RESEARCH & IDEAS

Bringing 'Lean' Principles toService IndustriesPublished: October 22, 2007Author: Julia Hanna

Toyota and other top manufacturingcompanies have embraced, improved, andprofited by lean production methods. But thepayoffs have not been nearly as dramatic forservice industries applying lean principles. HBSprofessor David Upton and doctoral studentBradley Staats look at the experience of Indiansoftware services provider Wipro for answers.Key concepts include: In terms of operations and improvements,

the service industries in general are a longway behind manufacturing.

Not all lean manufacturing ideas translatefrom factory floor to office cubicle.

A lean operating system alters the way acompany learns through changes inproblem solving, coordination throughconnections, and pathways andstandardization.

Successful lean operations at Wiproinvolved a small rollout, reducinghierarchies, continuous improvement,sharing mistakes, and specialized tools.

Thanks to the pioneering success ofToyota, the concept of a "lean" operatingsystem has been implemented in countlessmanufacturing companies and even adapted forindustries as diverse as insurance andhealthcare.

With its focus on standardization, qualityimprovement, cost reduction, and efficiency,lean's influence (and various interpretations ofits tenets) continues to grow. In their workingpaper "Lean Principles and SoftwareProduction: Evidence from Indian SoftwareServices," HBS doctoral student Bradley Staatsand professor David Upton examine whathappens when Wipro Technologies, an Indianoutsource provider of software services,launches its own lean initiative.

"In terms of operations and improvements,the service industries in general are a long waybehind manufacturing," Upton says. "Themotivation for this work was to gain somewell-grounded research on how improvementscan be brought to services through some ofthese lean concepts."

Not all lean manufacturing ideas translatefrom factory floor to office cubicle. For

example, "poka-yoke," the method ofpreventing mistakes by limiting how anoperation can be performed, doesn't translate soeasily to a software engineer writing code.

"What we hope to do," Upton says, "is todistill the relevant aspects of leanmanufacturing so that managers can see howthese tools were applied successfully in aservice environment similar to their own."

Unfortunately, lean's prevalence has led tosome misconceptions.

"Some people think lean means 'not fat,' asin laying people off," Upton says, noting that intheir paper they propose that the difference in alean operating system comes from how it altersthe way a company learns through changes inproblem solving, coordination, andstandardization.

They also draw on a framework of 4principles of the Toyota Production Systemdefined by HBS professor Kent Bowen andSteven Spear (HBS DBA '99):

Rule 1: All work shall be highly specified asto content, sequence, timing, and outcome.

Rule 2: Every customer-supplier connectionmust be direct, and there must be anunambiguous yes or no way to send requestsand receive responses.

Rule 3: The pathway for every product andservice must be simple and direct.

Rule 4: Any improvement must be made inaccordance with the scientific method, underthe guidance of a teacher, at the lowest possiblelevel in the organization.

Wipro gains efficiencyIn the paper, Staats and Upton describe how

Wipro first launched its lean initiative in 2004with a core team of managers. The small groupvisited lean manufacturing companies anddiscussed the concept's basic principles beforeeach manager adopted a project in order toimplement this new approach to softwareservices. Of the projects, 8 out of 10 showedgreater than 10 percent improvement inefficiency.

"Some people think leanmeans 'not fat,' as in layingpeople off." David UptonWith those results in hand, the core team

decided to roll out the approach across the firm.By the end of 2006, Wipro had 603 leanprojects completed or in the works (thecompany typically had 1,100 projects underway at any one time).

"One of the important lessons we've seen onthe ground is how Wipro approached the launchof this lean initiative," Staats says. "They didn'tcome out with big banners and say, 'OK, todayyour work is lean work, and yesterday it wasn't.'They started with a small group and recruitedother people from there. It was a very controlledexperimentation."

In their research, Staats and Uptondocument how the use of lean principlesaffected the workflow at Wipro. The concept of"kaizen," or continuous improvement, forexample, resulted in a more iterative approachto software development projects versus asequential, "waterfall" method in which eachstep of the process is completed in turn by aseparate worker.

By sharing mistakes across the process, thecustomer and project team members benefitindividually and collectively from increasedopportunities to learn from their errors; theproject also moves along more quickly becausebugs are discovered in the system earlier in thedevelopment process.

Wipro also uses tools specific to thesoftware development process based on leanprinciples. The DSM (design structure matrix),for example, defines connections and pathwaysfor a project's workflow and suggests an orderof tasks. A complementary tool, the SCE(system complexity estimator), ranks a softwaremodule based on its complexity and comparesits actual architecture with its ideal (simplest)architecture in order to learn where a teammight need more or fewer skilled members. Thecompany also employs the more familiar leantechnique of value stream mapping (VSM) toidentify and decrease wasted time and effortthroughout the software development process.

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Improving from the bottomup

While most organizations struggle withimplementing a new system, fighting thegeneral inertia that many employees experiencewhen faced with yet another new initiative, thegoal of lean is to open up the work process andabolish the usual hierarchies. According toStaats, this seems to have happened at Wipro.

"It was interesting to talk to some of the lesssenior team members, because they weregetting involved in much bigger-picture issuesthan they ever had before," he says. "In the caseof value stream mapping, every member of theteam was able to get a sense of the overallpicture of what they were doing and spotproblems they wouldn't have been able to seebefore."

"It's about unlocking thepower of thousands ofsoftwareengineers."BradleyStaats

Staats suggests that the use of leanprinciples at Wipro could have qualities of a"Trojan Horse initiative." From the outside, leanaccomplishes the short-term goal ofproductivity (getting inside the city's gates), butit could also lead to more radical, innovativechange (the sacking of Troy).

"One of the main ideas behind lean is totake parts of a task that don't require humanintervention and give them to machines so thathumans can focus on the important issues,"Staats explains. "The same is true in software,where you have the added benefit of being ableto give some of your work to a computer, whichcan process it more reliably and quickly than ahuman."

More time, coupled with a betterunderstanding of the different moving parts of aproject, creates feelings of empowerment inworkers who haven't traditionally taken part ininnovation.

"It's about unlocking the power of thousandsof software engineers and encouraginginnovation up and down the organization,"Staats says. "You can impact productivity whilealso changing the problem-solving capabilitiesof the organization."

Ideas into actionWipro is typical amongst Indian firms in its

thirst for knowledge, Upton adds."These companies are intellectual

environments. People are very interested intaking conceptual ideas and figuring out how toput them into practice. There's not the samedivision between the 'real world' and universityresearch that you often encounter in the UnitedStates."

Staats and Upton traveled to Wipro's officesin Bangalore on multiple occasions,interviewing employees at all levels to examinethe company-wide effects of lean; they plan toreturn to India this fall and will continue tomonitor developments at Wipro.

Says Upton, "There's a question as to wherethings go down the road: whether this continuesto be a lean implementation or evolves into theWipro Production System when they developenough new approaches to their work. We wantto stay around that question to reflect on it andapply it to services more broadly."

About the authorJulia Hanna is associate editor of the HBS

Alumni Bulletin.

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU

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Bringing 'Lean' Principles to Service IndustriesWipro gains efficiencyImproving from the bottom upIdeas into actionAbout the author