Whether it’s Lean, Six Sigma or overall continuous improvement, the day will come when you are asked about the returns from your new way of working. Is the money spent vs. returned the right measurement, or are there more intangibles and indirect benefits worth highlighting? Read on to find out as we answer whether the returns from continuous improvement are worth the investment.
Written by: James Milsom, Head of Marketing
The mindset of an improvement leader is inspiring – part teacher, part do-er, part visionary, the talent required to succeed is a beautiful blend of ambition and pragmatism.
However, the time will always come for your improvement leaders to explain the value, and indeed justify the spend, of continuous improvement programs.
But instead of being filled with dread at the thought of explaining the value of your efforts, it is worthwhile looking firstly at framing your response beyond monetary returns.
From reminding yourself of the benefits of this course of action and the different measurements you can make of your improvement’s efforts, to how you can get more returns from your process improvements, the truth is that the returns from your continuous improvement are worth it – and here’s why.
Recapping improvement’s benefits
Let’s begin this continuous improvement ROI overview with what we do know – the very much tangible benefits of adopting an improvement mindset.
- Improvement brings alignment
While Strategy Execution frameworks like Hoshin Kanri are credited for their ability to align employees with catchball, continuous improvement very much does the same.
The improvement culture ensures that everyone uses the same language.
From ideation to project charters and root cause analyses, you are providing your organization with a well-known set of tools and methodologies, whose repeated use and ability to stand the test of time speaks volumes.
By using the same language you can easily deploy lessons and best practices across projects, kaizen events, staff, software – your entire business.
By standardizing processes, documents, and instructions, you bring the entire company into the same universe of working and can see a step-change in behavior and KPIs.
- Focus-first mentality
Improvement is a mentality.
It is a logic that permeates everything your business does, and it shifts you from a stop-start cycle synonymous with projects and instead creates an almost flywheel-like system and program of activity.
The learning culture which results means that improvement is self-sustaining, it ensures that continuous improvement is the DNA of your organization.
- Promoting accountability
Because of improvement’s all-encompassing nature, everyone has a role to play in the success of the program.
Your staff’s approach to work changes, bringing a new layer of accountability to their efforts. They have the tools and understanding to see how their work is impacting their objectives and have the means by which to analyze deviations in performance and correct these, at pace.
- Reiterating importance
A common theme among strategic transformation’s failure rates is the lack of focus and clarity (and count thereof) of the key initiatives which must be attacked in order for a strategy to succeed.
Improvement is no different. Continuous improvement is a paradigm shift, an acknowledgment that every failure is a chance for success, and by setting clear objectives and actions you can pave the way for repeated learning and achievement.
Breaking down barriers is a by-product of adopting continuous improvement.
We have all experienced the tensions between different teams, the jostling for budget, and the typical psychological walls which appear across your organization.
However, regardless of the size and location of your company, its operations, and staff, continuous improvement has a tremendous power to unify, align and destroy the barriers which exist in traditional organizational structures.
Improvement, by its very nature, requires cooperation and cross-department working, and this is the antithesis of tribalism.
- Employee engagement
Continuous improvement has people at its core. It is designed to empower employees to identify and solve problems that hinder their daily work. In fact, it serves to demonstrate that their voice and input are invaluable, and indeed it is.
With improvement as a company-wide lens, employees are no longer simply doers, instead, they become central to business processes, not just the outcome.
- Motivation making
If improvement is built on the principle of participation, it stands to reason that an empowered team will be more motivated. They are trusted to observe, analyze, review, improve and standardize the way they work.
There is a direct correlation between improvement and staff motivation, whether that is motivation to identify more improvements or to take newfound knowledge to advance their career.
- Positive participation
Participation is not participation if your team takes a back seat. Thankfully, with continuous improvement you are engineering your entire business to be nirvana for the thinkers, doers, and reviewers.
That’s why improvement leaders are conscious of scaling the mentality across the entire business, offering new opportunities to staff that may have seldom participated in group efforts before. It truly creates a platform for positive participation.
- Delighted customers
Lastly, improvement is all about your customers. It is making the most out of your resource and harnessing the Voice of the Customer to help identify areas you can double down on and iron out any loss of value for your customers.
By doing so you can align your entire business to serving your customers which is the ultimate purpose of commercial organizations.
How could you identify ROI of continuous improvement?
With the benefits firmly in mind, it makes the process of identify ROI easier.
In terms of what the ROI is, you can approach this in three manners:
The following offers suggestions on the factors which should impact how you present the ROI of your continuous improvement program.
The first concern of any finance department and execute team is going to be the money that has been spent and the profits which have emerged from the new way of working you have introduced.
With that in mind, here are some monetary factors to consider in your calculations:
- The cost of creating materials, delivering training, and any improvement software licenses, implementation, and onboarding
- The quantity and spend on hiring new staff to implement the program, including advertising and any recruitment fees
- Time taken away from salaried staff’s business as usual
- Increase in revenue from affected products and services
- Key account renewals
- Share price increase
- Decrease in operating expenditure
These will help you to demonstrate the spending and money returned from your improvement efforts.
If you have managed to introduce new products and tie this into key account renewals, with less cost to do so, and therefore shareholder confidence and market valuation increases, there is a narrative that immediately demonstrates the ROI of your process improvements.
However, be wary that the cost of materials, training, recruitment, and salaried staff’s time away from business-as-usual activity could be seen as outweighing the returns.
Therefore it is important to also look towards the operational returns.
An operational lens is an effective way to put your money in and money out calculations above into perspective.
After all, the cost of new staff, training, and seconded team members will be washed away when revenue and operational efficiencies are revealed.
