There is no alternative to Lean Six Sigma because it’s the only process improvement methodology which removes process waste. We remove process waste because it prevents a private equity business process from being truly scalable.
We’ve based our case study based on the internal rate of return (IRR) gap reported by Bain’s Annual Global PE Report:
21.1 (target set by top quartile firms and public market) – 15.2 (average PE firm IRR) = 6 net IRR (Gap)
The Improve phase of DMAIC, is the first time we start “doing” instead of “planning”. We’re going to wrap up the Improve phase by going through our plan to remove the waste and alleviate choke points:
Agile Process Improvement
There are a few rules to follow to mitigate the risk of not improving your process. Think of this phase as risk management against not getting your money out of your improvement investment. As in all phases, we’re not breaking the link between our actions now and where we said was the waste’s root cause.
Rule 1: Action Plan Format
Good Lean Six Sigma consultants stay away from the word “project” because it implies a one-time improvement. We call this an Action Plan because we want to focus on acting. Every good coach will ask you, what we can we today to improve this process? If you they let you say “nothing” instead of coaching you to creatively break down your improvement action into a small, fast, fail – hire someone else.
Estimated Gap Closure is the most important field. This field should directly tie back to the time or quality your wastes have been stealing from you. This is a target so you know when you’ve removed the process waste identified or if you’ve left something on the table.
Rule 2: Study and Adjust
We approach everything understanding that all plans fail. This means they only thing we can control is to audit ourselves because you never get 100% of the opportunity the first time. The only plan that works is to plan to fail. To plan to study and adjust until removing the choke point.
Because of my background in Finance as a CPA, I lean on financial processes to increase accountability. I play around with fields to compare my “actuals” – similar to a financial analysis – so I can validate my and my team’s ROI on client’s investment in time and us.
Rule 3: Experiments; not Solutions
We’ve talked about how we all love our own solutions. Ironically, I’ve seen consultants try to implement Lean Six Sigma because they love it as a solution without defining a gap that’s meaningful to the company they’re getting paid to transform. Solutions are static.
Your private equity firm and portfolio companies need to be agile enough to keep up with the changing market and so do your process improvement plans. Good consulting services coach your team into actions as “countermeasures” or experiments.
Experiments focus on learning vs solutions focus on solving and walking away.
Rule 4: Analyze To Be Process Data
How do you know if you’ve improved your process? Like all things, the data will let you know. Grab a sample of items flowing through your process now that’s it’s been improved and compare the process before and after. Our IRR case study looks like:
Remember two things:
- We improved the choke points – not just random process steps. If you don’t improve the choke points, you don’t scale your process.
- There were a total of 36 total days of waste in the baseline process
We actually got an improvement of 50 days of waste! We’re awesome. Let’s never do this again. Wrong!
Our To Be process is now our new Baseline because once we improve, we never go back to a bad process. Even this new improved process includes less than 5% of activities our customer defines as valuable (e.g. is willing to pay for) so we’ve got plenty left to remove.
Private Equity Software
You’ll use the same tools discussed in Part 1. The most important tool in this phase is not software, but the people owning and pushing the problem to completion like the project champion, consultant, sponsor, team leaders, etc.
Better Tomorrow Than Today
The best Lean Six Sigma teams can remove waste within 24 hours of identifying it. Process waste is usually under your control because you created it in the first place. A good sign of a successful improvement plan is seeing people out “on the floor” implementing improvement, watching it fail and quickly adjusting.
No one solves problems in a conference room so go get your hands dirty. We’ll be controlling the process’s performance in the next post.