Assessing Value: Forget the Customer at your Peril

The Lean approach to process improvement has been implemented in numerous organizations around the world. But why do so many go so wrong? The solution, writes Dennis Narlock, is making sure you've defined value from the customer's perspective.

For decades, organizations have sought to improve their competitive advantage through the reduction of overhead costs, increased quality, improved speed to market and expanded services. Utilizing the five basic tenets of Lean; Value, Value Stream, Flow, Pull and Perfection, every member of the organization learns about their process and makes improvements. This structured approach creates an organization which is able to meet or exceed the customer’s expectations.

Given the structured approach utilizing five basic tenets, why are there so many Lean implementations that never achieve the unprecedented improvements that are expected by the executive leadership, manager, front line employees and shareholders? One potential root cause of the underwhelming results is a failure to specify value from the customer’s perspective and drive improvements which eliminate all waste, achieving the last tenet of lean; perfection.

Value

In "Lean Thinking: Banish Waste and Create Wealth in Your Corporation" James Womack and Daniel Jones define value as "A capability provided to a customer at the right time at an appropriate price, as defined in each case by the customer." (Womack and Jones, p. 353) This is a key concept within the Lean methodology; value is defined from the perspective of the customer. Yet, many organizations struggle with defining customer value, laboring to justify bloated processes whose value is defined more by the organization rather than the customer. This misalignment is a result of defining value based on internal business requirements, external regulatory requirements, shareholder expectations, emerging technology or a combination of them. In order to correct the process and align value with customer expectations organizations will need to transform their processes into value streams that begin and end with the customer.

Value Stream

When an organization maps the individual steps and actions that must take place in creating a product or service, it will have created a process map. The next step in transforming the process map into a value stream map is to evaluate each step from the customer’s perspective. Each step will fall into one of two categories; Value Additive (Creating value for the customer) or Non-Value Additive (Waste). These categories are listed below. Of note, Womack and Jones further sub-divide the waste category into Type 1 and Type 2 waste.

• Value Creating – Those process steps that fully meet the definition of value as defined by the customer.
• Create No Value (Type 1) – Those process steps that are clearly waste from the customers perspective but are required because of existing technology, installed equipment, internal/external regulatory requirements.
• Create No Value (Type 2) – Those process steps that clearly provide no value as defined by the customer and are completely avoidable.

I started my process improvement journey in 2004 with an introductory course on Lean and the Theory of Constraints. During that five day course we learned about the basic principles of each methodology. This included the 8 forms of waste and the criteria for determining if a process step created value. Each process step would fall into one of three categories; Value Add, Non-Value Add (Required) and Non-Value Add (Pure Waste). What I learned was somewhat different from the viewpoint stated by Womack and Jones, while still agreeing with their categories in principle.

• Value Add – Those steps that change the Fit Form or Function of a product/service AND are done right the first time AND the customer is willing to pay for it.
• Non-Value Add (Required) – Those steps that do not fit the criteria of Value Add, but are required in order for the business or process to operate. This included internal/external regulatory requirements and steps that if improved resulted in a negative ROI.
• Non-Value Add (Pure Waste) – Those steps that clearly fall into one of the 8 forms of waste and do not fit either of the previous two categories.

From 2007 I attended Lean Six Sigma Black Belt and Theory of Constraints Supply Chain training. Throughout the training many things remained very similar to what I learned in the introductory course. There were still 8 forms of waste; we still followed the same basic tenets of each methodology, and we were data driven. What did change slightly were the criteria for determining if a process step created value. Each process step still fell into one of three categories; Value Add, Business Value Add and Non-Value Add. It is what I consider to be the first major divergent from the viewpoints expressed by Womack and Jones. There were not two of the three categories that could be used to denote value; one for the customer and one for the business.

• Value Add – Those steps that change the Fit Form or Function of a product/service AND are done right the first time AND the customer is willing to pay for it.
• Business Value Add – Those steps that do not fit the Value Add category but are required, by the business in order to operate.
• Non-Value Add - Those steps that clearly fall into one of the 8 forms of waste and do not fit either of the previous two categories.

