P8M3 Create and Improve Systems

In this module we will look at how to create and improve systems and processes.

Much of the best work on improving processes comes from the Total Quality & Business Excellence areas which have its origins in Japanese manufacturing.

The ideas are well established in most well run manufacturing businesses where quality assessments systems like ISO 9000 are often the minimum requirements to be in the game.

That said there is a big difference between the “we have a system which we follow” and “we have a system we follow and continually look to improve.”

There are huge opportunities for taking these ideas and applying them to service based businesses.

Please don’t think “I’ don’t own a manufacturing business, this doesn’t relate to me.”

There’s little difference between a steel processing plant which produces steel tube and a dry cleaning service.

You have the inputs (steel strip or dirty clothes), some equipment and labour and outputs (steel tube or clean clothes).

The steel plant is thought to be manufacturing and the dry cleaner a service.

Or what about a car assembly plant and a restaurant?

Parts make the car. Ingredients make the meal.

An accountant takes the transactions of a business in an accounting period (the input), feeds the results into a computer and out comes a set of accounts.

Costs of Quality

One of the ways that manufacturing took up the quality challenge was the work done on the costs of quality or more accurately the costs of bad quality.

Calculating a value for waste in a business focuses the mind of its management.

Profit can be tough to earn in the market place so what if you were to discover, waste was running at 15% of your sales value – or three times the average profit on sales of 5%.

I’m sure it would get your attention.

The traditional idea is that quality costs money. Good quality costs more than second rate goods.

In some ways that is true.

We know from Pillar 3 and the work we did on customer value, premium products cost more than economy products and are perceived as better.

That’s seeing quality as an overall assessment of the output – the Rolls Royce car costs more than the BMW.

It’s not looking at quality as conformance to specifications, standards and expectations and that’s where the waste arises.

American quality guru Philip Crosby argued “quality is free”. The better the quality of performance of your systems and processes in terms, the lower your costs.

The idea is interesting and whilst arguments may exist at the extremes, it has proven to be generally true.

There are two models for quality costs, the first looks at the costs of conformance and non-conformance and the second focuses on the quality activities & effects – prevention, appraisal and failure.

These two models can be brought together

Cost of conformance the costs of doing what ever is necessary to carry out the process and produce output of the suitable quality. This includes costs of appraisal (checking that quality in the system is right – for inputs, the process and outputs).

It also includes the money and activities to make sure there isn’t a quality problem which are called prevention costs. These include costs of training and making sure the right team members are selected.

For example an untrained person may take twice as long and make so many errors that any output is unusable.  Training the person will cost time and money but it creates an overall improvement.

Cost of non-conformance are internal failure costs and external failure costs.

Internal failure means you spotted the problem before it got to the customer and therefore you corrected the problem. Perhaps a little rework made it right or perhaps the job had to be started from scratch.

External failures are found by customers and the external failure costs include the cost of putting things right, satisfying the customer if possible and lost business if the customer still isn’t happy.

A full cost of quality exercise is beyond the scope of most small businesses. The costs of the calculations can be both time-consuming and expensive if you don’t have the right skills available inside your business.

I’ve gone through the process because I want you to be aware of the costs of quality and on the look out.

Every little thing that goes wrong can have a cost implication and it may be bigger than you first think.

Where is minimum cost and does it happen if you achieve 100% Quality?

It depends on your business. To prevent every error can mean excessive prevention and appraisal costs.

Quality cost reduction usually starts by introducing inspection to stop the external failures. It’s a simple substitution of external failure for internal failure but because the customer isn’t involved, it doesn’t have such a high cost.

As causes of waste and poor quality are identified, quality checks can be put after the problem operation to stop extra costs being spent of things that are not good enough.

The cause of the poor quality can also be corrected by taking preventive action.

If you want to go deeper into Quality costs, the relevant quality standard for the UK is BS6143  and the international standard is ISO 10014.

Things To Do On The Cost Of Quality

  1. Think in terms of costs of conformance and non-conformance or prevention, appraisal and failure.
  2. Look for examples of quality failure and waste. Trace back to the causes.
  3. Use your common sense and estimate a value. Remember my “approximately right is better than precisely wrong” saying in Pillar 1.
  4. If it’s a big cost, look for ways to fix, even if it costs you some money in the short term.

