Avoiding waste within digitization projects

 

No waste

The stream of value creation is the main perspective of lean management on production. The aim is to optimize processes iteratively as far as possible. This approach is not applicable to innovation and development processes like digitization without adaptions. It has to be expanded and lifted to a more general level.

The approach to reduce and avoid waste as far as possible can also be fruitful for digitization projects. In contrast to traditional lean management the focus lies on development, not on production. This difference leads to some paradoxes, i.e. the fact that failures play an important role in development while being the object of elimination in production processes.

Every step of a digitization project can create waste. In many cases it is difficult to tell in advance what will create value and what waste because many things are experimental. Therefore it won’t make sense to examine each step. The more effective way is to look at systematic errors. Here are some of them and how to circumvent them.

Customer insightsUnderstanding customers deeply and engaging them instead of technology driven development

Innovation in Europe is still very much driven by technology. R&D departments are the pace-setters. That is not necessarily a problem, but it is only one side of the coin. To create market success it is very often more crucial to understand customers deeply and to make them part of the process. If a benefit is created which no one has provided before, or at least not in such a convincing way, then customers will really appreciate it and outstanding market success can be created. Apple is a company that has repeatedly exceeded customer expectations regarding functionality, design and usability, and so successfully that whole new markets have arisen. Of course new technical solutions supported the success,but they were never the decisive factor.

There is a high potential to avoid waste in digitization projects by making customers part of the process. It will cost some effort but it will pay off. Interviews with lead customers, participatory observation, surveys, focus groups and, whenever possible, user tests provide a broad range of insights that can help to create digital solutions that have a nearly perfect problem and market fit. This not only avoids long and expensive misguided development but helps a company to enter a market easily.

The success of Hilti’s new business model started when Hilti realised that their customers‘ need was not to own a drilling machine but to produce perfect holes under different conditions. Based on this insight the company developed a new and highly profitable business apart from its traditional machine sales.

CooperationCooperation instead of silo mentality

Who is responsible for digitization? IT? Business development? The board? Production? The answer to this question is far from trivial. Quite the reverse is true. One of the biggest sources of waste arises when digitization is defined as a responsibility of a single department. If it was assigned to IT, for instance, relevant experiences of production and sales might be neglected, at least in part. In the end, great opportunities will be missed.

Division of labour is an achievement of industrialisation that gives people with different skills the opportunity to deliver top performance by concentrating on their field. In this way industries were able to develop in leaps and bounds.

Digitization is breaking with this tradition. An outstanding strength of digital processes is that they are no longer bound to individual competencies, but rather integrate different roles. That is what makes many digital solutions so convincing. Banks, for instance, are nowadays able to check creditworthiness within minutes by using databases and appropriate algorithms, which has shortened the processing time of a credit application from many weeks to a few hours. In many cases the credit manager can decide within minutes during the customer meeting without having to consult other departments.

Cooperation of different departments is essential when systems are supposed to generate value for both customers and company. Every digitization project requires an interdisciplinary team. Any other realisation of a digitization project will cause a significant amount of waste through reworking, failure correction or even because some departments might fight against this solution–often with good reason.

Value stream mapping (VSM) in lean management

Value Stream Mapping

Value Stream Mapping (VSM): schematic representation of a value stream (©Uwe Weinreich, licensed under Creative Commons BY-SA v 3.0)

A first important step to avoid waste is to remove all process steps and activities that add no value to the product. The ratio between time spent creating value (often only minutes) and duration of the whole production process (often several weeks) indicates, for instance, how much waste results from idle periods and set-up times. Besides that, analysis often discovers activities that create no value but require a lot of time and money, like relocations, searching for parts and reworking in case of quality defects.

Whether an activity adds value or not should strictly be considered from a customer’s point of view. Only process steps which produce something that customers would pay for create real value.

Agile DevelopmentAgile development instead or waterfall projects

Project management in engineering is characterised by a well-defined solution that is split up into single steps on a timeline. As a diagram it looks almost like a waterfall. Digitization projects mostly do not benefit from this method. On the contrary:

These problems are well known in the software industry. To minimize them, agile methods of development have been implemented like scrum, extreme programming and test-driven development. Design thinking is currently an emerging method for product development and design and lean startup for fast, safe and successful development of entire fields of business. Because of their success these methods are now transferred to other kinds of projects and general management.

Something all agile methods have in common is that they abstain from the waterfall model, preferring an iterative process in fast cycles. This provides high flexibility to cope with changing customer demands or unexpected obstacles. Prototypes and mock-ups help to create a visual and haptic impression of the solution very early and make fast customer feedback accessible.

ExperimenteExperiments instead of endless planning

One of the biggest disadvantages of waterfall planning is that experimentation starts too late. This is a missed opportunity. Especially in a digital environment experiments can be set up easily and inexpensively and the insights will be valuable. Every day, Amazon, for instance, starts experiments numbering in double digits.. Layout variations, customer journey, check out process, buttons and even pricing are modified and tested. Experiments are mostly A/B-tests. One version is tested against another. It is essential to measure the effects and identify the best solution. Even tiny details can be optimised that way.

Sure, one single optimization often creates only little improvements. When experimenting and optimization become routine, these can and do add up to considerable advantages. Within six months, for instance, the web-shop of a wholesaler for craftsmen realised in this iterative procedure a reduction of the dropout rate at the checkout by 78%, and an increase of customer retention and revenue by 22% and 164% respectively.

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published: December 10, 2018, © Uwe Weinreich

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