By Bernd Schreiber, Willem Romanus and Yong Lee, Arthur D. Little

Digital transformation, a new and exciting opportunity offering great improvements on the results of traditional analog products, can easily tempt companies to abandon the lean approach. However, we caution against doing away with lean entirely, as this hasty move can be risky to the organization and even hinder the digital transformation project. Instead, we recommend keeping the traditional principles and running them alongside the new digital processes, placing lean at the center of the digital transformation.

The benefits of digital

The potential of digital technologies to transform performance is now widely recognized. However, most companies struggle to find the right approach to effectively grasp the benefits of this digital promise. Indeed, choosing from among the plethora of new options provided by digital technologies is a real challenge. Typically, it is unclear where to start and how to prioritize a company’s efforts and resources to drive tangible results. While some companies have been able to achieve radical performance increases of up to 50 percent or more, many have become stuck in a situation in which initiatives happen in silos, efforts lack coordination, and successes are limited or even non-existent.

Recent experience has shown that integrating lean principles into digital transformation can be a highly effective way of achieving radical simplification of the process.It allows companies to identify and apply the most effective levers for the digital journey.

Lean and digital – a further step change

Companies that rely on lean principles achieve relatively high performance levels compared to their competitors.A recent Arthur D. Little automotive study classified the lean lifecycle into three phases and determined annual company growth rates in each phase. Using a key automotive productivity indicator (“hours per vehicle”) as a measure, the correlation with lean implementation was analyzed. (See Figure 1.)

Performance growth of up to 8 percent was common during the Lean Exploitation phase. This decreased as performance improved, and tended to stabilize at around 1 percent in the Lean Excellence phase. Digital technologies have the potential to make a further step-change across all phases.

Three “pillars” for an outstanding lean organization

Whatever the industry, outstanding lean organizations tend to be strong in the three “lean pillars”:

Pillar 1: Leadership and culture

Whether in daily routine or in times of transformational change, leadership and distinct roles and responsibilities provide the cornerstone for effective collaboration. Clearly formulated expectations, derived from top management’s vision and based on a cross-functional understanding, help to make management and delegation effective. This mind-set nurtures the culture of continuous improvement.

Pillar 2: Targets and performance management

Continuous improvement and transformation start with setting clear targets. These targets need to be designed both vertically (the organizational hierarchy) and horizontally (reflecting the required end-to-end value-stream orientation). Performance management assures the effectiveness of measures taken through better leadership quality and clear focus on the waste-free value stream.

Pillar 3: Kaizen platforms

Lean is not only about methods and tools, but also about addressing the right problems and using the right set of employees with the right problem-specific approach. Continuous improvement can be seen as continuous training, and is a sustainable way of developing employees. The Kaizen platforms, whether for self-contained improvements, problems within a defined organization unit, or cross-functional/cross-site problems, need to be integral, not additional, to the design process.

However, despite the widespread understanding of these principles, many lean journeys fail. Companies often focus too much on tools rather than philosophy, and on waste removal rather than customer value. Disappointing incremental improvements and lean “fatigue” are common symptoms of this failure.

Technological building blocks classification

Each company needs to configure its own set of technological blocks to address its organizational characteristics and priorities. Five categories of technological building blocks are defined in Arthur D. Little’s digitalization framework, “Future of Operations”. This classification helps companies to trace operational needs to the relevant building block: cognitive, connected, virtual, human centered and value-add.

These building blocks are interconnected, and therefore need a holistic and integrated design approach. They apply across the organization, in both core operational functions such as manufacturing and logistics, and support functions such as robotics process automation (“RPA”) in production planning and finance.By adopting lean principles, it is much easier to identify the right areas and the levers to make the change. (See Figure 2.)

Full digitalization potential

The full digitalization potential of the value stream may be derived using a design approach based on two key questions:

1)     Which physical process steps can be automated by mature and proven technologies?

First, design a lean value stream on the greenfield. Simplify the value stream radically by eliminating interfaces through consolidation and integration: make the value-add visible.

For each process step, especially for the non-value-adding ones (“waste”), ask why this step needs to be processed by an employee, and with what technology it should be automated. The immediate use of mature technology building blocks on standardized processes will deliver more reliable processes with less failures. Significant increases in productivity are the result of shifting the focus from eliminating waste to creating value-add.

The greenfield value-stream design will differ radically from the current value stream: it reveals its digital potential.

2)     Which remaining non-physical (information) process steps can be radically digitalized?

Second, automate and digitalize manual information processing and standard decision-making. Strive for a fully automated target condition in which the employee is just monitoring and confirming automated quality gates. Reduce manual intervention to zero.Especially for high-frequency routines, in which employees transfer data between programs, or even for very complex decisions, RPA, artificial intelligence and decision-supporting systems radically simplify administrative information flows.

Digitalized information flow does not only produce less failures and accelerate workflows, but also creates new value and optimization opportunities through the digital visibility of big data.

Conclusion: a digital mind-set

The ability to effectively and efficiently digitalize an organization’s value stream is, unquestionably, a source of future competitive advantage.Identifying and integrating the most appropriate digital technology into the value stream requires a profound understanding of all related business processes, as well as sound understanding of the technologies on offer and their relative maturity.

As with lean management, developing the required capabilities and establishing the necessary mind-set throughout the organization remain top-management issues. The more employees and managers adopt this new lean digital mind-set, the sooner efforts to digitalize will succeed in delivering step changes in business performance.