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The heck with Kaizen, Kaikaku your Hierarchy!!

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Many organizations spend a fortune on Lean programs to improve business operations for their customers. Although well-intentioned, the benefits of these efforts sometimes go unrealized because there’s an unspoken reality: the way most organizations govern and make decisions is fundamentally anti-lean and undermines efforts to create ongoing, improved value for customers. Here, I’d like to discuss these forms of waste and how to reduce or even eliminate them in Holacracy.

You have to disrupt yourself or others will do it for you.” –Steve Forbes

Even if you are not in the Lean community or experienced with Kaizen events, I bet you’ve had experience working on teams created to review and improve a business process.  When I recently posed the question to an audience of Lean practitioners at the Northwest Lean Transformation Conference, “Have you ever had the unpleasant and disappointing experience of making recommendations after going through the all the effort of thinking through a complex business process and identifying improvements only to have the ideas get completely lost or ignored by a system of bureaucracy?” I wasn’t surprised to see more than 80% of the audience raise their hands.

There are many organizations with a Lean program run by Lean practitioners who make heroic efforts to increase customer value, eliminate waste, and improve work for employees around the world. However, Lean successes occur often in spite of their organizational system of governance and not because of it.  Continuous process improvement efforts don’t take place in a vacuum.  There is still the environment of an organization’s governance, the system that exists in an organization for making decisions and approving changes, which must be navigated to implement Lean solutions. In most organizations this system is the hierarchy of people (or the org chart) that identifies a reporting structure of authority and, in theory, the decision-making process as well. A plan for change calls for a decision to implement that travels a hierarchy until it reaches the individual with the authority that has the appropriate scope necessary for the specific decision that triggers the system to evolve.

For most organizations with traditional governance systems, Lean teams gather in events, like kaizens, that are granted specific authority and decision-making ability.  These groups are often chartered to define the scope of a Lean effort, the parameters of the team’s decision-making authority, and the expectations for submitting ideas for approval. Then teams are created usually consisting of the office superheroes, subject matter experts, and people passionate about the cause and a desire to make a difference. Once the Lean event is over, the team’s authority reverts back to the default empowerment status quo to wait on the fate of their recommendations. Lean in hierarchical systems results in employee empowerment and engagement that can be disappointingly episodic rather than systemic. How organizations empower employees and govern their decision-making can actually undermine most Lean efforts and produces sub-optimal results.

From a Lean perspective you can think of the organizational system of governance as a meta-process for the system which produces decisions to implement change as outputs. As a meta-process, it impacts and governs all other business processes constraining the authority, scope, and degree of improvements available to the Lean program. When you view hierarchy with this lens it’s easy to identify multiple forms of waste and why even the best ideas for improved customer value can languish.

Forms of waste in a Hierarchy

The first type of muda I’d like to discuss is Transport waste, which includes the time delays created by decisions (the outputs being produced in this case) which must navigate the hierarchy without adding value. Often decisions move throughout the organization trying to find the right person who has the authority to make the decision. Actually, finding a person willing to make the decision is probably more accurate way to characterize the delay. Part of the problem is that it’s a common misconception that a hierarchy is a system of authority and accountability. It’s not. Hierarchy is a command and control system which intends to create clarity on who commands who. But I would argue the system actually does not create clarity in accountability or authority for decisions and work in the modern era. In fact, this is probably the biggest lie we continue to perpetuate in business today. A thousand years ago when the hierarchy system emerged, how decisions were made was much clearer; the person at the top had all the authority. The person at the bottom had all the accountability.

In the modern era of knowledge workers, a hierarchical organization only gets in the way of a group of individuals quite capable of solving problems at the point of occurrence. It is often the line workers who have a greater understanding of the work, greater empathy for the customers, and are better sensors for the organization than managers. The outdated hierarchy model too easily enables personal interests of turf, status, and control to overshadow the organization’s interest of customer delivery and growth.

The second type of waste I’ll mention here is over-processing waste, which is created by trying to add more value than what’s actually needed to please the customer or solve a problem. This is often done by leaders who want to make the “perfect,” risk-adverse decision. These managers worry about what might happen rather than focusing on what is happening now.  Leaders will try to anticipate all the possible outcomes of a decision and refine it to mitigate risks. This results in delays required to build the perfect decision that sometimes becomes too costly to implement, too diluted to be relevant, or lands the organization in complete analysis paralysis contributing to the next form of waste, waiting.

Waiting waste is the third form of waste, which is the act of doing nothing, or doing very little, resulting in actions and dependent steps stalling until the decision to change is made. Effectively, the leadership is choosing to intentionally run the organization, by definition, inefficiently. While a decision is waiting to be made, the organization continues its sub-optimal operations resulting in additional tangible and opportunity cost to employees and customers. The outcome is a degraded customer experience and uncaptured customer value that creates additional opportunity costs. 

The last form of waste is skill underutilization. The subject matter experts in the imaginary kaizen I described above would have the skills, the experience, and the information necessary to improve a process and to make decisions, but they often lack the authority to make changes. The impact on employee engagement is well understood when employee ideas are not implemented, but the outcome of skill underutilization isn’t confined to an employee morale hit.  In the contemporary age of knowledge workers, why wouldn’t an organization want to leverage all employee skills and assets to improve its processes?  Underleveraged assets and diminished accountability for work outcomes hamper even the best Lean initiatives.

