Mechanisms for building and sustaining operations improvement

European ManagementJournal Vol. 14, No. 3, pp. 215-228, 1996

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Copyright © 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved

Pergamon S026 3-2 ;373 (96)00002-3

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Mechanisms for Building and Sustaining Operations Improvement DAVID UPTON, Associate Professor of Technology and Operations Management, Harvard

Business School, USA

It is no longer enough, it would seem, to know how to use operations as a competitive weapon, nor is it enough to 'continuously improve' those operations. The spoils of operations-based competition now go to those firms who can improve their operations fastest, and sustain that improvement over time. This fact is unlikely to go away. As the protective tissue separating the world's markets dissolves, firms everywhere have become more and more exposed to the power of those operations which have gone beyond 'world-class' - those who have learned h o w to improve more rapidly than the rest of the pack. The key is to develop a long-term improvement path - rather than glean quick-hits from the latest fad. This article by David Upton aims to provide some insight into the methods that can be deployed to build rapid and sustained improvement, by first looking at the recent history of operations improvement methods, then describing a new framework for mapping improvement paths and using it to characterize the strategies deployed by some of the world's fastest improvers. The first section presents a brief, recent history of operations improvement methods. The second section introduces a framework for describing some common starting points for building improvement. The third section describes key characteristics of successful improvement initiatives. The final section looks at ways in which firms sustain their performance growth, and describes three models of continuous improvement. Copyright © 1996 Elsevier Science Ltd

A Brief Review of Operations Improvement Techniques The need to improve the effectiveness of operations has, over time, given rise to a series of philosophies, tools European Management Journal Vo114 No 3 June 1996

and techniques. Many of these appeared, at the time, to offer 'the solution' to the continuing problems of ailing manufacturing performance. The faddish nature of such panaceas as Value Engineering, Quality Circles, Flexible

Manufacturing Systems, Total Quality Management and Worker Empowerment often led to wide swings in managers' perception of their value - from 'good' to 'bad' - in just a few years. Each new technique, however, left its mark, and found its way into the operations manager's toolbox. The steady stream and changing nature of these methods and techniques vividly illustrate the evolution of the role of operations in corporations, and provide a window of insight into the general practical problems of building new operational capabilities. During the 1970s and 1980s many Western managers realized that corporate success was inherently transitory if not under-pinned by sound operational abilities at the operating-unit level. Corporations had experimented with a number of management fads, such as collecting firms, like stocks and bonds, into diversified portfolios. Having seen this strategy fail, they embarked on a succession of operational fixes and philosophies, which overlap yet dominate their times.

Structural A p p r o a c h e s to Infrastructural Problems In the 1970s, firms frequently attacked the problem of operations performance by addressing structural aspects of their operations strategy. In particular, a firm's facilities and sourcing strategies were often adjusted, chopped or wrenchingly changed as regimes of new managers stepped in to fix specific operations problems. Sudden, dramatic restructurings led to organizational units being selected for survival on the basis of their cost performance. Under-performing units were closed or sold-off. Components, even whole products, were often 2,15

MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT

out-sourced to overseas suppliers, who could produce them at lower cost and thus provide immediate apparent savings. 1 Such methods did rid operating networks of many poorly performing units which were unlikely to get better over time. Unfortunately, many potentially healthy babies were thrown out with the bathwater. A reliance solely on structural methods for improving operating performance fails for a number of reasons, not least of which is a failure to recognize the fact that operations management is a dynamic activity. Organizational units are often unable to improve or perform because of the nature of the tasks assigned to them, as well as the measures used to evaluate their performance. Units may perform poorly because they have received the runt's share of investment capital, leading to poor performance, resulting in less investment over time. 'Poorly performing' units are often required to produce a wide variety of low-volume products or services. Although unprofitable according to traditional costaccounting methods, they may provide support to the product range as a whole. Finally, the most common performance measurements often single out as stars those units who happened to perform well on dimensions such as return on assets (often a bizarre fiction negotiated through transfer prices); cost per unit (at the whim of cost accountants' allocation of overhead); or utilization measures, penalizing units that are required to deliver a wide variety of products or services. This bulldozer approach to pruning assets often resulted in haphazard 'gardens' of factories in which the gardener not only weeded without cultivating, but also selected plants based on how green their leaves looked. Although many networks became leaner and meaner, others lost valuable technical capabilities and good managers. In addition, the units that remained were forced to suffer less visible costs due to the loss of focus that results when a servicing unit is forced to take over some of the dead unit's responsibilities. In the worst cases, little was done to help improve a unit's performance aside from the usual corporate sticks and carrots. Michigan Manufacturing Corporation, z for example, had struggled for many years with what to do about an old plant which performed poorly according to traditional measures. Finally, in an attempt to improve the aggregate performance of the division, it 'rationalized' its plant network by closing the plant. After the fact, it became clear that this plant had been providing a wide range of important services to the network, from new product development to the manufacture of spare parts. It was taken over by ex-employees, who reorganized the plant, eliminated some products and processes, and sold the remaining products back to Michigan Manufacturing at several times their previous transfer prices, explicitly proving the value lost by the company when the unit was shut down. Restructurings were often justified by the beneficial effect they had on the careers of those leading them. 216

Something, after all, was being done to solve the operations 'problem', when dramatic action was imperative. Unfortunately, despite occasional (although unpredictable) beneficial effects, operations performance languished as a result of such short-term vision. Something more than 'restructuring', based on superficial financial objectives, was needed in order to cultivate operations performance at the unit level.

