Continuous Improvement

The key to excellence in business processes

By Robert R. Iversen and Melissa M. McCoy
2
For most companies, It was the kind of meeting that
should never have been necessary.
continuous The chief executive of a well-
known Fortune 500 corporation
improvement wanted an explanation of why,
techniques produce after years of applying Lean
Six Sigma methods and tens
tantalizing gains of millions of dollars spent on
training and workshops, the
in the short term, company had so little to show
but it’s usually a for it.
different story when Unfortunately, this is by no means
an isolated instance. Although the
it comes to benefits need for ongoing improvement in
over the long haul. business is more acute than ever,
many companies’ management
Accenture finds that teams still have not found reliable
ways to make it part of their
leading companies organizations’ fiber. Despite
do more than just being attuned to the concept
of continuous improvement (CI),
apply improvement and in spite of decades of exposure
to the fundamentals of process
disciplines such as improvement and operations
Lean Six Sigma— excellence, many senior managers
struggle to master this “game
they concentrate of inches.”
those disciplines on It is a game they must now master
the highest value if they are to emerge from the
turbulence of a global downturn
projects and support stronger than their competitors. At
them fully from the
the core, continuous improvement
methods are key to excellence
top down. in execution of business
processes. In effect, they are a
way to continually upgrade the
organization’s responsiveness and
its ability to change over time.
They apply regardless of whether
the business is conducting a
series of tactical improvements
or undergoing transformational
culture change.
Accenture has observed that
those methods become powerful
engines for sustained value
creation only when they are
focused on the highest value
business opportunities and
supported by senior leaders with
the right infrastructure and
performance management. At that
point, they become competitive
differentiators—in effect, the
kinds of distinctive operational
capabilities that drive true
high performance.
Now is the time to get continuous
improvement right. Periods
of economic difficulty can be
exactly what is needed to put
the spotlight on operational
excellence—not simply on
improving the implementation of
each business process but on the
infrastructure and management
systems that can support
excellence in execution over
the long term. (see Operational
Excellence Translated.)
This viewpoint article provides a
refresher on the development of
CI thinking, identifies the barriers
that prevent organizations from
benefiting fully from that thinking,
and lays out proven ways to start
breaking down those barriers.
Operational Excellence
Translated
Operational Excellence
addresses the way the
business is set up and how
the work is executed on a
day-to-day basis. Execution
Excellence is specifically
focused on how to out
execute the competition.
For more about operational
excellence see the Accenture
paper The Five Hallmarks of
Operational Excellence.
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The art of the possible

When “In Search of Excellence” Figure 1. Lean focuses on reducing non-value add time.
was published in 1982, the book
not only resonated with the quality "Every process has value add and non-value add activities...
movement then very much in vogue
in business—it struck a nerve with
U.S. and European managers who
were anxious for insights that would
Mortgage In most processes, value added time is a small Mortgage
help them defend against Japan’s
application percentage of total lead time (10-20%) approval
manufacturing muscle1. When
“Execution: The Art of Getting Things
Done” appeared two decades later,
its success confirmed that a new Time
generation of managers wanted help
to make sense of an increasingly CI attacks the 90% of non-value add time vs. the 10% of value add time
complex global business world2.
Continuous improvement Traditional
Of course, the books’ authors had focuses here improvement
neither reformulated the concept activities focus here
of excellence in business practices
nor been the first to write about
90% 10%
it. The central notion of making
processes as economical as possible Time
has been a hallmark of humankind
since long before recorded time. The
idea certainly gathered momentum
during the Industrial Revolution and Non-value add activities Value add activities
began to take shape as a replicable,
teachable method after Frederick
Winslow Taylor introduced his famed
time and motion studies in the last
years of the 19th century3.

