Why integrating lean principles into digital transformation can be effective

Digitalising value streams effectively and efficiently is, without question, a move that will provide an organisation with future competitive advantage. However, to undertake such a digital transformation, top management must focus on developing the right capabilities and establishing the necessary mindset throughout the organisation – a necessity also common to lean management.

The potential of digital technologies to transform performance is now widely recognised. 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 prioritise 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% 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.

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.

Implementing lean phases and considering the value stream holistically

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 analysed.

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

However, despite the widespread understanding of these principles, many lean journeys fail. Companies often focus too much on tools rather than philosophy, and on waste removal rather than customer value. Disappointing incremental improvements and lean “fatigue” are common symptoms of this failure.

The advent of new digital technologies undoubtedly provides huge opportunities and levers for making a further step change in performance. However, companies that simply introduce new technological devices and systems, without considering the value stream holistically, run the risk of failure. There are several reasons for this, for example:

• Issues related to deficient value streams and/or poor data quality are seldom overcome by using sophisticated technologies
• Digitalisation of processes with poor (data-) quality risks make existing shortcomings even worse
• The local, workplace-specific application of technological gadgets seldom leads to radical simplification at the enterprise level
• Technologies which, at first sight, seem easily applicable may lack maturity, causing frustration for employees
• Radical simplification requires a holistic approach to value-stream transformation

Selecting and integrating the right technological building blocks

Each company needs to configure its own set of technological blocks to address its organisational characteristics and priorities. Five categories of technological building blocks are defined in Arthur D. Little’s digitalisation framework, “Future of Operations”. This classification helps companies to trace operational needs to the relevant building block:

• Cognitive: using pattern recognition based on (big) data for automating tasks (e.g., big data/advanced analytics, bots, autonomous transport systems)
• Connected: incorporate machines, tasks, etc., through the cross-functional use of information (e.g., collaborative, smart machines and robots)
• Virtual: leverage productivity by decoupling and transforming physical conditions into virtual spaces (e.g., cyber-physical systems, augmented reality)
• Human centered: design new workplaces through the use of collective knowledge (e.g., collective intelligence, virtual workplace)
• Value-add: define new business models through the use of new core technologies (e.g., additive manufacturing/3D printing)

These building blocks are interconnected, and therefore need a holistic and integrated design approach. They apply across the organisation, 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.

Developing a design approach to reach full digitalisation potential

The full digitalisation 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 standardised 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 digitalised?
Second, automate and digitalise 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. Digitalised information flow does not only produce less failures and accelerate workflows, but also creates new value and optimisation opportunities through the digital visibility of big data.

Conclusion

As with lean management, developing the required capability and establishing the required mind-set throughout the organisation must be a priority for top management if the organisation is to successfully digitalise its value stream. The more employees and managers adopt this new lean digital way of thinking, the sooner efforts to digitalise will succeed in delivering step changes in business performance.

An article by Bernd Schreiber, Willem Romanus and Yong Lee, advisors at global consultancy Arthur D. Little.