Systems Approaches In the early 1980s, technology apparently rode to the rescue on a silicon chip-studded robot. For many years, computers and associated networking technologies had been applied to process-control in commodity and chemical industries, as well as to the manufacture of a broad range of parts by computer-numerically controlled (CNC) machining centers. Now systems in which computers controlled not only individual processes but also the coordination of different processes, started to look like a likely prospect for salvation. The unmanned factory - implicitly defining people as a ~roblem rather than a resource - became a goal in itself. At great expense, thousands of engineers throughout the world developed robots able to pick individual objects from a cluttered floor, or wrote software that would supposedly slice through the complexity of managing a job-shop by controlling everything that happened within it. Automated systems, which wrested control away from mistake-prone operators while at the same time improving productivity and quality, were touted to be the new panacea. Yamazaki's manufacturing system for producing machine tools at one time employed more employees who worked as visitor guides than as operators. 4 A flood of technological TLAs (three letter acronyms), each promising huge competitive leaps in performance, beset manufacturing managers (MRP, MRPII, FMS, CIM). While it is inevitable that a focus on such computer-based schemes would detract from other concerns, the faith in the software engineers' craft was astonishing in retrospect. A number of problems began to arise very quickly. MRP (material requirements planning) systems, it was said, demanded 'discipline' in a plant to stop the remaining operators from running a parallel system on the back of cigarette packs when the computer running the MRP program failed to complete on time.s FMS was found to be flexible in that it could switch quickly between the products for which it was originally designed - yet was relatively inflexible once new products were required.6 The very thing that made such systems flexible in the short term - their software became an iron-cage that required tremendous effort to bend to new requirements. In the late 1980s, the revolution that had pinned its hopes on computer integrated automation began to lose European ManagementJournalVo114 No 3 June 1996

MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT

steam. While new systems provided great advantages in tackling the complexities of manufacturing systems that made a broad range of products, or often improved the trade-off between cost and variety, they failed to embody critical elements of manufacturing competitiveness. First, many firms had purchased tumkey systems from software vendors, machine-tool companies and computer firms. With such systems widely available, firms lost some of their ability to differentiate themselves from their competitors. Manufacturers were reduced to being servants of their systems. Worse still, a whole range of new skills in software engineering was not developed skills that many firms found difficult to acquire. Manufacturers became, in essence, untrained caretakers of alien technologies. Second, as noted above, the systems approach ignored the dynamic nature of manufacturing. In a world of capricious markets and fast-changing technology, firms found their heavy investments in CIM to be less than versatile, in the long term, despite exhibiting some degree of flexibility in the short term.

through the approach it took - triggering the production of parts while at the same time controlling inventories spumed 'central control' computing monoliths and distributed production control throughout the plant. Even more heretical, it put much of that control back in the hands of operators, who often rose to the challenge and created the constantly improving organization for which many firms had been searching.

Philosophical Approaches While many Western firms tried to replicate the successes of JIT approaches using Kanbans and cellular manufacturing, most failed to change the way in which people viewed their work, or to promote philosophies that encouraged them to seek out improvement. In particular, those who viewed JIT as just another 'system' achieved only modest performance improvements. The failure of the pure systems approach hailed a new wave of improvement philosophies. Empowerment, agility, total quality, 'world-class', and reengmeermg . . 8 each claimed to radically alter the culture of operations, as well as provide a different approach for building new infrastructural abilities.