Most recently I was exposed to yet another categorical change in the way that the determination of value is made for each process step. The Business Value Add Category was renamed to Value Enabling.

• Value Enabling – Those process steps that enable the organization to accomplish a Value Added process step.

While these changes appear to be minor in nature from one iteration to the next; what is not minor is their cumulative effect on Lean implementations within an organization. Essentially these changes reclassified process steps that were once considered waste into process steps that can now be considered value. The graphic below illustrates this evolution.

Why it Happens

The reason that this transformation has taken place boils down to social interaction and personal perception. Social interaction requires a Lean improvement team to solicit and clearly identify the Voice of the Customer (VOC). This requires that a team fully engage, converse and validate requirements for internal and external customers. While it may be easy to validate the internal customer’s requirements it can be difficult to validate the external customer’s requirement.

External customers are outside of our comfort zone and, as human beings; we are sensitive to hearing an assessment of our process from those who are not involved with it. This leads to process maps that are internally focused and when evaluated are viewed through what is believed to be the customer’s eyes. Thorough training and mentorship of Lean improvement teams can counteract this perception and turn the VOC data collection into a positive experience. Adopt the belief that every person goes to their place of employment, intends on doing their job to the best of their abilities, will produce a quality product and wants to contribute to the well being of their organization. Then it is a logical assumption that no organization or person wants to learn that the action they perform is considered "Not Value Additive." After all, no one wants to be a part of any action that is evaluated as a waste; creating a negative stigma of themselves and the organization. This internal focus has translated into a reclassification of the Type 1 Non-Value Waste into something that is more palatable by organizations and individuals; turning a negative stigma into a positive one. How you train, mentor and reassign personnel based on a Lean event will provide the foundation for how they approach waste identification and elimination.

The Results

Organizations that do not collect an accurate Voice of the Customer normally make assumptions about their customers’ expectations. When these assumptions are made, the team is evaluating the process steps from their perspective and not the customers. As a result non-value additive steps slip through the cracks and are categorized as value additive. In addition, if there is not a robust value assessment process, the team cannot successfully convert a process map to a value stream map. The underlying cause is that assumptions are made by the improvement team resulting in non-value additive steps being assessed as value enabling. These errors in assessing value become visible as process improvement teams dedicate numerous man-hours but produce modest improvements in the value streams. The modest improvements are viewed as a failure of the Lean methodology, eroding support for the entire Lean implementation. Finally processes are not improved, customers are lost and the organizations competitive advantage is eroded.

Improving the Results

Improving your value streams and steadily moving towards the Lean tenet of perfection is a result of actions taken at the management and process improvement team level. Management provides the team with a robust training program, a commitment to Lean leadership, and empowerment to make the change. They are responsible for ensuring that improvement teams have goals aligned with the customer’s expectations and the organizations mission. Improvement targets should be aggressive, requiring that teams aim to achieve a 50% improvement in cycle time, defects or production costs. Finally Lean leadership is about action, Gemba walks (i.e. visits to where work is being done, whether in an office or a manufacturing assembly line) are critical to identifying improvements, demonstrating support and sustaining the deployment.

Process improvement teams who know that they have dedicated management support, quality training and clear voice of the customer expectations will improve their value streams. One tool that will ensure that they produce an accurate value stream map is to have them utilize a structured approach to the value assessment process, such as the one detailed below. Dedicate the time and resources to train all of the employees in basic lean concepts, provide them with a method of communicating improvement ideas, and reward their success. The results will be an organization dedicated to continuous improvement.

The key is to truly define value from the customer’s perspective. As easy as it may sound; it has proven to be one of the more difficult actions for organization to sustain over time. Remembering that process improvement is something that is done "for" the customer and not "to" the customer can help to keep you and your organization on track. Continue to evaluate those processes that have been improved. The Non-value additive (Type 1) waste can be overcome with advances in technology, capital investments and changes in regulatory requirements. Remind yourself and your team that Lean is a journey, not a destination; so continue to strive for perfection.

Reference:

Womack, J. P. and Jones D. T. Lean Thinking: Banish Waste and Create Wealth in Your Corporation. New York: Free Press, 2003.

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