Process improvement has been a key topic within organizations worldwide for many years. However, it remains a challenge, as an estimated 60 to 80 percent of process improvement initiatives fail or do not deliver sufficient results. High performance organizations (HPOs) are an exception: they successfully complete more than 80 percent of their improvement initiatives on time and within budget. What makes their approach so effective? This article delves into the strategies of HPOs and presents the IPPI (Improve the Process of Process Improvement) model. This model provides organizations with clear insights into the weak spots of their process improvement initiatives and helps them optimize these successfully.
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It Must Be Different, but How?
Process improvement has been a hot topic for years. Elegant concepts such as lean management, total quality management, and business process management have not ensured that most process improvement actions achieve the desired result. It must be different, but how?
Continuous improvement has been one of the most important management buzzwords of the past two decades because constantly improving products, services, and processes was seen as the way to give the organization a competitive advantage (Singh & Singh, 2012). However, in the past four years, the number of successful improvement projects has decreased by more than 10 percent (PMI, 2013), and currently, an estimated 60 to 80 percent of process improvement initiatives fail or are insufficient (McLean & Antony, 2014). This results in an estimated loss of $109 million per $1 billion spent on process improvement projects in the United States alone (PMI, 2014). At the same time, it is reported that high performance
Problems with Process Improvement
Our research into the characteristics of high performance organizations (HPOs) worldwide shows that the characteristics related to process improvement consistently score low (de Waal, 2013). Process improvement—defined as the way in which internal business processes are improved—scores an average of 7.0 on a scale of 1 to 10 for all organizations in the HPO database; process simplification—defined as the way in which internal business processes are made simpler—has a score of 5.6; and process alignment—defined as the way in which internal business processes are aligned with each other—has a score of 4.8. The declining scores can be explained by the fact that organizations generally do not lack ideas and often start working with suggestions for improvement with great energy. Starting improvement is not a problem, but actually making process improvements permanent is a different story, and evaluating whether they have led to simpler and more streamlined processes is even more challenging. The scores in the HPO database indicate that organizations are good at starting process improvement but not so good at bringing it to a successful conclusion.
Various Causes of Improvement Difficulties in the Literature
Various causes are mentioned in the literature for the difficult process of improvement (Repenning & Sterman, 2001; Lok et al., 2005; Virine & Trumper, 2013):
- Overconfidence: People overestimate the accuracy of their estimates of what is needed to achieve the improvement, resulting in insufficient or no analysis of the situation. If an analysis is made, they are too quick to believe they can ignore the results. Additionally, collecting more and more information about the situation is confused with making good decisions, and decisions are often still made based on “gut feeling.”
- Confirmation Bias: People naturally tend to test expectations and hypotheses about the situation to be improved in a way that confirms them. They are especially inclined to look at the facts that confirm their own opinion.
- Sunk Cost Trap: Organizations stubbornly continue with an improvement initiative that is not going well because they have already invested so much in the initiative that they have passed the “point of no return.”
- Time Delay Trap: People only look at the short-term effects of an improvement initiative and do not sufficiently consider the long-term consequences.
- Other Causes: The motives for starting the improvement initiative are unclear or incorrect, there is insufficient support from management, there is insufficient improvement culture within the organization, the implementation approach is not structured enough, people lack knowledge of project management, and employees are not sufficiently involved.
Do High Performance Organizations (HPOs) Approach Process Improvement Differently?
We have investigated how HPOs approach and execute their improvement initiatives and whether this differs from how non-HPOs do it. The idea is that HPOs achieve better performance than comparable organizations because they perform better on HPO characteristics than their peer group. Does this mean that HPOs are also better at improving processes?
To evaluate whether the above can be observed in practice, we conducted research at organizations that have undergone an HPO diagnosis in the past three years. In such a diagnosis, an organization determines to what extent it is an HPO by completing a questionnaire. In this questionnaire, managers and employees are asked to rate their organization on the characteristics of a high-performing organization. By averaging the given scores, an organization receives its HPO score. The organizations that have completed the HPO diagnosis can be divided into three groups based on their HPO scores: high (HPO score > 7.5), medium (HPO score between 6.5 and 7.5), and low (HPO score < 6.5). All organizations were given a questionnaire with 60 improvement characteristics derived from recent scientific literature on successfully implementing improvement initiatives. These 60 characteristics were supplemented with the eight characteristics of the HPO factor Continuous Improvement to establish a relationship between the scores on the improvement characteristics and the HPO characteristics. The questionnaire was sent to all HPO Center clients worldwide who had undergone an HPO diagnosis. A total of 386 fully completed questionnaires were returned from 28 organizations (13 from the Netherlands and 15 from abroad). Factor analysis and regression analysis were performed on the data to determine which groups of improvement characteristics had a statistically significant relationship with the HPO factor Continuous Improvement. This yielded 39 improvement characteristics, grouped into four so-called IPPI factors. When an organization pays explicit attention to these four factors, the improvement initiatives undertaken by the organization will be more successful. As a result, the HPO factor Continuous Improvement will score higher, leading to an organization that performs better than its peer group. It shows that the IPPI factors Selection of Improvement Initiatives, Execution of Improvement Initiatives, and Improvement Culture have a direct positive effect on an organization’s ability to continuously improve (with Improvement Culture having the most impact), while the IPPI factor Support of Improvement Initiatives has an indirect influence by supporting the other three IPPI factors.