Finally, few early computerized systems guided the way to further improvement. By limiting the involvement of At their best, these new skilled people (other than philosophies and techniques computer experts), a reliance on ~lany plants that provided structures and motivaautomation was just another tion for the improvement efforts relied solely on technology instrument for gaining predictof ailing organizations. At their ability free of human interand systems have foundered worst, they became fuzzy clouds vention, and providing an of semantic overkill - consultantincremental change in operations as market requirements fueled fashions against which effectiveness. Unfortunately, the evolved people found it difficult to argue, resulting systems were usually yet which failed to provide a difficult to improve once in clear path and concrete steps for operation. In fact, the complexity and interrelated nature improvement. of the software that controlled their behavior discouraged attempts to make even simple improvements. There is no shortage of texts that describe each of the A single patch could have pernicious and unexpected above approaches in detail. They have been treconsequences - and patches on top of other patches mendously influential and occasionally beneficial for could conspire to bring the whole system to a halt. many operations. However, in the absence of specific recommendations, they can become hollow sweetMany plants that relied solely on technology and sounding exhortations, critically reliant on particular systems have foundered as market requirements evolved. individuals whose leadership, vision and experience Long-term success involves the effective management of enhance the chosen philosophy. When key managers all the resources available to managers, and demands the describe their approaches in fairly vague statements of creation of ever-more powerful systems, ones that are 'philosophy' and 'belief systems', the organization difficult for comrpetitors to replicate and are steadily cannot pin down improvement methodologies in a being improved. At the heart of such an engine are the way that is transferable to others. This makes it difficult people in the organization, who alone have the capacity for those who seek clear prescriptions for improvement, to build new abilities as time moves on. While since it implies that the replicability of success is strongly technology may yet prove us wrong, at present such limited (probably inevitably) by key individuals. Even relentless improvement is strongly reliant on the those with the greatest potential for leadership are often involvement of human beings and their ability to leam unable to help; the very best managers are often new tasks and develop new skills. unconvincing in their rationalization of what makes them so able. One technique from the 'systems' school merits further attention, since it began as a system for productionAs Hayes and Pisano 9 describe, the danger of imcontrol yet evolved into the foundation for a new provement themes like 'world class' is that they do little doctrine in manufacturing. Just-in-time production (JIT) to ensure that the long-term direction of improvement grew out of the Toyota production system, which, European ManagementJournalVo114No 3 June 1996

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MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT will fit with the competitive needs of the business. Any improvement strategy should be closely tailored, in direction and nature, to the peculiarities of the individual firm's situation. The most difficult challenge is often that of building an appropriate infrastructure (systems, policies, routines and common values of understandings) rather than the installation of machines, plant and equipment. It is here that the greatest opportunity exists for continuing improvement and where the greatest number of people can be directly involved in the improvement effort and the development of new organizational capabilities. At the foundation of such development is the individual operating unit. The plant is the primary unit from which manufacturing enterprises draw their strength. It is where most people go to work and focus their attention each day, whether the backoffice of a financial services company, a restaurant, or any other individual facility where people work together to produce or deliver a product or service by concerted effort. At the lowest level, an operating unit is a collection of inputs. Investments of productive machinery, labor and materials combine in one place to create new value. At the next level, it may be seen as a collection of intellectual knowledge, routines and systems which are forged together more or less informally to generate and exploit competitive capabilities. At another (and inconveniently vague level for the mechanistic of mind) it is a community of people. It may have all manner of systems, intellectual capital, and hard capital, yet, if the sense of common purpose and community is absent, it can fail to improve and founder against competitors. In one factory producing consumer products, productivity blossomed by 15 per cent after being ceremoniously named after the village in which it was sited, rather than the impersonal 'Canning Plant #14'. Good operations managers are constantly aware of each of these levels of abstraction as they build improvement in their operations. Ultimately, infrastructural improvement relies heavily on a synthesis of structures, systems and philosophies. It is of little use to 'empower' an unnecessary plant, or seek computer integration without thought to the implicat-ions this will have for future improvement opportunities for the people who work in a plant. The question facing most operations managers is where and how to begin their improvement, and how to characterize their previous improvement efforts.

A Framework for Manufacturing Improvement As the National Bureau of Standards quickly discovered as they built computer-based architectures for manufacturing in the 1980s, operations are a hierarchical aggregation of many levels, which in each can be a context for improvements . The precise nature of 218

improvement in operations is often obscure because of the wide variety of operational levels at which improvements can be made. The first step in describing an improvement initiative is to identify the primary focus of the improvement, which can range from the shopfloor control level to the plant network level. The second important step in defining an operations improvement project is the definition of the processesthat are employed to improve performance. These are also discussed below. The objective in this section is to provide a framework in which the various improvement projects undertaken by the firm can be dearly described and well characterized.

Improvement Focus Process Fundamental, value-adding transformations are made to material (or information in the case of many services) at the process level. For example, the improvement of an existing milling process in an engineering operation, or more accurate transcription of customer application forms into a computer database both lie in the process realm. The improvement of yields in the process for manufacturing thin film transistor liqiucidcrystal displays at IBM/Toshiba s DTI joint-venture o provides a compelling example of the power of an improvement project with this focus. In-factory coordination This level centers on the systems and procedures that marshall the flow of material and information around the factory. It might include, for example, an MRP system or stock-control system, but would also indude less formal methods for achieving coordination, such as the 'expert' dispatcher on the shop-floor who decides what job should be worked on next. None of these activities transform material or information for the primary processes. They exist to ensure that resources for the various operations show up in the right place at the right time, and are thus coordinative in nature. An example of such an improvement focus is the move to just-in-time production made by EG&G Rotron xl in their Woodstock, NY motors plant. Process technology This broader level focus describes the choice of processtechnology used in the operation. Whereas a process focus addresses improvement within a given technology, the process technology focus considers the wholesale replacement and re-configuration of that technology. An example is the replacement of milled components by powder-metallurgy techniques, as described in Ellis Manufacturing,xz whose higher volumes allowed the economical use of this new method of production. Sourcing The next focus area concerns the functions actually performed (or not performed) by the operating unit. Rather, that work on the 'lower-level' processes, and EuropeanManagementJournalVot 14 No 3 June 1996

MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT

decisions about which process technologies to employ, improvement initiatives with this focus (while still based firmly in operations), are broader in nature and might involve the wholesale outsourcing of particularly troublesome or defocusing processes (chromium-plating for example) or components (for example, plastic components in a metal-based factory). A case of an improvement initiative with a sourcing focus is described in National Motors, ~3 in which a major auto-manufacturer is considering outsourcing many of its components to suppliers in order to intensify the focus of its factories.

so, the content of the project may be discussed clearly and explicitly so that everyone involved understands the scope of the undertaking to be designed and executed.

Network

Training includes the education of individuals and groups. While training is critical in much of manufacturing improvement, there are some focus areas where it is less applicable than others (the sourcing level versus the process level for example). On the surface, training simply provides the skills that people need in order to carry out the new tasks they might be assigned (such as statistical process control or just-in-time production). Its ancillary roles are much more important.

At this level, more senior managers tend to be involved, and the improvement initiative focuses on involving the concerted function of the network of operating units. Part of such an improvement initiative might be the closure or opening of certain operations. Or, the remedy will often simply be a renewed consideration of the role and performance of the various operating units in the network in the face of new competitive needs, or to accommodate new scale economies resulting from technical advances at the process level. Ellis Manufacturing~2 also provides an example of an improvement initiative focused at the network level.

Distribution and order processing This broad focus can involve an individual operating unit or encompass the coordination of order flow and fulfilment across a global network of plants. However, it is at this level that improvement schemes begin to demand much broader integration with other functions, such as sales, marketing and accounting. An example of such a focus is Kanebo's improvement of its method of returning order information from Japanese department stores for cosmetic sales, and integrating this data into a re-fashioned flexible manufacturing system to respond better to an increasingly volatile market.

Improvement Processes In each of the above focus arenas, a number of improvement process elements may be deployed. Some of the more common methods are described below, though the list is by no means exhaustive.

Training

First, training builds confidence. It is hard to try new things if you are scared of exposing your own ignorance. There is no gain worth that risk for most people. Second, it establishes credibility and opens communication channels. Finally, it builds an esprit de corps - a sense of common purpose and experience which is critical in overcoming difficult times as the path is followed. United Distillers ~4 made extensive use of training in improving the process-level performance of its scotch whisky bottling plants in 1994. Though this method of improving performance is obviously very widespread at the process and coordinative levels, many improvement initiatives still rely much more strongly on other processes to build the backbone of shop-floor improvement, such as the implementation of 'foolproof' systems and devices (as discussed below).

New product development The focus in new product development is broader yet, in that it involves multiple functions (for example marketing, manufacturing and engineering) for sustained periods of time, as well as considerations of the portfolio of products and product development projects undertaken by the firm. As such, it will concentrate on issues such as design for manufacturability, modular product architectures and product positioning. While much more wide-ranging than other loci, operations and manufacturing are nevertheless fundamental to such projects so this area of improvement should still be seen as part of operations improvement. Each level defines a particular area of concentration in the improvement initiative, moving from the narrowest scope (though not least important), to the broadest, most ambitious operations improvement campaigns. Firms will frequently find themselves addressing multiple 'boxes' on this continuum. An understanding of what is included and what areas are omitted is essential for an improvement initiative or set of initiatives to be defined. In doing EuropeanManagementJournalVo114 No 3 June 1996

Focused team initiatives Team initiatives involve the assembly and development of coherent but temporary teams, often comprising members from various functions to address a particular problem. Demonstration projects, like the one that resulted in the development of Motorola's Bandit pager line in Boynton Beach, Florida are prime examples of such initiatives. ~s Team-based activities provide an opportunity for a company to make a bold leap in its manufacturing or operating capabilities. Such projects focus on one part of a company's total operation, using a temporarily dedicated team which is freed from much of the existing organization, allowing them to develop wholly new ways of thinking about the operation. In the 'island' created by the project, the very best people, ideas and technologies show what can be done, and how the operation may be carried out in radically new and different ways. Such teams have the advantage that they can 'break flee' of inhibitive norms in the company. They also challenge and motivate the most able people to become pioneers 2,1 9

MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT

and rid themselves of the bureaucratic bonds which may have been stifling their imagination and careers. They provide tremendous focus on specific problems, and in doing so, generate much concentrated learning which might otherwise have been diffused over time. On the other hand, the 'acid-test' for the success of any such initiative is its ability to evolve from a demonstration project to a spring board for spreading new approaches throughout the organization.

