When you are growing or simply want to operate effectively, you will engage in process improvement. Read this blog post about the different process improvement tools and which ones we recommend for your small business up to 50 employees.
What is a Process? What Determines the Quality of a Process?
A business process is any recurring sequence of activities that produces a repeatable outcome for your business or clients. The activities in the process are called process steps. The process steps can either be carried out by employees, by third parties or by any kind of automation. A process can either be defined in flow charts or standard operating procedures. Or it’s just implicitly defined by best practice carried out by your team.
There are different ways to look at the quality of a process.
EFFECTIVENESS AND EFFICIENCY
Effectiveness and efficiency are the two fundamental quality criteria for processes. But what do they mean?
Effectiveness: Doing the right things. Does the process do the right things, are the tasks performed in the process the right ones? And on a high level, does the process produce the outcome you or your customers want? When looking at process effectiveness, the question you ask yourself: Are we doing the necessary (and only the necessary) steps to achieve a meaningful outcome?
Efficiency: Doing things right. Are the tasks in the process performed with the least use of your resources, e.g. time of your employees? Or is the output maximized? When looking at process efficiency, the question to ask yourself is: What is the ratio between resource input (time, budget) and output (value generated for the customer) in our processes?
LOW DEFECT RATE
Another way to look at your process quality is to look at the defect rate. The defect rate is defined as the ratio of defective output divided by your overall output. Your definition of what a defect is strongly defined by what your definition of quality is. In general, a defect is every piece of output that doesn’t meet the desired specifications.
Example: Let’s say you work on 25 client projects in a given year, out of which one results in negative client feedback. Your defect rate is 4 %.
What a low defect rate is for your product or service can be very different from what it means to someone else. If you handle only two or three clients a year, this ratio might be wildly different from a manufacturing company that produces millions of units. Also, defect tolerance might be higher in some industries than in others. Just think about someone crafting art compared to a company producing airplanes – the tolerance for defects will be much different.
All of the things above – efficiency, effectiveness and low defect rate – won’t help you when you have them only half of the time. Therefore, another way to look at how good your processes are is to examine how consistently they produce results at a certain level.
Cycle time is the time it takes your process to produce one unit of output. For the cycle time to be low overall, you need to pay attention to all of the above.
What is Business Process Improvement
Business process improvement (BPI for short) is a summarizing term for all initiatives that aim at improving the quality of your processes. You always start with your current processes as a baseline and then seek to improve one or more of the above quality attributes, i.e.:
- Making sure your processes only contain tasks that are necessary and that they produce the right outcomes (effectiveness). Example: You think that
- Try to increase the output while keeping the input stable or decreasing the input while keeping the output stable (efficiency)
- Decreasing your defect rate
- Increasing the consistency with which you produce an outcome
- Decreasing the overall time with which you produce an outcome
Business process improvement can either be project-based, where you take on one or more critical processes and improve them in a one-off effort. Or it can be continuous, meaning you establish tools and systems that aim at improving what you do on an ongoing basis. In reality, most improvement projects are followed by continuous improvement efforts because you want to maintain what you achieved and get better in the future.
Process Improvement Methodologies
Business processes are complex. Think about the most straightforward process you have, e.g. writing a proposal. If you accurately write down all single steps involved, you will be surprised how complex that process alone is. Now think about the more complex processes like producing your products or – on a higher level – the whole process from order to fulfillment.
Because of this complexity, a great variety of quality and process improvement methodologies have evolved. Not all of them are equally well suited for smaller companies, but it is beneficial to understand the underlying concepts and ideas.
Ever thought about bringing in an operations person? Read our blog post about what’s better: An operations manager or a COO.
The lean methodology evolved at Toyota as part of the Toyota Production System. Starting as lean manufacturing, it has since evolved and made it’s way into business process management all over the world in literally every industry. Lean contains five basic principles.
1. Define Value for your Customer
Define what the value is that you generate for your customer. This value definition is central to all lean process improvement concepts.
2. Map the Value Stream
Value stream mapping is the exercise of defining the process steps throughout your organization that generate value for the customer. Draw the steps in a flow diagram or any other process diagram.
3. Establish Flow
This is a critical concept: In lean methodology, you try to let your product, service or information flow uninterruptedly through your organization or the process. Other than in earlier management thinking, resource utilization is not as important as creating this flow (high resource utilization will instead be a result down the road).
