BY LUCY M. MORGAN

Guidebook to Becoming a Lean Organization

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© April 2018, Blackbaud, Inc.

This white paper is for informational purposes only. Blackbaud makes no warranties, expressed or implied, in this summary. The information contained in this document represents the current view of Blackbaud, Inc., on the items discussed as of the date of this publication.

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Lean HistoryImagine this scenario: everything you worked for decades to build is nearly destroyed. The way you have always done things is no longer working. You struggle to find a way forward and some days wonder if you are even going to survive.

This nightmare scenario is the position in which the Toyota® Motor Corporation found itself near the end of 1949. A company known for a policy of no layoffs was suddenly facing bankruptcy, and the only new source of funding available demanded the elimination of “excessive” headcount. The future of the company hung in the balance as things went from bad to worse when employees went on strike to protest layoffs.

As the old saying goes, “Pressure makes diamonds.” Toyota’s leadership looked for a way to turn the failing business around and transform it into something of beauty. It was this pursuit of improvement that opened the door for a new way of thinking and leadership. One of those leaders was Taiichi Ohno, an industrial engineer at Toyota. He began perfecting the Toyota Production System (TPS).

Ohno’s founding principles of continuous improvement and respect for people evolved over the years. In 1990, the Toyota story was showcased in James Womack’s landmark book The Machine That Changed the World. This book was the first to coin the phrase “lean manufacturing” and started the movement that is known today in the United States as “lean.”

Contents

2 Lean History

3 Introduction to Lean for Service Environments

3 Benefits of Lean Thinking

4 Lean Fundamentals

5 Where to Start With Lean

6 Top 10 Reasons Lean Initiatives Fail

8 How to Stop Eight Types of Waste

10 Conclusion: The Lean Future

10 About the Author

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One of the new approaches gaining traction is the philosophy of lean for service environments. I recently interviewed Job G. Pangilinan, one of the trailblazers in the use of lean for a large local housing authority. I was curious where he first encountered lean concepts.

To my surprise, his first exposure to the principles of lean was not at a manufacturing company but at Alaska Airlines. As he continued on the lean journey, he found mentoring and support from the state of Washington, which has been actively implementing lean process improvement to its governmental functions over the last decade.

So, for those of you wondering if lean will work in service environments, you may be surprised to find these principles have already found a whole new life in the public and social sectors as well as other service organizations. Lean principles have been successfully implemented in these types of organizations for more than ten years.

Introduction to Lean for Service EnvironmentsThough Toyota® is often credited as the birthplace of the lean movement, lean thinking has been progressing since the early days of mass production over one hundred years ago with the Ford® Motor Company. Fast forward to today, and you’ll find a diverse range of organizations, from manufacturing to governmental agencies to nonprofits, implementing lean principles.

It makes sense. Just like Toyota discovered, difficult times often lead to new ways of thinking about the wisdom of continuing with the status quo. And for governmental and nonprofit organizations, today’s tough funding and regulatory environment is driving the need for innovative approaches that reduce overhead while increasing service to our communities and funders.

Benefits of Lean ThinkingLean principles can transform your organization and build positive impact in your community by delivering more value. There are many benefits of using lean thinking at your organization, including:

• Decreasing waste and adding transparency to increase funder and taxpayer confidence

• Providing more efficient and effective delivery of solutions that clients value to help organizations meet ever-growing needs while managing limited resources

• Supporting a lean culture that empowers employees to seek continuous improvement—through small wins and innovation—that improves morale and job satisfaction

However, while lean concepts provide proven and powerful tools for organizational improvement, many organizations attempting to implement lean principles fall way short of the potential benefits.

So how do we solve the dilemma of higher expectations with fewer resources?

Following a proven roadmap for success, avoiding common implementation mistakes, and keeping long-term goals in sight will greatly contribute to your organization’s ability to successfully reap the benefits of lean.

In this article, we will look at how lean can support the transformation of your organization from one of bureaucracy, inefficiency, and discord, to one of empowerment, effectiveness, and community.

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Applying lean continuous improvement processes, we can discover ways to reduce costs and increase efficiency, productivity, and quality.

We can better understand the promise of lean if we understand how much waste exists in the average organization. I did some research on current levels of waste and found the search results rather shocking!