New processes and tools

understandable message. The strategy must address: why the change must occur; what needs to be improved; how the improvement will take place; and how the change will affect each individual's job. There seems to be an almost magic component in the most successful reorganization schemes. In many cases, (see John Crane (UK) Limited 17 or Micom Canbe • 16), the impression is one of a smouldering effort bursting into flame. The conflagration of improvement then develops so much energy that it can become hard to know how to direct it! While the search for this ingredient is ongoing, a number of features of successful ground-up improvement initiatives are readily identifiable. •

•

•

New processes and tools, such as statistical process control and quality function deployment can become the vehicles for carrying out improvement, and can be important motivators for keeping improvement on track. Most changes are more interesting than a humdrum job. The reason that generic schemes such as TQM, lean At the process and coordinative level, it is usually rather production and the Crosby scheme for quality easy to enlist the cooperation of operators in making a improvement can often be good starting points for change because it generally reflects an attempt to motivating people to commit to improvement is that improve their situation (though it may be hard to sustain they provide focus (what) and detailed processes (how) that motivation later). Senior managers are keenly aware for the improvement path. This structure and clarity is a of competitive imperatives, and so understand the tremendously powerful tool for unifying a group of necessity for change. It is in middle levels of people. Quite often, the scheme is simply a Trojan management that real, unanticipated problems arise. Horse: it gets improvement rolling in the plant, which These people are threatened with the loss of their quickly triggers a range of other, more important powerbase, their functional position, and their base of developments. An example of this can be seen in expertise - in effect, they are disempowered by 'empowerment'. This is a critical Micom Caribe, a small electronic manufacturer in Puerto Rico. Ie issue. These managers are often understanding of important sources of knowledge Micom used the Crosby scheme the operating unit as a in the plant, and the danger is not only to attack quality problems at the process level, that their skills will be lost community much more analogous to the way a closedbut also to provide a structure valuable than a model down plant's capabilities are lost through which its coordinative when networks are restructured. processes could be improved. of an economic unit or The solutions often revolve around retraining supervisors Improvement tools also include and foremen to become trainers technically-based systems in and provide technical support. Again, the important which people are much less involved, such as the use principle is that people should be told what will happen of artificial intelligence techniques to inspect icecream to them as soon as possible, before the uncertainty eats products optically. These systems can be effective in away at their commitment and they have time to nudging the performance of an ailing process. publicly align themselves with an opposing position.

Organizational change Many firms have shown tremendous improvement in performance as a result of a reorganization of the existing managerial structures. One common and powerful approach gives people in the operation more autonomy to seek out opportunities, either in work teams or individually, and to improve the operations' effectiveness. Responsibility for improvement in such a process lies squarely with those who manage or operate the organizations, systems, or processes that are the subject of improvement. Reorganization inevitably means some chaos, and the danger that the operation will bum to the ground without a Phoenix of new-found performance rising from the ashes. Mere nominal reorganization, particularly at the shop-floor level is unlikely to produce good results in the long-term. Any reorganization involves a political campaign of one form or another, which should (like all political campaigns) have a clear, 220

An understanding of the operating unit as a community is much more valuable than a model of an economic unit or technical system. A successful reorganization addresses the general concerns of why the operation needs to improve, what and how it will improve, and 'what's going to happen to me'.

Knowledge development and capture Knowledge is acquired no matter what kind of initiative is carried out. However, some initiatives use the knowledge development process as the mechanism by which improvement is carried out. Programs of active experimentation are very valuable tools to begin an improvement process. A few paper plants in the recession of 1992, embarked on programs of experimentation which made use of the slack capacity that existed on the machines. In doing so, plants learned how to make new kinds of paper (for example, unusually thin paper or paper with a different composition). This made EuropeanManagementJournalVo114 No 3 June 1996

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people who would act on the information, so that both the right data would be collected and that every opportunity for learning from these comparisons could be exploited.

them much more flexible when the recession in the industry finally receded in late 1993. In addition, a process of learning had been built, so that groups throughout the plant had a model on which to build their own experimentation programs. More importantly, the best plants found ways to capture the learning (mainly by making videotapes) and ensuring that this learning was shared with sister plants across the network. Not only had they developed new knowledge - they had also captured it in a way that built improvement elsewhere.

Continual benchrnarking of this sort serves to expose an organization to comparison with leaders in various operations practices. Benchmarking works well when the structure of the operations strategy and its fit with the competitive requirements are good, but the operation still lags in performance. Exposure to the performance levels that other operations have been able to achieve encourages people to seek causes (providing the basis for new learning) and allows them to assimilate entirely different ways of performing comparable tasks.

