Companies widely recognize that to achieve and sustain a competitive advantage, they must become more customer-focused. This is why many organizations turn to Lean.
Lean thinking begins with one simple thing: identifying value. This will help you understand what your customers are ready to pay for.
Respectively, your organization will be able tobuild a value stream map where you can identify wasteful activities and remove them from your workflow. By doing so, you will be able to deliver the value that customers expect and optimize profitability.
The Customer Defines Value In Lean
Lean management is a philosophy that has gained massive popularity in various industries because of its positive impact on any company’s overall performance.
It supports organizations in many aspects like reducing costs, optimizing processes, improving quality, etc. However, what really makes Lean effective is the focus on value.
What Is Value in Lean?
In terms of Lean, the value should always be considered from a customer perspective. At the end of the day, it doesn’t matter whether you came up with a great idea if the customer doesn’t see any value, and therefore she is not ready to pay for it.
It is important to remember that customers enjoy value in its entirety but not delivered piece by piece. It is tricky, but you may end up with a bunch of unhappy customers and low brand equity if you ignore this.
Here is an example. Imagine that you buy a laptop. You had your laptop delivered, and when you try to run it, you realize that the machine is without an operating system. So now you need to buy the operating system and install it.
Let’s assume you don’t have the knowledge to do this. It means you have to find a specialist who can make your laptop actually run.
Both things will cost you money and time. In the end, you will have a working laptop after a week (if you are lucky), and you will probably never buy a device from this company again.
This example can give you a different perspective on value. You didn’t just need a laptop. You needed a laptop that you can use immediately to do some work, play video games, play some music, and so on.
In the end, value is what customers really want, along with the price they are willing to pay. When you figure this out, you can start mapping the work process and focus on recognizing value-adding activities and wasteful ones.
After this, do whatever you need to maximize the first and minimize the last so you can meet your customer’s expectations.
Now let’s dive deeper and further explore the value-adding system in the world of Lean management.
Identify Waste Activities and Where Value Is Added
When you have your processes mapped, you will recognize which activities add value to the end product and which ones do not.
Basically, value-adding activities contribute to the transition of a product from its raw to a completed state in the least possible time, at a minimum cost. For one activity to be considered as value-adding, it needs to meet the following three criteria:
- It moves the product downstream and helps it get one step closer to completion.
- It is an activity that the customer would actually be willing to pay for.
- The activity needs to be done right the first time. In other words, it does not require any rework, and neither you nor the customer should spend additional resources to make it better.
On the other hand, non-value-added activities affect organizational efficiency by delaying the product delivery process. They place a burden on the organization, and therefore customers would not be willing to pay for them. The non-value adding activities fail to meet the criteria from above and are generalized as waste.
Taiichi Ohno, who is consideredthe main architect of the Toyota Production System, devoted his career to eliminating waste (Muda) from production processes.
He probably realized this is the right way to generate value for the customer. Ohno was able to identify various activities in different work processes, which can be removed.
Respectively, their removal could improve the overall economic performance of the company. His dedication let him identify and describe the seven types of waste:
- Transport
- Inventory
- Motion
- Waiting
- Overproduction
- Over-processing
- Defects
You can easily remember them as TIMWOOD.
In the following table, you can better understand how these seven types of waste can be visualized and applied to the production processes in manufacturing, software development, and marketing.
| Waste | Production | Software Dev | Marketing |
|---|---|---|---|
| Transport | Moving parts and materials from one place to another | Task switching, interruptions | Task switching, interruptions, unnecessary long marketing funnel |
| Inventory | Undelivered products or parts | Undelivered code. Undelivered features | Fully-prepared marketing campaigns which stay untouched |
| Motion | Unnecessary movement of the worker | Unnecessary meetings, extra effort to find information | Unnecessary meetings, extra effort to find information, attending events without clear agenda |
| Waiting | Waiting | Waiting | Waiting (often related to lack of hierarchical flexibility) |
| Overproduction | Too many parts | Features nobody uses | Performing many different marketing activities without having a clear vision and strategy |
| Over-processing | Spending a lot of time on a given task | Unnecessary complex algorithms solving simple problems | Generating countless marketing reports manually, while they can be automated |
| Defects | Broken parts | Bugs | Wrong brand Communication |
This is just a sample of what waste activities may be in different areas. Companies know their processes at best, so better sit down and examine your own workflow.
However, it is also important to differentiate necessary waste from pure waste. For example, testing software is a non-value adding activity, but it is literally impossible to produce software without testing (at least if you don’t want to bankrupt really fast).
Imagine that you have to buy a self-driven car whose software was never tested. You will probably prefer to cycle or walk.
So, keep in mind the following list of activities you can have in terms of Lean:
- Pure waste – any activity that doesn’t bring value and damages efficiency. Usually, waiting is the most common type of pure waste.
- Necessary waste – activities that our customers have no interest in paying for, but they are required to maximize the end product's value. Such activities can be testing, planning, etc.
- Value – the definition of value in lean is everything the customer is willing to pay for.
If you take a look around, you will probably notice many waste activities in your work processes. Lots of meetings where no decisions are made, a bunch of customer requests (complaints) waiting on your manager’s approval, and so on.
At the end of the day, customers don’t care about your waste activities. The only thing they care about is what value you can offer them. So, you better inspect your work processes and try to eliminate waste at maximum.
However, sometimes even customers cannot define the value in its entirety. In these cases, the most progressive ones succeed in standing out from the crowd and adding value that nobody has seen before.
Because sometimes, people do not know if they need something until they see it. Just remember that no one ever knew what a PC or smartphone is.
Lean Tools for Identifying Value and Waste
There are many different tools you can use to improve your work processes. Each of them can help you identify value-added activities as well as to detect waste.
5 Whys – a simpletechnique for solving problems. It can help you find the root cause of any problem and identify good opportunities for improvements.
A3 problem-solving – a model that also supports you infinding root causes in your workflow. It encourages collaboration and cross-organizational knowledge sharing that often helps you identify value-adding activities or wasteful ones.
Gemba walks – a technique that allows higher management to go and seewhere the real work happens. It is an excellent opportunity to build stable relationships with those who do the actual work and see where value is created.
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In Summary
Lean thinking starts with value. It enables you to understand what customers are ready to pay for, so your company can:
- Identify value-adding and non-value adding activities.
- Detect and eliminate pure waste and necessary waste activities.
- Focus on optimizing processes and profitability.