Lean Fundamentals

LEAN FUNDAMENTALS FOR SERVICE ENVIRONMENTS

When lean is applied in organizations that provide direct services, it supports their clients with two core principles—to increase value and eliminate waste. Let’s look at how these terms are defined.

Lean Concepts: Who defines value?Value is determined by the client (i.e., the person being served by your mission and objectives), not the organization. In lean manufacturing, the question typically asked is, “Will the client pay for it?” If not, it is categorized as waste. However, when implementing lean fundamentals for service environments like a nonprofit or governmental unit, it may be a little harder to determine what things the clients value.

For service organizations, clients may place different values on services provided by the organization than other stakeholders. Recognize that, when considering a wide variety of human needs, discovering what clients value will be more complex than determining what they are willing to pay for.

Lean Concepts: Waste equals inefficiency.Waste is defined as anything in the process that doesn’t add value to the client. Simple enough? Not really.

This is because it is often the case that, in nonprofit and government organizations, there are things required by donors, funders, and other stakeholders that don’t directly add value to the clients.

Therefore, we have to segregate waste into two distinct categories:

1. Necessary waste—the goal is to reduce it

2. Unnecessary waste—the goal is to eliminate it

Strategos, Inc. estimated that traditional manufacturing companies waste 70–90% of their resources. However, after implementing lean principles, estimates showed manufacturing waste was slashed to 30% of resources.

Even more dramatic were the estimates of waste in service processes. Washington State estimated the waste in service organizations to be closer to 95%!

As shocking as these figures may seem, remember that the goal is not 100% waste elimination in the future but continuous improvement in waste reduction starting today!

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Where to Start With LeanLean is a principle-driven methodology that can be broken down into a three-step process:

1. Identify the client

2. Determine whether or not each step in the process adds value to the client

3. Remove as much waste as possible

Sound easy? Well, like most things, the devil is in the details, so let’s walk through these three critical steps, so you can better understand the lean concepts involved.

Step One: Identify the client.The first question on the lean journey is, “Who is the client?” Simply put, the client is the person at the end of the process. The client is not the next person in the hand-off process! Rather, they are the primary recipient of the service we are providing or the thing we are making.

The reason you have to get very clear on this is that if you don’t know who your client is, you can’t know what leads to waste and what adds value. As I mentioned before, identifying the client can be harder than you think. So spend some time discussing this within your organization.

Step Two: Determine whether or not each step in the process adds value to the client. Once you have identified the client, the next step in the lean process is to determine if the steps in that process add value to the client or not. A common method used by organizations to tackle this step is something called value stream mapping (VSM).

In VSM, each step in the process is compared against these three criteria:

• Is this something the client cares about or that affects them?

• Does it change the product or service?

• Is it done right the first time?

If a step in the process doesn’t meet all three criteria, then it doesn’t add value. And if it doesn’t add value, then it is by definition waste.

Remember, each step must be judged based on whether or not the primary client considers it valuable, not whether or not the organization finds it valuable.

Step Three: Remove as much waste as possible.Now is when the rubber meets the road. You’ve defined the client. You’ve mapped the process to determine which steps add value to the client and which ones are defined as waste. Now comes the hard work of removing as much waste as possible.

Consider these real-life examples of waste in service environments: redundant input and output of data, unclear roles and responsibilities, and lack of training. Each of these steps is considered waste and should be eliminated to the extent possible. A lean culture focuses on building great processes while respecting people and teams that deliver the most value for their clients.

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2. Lack of Leadership Involvement• Do staff see that leadership is committed to

this change?

• Do a majority of staff feel that this change is important and that senior leadership is “in the trenches” with them?

• Does it matter enough to the organization to support the culture change and resources necessary to do it successfully?

3. Lack of Focus on the Client• Is the focus on what’s in it for the organization or

managers and not on how it benefits the clients?

• Are assumptions being made about what’s important to the clients without listening to them or those closest to them?

4. Lack of Employee Involvement• Do staff members know how they fit into the

lean initiative?

• Do staff and managers feel supported and rewarded for their involvement in this lean journey?

• Have expectations for employees been clearly communicated?