4
But the concept of “Lean”—
essentially, eliminating or at least
minimizing all activities that add no
value, as defined by what customers
would willingly pay for4—was not
popularized as a discipline until after
World War Two, when Japanese
industrialists, some of whom were
beginning to experiment with
just-in-time types of production,
embraced the teachings of process-
management consultants such as
J. Edwards Deming5 and meshed
them with the Japanese philosophy
of kaizen, roughly translated as
“continual improvement.” (see Figure
1.) Lean is best exemplified in the
Toyota Production System, which
emphasizes just-in-time demand-
driven production flow6.
Lean is also a cornerstone of the
Danaher Business System (DBS)
which underpins all operations at
industrial conglomerate Danaher. The
company’s Web site describes the
DBS this way: “Fueled by Danaher's
core values, the DBS engine drives
the company through a never-ending
Figure 2. Six Sigma focuses on reducing process variation.
as well as variation"
CI attackes the variation to increase
certainty of outcome
Variation
Product or service output
cycle of change and improvement:
Exceptional people develop
outstanding plans and execute them
using world-class tools to construct
sustainable processes, resulting in
superior performance.”
Although Lean as typified by the
Toyota Production System is designed
to minimize waste, it is another
business system—Six Sigma—that
has highlighted the value of reducing
variation in repetitive processes.
(In this context, “sigma” refers to a
statistical measure of variation from
a process norm.) Six Sigma methods
were codified as a manufacturing
quality metric at Motorola during
the 1980s—the term translates
as 99.9997 percent efficiency.
(see Figure 2.) Six Sigma became
one of the most popular quality
control techniques of the late 20th
century, spawning a mini-industry of
educators, consultants, trainers, and
certification specialists.
Mean
Critical customer
requirement
Defects: service
unacceptable to
customer
In recent years, Lean and Six
Sigma techniques have come
together, essentially integrating
two complementary disciplines
for controlling process variation.
By itself, Lean cannot bring a
process under statistical control,
while Six Sigma alone cannot
dramatically improve process speed
or reduce invested capital. At one
company that is now making rapid
performance gains, senior managers
who had launched Six Sigma
initiatives had spent several months
trying to reduce lead times, only
to realize that they were actually
reinventing Lean methods.
The authors believe it is possible
to get the best of all worlds: to
minimize waste and variation as well
as complexity.
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The case for continuous
improvement done right
So how does CI contribute value
to the organization when properly
harnessed? Accenture finds that
companies that have implemented
whole-hearted, end-to-end CI
approaches typically break even on
the investment by the end of the
first year, and are seeing at least
five-times returns by the end of
Year Two. At Staples, for example,
a Lean Six Sigma program has
been the impetus for dozens of
improve¬ments that, together,
have generated tens of millions
of dollars in benefit for the office
supplies retailer and produced a
10-fold return on the company’s
investment in its process
improvement program.
6 6
Similarly, one of the world’s largest
glass container manufacturers
has used a CI initiative to build a
structured, fact-based decision-
making capability throughout the
organization that would help keep
the company from losing market
share to competitors. Confronting
price pressure on two fronts—
overcapacity in glass-making
and pressure from powerful
customers—the manufacturer
had seen its operating margins
dropping precipitously. Knowing
that the company needed stark
increases in performance as well as
effective and sustainable
quality improvements, the CEO
opted to introduce Lean Six
Sigma methodologies.
The initiative quickly brought
quantifiable results. Powerful
operational diagnostics, such as
value stream mapping, pinpointed
areas for cost savings and
improvements. After an initial
assessment phase, improvement
projects were conducted on five
continents, in 22 countries, in 10
languages and at 88 plants. The
projects affected all operations –
from the sourcing of raw materials
to the distribution and sale of
final goods. Staff at all levels and
in all areas were involved, and
the CEO constantly demonstrated
his support for the initiative
throughout the initiative.
The improvement projects
transformed the company’s culture
and mentality, creating a positive
environment focused on quality
and efficiency. They also yielded
hard returns and were cost-neutral
inside a year.
The four imperatives for building
a successful CI capability
In Accenture’s experience, an
organization must demonstrate
four key characteristics if it is to
embed continuous improvement as
a core capability:
Put the focus on value
Most managers and employees do
not realize that customer value
and shareholder value typically
are not created by the same
activities and often can be at
odds. As a rule, customers do not
care what it costs to deliver a
product as long as that cost is not
passed along. But shareholders
care a lot about the costs for
which that product is delivered.
Striking the right balance is not
easy. We suggest that managers
go back to basics, revisiting return
on invested capital (ROIC) as a
fairly objective way to determine
their company’s financial health.
Since Copeland’s original research
in 1998, the correlation between
market premiums (multiples) and
ROIC has only gotten stronger7.
It is very unlikely that investors will
invest if they believe that customer
value is not being delivered
efficiently and effectively.
If CI teams are not focused on
projects that demonstrate that
balance in value, they may end up,
in effect, reducing costs for products
that will never be profitable.
Invest in infrastructure
This refers to supporting factors
such as organizational structure
and alignment, training, the degree
to which qualified senior leaders
have been made responsible for CI,
the extent to which process owners
are held accountable for sustained
results, etc. The infrastructure is
typically organized around a “center
of excellence”—Staples’ Process
Excellence department is a good
example—that not only manages
portfolios of improvement projects
but also serves as the conduit
to capture and disseminate best
practices. Other companies disperse
the ownership of CI among their
business units. There is no one right
answer here; combinations of such
approaches can be very effective.
For instance, the blend of a
centralized center of excellence
(CoE) and local ownership activities
and impact has proved very
effective for Freudenberg–NOK,
a pioneer in CI deployment. The
industrial manufacturer’s “Get Rid
of Waste through Team Harmony”
initiative, launched in 1992, is
considered a key factor in its
success8. The CoE sets direction; it
develops the “standard approach
& toolkit,” trains local managers
in its deployment, and provides
them with ongoing guidance
and support. But ownership and
accountability rests squarely at the
local level.
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Choose a standard approach
and toolkit
This may include Lean, Six
Sigma or any combination of the
methodologies. It can be divided
into a set of tools for capability
development and another for
execution of the methodologies.
Overall, the organization should
adopt one common approach
to problem-solving and
process improvement.
Consistency in approach to
project management and limits
on the kinds of analytical tools
employed—especially in the early
days—will ensure a cost-effective
ramp up with less time spent on
classroom training, reconciling best
practices, interpreting analyses,
etc. The only absolute is that the
approach to project selection must
be rooted firmly in the issues that
matter. “Value” is in the eye of the
beholder: For example, it will not
work to select a CI project based
solely on its ability to progressively
8
take out costs if the underlying