External comparison. While external comparison through benchmarking is usually thought of as a diagnostic method for assessing what degree of improvement is possible, it can also stimulate improvement. External comparisons may be made with respect to multiple sources, such as direct competitors, customers, or non-competing firms who employ superior practices in particular areas (bestpractice comparisons).

The Improvement

The real art of operations management shows itself in the synthesis of approaches that are used together to develop a powerful improvement strategy. One or two themes usually dominate any initiative. A quick recognition of the improvement focus and processes used can provide important clues about the potential problems that need to be addressed as well as the opportunities that exist to encourage continued improvement in the future.

The most valuable form of benchmarking for operations improvement compares one's own operations with others using physical, clearly measurable characteristics such as lead times, variable costs, yields, defects, and physical inventory levels. Physical measures tend to be more clearly and broadly understood than financial measures, which may lose credibility because they reflect different cost structures and engender misunderstandings about how the figures are calculated and what they mean. On the basis of a benchmarking study, Daewoo Shipbuilding and Heavy Machinery la classed themselves as the fastest improving shipyard in the world. They ensured that all benchrnarking was carried out by the

Table 1

Imlp

Map

Any individual initiative involves making choices about the context of the initiative, as well as the processes by which improvement is to be carried out. These choices may be depicted as shown in Table 1. When developing an improvement project, one is generally picking a 'center of gravity' on this map.

,vwmllnl, mill

E

i

>

a

< 1. Procsss 2. In-fnctocy Coordination 3. Process Technology 4. Sou rl:ing 5. Network 6. Oistribution end Order

Processing 7. New Product Deve~pmon!

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Table 2

Three Models of Continuous Improvement Initiatives Model I

Model II

J

S Performance Improvement Long-term objectives Provision of new opportunities for improvement

Linear

Accelerating

Inconsistent over time

Consistent over time

Consistent over time

Opportunistic

Reactive, Unplanned

Planned

Ease of implementation

Extent to which subprojects provide direct improvement in chosen direction

Extent to which subproject provides direct improvement in chosen direction

"Low-hanging fruit"

Extent to which the sub-project provides a platform for future gains. Get the easy things done

Approach

Y

Convex, decreasing gains

Speed of payback Sub-project selection criteria (periodic)

Model III

Drain the pool of Opportunities

"We must try harder to improve our performance on this measure.

"We must sow the seeds for new improvement opportunities for the future

"It was something else last year, and it'll be something else next year".

...and keep finding (and stumbling on) new opportunities to improve the operation."

...and still improve every day..."

moving to the more difficult projects with a similar focus and processes. This approach tends to produce significant gains at first, and the initial effort may be very encouraging. However, this is not surprising since the selection of sub-projects is based on how simple those projects are expected to be to implement and how

fast a payback is expected. Easy sub-projects get done, difficult ones don't. This model is very common in plants suffering from scheme exhaustion. People in the plant will have lived through a series of improvement schemes (often for other performance dimensions) and the new initiative appears to be more of the same to them.

Key P'erformance Meaeure

Old Scheme (different, direction) ,5¢heme ie launched I

f I I

direGt, ion )

2-3 Yeare Figure 1

New Init,iat,ive launched (different,

"l:',m;

Continuous Improvement (I): Pool Exhaustion

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Table 8

Improvement

Map for Model I

O.

E

8 ~-

z

O

IlJ h"

1. Process

2. In4actory Coordination 3. Process Technology 4. Sourcing S. Network 6. Distribution and Order

Processing 7. New Product Oevelopment

Despite being labelled 'continuous improvement,' both managers and employees assume that while the new initiative will show gains at first, over time the pool of easy wins will become exhausted. After a year or two, it becomes difficult to improve on the original dimension, so opportunities to improve on other dimensions seem much more attractive and productive. 'World-class' provides an excellent reason to change tack, and launch a new improvement initiative. Unfortunately, this new initiative may not be improving the most important competitive characteristic of the operation. Even so, it is in the 'stalled' stages of old initiatives that new fashions e.g. TQM, reengineering, find the most fertile ground. It feels better to see something improve (even on a less important dimension), than to watch a tired old scheme founder as improvement becomes harder and harder. Firms in these situations often do not have a clear idea of how they compete, and become easily diverted by the latest fad. They subject their plants to a series of psychologically exhausting schemes (though the new managers or consultants that bring them may see them as new and exciting).

initiatives, based on cross-functional meetings to discuss how process quality might be improved, to be productive - at first. Over time, however, quality circles often degenerated as the easier sub-projects disappeared and it became harder and harder to produce noticeable results. The dispirited team would then become aimless and the initiative would be tagged 'a waste of time'. The scene would thus be set for the next scheme to take hold.

