What's Improvement in Continuous Improvement ?

Continuous growth is not continuous improvement !

Growing continuously in terms of revenues for a very long time can put you in an illusion that you are also improving continuously. However , there is a significant difference between growing and improving. The former can be achieved by bringing in more revenues to the company and thus the cost benefits are mostly based on the principle of economies of scale. The latter , is more about doing more with less resources continuously , and thus the cost benefit comes also from the lesser resources needed to achieve the same or better results. The beauty of this "improvement" in continuous improvement is that it will always result in better "growth".

As you can see from the above example , continuous growth from the revenue can also lead to high cost of operating which might be accepted as a general way of doing business , whereas continuous improvement philosophy pushes us to constantly try to reduce the costs of operating so that we can attain higher profit margins even by maintaining the same revenue or with no significant improvement in the revenues. This is a completely different approach! it is also interesting to note that a continuously improving company can be profitable faster than a continuously growing company ( see the dotted line) when looked at the perspective of their journey right from the beginning.

Why does this happen ?

Well , as I have said before in my previous articles , one of the reasons may be because that most businesses gets comfortable when they see continuous growth and just ignores the costs involved just because they think that they can make up with more revenues coming in. Its simple business to understand and accept such things . Also, it's easy to convince the investors who are ready to put their money , by presenting them the numbers and the patterns of the past revenues. In short, cost is only calculated here, and not tried to reduce. This was in fact said a long time ago by none other than the Father of TPS, Taichi Ohno

“In Toyota , We think, “How can we reduce cost?” Costs do not exist to be calculated; costs exist to be reduced”

Excerpt From , Taiichi Ohnos Workplace Management

Having said that , I also think that there are other reasons why many businesses fall in to this trap which comes from the "illusion of knowing how to reduce the cost" . These methods can be classified as "cost cutting" and not as "cost reduction". Let me explain why

1. Technology as a tool : I have come across number of business leaders who believes that cost can only be reduced by implementing automation tools such as enterprise wide softwares and robotics. This is a complete misunderstanding as they miss the point of what exactly is continuous improvement.

You can see that such business adopts something that is described as in the figure above. There are two major problems with this approach. The first one is that the cost cutting achieved through this method is restricted to what the tool is capable of doing it ( which does not comes cheap , by the way ) and the second is that the system will accept to run with a cost of running the software tool in many years to come without trying to make any major cost reductions. The more worrying part is that in most companies , these tools are just implemented to reduce the head counts which creates a negative impact in the morale of the people who are still working , as they become anxious on their jobs in the future too ,and thus it is safe to say that this is not an environment where improvement will happen frequently. Thus , such tools can only be classified as cost cutting tools.

2. Adopting best practices : One of the other illusion is to think that adopting the best practices from similar industries can result in cost reductions in ones organization too. This may work in some cases where there are similarities in operating with same raw materials and components, but in many other cases, it may not produce the desired results as the work culture and the customers that you are dealing with may require different solutions than what your competitors have identified as best for them.

What can be done ?

Well , unfortunately , there are no magic sticks ! you have to be an organization which will develop your people through trainings on continuous improvement and make them capable of reducing the cost of operating the business on a continuing nature. This means everyone in the organization will try to reduce the costs at everything that they are performing every single day ! This small or big improvements through changes are called as KAIZEN.

You can look at the figure above and get an idea on how this can be achieved. Everyone should be engaged in a kaizen project to reduce the costs. You can also see that the automatons here are used as a tool to achieve kaizen targets and the people who are released through such kaizen projects are re deployed for further trainings and development to perform better in a different place. This will actually improve the total engagement of the people as they do not have to fear lay offs from any improvements that is carried out by themselves !

Before conclusion , Let me share a quote from Daniel Boorstin from his book " The discoverers"

“ The greatest obstacle to discovering the shape of the earth, the continents, and the oceans was?not ignorance but the illusion of knowledge.- Daniel Boorstin ”?

That's it for today , Hope you have enjoyed it . Also, please feel free to comment or suggest anything that could be worth discussing or writing in the future, Thank You !