A lean business focuses on minimizing waste and maximizing value. Such businesses continuously improve their operations and implement processes to improve their efficiency. To achieve results, they usually strive to improve team productivity, identify and remove unprofitable products and eliminate ineffective processes.
Lean businesses follow the lean approach, which advocates for identifying and addressing areas that affect business growth or success. This method originated from the manufacturing industry, where the need for waste elimination was higher. However, its knowledge and principles can also be applied in other business environments. Let’s exhaust everything you need to know about this business model.
Principles Of A Lean Business
The lean approach is premised on seven main principles, which are:
1. Waste Elimination
In a typical business, waste can refer to the time spent on a task that could have been automated or does not add any value to the business. By taking up the lean business model, entities commit to automating processes and eliminating work-related activities that do not offer any value to their customers or operations.
2. Unified optimization
Every business has a system of processes and activities needed to successfully deliver the end product or result to customers, which is usually known as a value stream. In following the lean business model, a business must optimize these processes as a whole instead of only focusing on those that don’t seem to work.
3. Fast Delivery
Lean businesses are quite different from traditional businesses since they focus on fast and incremental delivery of value and not quick product delivery to customers. This approach allows them to include customer feedback in production, which increases their satisfaction with the end product and saves time.
4. Building Quality in
Lean businesses do not check for quality at the end of a given process only but build it as early as possible and focus on it the entire time. Common means used to achieve this principle include testing and pair programming.
5. Deferring Commitment
The lean business model encourages decision-making backed by the most recent and relevant information. A clear definition is that businesses must wait until the last (responsible) minute before making fundamental decisions.
The lean business environment is premised on respect for people to maintain an environment that brings the best out of people. Respect, therefore, goes two ways, i.e., to the customers through maximum value and to employees tasked with creating value.
7. Knowledge Creation
The lean business model advocates for learning often advanced through little incremental experiments. Businesses must have frameworks for documentation and sharing of lessons to make them available for different teams.
Lean Business Model Concepts
There are three main lean business concepts that organizations should try, i.e., total quality management, just-in-time production, and throughput management.
1. Total Quality Management
Popularly known as TQM, total quality management is a management approach premised on customer satisfaction. It requires all team members and the entire organization actively participate in products, services, and culture improvement processes to guarantee long-term business success. Under total quality management, it is believed that the customer has the final say on the quality level of a product, which means that only the customer can validate whether all the quality improvement efforts undertaken by the organization are fruitful.
This approach relies on fact-based decision-making; therefore, organizations must continually collect and analyze data to support their decisions. Such data also helps them achieve consensus and easily predict occurrences based on history. Additionally, TQM believes in applying a systematic and strategic approach to achieve the company’s mission, vision, and goals and necessitates formulating strategic plans premised on quality.
Other primary elements of TGM include continual improvement, effective communication for maintaining morale and motivating employees, total employee involvement where all employees work towards a common goal, integrated systems, a process-centered approach where steps processes’ steps are defined, and performance measures continuously monitored to identify unexpected variation.
2. Just-in-Time Production
The Just-in-Time Production advocates for waste elimination. It dictates that businesses only undertake production processes when necessary, i.e., when acting on customer orders. The output is, therefore, highly dependent on the number of customer orders, eliminating waste such as unnecessary storage or transportation costs. It also allows businesses to easily detect production errors and produce high-quality products as demanded that meet customer needs.
Some of the advantages of this method include minimal waiting times and transport costs, reduced product defects, streamlined production systems capable of saving resources, over-production prevention, and increased operating capital since capital is not tied to the business’s stock. However, it also comes with many disadvantages, such as change implementation. Other disadvantages of this concept include opening up businesses to several supply chain risks and major overhaul requirements, which can make it expensive.
3. Throughput Management
Under throughput management, businesses and business owners must take into consideration how bottleneck operation is managed. It is premised on the fact that production costs are equal at the level of production of an individual unit. This concept, therefore, advocates for fewer investments in fixed assets.