The Improve the Process of Process Improvement (IPPI) Factors
This section briefly describes the IPPI factors. The first IPPI factor, Preparation of Improvement Initiatives, includes characteristics related to the proper preparation for the execution of improvement initiatives. Possible improvement ideas are collected in a structured system. These improvement ideas are then assessed on aspects such as: their viability; the reliability of the information about the idea; the capacity available for implementing the idea; and the extent to which the idea supports the organization’s strategy. Additionally, a number of conditions are considered. It is ensured that the balance between top-down and bottom-up initiatives, and between long-term and short-term initiatives, is not disrupted. Only initiatives for which a clear plan has been made are selected and executed. The available resources must be optimally allocated to the chosen initiatives, and a new improvement initiative is only started when the previous initiatives have been fully completed. It must also be clear to the organization why each improvement initiative is important for daily practice.
After the selection, the actual execution of the improvement initiatives follows. The characteristics of this belong to IPPI factor 2, Execution of Improvement Initiatives. First, the involvement of management is ensured by making sure that top management supports the improvement initiatives, that each improvement initiative has a management member as a sponsor, that management team members are actively and visibly involved in the execution of the initiatives, and that the teams working on the improvement initiatives report directly to a management team member. The execution of the improvement initiatives is monitored using checklists to check the completeness of the initiative execution, by regularly measuring the progress of the initiatives and their impact on strategic objectives, and by auditing completed initiatives on their contribution to the organization. Additionally, the organization must handle the inevitable delays in initiatives well by regularly checking whether problems and delays are expected, by looking for the main reasons for delays when they occur, and by ensuring that the reasons and causes for delays are known to everyone. Initiatives can also change, so there must be a procedure that tracks changes in initiatives. The organization must be able to let go of and terminate an improvement initiative when a changing situation warrants it, and lessons learned from previous changes must be integrated into the approach to subsequent initiatives.
A key condition for the successful execution of improvement initiatives is that the organization has the right improvement culture. IPPI factor 3, Improvement Culture, involves obtaining the involvement and support of the organization. This can be achieved by involving both managers and employees in improvement initiatives, explicitly encouraging employees to participate in improvement initiatives, and giving employees enough autonomy in the initiatives to make necessary decisions themselves. Additionally, a continuous improvement culture must be created by focusing everyone in the organization on continuous improvement values, ensuring that discussions about continuous improvement are part of all meetings, and supporting experimentation during improvement initiatives without punishing employees for mistakes made during these initiatives.
Finally, improvement initiatives must be supported. IPPI factor 4, Support of Improvement Initiatives, includes proactively training people in problem-solving methods and techniques and the latest technical and managerial improvement techniques. Managers also receive specific instruction on managing improvement initiatives. The importance of continuous improvement is emphasized by linking the successful completion of initiatives to the rewards for managers and employees. Finally, external parties are involved in the improvement initiatives by explicitly seeking input from customers and suppliers in the continuous improvement process.
Relationship Between HPO and IPPI
When the average scores of the IPPI factors are calculated for the research participants, it again shows that organizations are mediocre at improving processes: Selection of Improvement Initiatives scores 6.2, Execution of Improvement Initiatives scores 6.1, Improvement Culture scores 6.6, and Support of Improvement Initiatives scores 5.7, giving a total average of 6.1. The question now is whether the previously described expectation that HPOs are better at improving processes is true. To check this, the average scores on the IPPI factors were calculated for the three groups of organizations, namely high (HPO score > 7.5), medium (HPO score between 6.5 and 7.5), and low (HPO score < 6.5) scoring organizations.
Practical Implications of the IPPI Research
The research indeed shows that the higher an organization’s HPO score, the higher its IPPI score. It also shows that the score lines for all three groups are more or less the same. This means that all groups, regardless of their HPO score, struggle with the same issues, but organizations that are (almost) HPO perform better than organizations that are far from HPO status.
The practical implications of the IPPI research are twofold. First, an organization can complete the IPPI questionnaire to determine its scores on the IPPI factors and characteristics. This gives the organization a clear view of the weak spots in its process improvement. Then, the organization can work specifically on strengthening characteristics with low scores. Second, the organization can review its improvement project portfolio based on the IPPI characteristics to assess whether current and planned projects are being approached correctly according to the IPPI factors. This check can adjust the execution of improvement projects in a timely manner or better prepare them, significantly increasing the chances of successful improvement projects, allowing the organization to truly embrace the concept of ‘continuous improvement.’
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About the Authors
Dr. A. de Waal is an associate professor at the Maastricht School of Management and academic director of the HPO Center.
Dr. R. Goedegebuure is an associate professor at the Maastricht School of Management.
Literature
Lok, P., Hung, R.Y., Walsh, P., Wang, P. & Crawford, J. (2005). An integrative framework for measuring the extent to which organizational variables influence the success of process improvement programs. Journal of Management Studies, 42, 7, pp. 1357-1381.
McLean, R. & Antony, J. (2014). Why continuous improvement initiatives fail in manufacturing environments? A systematic review of the evidence, International Journal of Productivity and Performance Management, 63, 3, pp. 370-376.
PMI (2013). Pulse of the Profession Report. Newton Square, Project Management Institute.
PMI (2014). The high cost of low performance. Newton Square, Project Management Institute.
Repenning, N.P. & Sterman, J.D. (2001). Nobody ever gets credit for fixing problems that never happened: creating and sustaining process improvement. California Management Review, 43, 4, pp. 64-88
Singh, J. & Singh, H. (2012). Continuous improvement approach: state-of-the-art review and future implications. International Journal of Lean Six Sigma, 3, 2, pp. 88-111.
Virine, L. & Trumper, M. (2013). Project Think, why good managers make poor project choices Farnham, Gower Publishing Limited.
Waal, A.A. de (2013). How to build a high performance organization? Culemborg, Van Duuren Management.