Improving Systems & Processes

It’s time to go through a method to improve any process or system:

  1. Select the system or process
  2. Establish goals
  3. Review baseline performance – inputs & outputs
  4. Break down the individual steps – know, watch, interview
  5. Identify improvements – involve others
  6. Test & measure
  7. Update systems records

Step 1 Select a system or process

Pick a process, just one to start with.

You can’t do systems and process improvement without getting specific so it starts by choosing the process you want to improve.

Some ideas on how to select.

  • Do you have a process which is letting you down with your customers? The cost of quality concept shows the high costs of external failure.
  • Do you have an expensive process and, if you can improve it, you can save a lot of money?
  • In your work on customer value, is there one area you are keen to improve to give you a competitive advantage and edge over your competitors?
  • Is there something in your business which drives you crazy each time it happens?

If you said yes to any of those questions, you have a process to focus on.

If you said yes to several, then pick a priority process.

Some advocates like Michael Gerber will argue that you need to have formal processes for everything you do. That’s possibly true if you are trying to create a business in a box for franchising or rolling out from one location.

But some processes aren’t worth the effort if the gains from improvement are less than the costs of recording, reviewing and improving the system.

Step 2 Establish the goals

What is the goal of the process?

How can you measure its performance in terms of the value of outputs, input costs and time taken?

What is the goal of your performance improvement effort?

  • Better quality of output
  • More output
  • Faster output
  • Lower costs

Step 3 Review Baseline Performance

Before you make changes you need to make sure you understand the current performance levels.

As soon as you make changes it’s easy to forget what it used to be like and you need facts to decide whether the change is a genuine improvement.

It’s also useful to have the information to help explain to the staff involved why change is necessary and to help reinforce the change by pointing to the improvements made.

You need the facts about the relationship of inputs to outputs.

When John and Graham work as a team, they get 10 units completed in eight hours.

When John and Peter are the team, 8 units are produced.

When Peter and Graham are the team, 7 units are produced.

When Peter and Stephen work together, 12 units are produced.

First you can get calculate averages and secondly you can investigate why performance varies so much.

Step 4 Break Down The Individual Steps

Every process is a series of activities.

Every activity a set of steps.

Find out what happens and record it all either as systems notes or as a series of flowcharts / process diagrams.

Flowcharts take longer to produce but they are easier to understand. They are covered in more detail later in this module.

You may think you know what happens and you can record the system yourself. If you do, look to verify it with the people who work in the system.

It’s better to interview people about what they do – it’s often not what you think – or to watch them do it (although that can spook staff and put them on their best behaviour.)

Step 5 – Identify improvements and involve others

Change can be fun or it can be scary.

It’s particularly stressful if change is happening to you and around you when you don’t know what’s happening or why. This is the way big companies treat their staff and it’s a mistake.

Involve the people who work in the process and get their ideas on how to improve.

Remember the Gleicher Formula For Change

Show that change is needed in the process because current performance isn’t good enough, paint a vision of what you want and ask for their suggestions on how to improve.

Try brainstorming with your team.

Assess the ideas against the goals of the system and the goals for improving the system. Check that it makes financial sense (see Financial Payback) if you need to spend much money or buy new equipment.

Improving System Costs

Reduce quantity of inputs for given quantity of output – eliminate, reduce activity time
Reduce quality of inputs for given quality of output
Reduce waste of scrap input, output and work in progress
Standardise components
Buy better

Improving System Time

Remove unnecessary steps or combine steps
Make steps quicker & easier
Make better use of any bottleneck
Do steps in parallel rather than sequence
Reduce delays & waiting time including batching policies
Standardise methods & train team

Improving System Quality

Understand what the “customer” wants – less likely to switch
Eliminate variation – great systems produce predictable results
Improve the quality of the inputs
Labour – good people trained well, motivated

Assessing A System

How good is the quality of the output?
Is the quantity of output enough?
Is the system efficient?
Little input is needed
Little input is wasted
Is the system as quick as needed?
Is the system flexible for different inputs & outputs
Quality, Quantity, Cost, Time & Flexibility

Learning From Others

No need to reinvent the wheel
Best practice benchmarking
See what others are doing and copy/adapt to suit your needs
Look for great systems
Effective – produce great results
Efficient – convert inputs into more outputs

Flow Charting

Easy & quick to understand and review
Flexible – different levels of detail and notes
Two types
Activity flow charts
Swimming lanes – show how work passes between people