4. Implement Pull
The customer plays a central role in lean. Pull means that you only put out a product or service when the customer demands it. All your internal processes operate by the same logic: The process steps upstream (“early in the process”) only produce their output if there’s a downstream need for input.
5. Achieve Perfection by Eliminating Waste
Once you have completed the first four steps, the goal is to eliminate all wasteful behaviour from the process. Wasteful behaviour are all activities that don’t generate value for the customer (except for some supporting functions) and are characterized in seven different types:
- Transportation: Whenever you transport goods or information from one place to another, that is considered wasteful behaviour. That transportation might also be an email (transporting information)
- Inventory: As all goods, services and information are supposed to flow uninterruptedly through the organization, inventory is considered wasteful.
- Motion: Whenever there is motion involved that doesn’t directly generate value for the customer, that is wasteful behaviour. Imagine you need to walk to a printer or leave the packing station to grab the next item.
- Waiting: Waiting time is one of the most common waste-types and is usually due to optimizing resources instead of flow.
- Overproduction: Producing more than the customer asks for is wasteful behaviour.
- Overprocessing: If you perform steps of work that don’t add value for the customer, these steps are considered wasteful behaviour.
- Defects: As mentioned before, defects are all types of output that don’t meet the requirements. They are considered waste.
Some newer lists of wasteful behaviours also include an 8th type of waste: un-used talent.
Kaizen or Continuous Improvement
Lean has popularized the concept of Kaizen, the Japanese term for continuous improvement. The idea is to build structures that enable the organization to improve each process continuously. Those structures include Continuous Improvement Circles or places to collect improvement suggestions. There are several advantages of continuous process improvement over improvement projects:
- More cost-effective
- produces results continuously and long-term
- keeps processes up to date
- addresses quality issues as they occur
- uses the expertise of the people who are the closest to the problem
- makes sure that process quality is continuously monitored
Probably the most powerful techniques that make lean interesting for any business are its vísual management tools. One example is Kanban, which translates to “card”. Kanban boards are big visual boards that dynamically display where each unit of work is in the process (each unit, e.g project or production unit, is a card).
It is updated and reviewed by the whole team daily and helps to identify bottlenecks in the workflow, level out the workload and ensure a flow of units through the process.
Where Lean is a qualitative framework, Six Sigma uses statistics and a logical framework to tackle quality issues. It was introduced by Motorola and developed by General Electric in the 1990s. The underlying assumption is that if we want to improve our output Y, we have to analyze, improve and control the input factors (X). The term Six Sigma relates to the defects per million opportunities, which are clustered into six different levels, with level 6 being the most desirable (3.4 defects per million opportunities). Six Sigma tries to minimize process variations to reach that 6th level.
Six Sigma structures the improvement effort in 5 phases with the acronym DMAIC:
- Define: First, you define the problem, create your objectives and state why they benefit you. You write it down into a project charter.
- Measure: You define the current process and try to quantify the process performance (Y)
- Analyze: You identify the possible influence factors (X) for the process performance and determine the ones with the highest significance
- Improve: Only in the fourth step, you develop potential solutions and test them and make plans for implementing them
- Control: In the last step, you implement the full-scale solution while monitoring all the Xs and the Y in a structured way
Sounds complicated? Well, it is a very comprehensive concept, and it is for sure easier to implement for larger corporations with greater resources.
Lean Six Sigma combines the two approaches to powerful quality framework.
TOTAL QUALITY MANAGEMENT
Total Quality Management (TQM) is a management model that puts an organizational perspective on process improvement and quality management. The underlying idea is that every single person in the company is responsible for process improvements. Other famous concepts of TQM include the notion that problems need to be proactively prevented, not just fixed and that usually processes, not people, are the problem.
A very basic process model that aims at structuring everything that you do into five categories:
- Supplier: The party or entity that supplies your input
- Input: The goods, know-how, services or trigger that you need to run your process
- Process: The sequence of tasks you perform to produce your output
- Output: The product or service you deliver to your customer
- Customer: Whoever uses your products or services
This framework is useful to create transparency on any level of your operations, be it company level or even on an individual level (where both supplier and customer or any one of the two are internal).
PLAN – DO – CHECK – ACT
Plan, Do, Check, Act is a fundamental approach to continuous improvement. The idea is to plan activities or new versions of a process iteratively, then go and do them, check what worked well and what didn’t and act accordingly.
