The Continuous Improvement Blog

How private equity firms can increase value in services with Lean

Written by Colin McArdle on 02 May 2018

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The biggest goal for private equity firms is to increase the value of a company they invest in. Largely this involves increasing the company’s growth and cutting costs. And Lean can play a big role in this.

Lean seeks to achieve small, incremental changes in processes to impact speed, efficiency and quality. It focuses on eliminating ‘waste’ - tasks that absorb time and resources but add no value to the customer or the business.

The results can be significant and are synonymous with the outcomes private equity firms are aiming to achieve - minimised costs and maximised profits. Lean achieves this, all whilst enabling a better service for customers and building a motivated and empowered workforce at the same time.

In this blog post, we take a look at some of the common problems private equity firms witness in a company and provide examples of how Lean tools and approaches can help solve them.

Understand the work

The first step is to understand how requests for services enter the company and determine the volumes, complexity and type. There will be multiple entry points such as email, phone, text and online channels, so we segment the demand to determine how different work types should be processed in the most effective and customer-centric way.   

Second, we conduct work study analysis by observing and timing processing activities as they happen.  This way we will understand how long activities actually take, and the skills and resources required to perform them.

We call this going to Gemba (a Japanese term for where the work is performed). It involves taking photos or videos, collecting process information and speaking to staff to determine what really happens, and not what a spreadsheet tells us or what a manager thinks happens.

This quantitative method allows us to measure productivity by the number of activities or services completed over a defined period of time, such as per hour, day or month. Productivity can be quickly calculated revealing the number of activities or services an employee produces or contributes to in a given time. These productivity scores are then averaged out to reveal opportunities for gains or losses over time.

Output can be measured either by the volume or quantity of services completed, or by the financial value of the service.

This type of measurement must also factor in the amount of time that employees spend on activities such as job training, time spent waiting for information to arrive or systems to respond and other factors not under their control. 

Use time efficiently

Too often, companies fail to measure and maximise the 'available time to work' of their staff. Perhaps work start times vary, and breaks are taken ‘as and when’ rather than to a schedule.

One solution is to introduce Short Interval Management (SIM). SIM is a Lean Management tool that allows for operational activities to be managed, KPIs to be monitored closely and reaction plans put in place for when problems or deviations to targets occur.

SIM is made of several hierarchical levels depending on the organisational structure.  For example, SIM 1 is used for front line staff and their team leader, SIM 2 for team leaders and their manager, SIM 3 for the manager and their manager, and so on.  SIM 1 sees 3-minute meetings every 2 hours where all team members are present, and it is used to assess whether each individual is on track with their allocated tasks. At the start of each day, 5-7 minute stand up meetings are held, where each team member shares what they did yesterday, what they plan to do today, and whether they have any obstacles that prevent them from doing their work.  The manager and team can then come up with an action plan to remove any obstacles so that the work gets done.

Other SIM levels operate in the same way so as to keep track of performance at all levels, enabling regular channels for communication to ensure work gets done, priorities are understood and problems are raised for subsequent resolution.

SIM meetings are accompanied by workplace visual management boards or screens that show key performance indicator charts with trends, so everyone in the business has full visibility of how the business is delivering against local objectives and overall strategy.

Process work using standards

Many back-office operations fall prey to a lack of standardised ways of working. Variations in how work is allocated and prioritised is just one issue. And with no best practice standards in place, team leaders may not be allocating work in the most efficient way. This slows down the process and can lead to work being missed, unallocated or given to staff that don’t possess the required skills or capability to transact the work.

One solution is to introduce standard ways of working that follows a standardised ‘one best way’ process. This is a powerful yet simple lean tool that is too often underestimated. It involves documenting the tasks involved in delivering a service to the customer to create best practice standards. Clear documentation and guidance helps to eliminate variability, maintain productivity, and reduce errors.  

Make work flow

Another way to improve operational efficiency is to introduce one-piece flow. This refers to tasks being synchronised and completed without stopping until the service has been delivered to the customer.

The main goal here is to reduce the overall time to process and reduce hand-offs to other functions, resulting in large gains in productivity.

Improve quality

Mundane, repetitive tasks completed in high volume are prone to human error. And errors can mean additional rework, and impact on KPIs. But errors aren’t always a people problem. It all comes down to how the process is designed. If the system is set so that humans can make errors, they will.

One solution is error-proofing. The idea here is to achieve zero errors by either preventing - making it impossible or difficult to make an error, or automatically detecting errors - making it obvious that an error has occurred.

An example would be a digital system for entering a service request. A customer fills out the order form online and is notified of any errors or missing information so they can be rectified before the order is accepted.  This way, the likelihood of getting an order wrong is eliminated.

Error proofing service processes ensures downstream activities are not compromised by poor incoming quality, which leads to higher productivity, shorter lead times, happier staff and ultimately, happy customers.

 

These are just some of the common problems found in back-office operations, and some of the tools that can be used to help solve them. There is a myriad of other ways Lean can be applied to improve the back operations of companies in the service industry. All of which aim to add value by reducing the cost of operations, increasing capacity and delivering a faster service for customers.

Ultimately, a Lean management approach allows private equity firms to increase shareholder value quickly and provides the invested company with the tools to continuously improve.

Topics: lean, service industry

Colin McArdle

Written by Colin McArdle

Colin McArdle, the Founder and Managing Director of Kaizen Kulture is a Lean and Six Sigma Master Black Belt who has over 30 years industry experience. Kaizen Kulture's mission is to be true to the ethos of continuous improvement.