Gather data on the below to illustrate what has happened with the monies:
- DPMO count down
- Measuring deviations from average performance (Six Sigma)
- CSAT / NPS / Product Review improvements
- % of on-time deliveries
- Increase in units per day
- Production capacity
- Average change over time
- Inventory days coverage
- Reduction of health and safety cases
- Takt time
- Projects created vs. closed
Collating information on the above, which will naturally feature in your reviews of your activity in any case, gives a deeper level of meaning when it comes to improvement.
For instance, a quicker average change over time, reduction in health and safety cases, increase in units per day, a higher percentage of on-time deliveries, and resulting improvement CSAT or NPS customer reviews paints a seductive picture.
The key to the ROI and improvement argument is to look beyond purely financial KPIs, as we have argued with Strategy Execution, and operational measurements provide tangible benefits.
However, there is one final lens you can apply to the investment argument, and that is the intangibles, the measurements which do not relate to money nor productivity.
This final view is a call back to the theme that runs throughout improvement – people.
Our staff is the anchor which keeps the business sturdy and ready to adapt to its internal and external environment.
So, be sure to include demonstrable data around your team and the impact that this new way of working has had on them:
- Shifts in employee engagement index
- Controlled employee churn
- Staff trained in Six Sigma or Lean
- Internal promotions due to improvement
- Number of black belts
- Positive Glassdoor reviews
These are a handful of indicators of your employees’ reaction to improvement, serving to illustrate that improvement has a lasting, positive effect on them.
If you regularly measure your staff’s engagement in your communications and objectives set, as well as the rate at which they either leave or are promoted, alongside the reviews they leave on sites such as Glassdoor, this only serves to bolster your organization’s public image
And, when you combine the financial, operational, and intangible factors above, you can easily demonstrate a wholesome, end-to-end review of the changes that continuous improvement has brought to your organization and its customers.
Is the investment worth it?
That is the question that will come from your analysis.
The answer is dependent on how you look at the role of improvement.
If you are a financially focused leader then you will spend more time considering the cost to implement improvement and the pace at which you see revenue and customer loyalty increase.
These measurements will tell you that for every dollar you spend you return a particular amount. That is a powerful decider of ‘is the investment worth it?’.
But a modern organization is much more than the financial perspective. The reason for the use of frameworks such as the Balanced Scorecard is that leaders are looking beyond money when they ask whether their business is successful.
To that end, by generating data across operational and intangible results you can answer, ‘yes’ with conviction.
Continuous improvement will provide immediate and long-term, sustainable benefits to your organization, which justify the investment made.
How can you improve on your improvements?
The final section of this overview is a look towards the future.
Now that you have proven the improvements and benefits so far of your process excellence, where can you go and what can you do to actually grow in this realm?
Here are four suggestions to that end.
- Don’t rest on your laurels
Even if you have undeniable evidence of the ROI of your continuous improvement program, the very nature of this way of working necessitates that you do not stop there.
There will always be improvements available to your business. It is your role as an improvement leader to give your team the tools they need to be able to do this and do so without oversight on your end.
When you empower your team to continuously identify improvement and implement change, providing it is linked to your objectives, of course, you have built an ever-improving process excellence machine.
- Promote from within
As your staff work each day on your processes and provide suggestions to run new kaizen events and identify weaknesses in the process, thus driving down defects, there is cause to celebrate this mentality.
Be future facing in your team management – create new roles or high-value projects which standout talent deserves to be a part of.
This will help increase your staff engagement and drive down employee churn more so than the improvement engine has already supported.
- Think long-term
If your initial focus has been to plug the gaps and put out the day-to-day fires that have emerged as improvement priorities, then it is time to think bigger picture.
Look at your organization’s strategy and see how your improvement efforts can run in parallel with the Strategy Execution Management.
Doing so will help you to make incremental benefits whilst transformation teams focus on long-term initiatives which will be turned into business as usual alongside the process improvements you have identified.
- Digitalize your improvement
If your culture has shifted and you have seen the benefits of improvement and demonstrated the ROI as per the above, the natural next step is to increase the reach of your improvement program.
To do so requires a combination of standardizing language and methodology alongside introducing continuous improvement software.
And, with the future (and point three) in mind, it would pay to move to a platform that consolidates and unifies your improvement, transformation, and daily activities, such as i-nexus.
Are the returns worth the investment?
This is the question that remains to be answered.
The answer is absolutey.
With continuous improvement in place, you are actively moving your business towards a present and future where learning, collaboration, and your customers are at the heart of all that you do.
That in and of itself is a sweeping statement worth championing.
But when you take such a claim and support it with proof of revenue gains, increase customer satisfaction, and fully engaged and motivated staff, there is little wonder why continuous improvement is absolutely worth the investment.
Continue learning about continuous improvement
Click here to learn more about the value of continuous improvement, or take a look at these content recommendations:
- Continuous improvement in 2020 and beyond Watch how continuous improvement will evolve into the 2020s and how you can be successful.
- DMAIC v Six Sigma v Lean: Our guide to the steps and tools you'll need when driving process improvement through one of these three methodologies.
- The Leader's Guide to Continuous Improvement: Download this eBook to get a comprehensive overview of how DMAIC, Six Sigma, Lean, PDCA can support your business in finding competitive advantage.
About the author
James Milsom is Head of Marketing at i-nexus. James has wide-ranging experience in markets such as telecommunications, energy, education, and software.
As Head of Marketing, his drive is to raise awareness and understanding of the challenges facing enterprises in delivering strategic objectives and transformation amidst changing markets and the obstacles traditional tools and methods present leaders.
If you’d like to talk more about Strategy Execution, reach out to James on email@example.com or connect with him on LinkedIn for the latest insights.