“Improvement usually means doing something that we have never done before.” -Shigeo Shingo

Leaning the Organizational Governance

Image showing the impact of organizational governance in different organizational modelsIn a traditional system of hierarchy with a leadership culture that lacks commitment to empowerment or trust in its employees, process improvements are relatively small because the actual systemic authority and decision-making is held by the hierarchy and not by the process improvement team.

In a matrixed organization, opportunities for rapid, positive change are a little better because employees have a little more systemic authority, but it is still sub-optimal because the majority of the authority resides in the hierarchical system of governance. 

However, if the organizational system of governance could also be leaned, the change would enable organizations to achieve greater Lean results of their business processes by shifting decision-making authority to people closer to relevant information and most engaged in the work processes being improved. Additionally, leaning the organizational system allows Lean efforts to be more systemic and frequent without the need for episodic granting of authority. The authority to just get the right things done for the customer and the organization already exists at the optimum point of execution in organizations that practice self-management known as “teal” organizations. 

What we’ve seen in government using Holacracy

This sounds idealistic, and I’m sure there are some thinking this would never work in their organization. That may be true, but consider that we’ve been successfully operating a Lean organizational governance system in State government for nearly a year. The capabilities of a teal organization may surprise even skeptics.

So, what have we’ve seen and experienced? Have we noticed any reductions of waste operating a Lean organizational governance system?

After implementing Holacracy and now operating for nearly a year, we’ve seen transport waste essentially eliminated. This is because unlike a hierarchy, Holacracy is a system that clarifies accountability in an organization. It’s absolutely clear who is accountable for what. In the instances where there isn’t clarity, there is a system for improving clarity. With this clarity, decisions don’t need to travel looking for a home.  They reside with the person energizing the role.

Over-processing waste has also diminished because Holacracy allows the space for an incremental approach to decision making and roots organizational change in individual decisions responding to issues actually experienced rather than imagined. In tactical meetings that have an operational focus, decisions that drive change are scoped down to the increment to get a person to the next step. In the organizational design meetings called governance meetings, ideas have to be rooted (and tested) to an actual event experienced by employees and known data. Counter proposals must be equally grounded.

With reduction in transport and over-processing waste, waiting waste has dramatically reduced as well reducing the cycle time of decision making.

We’ve also seen skill underutilization waste dramatically reduced because individuals have the authority to make decisions needed to serve their roles as well as the ability to pursue roles that serve the greater organization’s purpose and align with their passions.

 “The most dangerous kind of waste is the waste we do not recognize.” -Shigeo Shingo

One other key observation is that within our Holacracy organization these forms of waste have been practically eliminated when decisions are within the scope of the organization operating Holacracy. We still experience these forms of waste from parts of the organization operating under a hierarchy. As our proficiency in Holacracy has grown, the apparent waste in other parts of the organization has become increasingly more apparent.

Lean metrics

Image showing 93% reduction in cycle time and skill utilization up to 80%From a lean metrics perspective we have always measured the cycle time of decision-making as this is a good predictor of the speed at which an organization is capable of change.  Have you ever experienced meetings where you talk for an hour about a topic and then at the end of the meeting the only decision made was to add the topic to the agenda for the next meeting? Prior to adopting Holacracy, as a group, we were no different. We averaged about 1-2 operational decisions per meeting. Now, with nearly a year of Holacracy we consistently make 20-25 operational decisions per meeting. The average time to introduce, discuss, and decide an operational issue is 2 minutes. This represents a 93% reduction in cycle time for decisions, while many other decisions are never even brought to meetings because they no longer need management approval for execution.

With this reduction in cycle time employees aren’t spinning their wheels waiting for decisions to be made. We are able to handle many more issues more quickly allowing us to adapt. Decision-making approval is no longer a constraint within the organization practicing Holacracy.

The largest source now of waiting waste is experienced with interfacing with parts of the organization still operating in a hierarchy.

The other measure we track is employee happiness. This metric can be thought of as one proxy for measuring skill-underutilization because we focus on answering and measuring employee perceptions of their “ability to remove impediments to doing your job.” All instances an employee experiences an impediment but doesn’t feel they have the authority or means of getting past it, shows in this metric. They sense the tension they are being underutilized. With maturation of the organization’s self-governance system, we have seen roughly a 30% increase in skill utilization and are now consistently above 80%.

I speculate the source of the last 20% comes from employee frustrations with insufficient capacity (like most organizations, we do not have enough people for the work at hand) and the lingering dependencies we have on parts of the organization still operating with a hierarchy.

Summary

There must be a better way to organize ourselves. We’ve learned how to scale technology; now it’s time we learned how to scale organizations. This new age calls for a different solution to building new business, to improving rates of success and to solving the challenges that lie ahead.
–Salim Ismail, Exponential Organizations

The title of this post is “The heck with Kaizen, Kaikaku your Hierarchy!” Although in Lean you are often looking for incremental improvements to a business process to make it more efficient or effective, sometimes you have to make bolder changes. I’ve come to believe that the next evolution for Lean organizations is to embrace the need to completely transform how we do business to be relevant; top-down management should be replaced with self-organized teams. This need is driven by consumers who expect much quicker response and service delivery and relates as well to the evolving imperatives driven by the speed of the knowledge economy. This idea might seem radical but is just as applicable to government and how we deliver services to citizens. It takes the right leadership to recognize this need for radically different organizational strategies and approaches and requires even greater courage and vision to make these changes.

Michael DeAngelo, 
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