Top 10 Reasons Lean Initiatives FailAre you sold on the promise of lean? Are thoughts of process efficiency and mission success swirling in your head? Let’s walk through some reasons why lean fails to live up to the promise of better results and empowered workers.

While lean has the potential to transform organizations, lean is not:

• A short-term fix or bandage for a failing culture

• Something that consultants can implement quickly or haphazardly and expect long-term results

• A grassroots initiative that doesn’t need senior leadership’s involvement

• A sneaky way to cut staff under the banner of employee empowerment

Failed lean initiatives are often due to a lack of:

• Commitment to listen to and respect various viewpoints

• Trust between staff and management

• Willingness to build on small wins and experiment with different approaches for success

In the interest of fulfilling the promise of lean to transform your organization, let’s look at the top 10 reasons lean initiatives fail and some questions that may help you avoid the pitfalls.

AVOIDING THE TOP 10 REASONS LEAN INITIATIVES FAIL

1. Lack of Strategy• Do you have a clear strategy for how lean will benefit

your organization?

• Have you explored what key strategic goals you want to align with the lean initiative?

• How will you implement and sustain this change?

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• Are there communication tools that will increase the exchange of ideas and identification of process roadblocks?

9. Lack of Individual Relevance• Do most employees understand how lean principles

affect their jobs?

• Do most employees feel connected to the organizational objectives of lean?

• Do most employees believe lean will improve their day-to-day lives?

10. Lack of Progress Metrics• Do you have visible, meaningful metrics for the

lean initiative?

• Are the benefits of lean communicated outside the project team?

• Can employees quickly tell if the lean benefits are realized or not?

As you can see, there are many ways lean can fail if there is a lack of commitment and communication. Start small and build momentum on the low-hanging fruit of process improvement.

5. Lack of Training • Have employees been trained on the lean principles

and concepts?

• Do employees understand the relevance of the training to their jobs?

• Does the organization need to train on communication and innovation skills in addition to lean concepts?

6. Lack of Long-Term Commitment • Is senior management in this for the long haul?

• Do employees or managers view this lean initiative as primarily a cost-saving measure?

• Is there a plan to incorporate continuous improvement principles even after the consultants leave?

7. Lack of Clear Objectives• Is there a clear understanding of why the organization

is supporting lean?

• Can employees explain their roles in the lean journey?

• Do the objectives align with the organization’s mission and objectives?

8. Lack of Supporting Technology• Have you looked for tools that can make the lean

concepts easier to implement?

• Have you explored ways to make results more visible and transparent to clients and other stakeholders?

Continuously communicate your results, improve the flow, and reduce roadblocks to add value for your clients.

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How to Stop Eight Types of WasteLean process improvement is based on the elimination of steps that the client doesn’t view as valuable. In other words, the goal is to reduce waste in organizational processes!

A perfect example of this type of waste is filing required reports—necessary, but not valued by the client.

Eight Types of Lean WasteThere are eight types of waste in the lean framework that should be relentlessly pursued during the evaluation of a process. The types are transportation, inventory, motion, waiting, overproduction, overprocessing, defects, and underutilization of talent.

Some lean experts group waste into these four categories: information, process, physical environment, and people. It is this simplified four-category format that was used by Washington in its adoption of lean principles with its 64,000 employees.

Examples of Waste in Service EnvironmentsTo make this concept clearer, let’s look at some examples of lean waste in a service environment:

1. Transportation: Examples of transportation waste include document handoffs, transfer of files, reconciliation of multiple data sources, or similar reports.

2. Inventory: Inventory waste shows up in work waiting to be completed, approved, reviewed, and processed.

3. Motion: Examples of motion waste are people working without producing, such as meetings without decisions, and time spent searching for files.

Best Practices Yielding Results That LastRemember, lean is about long-term results, not short-term fixes! Success leaves a trail, and there are many lean examples of organizations transforming the value they bring to their clients through lean.

A quick Internet search yields diverse examples of organizations that have implemented lean principles:

• State of Washington

• Code for America

• Acumen

• Environmental Protection Agency (EPA)

You don’t have to dig deep to hear about the amazing results in lean case studies.

Examples of Successful Lean ImplementationLet’s explore a few case studies provided by the state of Washington about how lean concepts transformed their governmental processes by:

• Reducing Time Spent on Inventory Management: Washington State Department of Enterprise Services used lean strategies to identify and solve problems in their inventory management system for a 69% reduction of the time required for inventory processes.

