

Companies that rely on lean principles achieve relatively high performance levels compared to their competitors. A recent Arthur D. Little automotive study classified the lean lifecycle into three phases and determined annual company growth rates in each phase. Using a key automotive productivity indicator (“hours per vehicle”) as a measure, the correlation with lean implementation was analyzed. (See Figure 1.)

Performance growth of up to 8 percent was common during the Lean Exploitation phase. This decreased as performance improved, and tended to stabilize at around 1 percent in the Lean Excellence phase. Digital technologies have the potential to make a further step-change across all phases.

Technical building blocks configure the approach holistically

Each company needs to configure its own set of technological building blocks to address its organizational characteristics and priorities. Five categories of technological building blocks are defined in Arthur D. Little’s digitalization framework, “Future of Operations”. This classification helps companies to trace operational needs to the relevant building block: cognitive, connected, virtual, human centered and value-add.

These building blocks are interconnected, and therefore need a holistic and integrated design approach. They apply across the organization, in both core operational functions such as manufacturing and logistics, and support functions such as robotics process automation (“RPA”) in production planning and finance. By adopting lean principles, it is much easier to identify the right areas and the levers to make the change. (See Figure 2.)

A design approach for full digitalization potential

The full digitalization potential of the value stream may be derived using a design approach based on two key questions:

1)     Which physical process steps can be automated by mature and proven technologies?

First, design a lean value stream on the greenfield. Simplify the value stream radically by eliminating interfaces through consolidation and integration: make the value-add visible.

For each process step, especially for the non-value-adding ones (“waste”), ask why this step needs to be processed by an employee, and with what technology it should be automated. The immediate use of mature technology building blocks on standardized processes will deliver more reliable processes with less failures. Significant increases in productivity are the result of shifting the focus from eliminating waste to creating value-add. The greenfield value-stream design will differ radically from the current value stream: it reveals its digital potential.

2)     Which remaining non-physical (information) process steps can be radically digitalized?

Second, automate and digitalize manual information processing and standard decision-making. Strive for a fully automated target condition in which the employee is just monitoring and confirming automated quality gates. Reduce manual intervention to zero. Especially for high-frequency routines, in which employees transfer data between programs, or even for very complex decisions, RPA, artificial intelligence or decision-supporting systems radically simplify administrative information flows. Digitalized information flow does not only produce less failures and accelerate workflows, but also creates new value and optimization opportunities through the digital visibility of big data.

Digital-lean mind-set for the whole organization

The ability to effectively and efficiently digitalize an organization’s value stream is, unquestionably, a source of future competitive advantage. Identifying and integrating the most appropriate digital technology into the value stream requires a profound understanding of all related business processes, as well as sound understanding of the technologies on offer and their relative maturity.

As with lean management, developing the required capabilities and establishing the necessary mind-set throughout the organization remain top-management issues. The more employees and managers adopt this new lean digital mind-set, the sooner efforts to digitalize will succeed in delivering step changes in business performance.