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Is Your Continuous Improvement Organization a Profit Center?

Continuous Improvement

Mark Woeppel - April 2, 2009

Continuous Improvement (CI) organizations must be profit centers, not cost centers.  Too often, these organizations are established with little thought as to how they will function with the rest of the organization.  As a result, the CI organization goes about aimlessly “improving”, with no bottom line results from their effort.  No results = no buy-in.  No buy-in = resistance to change.  Resistance to change reinforces the lack of results.  Without any real results for their effort, people become discouraged.  If the cycle is not broken, the improvement initiative fails and management moves on to the next “thing”.  People become even more cynical because they think it’s the next “flavor of the the month”.

Stop it.

Take control of your improvement efforts by forcing the CI organization to justify their existence.   The return on your improvement investment should be at least 5 to 1.  Every year.  Without realized returns, the continuous improvement organization is mere window dressing.  Rather, it’s worse than window dressing, it’s poison; it is harming the organization.  Hurting your ability to move forward.

Fortunately, taking control is fairly straightforward:

Insist that all “improvement” projects are commissioned by a senior manager who is accountable for the results.

Being “commissioned” means being “sent”.  The senior manager sends a group to get something done, a task they’re quite accustomed to.  They’re given a budget, specific goals, and a time line.

This ensures that every project will be linked to the strategic objectives of at least one senior manager and linked to the global objectives of the organization (presuming the senior manager’s goals are in line with the rest of the organization).  It prevents local projects that are done just for the sake of “progress” or “tool adoption”.  After all, if the project doesn’t move the organization towards its strategic goal, how could it be called “progress” at all?

Ensure the local process owner is accountable for achieving the results.

No improvement project is done in a vacuum.  It’s done in someone’s area of responsibility.  That “someone” should be actively involved in the project, ensuring that the results are achieved by the people doing the work.

The senior manager gives the task to the project team and makes the process owner accountable for results.  This ensures that the project doesn’t become something extra the process owner has to do, but is central to what the process owner is doing.   If there’s resistance to change, it will rectified quickly!

Put teeth into your structure by reducing budgets of organizations that improve.

This may seem counter intuitive, because we shouldn’t reward improvement with penalty.  That’ s not what I’m suggesting. A cut in the budget is not a punishment, it is a reward (if your process owner sees it otherwise, you have a different problem that I can’t discuss here).   When the project is completed, a portion of the improvement goes from the local area back to the general fund or to other uses.

For example, let’s say that a project reduces expenses by $10,000 per month.  The process owner’s budget would then be reduced by that amount.  A portion of that, say 40%, would go to fund the continuous improvement department, 10% would go to a reward fund, and 50% is returned to the corporate budget for reallocation (to profit!).  If the savings is in payroll, people don’t get released, they are reallocated to areas where they can contribute.

In a sense, the process owner writes a check from his budget back to corporate.  This encourages him to be certain the improvements are real, not simply phantom “savings” that are bookkeeping tricks.

Building financial and organizational accountability into your continuous improvement process forces the improvement community to focus on the real needs of the organization and on projects that have concrete results.  Without accountability, your improvement efforts will be a show with the rest of the organization watching and applauding, but not participating.

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