How to integrate lean principles into digital transformation

26th Apr 2018

Blending lean and digital can help companies identify and apply the most effective levers for digital transformation.

Lean management has been an asset to organisations, yielding outstanding performance when it has been leveraged at the centre of their corporate transformations. However, its benefits have almost reached their limits, even for companies that have used it to transform their ways of working. Digital technologies, meanwhile, have gained recognition for their potential to transform company performance.

However, many companies have a hard time finding the right approach to harness the benefits of digital, because they don’t know where to start or how to prioritise their efforts and resources to drive tangible results.

We have found that putting lean and digital together can greatly simplify this process, as it helps companies identify and apply the most effective levers for digital transformation.

Lean excellence: How companies have achieved great results

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 analysed. (See Figure 1.)

Lean in digital transformation

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

Technological building blocks tailored to organisational characteristics and priorities

Although the advent of these technologies undoubtedly provides huge opportunities and levers for  improvement, companies that simply introduce new technological devices and systems, without considering the value stream holistically, run the risk of failure. For example, issues related to deficient value streams and/or poor data quality are seldom overcome by using sophisticated technologies.

Overcoming these challenges requires excellent knowledge of available technologies and a deep understanding of how and where they can affect the value stream. Each company needs to configure its own set of technological blocks to address its organisational characteristics and priorities.

Five categories of technological building blocks are defined in Arthur D. Little’s digitalisation framework, “Future of Operations”. This classification helps companies to trace operational needs to the relevant building block: cognitive, connected, virtual, human centred and value-add.

These building blocks are interconnected, and therefore need a holistic and integrated design approach. They apply across the organisation, in both core operational functions such as manufacturing and logistics, and in 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.)

Lean principles

Two key questions to derive full digitalisation potential

The full digitalisation 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 by what technology it should be automated. The immediate use of mature technology building blocks on standardised 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 digitalise 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, robotics process automation, artificial intelligence or decision-supporting systems radically simplify administrative information flows.

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

Adopting the new digital lean mindset

The ability to effectively and efficiently digitalize an organization’s value stream is 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 mindset throughout the organisation remain top-management issues. The more employees and managers adopt this new lean digital mind-set, the sooner efforts to digitalise will succeed in delivering step changes in business performance.

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

Bernd Schreiber is a partner in the Frankfurt office of Arthur D. Little and leads the Global Operations Management Practice.

Willem Romanus is a principal in the Brussels office of Arthur D. Little
and a member of the Global Automotive & Manufacturing Practice.

Yong Lee is a manager in the Frankfurt office of Arthur D. Little and a member of the Global Operations Management Practice.

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