Lean has been a wonderful influence on organisations all over the world. Since Edwards Deming first extoled its virtues in Japan in 1950, organisations have been finding ways to do more and better with less. Pareto Charts, Spaghetti Diagrams, Process Maps, Root Cause Analyses and associated tools are powerful ways to reduce waste, raise standards, improve quality and cut process time.
Managers who have had Kaizen training and know how to use these tools to help their organisations are both fortunate and valuable.

However, organisations do not survive through Kaizen alone. In fact, Deming’s original suggestion that a focus on quality would ensure an organisation’s survival (see UK Excellence article by John Morgan the August issue) was claiming too much for his new discipline. Certainly Lean methods are a huge contributing factor, but there are other, possibly more important, forces at work in a competitive economy.

Probably more critical to organisation success is strategy and the way the organisation’s operating model is designed to align with the strategy. Lean can help ensure that the operating model is executed efficiently and under a philosophy of continuous improvement. If the operating model is not well aligned to customer needs, Lean will help nudge it towards better alignment. But the tools of Lean are not the best tools for ensuring that the strategy and the operating model are appropriate and are aligned. It is for this reason, that Malcolm Baldridge Award winners can be underperforming organisations. It is for this reason that Lean experts can find themselves improving the deck chair delivery process as the Titanic hits the iceberg.

Hence managers with Kaizen training should also be ambitious to understand operating models and how they link with strategy. With this knowledge they can make sure the operating model in their organisation is aligned to strategy and they can use their knowledge of operations to help develop better strategies.

A strategy is best articulated by thinking about the relationship between an organisation and its stakeholders. Strategy defines on which stakeholders the organisation will focus, what value the organisation will deliver to each stakeholder and what the organisation expects to get in return from each stakeholder. For example a restaurant has lunch-time customers, evening meal customers, chefs, waiters, other employees, suppliers of foods, suppliers of IT and financial payment systems, a landlord, bankers and investors. While the restaurant must have a good value proposition for its customers because without customers it has no revenues, the restaurant must also have good value propositions that attract employees, suppliers and investors. Without employees or suppliers or money, the restaurant cannot provide meals.

Each value proposition is a two-way contract. The restaurant promises customers good food and good service in return for prompt payment. But there are many strategic choices here. Some restaurants focus on rich customers with plenty of time for their meal. Others focus on customers in a hurry. Some restaurants ask for payment in advance for a buffet offering. Others have no fixed prices, allowing customers to pay what they think is appropriate. Others allow good customers to pay at the end of the month. Others have loyalty cards.

To employees the restaurant promises training, pay and perks in exchange for hard work and commitment to the organisation. Again, there are many strategic choices: how many hours of work to offer employees; whether to aim for higher-cost, long-term employees or lower-cost, short-term employees; whether to aim for older or younger employees; whether to pay at the end of each day or week or month.

The value propositions for suppliers and investors and any other important stakeholders involve similar strategic choices. So strategy is about making all these strategic choices. Once made, these choices provide the framework for the organisation’s operating model.

The operating model defines the organisational elements needed to deliver the strategy. There are four parts of an operating model – 4 Ps
– Processes and activities
– Patents and technologies
– Properties and assets
– People and organisation

Each of these elements needs to be designed to support the strategy. If the strategy involves focusing on younger, cheaper, untrained waiters who are only likely to stay for six months, the organisation is likely to need a unit that does recruitment and basic training. If the strategy involves providing faster service than competitors, then the property, technologies, processes and people will need to facilitate speed. If the strategy is to serve rich people in a luxurious ambience, then the property will be in an expensive part of town, the chef will need to have a Michelin star and the waiters will need to be experienced with this type of customer.

Clearly it is important for Lean experts to understand the strategic choices that have been made. This makes sure that they choose the right performance measures against which to assess quality. It also makes sure they avoid changes in the name of productivity that might undermine the strategy.

But there is a more important reason for Lean experts to understand the link between strategy and operating models. Their knowledge of processes and operations can be a vital input to the strategic choices that are made. If the Lean expert knows that it is possible to significantly reduce the time it takes from order to plate-on-table, the strategy could be changed to focus on speed of service. If the Lean expert knows that experienced staff make many fewer errors in recording customer orders, the strategy could be changed to create a value proposition that is more attractive for experienced staff. If the Lean expert knows that quality issues with fresh vegetables are the main cause of stress in the kitchen and customer complaints, it may be better to change the strategy to focus on a less demanding menu and less demanding customers, comfortable with frozen vegetables .

Lean experts have a huge contribution to make to the success of their organisation. But, to be able to bring the full benefit of their knowledge to the aid of their organisation, they need training in the link between strategy and operating models.

Andrew Campbell is a Director of Ashridge Business School and leads a two day course titled Designing Operating Models www.ashridge.org.uk/dom that focuses on the links between strategy and operations.