Strategy

Innovation, Improvement and Standardization – Three legs of an organization’s tripod

posted by Ravi Arora March 13, 2016

Slide4

The SII Model:

In the last few years I have seen many senior leaders delivering speeches and making presentations on or around the subject of ‘Innovation’. Most of them do make a point about the journey of Innovation. Some use a slide also and I am showing below three different versSlide1ions of it.

You could see three layers, which are important for the short term and long term sustenance of any organization:

  1. Standardization
  2. Improvement
  3. Innovation

I completely agree that these three elements are important but I have a problem the way they are understood to be handled in most organizations. This problem gets further aggravated because of the way these three elements are depicted as I have shown in the above three figures.

People call it SII and explain it as if it is a serial process. I have seen many senior leaders who tell me that they are still in standardization and Improvement phase and hence far away from initiating work on Innovation.

In my view all three elements are equally important. Innovations in an organization are only a few. Improvements are far more in numbers and standardization is all pervasive. If I were to draw an analogy, Innovations are like large pebbles, improvements are like smaller pebbles and standardization is like sand. If we need all three in a flask and we start with sand and keep filling it more and more, very soon there will be no space left for large pebbles (Innovation). Smaller pebbles (improvements), though, could be pushed through the sand with some force and I see it happening all the time.

If one looks at it carefully, this SII would have actually started as a serial process (one after the other). Most Companies (at least in India), in the last several decades, have been established based on a successful product and a business model that was innovated in the western world. The market in India was big and hence it was important to focus on standardization and consistency to get quicker returns from the investment. When companies focus on standardization (of processes) they make good progress in the beginning and it shows in their profit. The measures for standardization could be many and like deviations or variance (also measured through control charts and also in terms of ‘sigma’ levels) are a few of them. Companies move from not having any measurement for standardisation to finding that they are only at 2-sigma levels. This system of calculating deviations or defects was very useful as it triggered aspirations to improve and reduce the variations. This gave birth to the 6 sigma program. The journey is challenging and energises several managers.

Do we need Standardization and Improvement to be pervasive:

My question is: Is it important that all processes of companies need to be at 6 sigma level? My answer is NO. Do we need to make them all 6-sigma and then start thinking about innovation? Unfortunately I do see this happening. Do we need that lunch break of employees should be a 6 sigma process? Do we need the meetings to follow a 6 sigma process? In my view organizations can have processes that operate at two sigma level also. On the other hand there could be processes where we might need to have processes that are better than 6 sigma. Let’s take example of the airlines industry. The aircraft landing system would be better than 6 sigma. The on time performance would be in the range of 3-4 sigma. The baggage handling system would have a sigma level of four to five. So are all airlines making losses and is this low level of sigma the reason for their losses? What is the reason for some airlines making profit- Is it their laser sharp focus on controlling variations and defects or a good mix of controlling variations and also driving new business models and innovations?

I don’t think organisations wanted all their processes to be at 6 sigma. Unfortunately the fierce drive in the organization for a standardisation and improvement program (6 sigma alike) drives everyone crazy and a lot of energy to achieve lower variance levels is spent in areas where it should not have been spent. Functions and processes who were not necessarily intended for 6 sigma, feel left out, are deprived of rewards and recognition and hence quickly initiate their journey of 6-sigma.

We know that this focus of achieving higher levels of Standardisation and improvement through programs like 6-sigma, drives a lot of improvements in the organization. Many companies use Control Charts which also throws a lot of opportunities for improvement.

No time for Innovation!

So where is the problem in the above? The problem is that if we consider S, I and I as a serial process (complete one and then start the next one) there will never be time when a company would say that we have done enough of Standardisation and Improvements and hence now let us focus on Innovation. Standardisation and Improvements have no limits. One can always aspire for lower defect levels and higher levels of sigma which may not always be beneficial and as discussed earlier one may end up in spending lots of energy in areas where it is not required as explained earlier.

In the first 10-12 years of my career, I was a practitioner of standardisation and improvement. I know how addictive and never ending the journey is. For the last 10 years I have become a practitioner of Innovation. The shouts, cries and complaints of the customers and market even today demand a lot of process improvements and standardization. On the other hand, one would never ever hear a cry/demand from customers that would demand innovations. Lack of standardisation and Improvement are the reasons for customer complaints and Lack of innovation is the reason for not having customers!