Flow Chart Symbols

Boxes – show the steps in the process
Diamonds – show the Yes/No decisions and how the work flow changes
Circle – mark the start and ends of the process – may be multiple
Arrows – show the flow of work


Remove waste – redundant tasks, material waste, time, costs
Toyota Production System
Clear well defined sequence of activities
Good for production & admin
Not so good for design
Long term continuous improvement
Empower workers who know best
Reduce variability


Consolidate the process around individuals who do it all
Good for customer service


Turn a process into a product
Sell the service to others
License know-how

Changing Processes

Changing one part of an integrated system can have unexpected consequences elsewhere
See the linkages helps you to recognise and anticipate difficulties

Process Goals

Three sources
Strategic objectives of the business
Customers explicit and implicit requirements
Competitive benchmarking

7 Deadly Sins Of Process Improvement

From “Improving Performance” by Geary Rummler and Adam Brache
Process improvement is not linked to the strategic issues of the business
The process improvement project does not involve the right people in the right way including involvement from the top
The process team is not given clear guidance and goals and is not held accountable
The top management believes it has to reengineer to make big improvements
Process designers don’t sufficiently consider the impact of changes on the people who work the process
The business focuses more on redesign than implementation
Teams fail to leave behind a system for continuous improvement.

Reducing Variation

The first task to concentrate on when improving the quality of your systems and processes is to reduce variation of performance.

This means that you need to control the process and make sure that the current best practice way of working is applied consistently by each and every person who works in the process.

Inconsistencies come from different people do different things with different equipment at different times.

It may be one person doing things in different ways to relieve their boredom or to suit their moods or it may be different people are consistent but each has their own method of working.

Continual Improvement

When a system or process is under control and performance is consistent, you can then start looking for improvement ideas to move beyond existing best practice.

You find a new idea, assess it against the objectives to make sure that there isn’t a fundamental flaw and then try it.

You’ll need to do it more than once since you’ll get more ideas or get better at the new step. Keep testing and measuring.

Because the system is under control, you have confidence that if performance improves, it is because of the new technique and not a random variation caused inside the system or outside.

Step by step, performance improvemes.

Each little improvement builds on the previous changes and it is a nice, steady, non-threatening way to create change.

Business Process Reengineering

A much more dramatic way to improve processes is using the ideas of Business Process Reengineering. This used to be the thing in the nineties and came to mean “slashing staff costs” as stories were shared like Ford cut their purchase payment staff from 300 to 6.

It may not have been that dramatic but you get the idea.

BPR is intended to create a step change in performance – cost, quality and/or time but the focus was often on cost rather than finding exciting new ways to create extra customer value.

It did get a bad reputation, both from the staff and unions who resented and resisted the slash and burn approach and from a stack of failed reengineering projects.

The idea of creating a step change in performance remains valid and important.

Continual improvement starts with the existing process and asks “how can we make this better?”. Changes are incremental, tweaking here, modifying there.

But what if you start with a blank piece of paper and ask “Start from scratch, what’s the best way for us to…?”

Imagine you were the CEO of Borders or Waterstones in the nineties and you were looking for ways to improve your book sales and services.

Because you have a chain of stores, your incremental focus is on how to make the stores perform better.

How to attract more people into the store, how to get more to buy, how to get the people to buy to spend more and how to reduce the costs of staffing and service.

All very good and worthwhile but fifteen years later we know what Amazon did and how they have changed retailing books and music forever.

Sometimes – for individual processes and the entire business – it is worthwhile to free up your mind and start with a blank piece of paper and redesign your entire business.

Then see how different things are and see what you can integrate into your business.

After BPR – Two Futures

After you’ve made a big change and it’s been successfully implemented and accepted by your staff, you need to be careful that you don’t let bad habits creep in.

Important steps can be replaced with easier, less effective actions.

Even if you opt for a reengineering approach to process improvement rather than continuous improvement, you should make sure that you switch to a continuous improvement approach.

People leave, things change in the business, the external environment forces you to have different priorities and you need a way to keep adapting.

Process Walkthrough

Staple yourself to an order and walk through the system to see what happens at every step
See frustrations & regular corrections
Non value added activities
Discover delays
Even look at linkages outside of your business

Cause & Effect

7 Wastes – TimWood

Transportation – unnecessary material movements
Inventory – over & under-stocking issues
Motion – excess energy, double handling
Waiting – delays – product & resources
Overproduction – opportunity cost
Over-processing – unnecessary steps & overqualified resources

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