Lean Principles Applied to Digital Transformation
Digital is everywhere you turn, radically transforming all economic sectors. Every day, the growing democratisation of technology fosters the birth of new business—such as start-ups which, with few resources, can create innovative products and services that meet consumers needs faster. This forces large companies to change their operations to remain competitive in the market because, although having far more resources than younger organisations, they follow their classic operational models with processes that aim to create predictability and avoid risks rather than innovate and rapidly produce, which is a process that no longer works.
Now, they need to use technologies that give them the edge of speed to bring an idea from a concept to an actual product in consumers’ hands.
To make these necessary changes, companies have been experimenting. For example, to reproduce start-up practices by adhering to the Lean Start-up movement, which, year on year, gains strength in the market. Created by Eric Ries in the book of the same name (The Lean Start-up, 2011), the term refers to the operational model of the new digital business in order to minimize required investments and speed up the delivery of value to clients through short cycles of hypotheses validation, which popularized the MVP (Minimum Viable Product) concept. Although it involves concepts such as “innovation accounting”, which refers to the use of specific metrics to measure the progress of innovation, the Lean Start-up focuses on the product development cycle, which Eric smartly calls the “customer development cycle”. Lean is the methodology behind it.
Indeed, Lean has a powerful toolkit to achieve these products (or clients, if you prefer) development cycle optimisation goals, but that is not all. It is a management philosophy with much broader applicability and with the ability to profoundly transform companies.
Eric Ries’ bias presents the concept in an oversimplified way when it prioritises only the product dimension. It includes great solutions for small businesses, but that is not enough to deliver satisfactory results to a large company that requires an effective change in all areas - such as business, legal, marketing, and IT on a large scale. Those who seek cultural change based on the Lean Start-up, in general, find themselves in some organisational silos, which is the opposite of Lean principles.
Just as in the Lean Start-up, there are certains views that generate misunderstandings, and it is important to discuss and explain these misconceptions:
The Definition of “Lean”
A common misconception is the meaning of “lean”. Lean is not a methodology to make the company “leaner” by cutting costs and reducing overheads. This misconception comes from the origin of the term “lean manufacturing”, which was created by James P. Womack, Daniel T. Jones and Daniel Roos in the book, The Machine that Changed the World (1990). It was used to define the Toyota Production System (TPS). In this publication, it presents Lean as the biggest revolution of the industry since the creation of the mass production system at the beginning of the early 20th century. It describes practices used by the Japanese company to improve the assembly line, highlighting the importance of reducing waste.
However, this is just one of the principles that governs Lean. This philosophy guides the identification of what is valuable for the customer and how to deliver it at the right moment consistently and as quickly as possible, as well as, optimizing the entire value flow. It allows the company to continually improve not only its production chain but all processes and areas. Although these principles are all described in the book, the term “Lean” created with the publication ended up becoming widespread and, sometimes, its literal meaning overcomes the deep meaning of the principles mentioned by Womack, Jones, and Roos.
For manufacturing only
Another common misconception related to the origin of the term is its association with a philosophy that deals only with the manufacturing industry. Many companies resist seeking Lean as a solution to promote a transformation of their business models because they consider that it only can be applied by industries that work with production lines. In fact, Lean has the potential to boost financial results, consumer satisfaction and the operational speed of any kind of company. Due to the term’s origin, the most common examples in literature, in fact, refers to manufacturing, illustrating situations almost always based on the physical world. It is difficult for readers in the digital space to connect with the idea of lean immediately. Fortunately, this reality has been changing, and we are proud to contribute to this evolution.
Lean is not about optimizing specific areas of a business
The term “lean” has been discussed and explored in Lean Start-up methodology, in addition to the Lean User Experience (Lean UX), Lean IT, Lean Software Development and Lean Six Sigma, among others that apply certain Lean thinking principles in specific areas.
Lean UX uses short cycles to create a hypothesis, test it, and create user experiences quickly. Following the same logic, Lean Software Development proposes the elimination of waste in software development with fast and constant deliveries. Lean IT uses the tools to improve the operations and services related to the IT area of a company and thereby reduces costs. And the Lean Six Sigma combines Lean’s practices with the Six Sigma statistical method to optimize the performance through the standardisation of processes and identifying and eliminating root causes of bugs.
All these disciplines have brought very important advances. However, they reinforce a distorted view of Lean as it is applied to value generation. From its origin - the aforementioned Toyota Production System philosophy proposes understanding the entire value cycle instead of the traditional model that involves silos.
Lean is more than just a method. It is the strategy to the new market.
Although it is usually presented in this way, Lean is not a set of practices that point out “how to do” something. Instead, it could be thought of as a new way of thinking about the value generation flow as a whole--from setting business goals and strategy mapping to the way leadership acts and how teams interact and work with clients, to after-sales processes.
With its principles and tools, such as the PDCA discipline (Plan, Do, Check, Act), respect for employees and different practices of leadership - who have an active role in leading teams to solve problems - this management philosophy is able to change habits and encourage behaviours consistently. And when it comes to digital transformation and leading a company towards its goal, the most important and complex step is often changing a company’s culture.
The power of the Lean and how to achieve it
In the 1980s, Lean caused a disruption in the industry transforming the level of productivity of manufacturing profoundly. Today, coupled with the power of digital, it has the capacity to impact the market in an even more by generating more value in a more efficient way. At the surface, what all the companies are looking for nowadays is how to “transform” themselves to succeed in this fast-paced digital world, in which customers hold the power. At a deeper level, it is a transformation that requires changing habits, culture, leadership. All of which can be achieved with the application of the Lean principles.
But how do you do that? We usually say that Lean is about “learning by doing”. There is no shortcuts or recipe that fits every business model. Each organisation needs to follow their own path. However, every Lean journey that I know is associated with - at least - one great “sensei”, a hands-on mentor that teaches by doing and someone who helps see with new eyes and to build a new mindset.
It was no different on the path of discovering Lean as the basis of CI&T’s digital transformation. We had mentors, learned the principles and, along 10 years, we have elaborated our own strategies and have enhanced processes that have given origin to our digital transformation model, the Lean Digital Transformation. Nowadays, we work throughout the flow of value, extending our involvement which goes beyond software development. We have learned from delivering products to consumers’ hands and now we are also setting the strategy on how to meet their needs. We have developed the capability to see this value stream and seek the continuous improvement.
Our leaders, who have gone through this journey of learning and growth, are now great sensei, capable of guiding their own teams and forming new Lean leaders, as well as being able to stand on their own with other leaders and teams of other companies from different industries. What is the result? Having a strong and consistent growth year on year and having more satisfied teams and customers. But what is more rewarding is seeing that, by extrapolating the Lean transformation of other companies, we are changing the value generation threshold of the entire market, and in the long-term, of society.
As more and more companies and organisations notice the unique opportunity that digital transformation presents for the internalisation of Lean principles from end-to-end, a permanent change will take place. A change which, using the example of what happened to the manufacturing industry in the 80s, has no return: the new standard will have been established and whoever wants to play the game will have to rise to that level too.