Applying Lean Concepts In A Business
Lean concepts are the core principles of Lean used to improve business efficiency and effectiveness by eliminating non-valuable/non-value-adding activities and waste. You can apply lean concepts through:
1. Value stream mapping
Value stream mapping helps in the easier evaluation and improvement of process steps over time. It enhances process visualization to improve processes with repeatable steps and several responsibility/ information transfers. In short, value stream mapping identifies and improves inefficiencies by analyzing process steps and handoffs.
2. Continuous improvement
All the principles of a Lena business that we have looked at are geared towards continuous improvement, which can take the route of a formal strategy or an informal idea. One of the widely used models for continuous improvement is PDCA, i.e., Plan, Do, Check, Act, which advocates for incremental tests and process documentation for constant improvement and Building Quality In.
3. Performance/ Quality Measurement
Businesses should use lead time, cycle time, and throughput metrics to measure their quality and efficiency. Every employee and stakeholder should be able to access these metrics as they unfold for key performance indicators’ visibility and business transparency.
Lean Business Model Tools And Techniques
There are several tools and techniques for lean business creation. However, the PSDA improvement cycle is the most critical. Let’s take an in-depth look at it before focusing on the others.
PSDA stands for Plan, Do, Study, and Adjust. It allows businesses to implement positive changes and solve problems consistently. The first part, plan, focuses on the planning stage of the improvement project. It requires teams to find all project information, such as the goals, current situation, improvement definition, measurement, key dates, milestones, and participants. Only after answering the questions should the team agree on implementing the right change.
The second part, Do, focuses on the experimentation phase, where improvement implementation occurs. It advocates for careful observation and data collection throughout the process. Many changes should not be implemented simultaneously to allow the process to begin quickly to incorporate additional changes.
In the study phase, the team compares the project’s actual results to their expectations. A positive change in this phase makes the new process standard. The last stage, adjust, calls for updating the standard working documentation and other supporting instructions, signs, and materials. It establishes a new best practice to be used as a measurement standard for the next improvement cycle.
2. Control Charts
Control charts are visualization tools that indicate the performance of a project over time. Since the Lean Business Model calls for deferred commitment, these charts encourage patience by ensuring that leaders do not instantaneously react to every movement. They also shift participants’ focus on the average result only by showing process variations.
3. A3 Reports
A3 reports help in structured problem-solving. They contain all the information from the PDSA improvement cycle and help businesses enjoy a defined problem-solving, innovation, planning, and knowledge transfer process.
4. Kanban Boards
Kanban boards are visualization tools, just like control charts. They are used to optimize workflow as the project progresses. It ensures that the work-in-progress, parts or materials are only moved when necessary.
Benefits Of The Lean Business Model
1. Better Leadership
This business model requires all business leaders, ranging from C-level executives to supervisors, to be more thoughtful and proactive in their management approach. They should be committed to identifying and eliminating non-value-adding activities. In following the lean business approach, managers must find ways to implement improvements and increase efficiency, profitability, and quality in their business areas.
2. Increased Employee Engagement
One of the premises of the lean business model is respect for people. It recognizes every employee’s value to the organization and encourages them to increasingly participate in effecting positive changes. The transparency advocated by offering real-time access to metrics to employees and allowing them to participate in business planning makes them feel valued, enhancing their engagement. Lastly, this business model improves employees’ connection with their team goals and the organization’s overall purpose, thus encouraging them to work hard to meet the entity’s strategic and short-term goals.
3. Increased Customer Satisfaction
The lean business model aims to offer maximum value to customers. It incorporates customer feedback in production, ensuring that the end product meets their needs. Business leaders must understand customers’ points of view and prioritize their needs.
Information gathered from customers is acted upon frequently to ensure that the final result mirrors their needs.
4. Relatively Easier Implementation
Businesses that want to incorporate the lean model in their processes and operations don’t have to go full lean at once. They can introduce lean elements by making small and continuous improvements. If done right, slowly switching to a cleaner method of operations can quickly guarantee measurable and immediate results across different KPIs.
For large-scale changes, businesses can follow the PDSA methodology, which we covered under tools and techniques.