Model 2 - Continuous Improvement: Linear, Focused Improvement

The locus of improvement tends to be haphazard on the improvement map, and both context and process change randomly as each new scheme is adopted, as shown in Table 3.

Firms with this model of improvement have a very clear, long-lasting view of how they compete, and communicate it well to people throughout the operation. There is a shared understanding that improvement may become more difficult as time goes on, but that at each step on the path, new opportunities will show themselves (somehow) and fuel sustained improvement. The fact that the difficulties of sustaining improvement are generally understood guards against the disenchantment that can quickly take the wind out of the sails of the initiative. A faith in 'getting better every day' and 'stretch goals' keeps the improvement moving forward for as long as people are prepared to put relentless effort into overcoming increasingly difficult obstacles.

Quality Circles, an improvement fad in the late 1970s, provides a good example of an unsustainable concept. Many operations found the idea of these team-

The problem with this model of improvement is that a reactive, 'we'll cross that bridge when we get to it' view forces the operation to deal with a series of

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European ManagementJournalVo114 No 3 June 1996

MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT

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progressively more difficult hurdles, and little attention is paid at each stage to sowing the seeds that will provide longer-term opportunities. This kind of improvement path is often seen in new operations where the skepticism resulting from a series of schemes has not had the chance to set in. Strong, charismatic leaders are critical for this mode of improvement since people need to believe that there will always be a better way of doing things. Such leaders are often characterized as 'obsessive' as they try to squeeze more and more blood out of the increasingly dry stone. 2° The danger comes further down the road than it does for model I. Although the organization does not immediately jump to improve on another competitive dimension when things become difficult, it ultimately has to deal with a situation which has not been planned for or dealt with proactively: what happens when it becomes exceptionally difficult to improve further in a given direction? AT&T's Universal Card Services operation21 provides an excellent example of an initiative that started strong and then stalled. After winning the Baldrige Award for Quality in 1992, the operation found it progressively more difficult to improve. Indeed, there was evidence that many people in the organization felt at odds with the zealots leading the quality campaign on the grounds that bonuses were becoming more and more difficult to achieve as people were pushed to continue improving quality. While such perseverance and focus is a marked improvement over Model I, it still does not plan for the day when the opportunity well runs dry, by encouraging people to lay a long-term foundation for improvement and move on to fresh opportunities.

Model 3 - Continuous Improvement: Accelerating Improvement Few firms employ this model. The key feature is that, at European ManagementJournalVo114No 3 June 1996

each period, sub-projects are selected based on two factors: o:o The extent to which the sub-project delivers direct improvement along a chosen dimension. °:° The extent to which it generates future opportunities for improvement. By using these selection criteria, firms ensure that improvement occurs continuously, but also proactively provides opportunities for further improvement. Teams working in this environment discuss not only the improvement plans for this year, but the improvement plans for the following years, knowing that they will have to increase the rate of improvement every year. To do this, they lay the groundwork for further improvement down the road, and may often select projects with little immediate benefit, and even projects that appear to drag the operation along an improvement path headed in the wrong direction. But this is done strategically and judiciously, in order to build capabilities, in the long term, which will provide opportunities for further improvement on the appropriate dimension. This is very different from selecting a subproject because it is an easy thing to do. The combination of progressive improvement, and the provision of launch-pads to provide future opportunities is very powerful, and very difficult to do well. However, this improvement mentality can provide an explosive, exponential performance improvement. The prime difficulty is that, because of the initial effort put into building long-term improvement opportunities, results may be slow at first. In the longer term, this approach will generate continuous improving performance. Daewoo Shipbuilding and Heavy Machinery 18 on Okpo island in Korea used this approach explicitly when rescuing the plant from the brink of disaster in 1987, to make it one of the most productive and fastest improving shipyards in the world by 1994. While its improvement trajectory did falter here and there (see 22.5

MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT

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Table 6), Daewoo's strict policy was that each subproject should also provide a foundation for further improvement, and the teams responsible for the project should also be responsible for exploiting its platform benefits. An example was the improvement of welding quality in the plant. While the quality of welding was not a major problem, a progressive improvement in welding quality would allow the removal of entire assembly processes in subsequent years, thus providing a postponed, but large jump in productivity in the longterm. The welding quality project went ahead on this

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basis. A progressive shopfloor learning project to control the way in which welding structures distorted, ultimately allowed the yard to install propellers in parallel with other components, rather than after distortion had settled down, saving valuable weeks of factory time. These models are stereotypical, and most firms fall between the lines, using a combination of each philosophy. However, the dominant philosophy is usually easy to recognize in an operation, and provides important clues about how the improvement process may itself be improved. It is important to remember that none of the models can sustain itself indefinitely since no firm can continue to improve forever from a given structural base. There are ultimately, limits to how much an operation can glean from a particular platform of technology. While the improvement process is going on, good companies are continually looking for ways to make their own technology, facilities and processes obsolete. These constantly revisited structures then provide new platforms from which to use the improvement engines that have been built. While most managers would agree that doing something is better than doing nothing to improve performance, it is important to remember that any improvement initiative has a long-term cost, in particular on the morale of the operation and people's willingness to commit themselves to future initiatives. For this reason, EuropeanManagementJournalVo114 No 3 June 1996