issue or cause is not addressed. In
short, the best approach will be
issue-based and value-driven.
Manage performance
This is the “blanket” that
wraps around the three other
characteristics. It encompasses
a wide range of functions, but
its primary purposes are to
effectively convey to the
organization what success means
for the CI initiative and to align
the initiative with what drives
value in the organization.
Performance management
is difficult under most
circumstances—particularly when
it stirs up the emotions involved
in holding people accountable.
Employing strategy deployment
and rigorous performance
management is a critical step.
Strategy deployment, often
referred to as policy deployment
or Hoshin management, is a way
to ensure that the company’s
strategic intent is linked to
the execution of its critical
business processes and
improvement initiatives9.
Performance management then
ensures that three things happen:
First, the proper metrics are
cascaded through the organization,
from the C-suite to the shop floor.
Second: Targets are set against
known opportunities, extrapolated
from the technical limits of the
business process and not simply
from the improvements over the
last period’s performance. And
third: Rigorous review processes
are in place to drive action
and accountability.
The key to being successful at CI
performance management is to
always ensure that activities are
clearly linked to their impact.
A three-phased approach to
making CI work
Figure 3. Three phase approach to continuous improvement.
Phase I Project
Target Generation
Improvements
Identify opportunities
Execute quick wins
Engage & align executives
Develop rollout approach
Accenture takes a three-phased
approach to CI. (see Figure 3.)
The first phase consists of an
evaluation of the business; it
provides the focus that helps
organizations examine their
performance. The output of
this phase is a well-syndicated
“value agenda” that defines the
value at stake and shows where
the opportunities lie. These
opportunities should be strategic
and tactical.
Client Impact
Phase II Project
Build Execution
Transformation
Roadmap
Compile strategic project portfolio
Design sustainment approach
Refine project architecture
Engage management team
Identify execution talent
Client Impact
The second phase builds a
transformation road map to
create a policy and procedures
infrastructure that will support
implementation. At this time,
the management team for the
transformation effort comes
together, and the managers who
will drive the implementation
are identified. The quick wins
identified in the first phase can be
achieved at this point.
Phase III
Transformation
Execute &
Build Capability
Manage project portfolio
Execute disciplined project management
Transfer capability
Build continuous improvement
infrastructure
Transform organizational structure
& support
Large-scale transformation occurs
in the final phase. The business
improvement skills are transferred
through training and on-the-job
coaching so the CI program
can become self-sustaining.
The objective: sustained
behavioral change throughout
the organization.
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Conclusion
Continuous improvement,
encompassing proven Lean Six
Sigma methodologies, needs to
be part of the operating fabric of
every organization, regardless of
size or sector. Managed properly,
it identifies and addresses
inconsistencies in process execution.
It drives consistent, predictable
outcomes. And it provides the proper
tools with which to address changes
in the market.
But CI cannot be done right—cannot
become an enabler of long-term
high performance—unless it becomes
part of the framework of operations
excellence. Companies such as
Staples, ITT, GE, and Danaher, each
with a cast-iron commitment to
process superiority, demonstrate the
benefits of doing so.
About the Authors
Robert R. Iversen
Robert R. Iversen is a senior
executive in the Accenture Process
& Innovation Performance Service
Line. He has applied operations
excellence in numerous industries
including; mining, metals, pulp
& paper, refining, automotive,
pharmaceuticals and food and
beverage. Bob is a functional
expert in lean manufacturing and
maintenance has served clients
across a broad span of business
and operational transformations.
Based in Tampa he can be reached
at robert.r.iversen@accenture.com.
10
The time is right to elevate CI as a
core capability. Accenture’s recent
discussions with chief operating
officers confirm that tough times
tend to provide the sense of
urgency that can facilitate change
initiatives and spark innovative
problem-solving10. Meanwhile, other
companies have been laying off
skilled LSS professionals—talent that
is eager to work again. And for the
moment, shareholders’ expectations
of performance are lower, making a
bold push for operational excellence
more practical now—and all the
more valuable later.
Melissa M. McCoy
Melissa M. McCoy is a senior
manager in the Accenture Process
& Innovation Performance Service
Line. She has over 20 years of
experience in operations and
consulting focusing on operations
strategy & transformation,
business process redesign,
scheduling & warehousing,
and capability building. Her
consulting experience spans a
diverse set of industries, including
automotive, consumer products
& packaging, pulp&paper,
and food processing. Based in
Atlanta she can be reached at
melissa.m.mccoy@accenture.com.
Impediments to achieving lasting results
Polled recently by The Conference
Board, CEOs rated "Translating
day-to-day execution excellence
into long term business results"
as their top challenge for the
second year in a row11. Many
companies have been successful
with employing Continuous
Improvement to bridge the
execution gap. However, we see
several barriers to success:
Lack of clarity in linking
strategy to execution
Inadequate understanding of the
true value drivers of the business
and little transparency around
which key performance measures
really count toward creating
customer and shareholder value.
Limited focus on process
excellence
The organization may not exhibit
a process mentality; its leadership
team does not “speak process.”
Performance management—the
means to link activity to impact
and by which to hold people
accountable—cannot be effective
without a process mindset.
Little engagement from the
leadership team
Many senior executives espouse
the benefits of continuous
improvement but fail to build
CI into the operating plans and
metrics of the business. In such
cases, accountability for CI is
unclear and difficult to manage.
Although responsibility for CI often
falls to the quality manager to
start with, it should be owned by
the business and given corporate-
level support.
Inadequate or insufficient adding value in the first place;
metrics some will even kill off CI programs
The organization lacks the metrics when they don’t see early returns.
and measurement systems for Something is seriously wrong
gauging progress against goals. when it becomes more cost-
Managers are less likely to rely effective to eliminate CI than to
on fact bases to drive decision- leverage it.
making, and are unlikely to seek
out data to guide future decisions.
Conversely, some organizations are
data-rich, yet they fail to identify
and focus on the metrics that
really matter.
Culture clash
The leadership team says it is
committed to change, but the
organization lacks the processes
and the culture to ensure sustained
benefits from CI activity.
Short-termism
At some companies, CI tends
to be thought of as a “one-off”
project or program rather than as a
“journey”—let alone as a mainstay
of long-term competitiveness.
Poor situational awareness
Many well-meaning managers
fail to properly diagnose their
organization’s challenges at
the outset of a CI effort. They
do not grasp the importance of
gauging the current state of their
operations before embarking on
their change journeys. The upshot:
Their efforts are frequently focused
on “fixing” the wrong things.
Short-term wins do not
automatically convert to long-
term gains. Companies that have
not embedded CI disciplines deep
inside are not able to properly
gauge whether those efforts are
11
About Accenture

