The four stages of a lean transformation

This post by Professor Kasra Ferdows and myself was featured in Planet Lean (The Lean Global Network Journal) last week. It suggests that organizations that implement lean move through four distinctive stages of lean maturity—each with its own challenges and opportunities.

Introduction

In our paper “What to expect from a corporate lean program”, recently published in the MIT Sloan Management Review, we asked a fundamental question for lean managers: How does the performance of a plant change as it continues to implement a corporate lean program? Its answer has important implications for how managers can successfully implement lean in a plant. Not knowing it can lead managers to set erroneous targets, have unreasonable expectations, and, worse, take improper actions.

Considering all the evidence in literature and industry, there is little doubt that lean can significantly improve the performance of manufacturing firms (our own research shows that too), but how this improvement manifests itself during the implementation process is less clear. There are several reasonable patterns: If we see lean as a never-ending journey of incremental and continuous improvement, we would expect a linear relationship between implementation and performance. If we think of all the low-hanging fruits that are present in most factories, we could expect a faster improvement early on, which levels off later on. Or, considering the notion of organizational inertia (i.e., wherever there is change, there is resistance to it) we could expect a slow start followed by an exponentially growing performance improvement as more and more people get convinced. Which one it is—or if it is a combination of them, or any other pattern—was exactly what we wanted to find out with our research.

Our research

In order to study how the implementation of lean affects plant performance during the implementation period, we examined the seven-year history of the Volvo Group’s Volvo Production System (VPS). The VPS is a typical corporate lean program, which Volvo aims to implement in all its 67 plants, located on all continents. We conducted a large questionnaire survey, had access to unique implementation audit data, visited 44 plants, and interviewed more than 200 employees. The data for the independent variable (implementation of VPS) came from the audit. The data for the dependent variable (plant performance) came from the survey, the visits and the audit, and were measured by a composite measure of the plant’s improvement in four common operation metrics: safety, quality, delivery, and cost. We used regression analyses to reveal the relationships among the variables. Admittedly, our study was a deep analysis in only one company, but we think it provides general insights regarding how to implement a corporate lean program in any firm. Here is what we found . . .

Pattern of change

We discovered that implementing a corporate lean program in a factory impacts its operational performance, on average, in an S-curve shape: Performance improves slowly in the early stages of implementation, then improves rapidly, and eventually returns to a slow rate of improvement. It follows that the corresponding rate of performance improvement follows a bell-curve. Figure 1 illustrates the performance effect of implementing a lean program in a factory.

the s-curve of lean

Figure 1 The performance effect of implementing a corporate lean program in a factory

The most important insight we can draw from the S-curve is the following: Plants in each stage should be managed differently. For HQ managers it means to apply different action schemes in factories at different stages in the global network. For plant managers it means to tailor actions for the stage of implementation. We separate the lean journey into four natural maturity stages: Beginner, In-transition, Advanced, and Cutting-edge. Note that plants do not move through the stages with the mere passage of time. To progress is hard work and requires managers to know of the pitfalls and opportunities of the stages. Let us take a closer look at each of them.

Stage 1 Beginner plants

At the beginning of the lean journey, many managers instinctively respond: “we are different; that corporate lean production system is not for us”, “we have tried that before and it didn’t work,” or “good idea, but we’ve already done that.” These managers have good reasons for their statements. Of course, factories differ in one way or the other. And yes, lean is not new. The related ideas of total quality management and just-in-time production have been around for more than three decades now, and not many companies have been able to completely ignore these concepts. When it comes to lean, the challenge has never been trying—but succeeding with its implementation. Considering the S-curve, and what we have seen in Volvo, we advise beginner plants to:

  • Commit managers
  • Keep it simple
  • Have patience

The plant needs committed managers. However, many continue to “outsource” implementation projects to consultants or let the production manager and his staff sort it out alone. Such plants will not get the benefits that lean promises. At this early stage, it is important to keep things simple. Throwing hundreds of tools and techniques in a Japanese vocabulary at overburdened employees and middle managers is a recipe for frustration. Instead, start in a receptive corner of the factory. Tools like value stream mapping, 5S, and visualization are often sufficient tools at this stage. Do not expect a huge return on investment in terms of reduced costs, but rather in terms of working environment. Another advice is hence to have patience. There are indeed low-hanging fruits that give a few quick pay-offs, but the real benefits of lean are first realized when the majority of the factory and its supply chain operates according to the principles. Managers who are not aware of the S-curve may erroneously terminate the lean implementation before they reach the harvest periods in later stages.

Stage 2 In-transition plants

If the plant makes it through the hurdles of stage 1, it can reap some real benefits of the lean program in stage 2. These plants are in-transition from the old way of working to the new lean way. At this stage, many more areas of the plant start the implementation. The experiences in the pilots allow managers to more quickly implement the lean program elsewhere on the shop-floor and in the offices. Skeptics are slowly getting convinced by the improvements in the pilots, and the implementation gets fueled by an increasing number of success stories in the plant. The biggest risk is probably that of complacency; managers see that implementation goes well and start diverting their attention and energy in other directions. Instead, what they should do at this stage is to:

  • Set stretch targets
  • Publicize results
  • Don’t lay off people

Because an accelerated pace of improvement should be expected at this stage, managers should set stretch targets. Managers and shop-floor workers should not be satisfied with the usual level of improvement. The in-transition stage can be an exciting one; low-hanging fruits can be picked along the way and benefits reaped rapidly. New plant-wide meeting structures and quick-response problem solving on the shop-floor are typical lean methods that would be very effective at this stage. Mangers should take advantage of the improvements by publicizing results to boost morale and motivate further implementation. Another essential advice for plants in transition is to not lay off people. The journey towards a true lean factory is still fragile, and can quickly be reversed if people start fearing for their jobs. Instead, use the won resources to assist further implementation, advance the skills and knowledge of the workforce, and grow your business into new markets.