5. Improved growth
The lean business model advocates for waste elimination, which means doing away with all non-value-adding activities. Time and resources are therefore channeled toward essential activities. Lean leaders enjoy improved oversight of the entity’s operational effectiveness and can easily optimize whatever works and remove what does not. Continuous growth is also achieved through increased employee engagement, improved customer satisfaction, and better leadership skills.
Cons Of The Lean Business Model
The lean business model also has its fair share of disadvantages, which must be discussed. They include:
1. Potential Loss of Focus on the Bigger Picture
It is possible that an organization can overfocus on lean principles and tactics to the point that they lose focus on the bigger picture. It’s therefore advisable to prepare a project charter for every project and promote awareness of the business’s overall mission.
2. Time Shortage
Despite its advantages, lean requires extensive planning before its execution and can take a long time to achieve. An organization must dissect its current workflow and team activities to identify non-value-adding activities and areas that require improvement. Such activities may require tracking over time and call for long conversations with team members and heads. Most lean teams also meet daily to discuss completed work, pending assignments, and potential problems, which require time.
Lean can be quite rigid given that, most of the time, no action is taken to prevent an anticipated occurrence. Work must be delivered as required; therefore, projects can get overwhelming if bottlenecks are met. It is, therefore, important for organizations to have contingency plans and track tasks in real time for future planning.
4. Less Buy-in
Given Lean’s radical nature, it may be impossible to get complete buy-in from teams, which can harm inexperienced teams since this approach demands less direction and more team autonomy. This business model is also results-oriented and may therefore be quite stressful to implement.
Practical Application Of The Lean Business Model In Different Industries
The lean business model can be applied in every industry provided that the principles we covered at the beginning of our articles are followed. Here are practical applications in different sectors:
1. Software Development
The software development industry is one of the biggest Lean advocates as it helps them understand and meet their customer’s needs as they build software solutions. They mostly apply the PSDA approach in their rapid development cycles. To control work in progress, these organizations use Kanban boards. Some of the wastes targeted by using lean include unnecessary documentation, bugs, underutilized product features, and improper resource utilization.
In healthcare, lean focuses on every step in the healthcare process to identify value and non-value-adding actions and areas worthy of improvement. The role of creating better patient experiences and results is placed on healthcare professionals and those closest to the patients. Wastes to be eliminated in healthcare include missed diagnoses, unnecessary tests, waiting, unused supplies, and unused medication.
Construction projects are nowadays executed using Lean for successful safety, budgetary, and timelines management. This approach brings together every stakeholder, i.e., general contractors and subcontractors, owners, suppliers, architects, and engineers. Wastes to be eliminated include waiting, unnecessary equipment movements, failures in inspection, and underutilized talent.
In education, lean encourages educators to focus more on the activities that directly impact and benefit students and less on the required but valueless activities. It also applies to office administration, food service, facility maintenance, and transportation. Some of the wastes targeted include underutilized passion, outdated resources, unused books, spoilt stationery, and underutilized passion.
Tips To Successfully Implement The Lean Business Model
Here are a few tips that organizations intending to implement the lean business model can use:
1. Embrace Change
Businesses and their employees should understand that change is inevitable. Transitioning from the traditional business model into lean can take a huge toll on the business if it is not receptive to change. There should be good change management strategies and policies in place in anticipation of this new business model. Remember, customer needs and patterns are increasingly shifting; therefore, businesses must implement strategies that address them while keeping production costs as low as possible. One of these changes is moving to customer-focused production, which the lean business model understands and is based on.
Businesses thrive on authenticity and originality. To make a business lean and effective, one should refrain from copying other entities’ business models, given that this model is process-specific. The decision to slowly or fully introduce lean should be fully dependent on the business operations and not influenced by the choices of other businesses. Originality also means that business owners should be as innovative as possible to develop excellent ways of reducing errors, eliminating waste, and improving their overall efficiency.
3. More Focus on Customer Feedback
A lean business model can only exist if an entity respects customer opinion. Instead of spending too much money on market research and production processes, lean businesses try as much as possible to find out what the customer needs through incremental value delivery.
Organizations should consider implementing the lean business model as it helps to eliminate waste and improve business efficiency. Its applicability to different industries is also an added benefit that companies should utilize. However, they must ensure they don’t lose focus on other important factors.