Accenture is a global management

consulting, technology services
and outsourcing company, with
more than 176,000 people serving
clients in more than 120 countries.
Combining unparalleled experience,
comprehensive capabilities across
all industries and business functions,
and extensive research on the world’s
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses
and governments. The company
generated net revenues of US$21.58
billion for the fiscal year ended
Aug. 31, 2009. Its home page is
www.accenture.com.

Copyright © 2010 Accenture End notes

All rights reserved.
1 Peters,J. & Waterman, R. (1982). 7 Copeland,T., Koller, T., & Murrin, J.
Accenture, its logo, and
In Search of Excellence – Lessons From (1990-2000). Valuation – Measuring
High Performance Delivered
America’s Best-run Companies. Warner And Managing The Value of Companies.
are trademarks of Accenture.
Books John Wiley & Sons

2 Bossidy,J. & Charan, R. (2002). 8 Growth – Freudenberg-NOK Web

Execution: The Art of Getting Things Done. site: http://www.freudenberg-nok.com/
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10 “Operational Excellence:
Choosing the path that works for you,”
Accenture, March 2009
11 “Weakening Global Economy
and Growing Financial Pressures
are Increasing CEO Concerns,” The
Conference Board, Dec. 2, 2008,
http://www.conference-board.org/
utilities/pressDetail.cfm?press_ID=3529