A lean lens on the economy

Posted on 10 Jan 2011 by The Manufacturer

John Homewood, Pauline Found and Donna Samuel collaborate on a vision for how the manufacturing industry might help the UK economy recover and thrive through more means than simple productivity and competitive strength. The group investigates how lessons in lean management from the original home of that methodology could be of help.

On 12th December 2010 the Localism Bill was unveiled in the UK revealing ministerial proposals to increase local control of public finances. The Localism Bill will lay the foundations for what David Cameron calls ¡®The Big Society¡¯. Communities Secretary, Eric Pickles, says that he wants to take decisions out of the hands of councils and Whitehall. The aim is to empower local communities to take more responsibility for services and decision-making.

Critics suspect that this is a cover for cutting costs and central government washing their hands of problems by passing them on to local councils and communities. However, the big question will be ¡®Can local communities run the services more effectively and efficiently than the councils?¡¯ This will be a case of doing more with less ¨C classic lean territory.

Many of us will have observed and voted on the issues surrounding the performance of the UK economy, particularly after the catalogue of events following the sub-prime collapse in mid- 2007. Those of us who are lean practitioners within business and with a keen eye on business and policy behaviour in the UK economy, no doubt, will have said to ourselves, ¡®Why don¡¯t the government do lean?¡¯.

A new perspective on lean roots Over the last two decades lean has spread well beyond its origins in car manufacturing. Lean thinking started to influence practice within certain organisations in the service sector almost a decade ago. More recently, the public sector is beginning to embrace lean and a number of evaluation reports have been commissioned.

Indeed lean in public services has been a dominant theme in recent articles for TMs sister publication The Lean Management Journal, (LMJ). In the last issue of LMJ, Dr Zoe Radnor offered an overview of lean manifestations in certain central government departments and agencies and made two points of particular importance. First, that implementing lean in newer (non-manufacturing) environments often means careful explanation of lean to counter unsophisticated, and often misguided, views among stakeholders. Second, that experience has shown that visual management often proves to be particularly powerful in overcoming some of these challenges.

The purpose of this article is to develop this latter point by reporting some embryonic research ideas under development among a group of researchers at the Lean Enterprise Research Centre (LERC), Cardiff University. These ideas centre on the use of basic visual management to view the economy through lean lenses.

The ideas, discussed here, emerged from the case study research investigated in the publication Staying Lean ¨C Thriving, Not Just Surviving. One important outcome of the lean work undertaken by the case company featured in this research includes a senior management ¡®dashboard¡¯ (Figure 1) consisting of a single page representation of the organisation¡¯s current state. Behind the dashboard sits a wealth of input data but, crucially, this data is easily accessed, gathered and configured.

Figure 1 shows that the company clearly identified their current five priority areas. The bottom left section focuses on how these areas link to the wider company strategy while the bottom right focuses on how they link to current improvement activities. As the company developed the dashboard, the clear need to discard single point (monthly) representation of information in favour of a time series became apparent.

This change alone afforded considerable advantages over the way they had traditionally managed the company. For example, it allowed them to identify patterns and trends which were previously hidden early enough to take mitigating action. Furthermore, the dashboard provided a visual representation of the company¡¯s current and future state, in an easily digestible form that was meaningful for other stakeholders, but most crucially, for employees. The dashboard offered a communication mechanism through which employees could see the context of their lean transformation and their role within that transformation.

Another important outcome of the same lean work was a visual method for linking financial imperatives to lean behaviours. Figure 2 is an enhanced version of the Return-On-Net-Operating- Assets (RONOA) model.

Figure 2 illustrates how the company was able to bridge the gap between financial performance and lean implementation. The RONOA afforded the company three main advantages. It enabled:

1 Senior management to see the link between the creation of value and the financial imperatives

2 The finance department to better understand the nature and purpose of lean

3 Everyone else to identify the impact of their behaviours and actions on the financial fortunes of the company

In summary, the power of the visual management models stimulated the authors of this article to ponder its potential beyond the boundaries of a single organisation. What if similar visual management approaches were used to view the economy? Figure 3 illustrates of how visual management may be used to represent some macro-economic and other important indicators in the form of a dashboard.

One obvious question is how does the dashboard compare with what the Treasury currently uses to manage the economy, what methods does the Treasury employ to track progress? The RONOA model can similarly be modified to view the economy. By way of example we took time-series data from taking Office of National Statistics (ONS), and structured into a RONOA-type view of the UK economy, over the last six decades (Figure 4).

In a similar way to the dashboard, structuring data on the UK economy in this way stimulates us to think and question. For example:

¡ñ Is there a macro-equivalent for revenue? Is it GDP? What if, for example, our current focus on GDP has led us to pursue economic growth for growth¡¯s sake?

¡ñ Is there an equivalent for profitability? Is it Balance of Trade? If no equivalent exists, what are the implications for the management of the economy?

¡ñ What does ONS data reveal when represented in a time series format? How does this link to policy decisions of the past?

Like any business system the UK economy is faced with a set of imperatives and challenges. However, viewing an economy in a structured form can enable us, as citizens and stakeholders, to visualise value and challenge priorities. It might also lead to questions that would cause decision-makers to think about the problem in a different way, just as it often does in with leaders in organisations who seek to understand cause and effect of business problems. Furthermore, as lean practitioners, we might consider how tried and tested lean techniques for value creation maybe adapted to different processes and value-types, such as health and wellbeing.

Returning to the Localism Bill, what benefits might be derived by local authorities and communities striving to operate as a business-like system? The lessons of lean are out there to inform their response to the challenges this bill presents.