I dug deeper on this subject and referred to the book of Dr Shoji Shiba and Dr David Walden – ‘Breakthrough Management’. The authors write in this book,

Thus, many years ago it was sufficient to introduce a technology and then do control management for many years. A little more recently, say as recently as the mid-1980s, a company could introduce a new technology, do control management, and then add management of incremental improvement to remain competitive. A firm could alternate back and forth between incremental improvement and control for years until eventually it needed to make a new breakthrough to stay in business.”

They continue,

Today, management often must be done in a new way. A business starts with a breakthrough producing the new product exactly as developed and getting it under control. From there one improves the product using the methods of incremental improvement, getting each change under control; but, surprisingly soon, it becomes necessary to jump to the next breakthrough.”

This diagram from his book clearly indicates that the three are not a serial process.Slide2

Let us go back to history a little when the three elements were defined. Standardisation of processes was critical to consistently produce good quality products. The attempts to standardize and reduce the variance in the product quality, improvements were initiated. The processes in those days were manual and automation and IT was not pervasive in those days. It was a long journey that took several years for companies to achieve high level of consistency. Another reason for his journey being long is considered to be ‘cultural (attitude)’ change. Human/Manual processes are not easy to change.

Things have changed in the last several decades. A large part of manual processes have been automated. The IT systems have additionally (through self-service) helped in reducing the variances from the manual processes. This automation has also reduced the efforts that are needed for innovation – but only in the implementation of the idea. There are so many new ways that enable rapid prototyping, which didn’t exist in earlier days. The initial part of innovation that depends on creativity and human interaction is still not automated.

Unfortunately, some of the older (more than a few decades old) companies even today take a much longer time to achieve a reasonable level of Standardisation – mostly due to manual processes that still exist. Prof Shiba, in the same book suggests, “In paintings relating to Buddhism, three eyes are sometimes shown. Slide3These are the eye of the past, the eye of the present, and the eye of wisdom. The three types of management, which today’s CEOs must simultaneously be concerned with, can be illustrated as the three eyes in Buddhism, as shown in the Figure below. That is, the CEO needs an eye to monitor management for control, or else the company will not meet the minimum contract between the company and society. The CEO needs an eye to monitor management for incremental improvement, or else the company will not keep up with changing customer requirements. And the CEO needs the wisdom to see the path to future breakthrough, or else the company will have no tomorrow”

I think this analogy and the above picture is also inadequate to communicate the equal importance of three subjects clearly.

The results from improvements are immediately visible and this makes it a virtuous cycle – Leaders and management demand even more improvements. This is perhaps the only cycle that is virtuous and also vicious. While it fuels more standardization and improvements, unfortunately it makes the beginning of innovation more and more difficult. This is similar to example of pebbles – By the time companies achieves a respectable levels of standardization through intensive Improvements, there is no (mental, cultural) space left for Innovation. The culture where all three co-exist is very difficult to create if we make it a serial process.

The Tripod

The three subjects should be seen as three legs of a tripod. In absence of any one leg the tripod is completely unstable. Interestingly Tripod manages stability with some difference amongst the three legs.

In other words, we should begin the journey with a few large pebbles in the flask and then put the small pebbles and sand. I would therefore suggest that we need to have a system that ensures that there are always a few large pebbles (Innovations) in the organization. At the same time all those processes that have a huge bearing on costs, customer complaints and engagement should be surrounded by smaller pebbles (Improvements) and sand (Standardization) but only up to a point until these processes achieve a certain expected level and do not fetch returns that commensurate the efforts. Remember that the law of diminishing returns also applies to improvement in every process and hence soon there will always be a situation when the opportunity cost of not investing on innovations exceeds the returns from improvements – and that is the time when we need to rejig the flask (similar to Kaleidoscope). Let me end by expanding this analogy of Kaleidoscope. The earlier Kaleidoscope was a cylinder (tube) with colored objects such as beads, or pebbles and bits of glass. It would have typically three mirrors to reflect the patterns made by the combination of beads, pebbles and glass. Once the tube is rotated, a new random pattern emerges for the viewer. In a similar manner, we in our organization should have all the three (Innovation, Improvement, Standardization) elements. The quantities could vary and their application areas could keep changing as per the need.

 

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