OTHER PROCESS IMPROVEMENT TECHNIQUES
Flowcharts, Diagrams and Process Mapping
What all modern process improvement tools have in common is that they emphasize the use of visual tools for problem-solving and process improvement. Also, visualizations of processes, as in flow charts or diagrams, are part of all quality concepts.
The 5 Whys
The idea of The Five Whys is super simple. For any given issue you encounter, ask why five times. This iterative questioning of the cause for a phenomenon will lead you to the root cause eventually.
The Gemba Walk
Another powerful technique is the so-called Gemba walk. If quality issues arise, walk (literally, walk) to the place where the problems took place and see for yourself what’s going on. May sound silly, but think this through. If your third party logistics company messes things up, then visit them. If your customer support gets terrible reviews, take a few hours and sit next to your reps as they take the calls. And then: Observe and listen.
If your operations are remote, check out our blog post on Remote Gemba.
Process Automation is a two-sided sword when it comes to process improvement. It helps to increase the efficiency of process steps and decrease the variance of outcomes. On the other side, we often see that with all the cloud-based software readily available today, there is a reflex to automate processes while neglecting all other quality criteria. There is a risk that automating broken processes covers ineffective process design.
What process improvement approach is right for my small organization?
First, let’s discuss what the specific needs of small businesses are when it comes to process improvement.
- Quick Wins: Small businesses often act with a tremendous pace and need to create results fast. It usually is advisable to go for low hanging fruits.
- Limited resources: Time, as well as budget, are limited. A big corporation can invest hundreds of thousands of dollars into business process management and process improvement projects. Small businesses often don’t have that kind of slack.
- Implementation is king: Your company doesn’t benefit from fancy PowerPoint slides but needs actionable results that your team adopts.
Based on this, here is our top list of process improvement tools best suited for a small company of up to 50 employees.
MAP YOUR VALUE STREAM AND LOOK FOR WASTE
This part of the lean methodology is a powerful and easy to do exercise which will tell you two things: What activities are actually generating value, and what else am I doing that isn’t. It’s easy to use and well doable for a smaller businesses without much process knowledge. Use as much visualization as you can – pictures are so much more powerful than words.
When you look at your value stream, try to identify and categorize wasteful behaviour (where are you moving around unnecessarily much, where is waiting time involved etc.). This is also a great exercise to do together with your team. Ask them to prepare where they think wasteful behaviour is taking place and collect and categorize it in a workshop.
KAIZEN OR CONTINUOUS IMPROVEMENT
Implement a regular session to collect process improvement suggestions or integrate it into your daily huddle or team meeting. Use simple tools like spreadsheets and don’t get hung up on the format – it’s the content that counts. Collect possible improvements, order them by priority and assign them to be fixed. Be sure to follow up so that things actually do improve and very soon your team will develop a hunger for it. Continuous improvement is like a muscle you can train. Use the 5 Whys and Gemba Walks or Calls to dig deeper where necessary.
Kanban boards or any type of accessible, public and large visual displays are worth their weight in gold. The transparency and accountability they create will outweigh the time you invest into daily to bi-weekly updates and reviews together with your team. And that’s important: It must be a team exercise and the board must be visible to everyone in the company. If you are remote, use software like Asana or other project management tools that offer a board view. And again: review together with your team in short intervals.
TQM AND PLAN-DO-CHECK-ACT MENTALITY
Use the mentality of these tools to set up your organization for continuous improvement. Everyone is responsible for process improvement, all the time. And bring the structured approach of planning what you change, changing it and then evaluating the results to your process improvement efforts.
WHAT ABOUT SIX SIGMA AND SIPOC?
Too complex: Six Sigma, in our experience, can be overwhelming for smaller organizations. We think that the very rigid division of different phases is great from a methodological point of view, but hard to realize for a smaller company.
Too simple: The SIPOC Analysis might be a good starting point for process analysis, but that’s about it. The benefit you create has more the character of an exercise than of hands-down improvement.
The best way to process improvement – do it.
Next to all useful tools, methods and frameworks, the one thing about process improvement that really makes the difference is the commitment to do it. And to refuse any process that is not 100 % perfect. You might never reach perfection – but while trying to, you eventually achieve greatness.
Please share your experience with process improvement initiatives in the comments.
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