MECHANISMS FOR BUILDING AND SUSTAINING OPERATIONS IMPROVEMENT

Table 6

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it is critical that the improvement be shaped in a way that is sustainable and focused over a longer period than the tenure of the current manager. While improvement fads can provide the impetus that encourages static organizations to move, it is critically important that sufficient attention is paid to building a common understanding of h o w the improvement will be kept on course and sustained over time.

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Notes

1 Hayes, Robert H. (1980). Chandler Home Products(B).Harvard Business School Case 9680-048. 2 Christensen, Clayton M. (1994). Michigan Manufacturing Corp.: The Pontiac Plant. Harvard Business School Case 9694-05 I. 3 Williams, David J. (1988). Manufacturing Systems: An Introduction to the Technologies. New York, Halsted Press: 13I-I32. 4 Jaikumar, Ramchandran (1986). Yamazaki Mazak Harvard Business School Case 9-686083. 5 Garvin, David (1988). Digital Equipment Corporation (A]: The Endpoint Model. Harvard Business School Case 9-688-059. 6 Upton, David M. (1992). A Flexible Structure for Computercontrolled Manufacturin 8 Systems. Manufacturing Review, 5(1): 58--74. 7 Rogers, Paul, David M. Upton and David J. Williams (1992). Computer Integrated Manufacturing. Handbook of Industrial Engineering. New York, John Wiley and Sons: 647-671. 8 Hammer, Michael and James Champy (1993). Reengineering European ManagementJournalVot 14 No 3 June 1996

14 15 16 17 18 19 20 21

the Corporation. New York, Harper Collins. Hayes, Robert H. and Gary P. Pisano (1994). Beyond WorldClass: The New Manufacturing Strategy. (Reprint 94104). Matsui, Ryota and West, Jonathan (1996). Display Technologies Incorporated. Harvard Business School Case 1696-011 Upton, David M. and Matheson, A. M. (1995). EG&G Rotron Division. Harvard Business School Case 9-695-037 Shapiro, R.D. (1982). Ellis Manufacturing Co. Harvard Business School Case 9682-103. Hayes, R.H. (1987). Chassis Components Division of National Motors. Harvard Business School Case 9-687-006. Upton, D.M. and Tablet, S.A.L. (1996). United Distillers. Harvard Business School Case 9696-078 Wheelwright, S.C. (1992) Motorola, Inc. The Bandit Pager Project (abridged) Harvard Business School Case 9-692-069. Upton, David M. and Margolis Joshua (1991). Micom Carihe (A),(B) and {C). Harvard Business School Cases 692-002, 692003, 692-043. Upton, David M. (1991). John Crane (UK) Limited. The CADCAM Link. Harvard Business School Case 9-691-021. Upton, David M. and Bowon Kim (1994). Daewoo Shipbuilding and Heavy Machinery. Harvard Business School Case 9-695-001. Garvin, D. (1993). PPG: Developing a Self-directed Work Force {A). Harvard Business School Case 9-693-020. The Economist, (1995) The Straining of Quality, 14 January: pp. 55-56. Rosegrant, Susan (1993). A Measure of Delight: The Pursuit of Quality at AT&T Universal Card Services. Harvard Business School Case 9-694-047.

22, 7

MECHANISMS FOR BUILDINGAND SUSTAININGOPERATIONSIMPROVEMENT Table 6 Daewoo Shipbuilding and Heavy Maohinery= improvement Results 2.5

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David Upton is Associate Professor at Harvard Business School, and has been on the Faculty in the Technology and Operations Management area since 1989. He holds degrees from King's College, Cambridge University, UK, and a PhD in Industrial Engineering from Purdue University.

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His current research is focused on the challenge of building flexibility in manufacturing companies. The research aims to identify the key determinants of flexibility in operations and its effect on performance. He has published books and articles on manufacturing, the latter most recently in the Journal of Operations Management, California Management Review, and the Journal of Manufacturing Systems. He is presently the US editor of the Journal of Electronics Manufacturing. He has co-authored a forthcoming book, Strategic Operations, with Robert Hayes and Gary Pisano. He has worked and consulted as a manufacturing engineer and strategist for numerous corporations including AT&T, Fidelity Investments, General Electric, Saint Gobain, and TI Information and Computing Ltd. He also works with companies to deliver executive seminars in manufacturing strategy and operations improvement.

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EuropeanManagementJournalVo114 No 3 June

1996