One of the key concepts in the Lean methodology, the management ethos that emerged from the Japanese manufacturing sector, is the elimination of waste. Waste is work that customers will not pay for. The larger your organisation, the greater amount of waste you are likely to find due to misunderstanding and communication challenges.
But how can you identify the waste in your organisation? In my view, there are two kinds of organisational waste, and one is harder to identify than the other.
The first kind of organisational waste is work that we do just because it has always been done, and we just continue to do it without questioning the reasons why. If the answer to the ‘why are doing this?’ is “Because we have always done it this way”, then there is good chance the activity could be waste.
Most of us continue to write reports, fill in forms, and follow processes without ever questioning why. This is one of the easiest forms of waste to identify and eliminate. Just stop or change the activity for a defined period and see what happens.
The second category of waste is ‘failure demand’ work that is done in order to correct or compensate something we didn’t do right the first time. Failure demand is more complex and can grow to become a considerable burden on an organisation’s resources, for two reasons.
Firstly, executives and other decision makers often make assumptions about what is valuable to customers based on incomplete information. The more organisational layers the information flows through, the less accurate it becomes. The second reason is that policies, processes and measurements are established in isolation, without understanding the entire end-to-end flow of how products and services are delivered to your customer.
Take the example of a customer call centre. When the call centre is managed in isolation, it may look as though you are driving efficiencies and reducing waste by demanding higher output from your call centre agents. The metrics may suggest that great efficiencies and cost savings are being made, but in reality it means that agents are measured on outputs that encourage them to hang up on customers as fast as possible.
But when you consider the customer value in this example, the story is rather different. If a customer recognises that the call centre agent is not willing or able to help, they will turn more expensive avenues to solve the problem, such as escalating higher up the ladder, seeking face to face discussions at a retail outlet, telling their social circle about the appalling service they have received or spending their money elsewhere in the future. This an example of how failure demand can increase overall company costs.
This kind of waste is only revealed if we put ourselves in the shoes of the customer. Indeed, by listening to your customers, you can discover where the ‘failure demand’ is in your organisation. For example, the online clothing store Zappos analyses any particularly long customer service calls to understand where the failure demand lies, and address the underlying issue that drove the customer to make the call.
If your attempts to reduce waste from your organisation are focused solely on cost reduction, there is a very good change you will reduce customer value and ultimately your bottom line. Instead, you should make sure you understand the customer value chains within your organisation and identify where ‘failure demand’ is leading to organisational waste.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
