“Drive thy business, or it will drive thee.” – Benjamin Franklin, Poor Richard’s Almanac
If you’ve been in business, particularly of the industrial variety, over the past several years, then you are familiar with the term continuous improvement. There are many variations on the CI theme, including Six Sigma, Kaizen and Lean.
Continuous Improvement (CI) can be defined as: an ongoing effort to improve products, services or processes. Whether the goal is “incremental” improvement over time or “breakthrough” improvement all at once, the delivery (customer valued) processes are constantly evaluated and improved for efficiency, effectiveness and flexibility.
To break it down further, here are some additional definitions:
Six Sigma– Six Sigma is a highly disciplined approach that enables a company to focus on creating and delivering nearly-perfect products and services. The underlying idea being that if you can measure how many “defects” you have in a process, you can systematically figure out a way to eliminate them and get as close to “zero defects” as possible.
Kaizen– Kaizen (pronounced ki-zen) is Japanese for “improvement”, or “change for the better” and refers to a philosophy or practice that focuses on continuous improvement of processes in manufacturing, engineering and business management.
Lean– The core idea of Lean is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources. A lean organization understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste.
Many of the most successful and profitable companies in the United States are disciples of CI, including Motorola, GE, AT&T and Pella.
“One example of the way continuous improvement has improved our processes is the implementation of “just in time” (JIT) manufacturing — meaning that Pella Corporation does not carry a large inventory of products in stock. Instead, we build them “just in time” to meet our customers needs. This reduces costs — savings we pass on to you.”- Pella
Continuous Improvement and innovation are not interchangeable, but they are complimentary.
According to Robert E. Cole, from the University Of California-Berkeley, “This discussion begs the question of just how useful is the common categorization of continuous improvement versus innovation. The common assumption is that continuous improvement is small scale and that innovation is discontinuous and large scale. Yet, there is no logical reason to associate the term innovation with large-scale discontinuous change. Consistent with a dictionary definition, innovation is best associated with creative solutions, and these can occur at a small as well as a large scale, and can be more, or less, discontinuous. Put more bluntly, there is plenty of innovation that occurs in the course of continuous improvement.”
While the drive to maximize shareholder value has never been in higher gear, sometimes businesses are faced with an unfortunate side effect: disruptive innovation (innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market.)
From Clayton Christensen, “Similarly when Toyota was making rusty little subcompacts, it made no sense for General Motors to go after the subcompact market, when the profits they could get on bigger SUVs and pickup trucks made all the sense in the world. Toyota just made their products better and better, until eventually customers who used to [buy] bigger General Motors cars could now buy cheaper ones. Now Toyota is making the best in the world, while at the bottom, the Koreans, Kia and Hyundai, have stolen the low end of the market. It’s not because Toyota is asleep at the switch. They have to decide, ‘Should we go down and compete against Kia? Or should we go up and compete against Mercedes?’”
In response to the issue of disruptive innovation, most of you are probably aware of the new term that has popped up in the past few years: continuous innovation.
Continuous Innovation can be defined as the ability to combine operational effectiveness and strategic flexibility – exploitation and exploration – capabilities that have traditionally been regarded as antithetical. (International Journal of Technology Management)
Continuous innovation is seen by many experts in business to be the answer to disruptive innovation- although some also say that the former is not possible when a company’s main goal is to maximize shareholder value.
One company that has turned the naysayers’ objections on their ears is Apple.
“‘Anyone familiar with Professor Christensen’s work will quickly recognize the causal mechanism at the heart of the Innovator’s Dilemma: the pursuit of profit. The best professional managers — doing all the right things and following all the best advice — lead their companies all the way to the top of their markets in that pursuit… only to fall straight off the edge of a cliff after getting there….’
“Yet firms like Apple [AAPL] have been able to achieve continuous innovation and customer delight by setting aside maximizing shareholder value.
‘They [Apple] can do it because Apple hasn’t optimized its organization to maximize profit. Instead, it has made the creation of value for customers its priority. When you do this, the fear of cannibalization or disruption of one’s self just melts away. In fact, when your mission is based around creating customer value, around creating great products, cannibalization and disruption aren’t “bad things” to be avoided. They’re things you actually strive for — because they let you improve the outcome for your customer.’”
Jumping Off the Cliff
Letting go of the long-engrained value of having a laser focus on increasing shareholder value in favor of continuous innovation can be extremely hard for some companies. Externally, it’s a tough sell to investors; internally, it’s equally as difficult to get executives on board. That’s why continuous innovation can be nearly impossible to implement, let alone sustain.
From Forbes: “The inexorable shift from shareholder value to continuous innovation and customer delight will not be an easy transition for many companies: they will perceive it as too risky. However the much bigger risk in the medium term is not making the transition: by failing to get on a path of continuous innovation, the firm subjects itself to the more serious risk of disruptive innovation, which leads inexorably to corporate death.”
The bottom line: Most companies already engage in continuous improvement activities. Almost all have probably implemented some sort of innovation initiative. Those that don’t subscribe to continuous innovation do so at their own peril.