Stage 3 Advanced plants

Not many plants make it beyond stage 2. Research on change management has suggested that two out of three will stagnate or return to the old way of working before they become “advanced”. The S-curve explains why many managers start reducing attention to the corporate lean program: as most of the low-hanging fruits are picked and the obvious improvements are implemented in stage 2, the rate of improvement starts to decline. Being satisfied with the results already obtained, they erroneously start looking elsewhere for further improvements. Terminating the corporate lean program at this point is a usual mistake. Instead, managers should do the following:

  • Increase budgets
  • Use advanced tools
  • Increase autonomy

Somewhat counter-intuitive, considering the declining rate of improvements at this stage, we advise managers to increase the budgets to lean implementation. It costs more to pick the higher hanging fruits. At this stage more advanced lean tools are helpful, and the workforce should by now be competent to make use of them. Reengineering the logistics systems and using advanced statistics to drive out quality irregularities can help improve the plant further. This is also the stage to increase the autonomy of shop-floor teams, which will reduce management resources as bottlenecks for improvement. Managers in such plants can now free up time to assist suppliers and sister plants to start developing the lean supply chain.

Stage 4 Cutting-edge plants

Reaching the final stage is a natural goal for plant managers, but not an easy one. At this stage the plant is cutting-edge in its industry. As the plant now pushes the frontier of efficient production, improvements are fewer and harder to find. On the other side, additional improvements at this stage can win the plant a competitive advantage hard to match by its rivals. By leveraging their capabilities strategically, cutting-edge plants can offer products and services that yield higher margins and attract new customers. They should also assist other pants in their lean journey. These plants compete at the world championship level. Again, there is a risk of complacency. In our opinion, managers of cutting-edge plants should keep spirits up by doing the following:

  • Don’t stop now
  • Teach other plants
  • Go external for ideas

Because reduction in commitment quickly leads to stagnation or termination of the lean program, managers should not reduce their attention to it, even if the effects decelerate. Cutting-edge plants should not stop now.A good plant that ends to improve will end being good. Instead, plant managers should stay committed to the lean program and even assist other plants in their journey. Though it might seem like a waste of time for some managers to teach other plants, the pay-off is abundant. By teaching the lean principles to supply chain partners and other firms, the managers develop a deep expert knowledge of the lean journey. This is also the time to go external for new ideas; partnering with other world-leading firms and academic institutions can secure advantages not available for others.

Calibrate expectations and stay the course

The lean journey extends well beyond a typical budgeting period. In our experience, plants that succeed with the implementation of lean will spend approximately one to three years in each of the three first stages. In other words, a plant can theoretically get from a terrible state to world-class in eight to ten years—but only if managers remain committed and stay the course. Knowledge about the S-curve helps to calibrate the expectations from the lean program and can be helpful in designing an effective implementation process (Figure 2). It is our hope that more managers will use our insight from Volvo to improve the chances of success in their lean efforts.

four stages of a lean transformation

Figure 2 Recommendations for implementing lean in a plant

References

2 thoughts on “The four stages of a lean transformation

  1. Hi Mr. Netland,

    I am a newcomer to your blog and have found many of your entries quite pertinent, as a student of best management practices and improvement frameworks.

    Thanks for shining light on this aspect of a company’s Lean journey – when employees hear a Lean Consultant or their Top Management say that Lean is a never-ending journey of improvement, it might make a few shoulders already drop, before even the first step is taken. Why should I be part of a journey which has no clear destination might be the question on most people’s minds.

    Your model of “Lean Transformation stages” might be a good conceptual schema to share upfront the challenges and rewards of undertaking this “non-stop journey to excellence” – this can reduce the resistance from most people, since they now understand that there are major benefits to reap at different milestones of the Lean program. For Managers, it would help obtain a better perspective of the likely progression of their efforts as they grapple with the many challenges of corporate Lean program implementations.

    A related note on your observation of the 4 stages – many Executives believe that running a company means having a strategy, putting in place an organizational structure and setting proper control systems. To this, many are adding a fourth lever – an improvement program (Lean, Operational Excellence, Six Sigma, Lean Six Sigma, TQM, whatever). These improvement programs are expected to deliver results in support of the strategy, but are not viewed as “strategic” in themselves. Many see that strategy, structure and systems are the core elements, and improvement programs as “additional tools to clean up the effects of the current strategy”. Hence, they fail to sustain results over long periods of time with such programs, especially the ones based on Lean.

    However, companies that achieved great success with lean transformation (Wiremold, Lantech etc for example) have turned the above management paradigm on its head – their leaders realized that “Lean is the strategy”, that striving to continuously improve parameters such as quality, cost, delivery, safety, employee morale will actually clarify the aspects of strategy, systems and structures of the enterprise. Art Byrne of Wiremold (author of The Lean Turnaround) is a very vocal and forceful proponent of such thinking.

    Thus, the difference in companies achieving sustained, long-run success with Lean versus those that dabble with lean and give up after a few years is in the mindset with which they view the improvement program. At Stage 4 of your model, as you point out, companies should not stop doing what they have been doing thus far, but rather keep pushing the boundaries for continuous improvement. By the time a company has reached stage 4 truly, I am sure its leaders would have had the epiphany that “Lean IS the strategy” – hence, something that should be continued for as long as the enterprise exists – an insight that is reflected in your Lean Maturity model!

    Thanks again
    Shiva

Leave a Reply