• Speeding Up Disclosure Requests: Washington State Department of Financial Institutions reduced the time required to fulfill a public disclosure request by 75%.

• Improving Worker Safety: Washington State Department of Enterprise Services’ custodial division improved safety for its staff members resulting in a 44% decrease in injuries on the job.

Were you one of the skeptics wondering, “Will lean work in service environments?” If so, I hope that this article gives you a guide for using lean to improve client satisfaction, improve efficiency, and increase employee morale.

However, you can’t necessarily eliminate all waste. Sometimes steps are required by funders or others that are necessary, even though they don’t appear to add direct value to the client.

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So how do you know if you are winning at lean? Let’s look at examples for measuring waste reduction.

Five Examples of Waste Reduction MetricsThe EPA measured its success at reducing waste in these five categories:

1. Time: How quickly can we deliver a product or service to the client?

2. Cost: How many full-time employees are needed for the process?

3. Quality: Are documents accurate and complete? Is the client satisfied?

4.Outputs: How many products do we produce (i.e., permits, licenses, etc.)?

5. ProcessComplexity: How many steps or handoffs are required throughout the process?

This is a good sampling of metrics. I hope that these examples will enable your lean progress to be more measurable as well.

4.Waiting: The waste of waiting robs efficiency as people sit needing information to do work or multi-task while they wait to be able to complete tasks.

5. Overproduction: Examples of overproduction include creating reports no one reads and producing information in multiple formats for no good reason.

6. Overprocessing: Overprocessing waste includes unnecessary work to get results, such as frequent revisions, complex forms, and extra signatures.

7. Defects: Examples of defect waste include work that is not correct the first time, is submitted late, or needs to be reworked to meet the minimum quality standards.

8. Underutilization: Finally, underutilization waste involves ignoring people’s strengths, such as having executives check for data-entry errors and skilled professionals do unneeded and unrewarding tasks.

As you begin to understand the many ways waste is built into processes, you can see why an organization that tackles the work of lean implementation can see such dramatic results in reducing waste.

There are Many Ways to Categorize Lean Waste.While there are many ways to categorize the different types of waste you want to reduce or eliminate, the truth is, at this point, you can feel overwhelmed by the options.

If you focus on these three lean principles of reducing or eliminating non-value-added steps, it will help bring clarity to the process.

Ask yourself:

1. Do these steps add value to the primary client? If so, we should seek to make them better.

2. If these steps don’t add value, are they somehow necessary? If so, we should seek to reduce them.

3. If these steps don’t add value and aren’t necessary, why are we doing them? We should seek to eliminate them.

Find a way to keep these three questions paramount in your discussions, and encourage other internal stakeholders to ask the same three questions.

About BlackbaudLeading uniquely at the intersection point of technology and social good, Blackbaud provides software, services, expertise, and data intelligence that empowers and connects people to advance the social good movement. We serve the entire social good community, which includes nonprofits, foundations, corporations, education institutions, healthcare institutions, and the individual change agents who support them.

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Conclusion: The Lean Future When lean is used in the context of services like nonprofits and governmental services organizations, there are many benefits to starting on the lean journey now and into the future.

First of all, transforming your organization with lean principles can build positive impact in your community by delivering more value to clients and stakeholders.

Next, more efficient processes with less waste can increase funder confidence in your proposed solutions.

Finally, in a world of ever-increasing needs with ever more limited resources, lean helps organizations focus on doing the work that matters and letting go of non-value-added activities.

However, the fact remains that many organizations fall short of accomplishing the full potential of lean initiatives or fail to sustain the improvements recognized.

Following a proven roadmap for success, avoiding common implementation mistakes, and keeping a long-term view will increase the odds of successfully reaping the rewards of lean at your organization.

About the AuthorLucy M. Morgan is an author, speaker, GPA-approved trainer, and grant management authority. Lucy is a highly regarded trainer whose passion is to teach people how to do more with their federal funding regardless of the economic and political climate. Her books, training tools, and seminars provide people of all professional backgrounds with the practical tools necessary to build their own careers and make a bigger difference in the world.