MCK On Serviceops

McKinsey on Service Operations
The next revolution in lean services

Autumn 2008 4 Bringing the lean revolution to services
12 Toward a leaner nance department 17 Applying lean to application development and maintenance 24 Lean cuisine 26 The choreography of expertise 32 Lean in media: The art of making creative work efcient
McKinsey on Service Operations is written by consultants in McKinsey & Companys operations practice together with other McKinsey colleagues.
Editorial contacts: Keith Gilson (Keith_Gilson@McKinsey.com) Scott Hensel (Scott_Hensel@McKinsey.com) Editor: Thomas Fleming Design and Art Direction: Delilah Zak Managing Editor: Drew Holzfeind Editorial Production: Sue Catapano, Lillian Cunningham, Roger Draper, Mary Reddy Illustrations by Mick Wiggins
Copyright 2008 McKinsey & Company. All rights reserved. This publication is not intended to be used as the basis for trading in the shares of any company or for undertaking any other complex or signicant nancial transaction without consulting with appropriate professional advisers. No part of this publication may be copied or redistributed in any form without the prior written consent of McKinsey & Company.

The next revolution in lean services
3 Introduction
4 Bringing the lean revolution to services Yes, its hard to increase the efciency of highly variable operations that require the constant exercise of judgment. But they can be made not only more efcient but better.
12 Toward a leaner nance department Borrowing key principles from lean manufacturing can help the nance function to eliminate waste.
17 Applying lean to application development and maintenance To make application development and maintenance more productive, IT managers are getting lean.
24 Lean cuisine Proven techniques from manufacturing might be the recipe for improving productivity in restaurants.
26 The choreography of expertise Even steps that require customization and expert judgment can be streamlined effectively.
32 Lean in media: The art of making creative work efcient Companies can ferret out waste and variability without damaging creativity. A customized approach to lean can help.
Autumn 2008
Introduction
Keith Gilson and Scott Hensel
Its a lean world. Lean manufacturing, the operational and organizational innovation Toyota Motor pioneered in the second half of the past century, has spread in recent years from its industrial origins to a range of service environments. Today, companies in sectors as diverse as airlines, banking, health care, insurance, IT services, and retailingamong othersbenefit from the now-classic approach of eliminating waste, variability, and inflexibility. Nonetheless, we find that many organizations struggle to maximize the value they get from leaning their service operations. Standardizing work to reduce its variability, for example, is hard in service environments because the nature of the tasks their employees perform may vary widely from one customer to another. Matching customer demand to the supply of workers is notoriously tricky as well: unexpected troughs or spikes can arise on a moments noticesomething that vexes the managers of hospitals and IT help desks alike. Finally, in many service settings, the very concept of a service product is tightly bound up with the perception that customers gain from their interaction with frontline workers, the public face of a service operation. In fact, its no exaggeration to say that these workers are the real product. They represent a critical source of competitive advantage, or disadvantage, if managed poorly.
Yet a handful of leading companies are mastering these challenges and getting morein some cases much moreby applying lean to services. In the articles that follow, we examine both their innovative practices and the strategic principles they apply to create sustainable and scalable lean operations. Their experiences, we believe, offer lessons for senior executives across the landscape of services, including pure service businesses, traditional product companies with service units, and the business support functions in global organizations. These stories sketch a picture of lean in transition. Some forward-looking practitioners are generating new insights into the application of these principles to traditional services, such as insurance claims or retailing, with their discrete, transactional activities. Others are applying them in novel areas, such as less standardized projectbased work, including the development and maintenance of IT applications, and even media and entertainment. Together, these operations are extending the boundaries of lean as a management discipline and setting the stage for the next phase of the lean revolution in services.
Keith Gilson (Keith_Gilson@McKinsey.com), director of knowledge for McKinseys service operations practice, works in the Toronto office; Scott Hensel (Scott_Hensel@McKinsey.com), a principal in the Stamford office, is the global knowledge leader of the service operations practice. Copyright 2008 McKinsey & Company. All rights reserved.
Bringing the lean revolution to services

Yes, its hard to increase the efficiency of highly variable operations that require the constant exercise of judgment. But they can be made not only more efficient but better.
Scott Hensel, Aditya Pande, and Vivek Sharma
The principles of lean production, pioneered by Toyota Motor and then adopted throughout the manufacturing sector, are now applied routinely in many industries. Manufacturers dramatically improved their operations by driving out waste and variability, becoming more flexible, and instilling a culture of continuous improvement. In recent years, lean has moved beyond its manufacturing origins. Hospitals, retailers, airlines, banks, financialservices firms, technology companies, and governments are all finding ways to adapt lean techniques to their service operations. Such operations are a vital part of any industryeither as a companys primary business, in the services arm of a product company (installation, maintenance, and monitoring), or in business-support functions (accounting, human resources, and legal). Taken together, services drive more than $30 trillion, or roughly 70 percent, of global GDP. Companies across all industries have a tremendous opportunity to reap the benefits of the lean approach. But adapting lean to services presents a challenge. These operations tend to be highly variable and thus difficult to standardize; indeed, many of the most valuable activities in services require customization and expert judgment. Evaluating a commercial loan or shepherding a patient through an emergency-services unit, for example, requires many discrete steps and a degree of expertise. Demand in services is volatile; a hospital emergency room, for instance, can analyze patient flows over time and during particular months but cannot predict when a major accident will overwhelm it with new patients. Moreover, services are intangibleoften a subjective experience in the customers mind. Because the frontline workforce is responsible for delivering this experience, success depends on highly skilled and motivated employees.
These characteristics make service operations difficult to measure and manage. So while many companies have successfully applied lean techniques to services, others have had only mixed success. Our experience suggests that service companies, after-sales service units, and business support functions still have significant opportunities to create value by leaning their operations. In fact, we have seen our clients not only raise the productivity of these operations by 20 to 40 percent but also substantially improve their quality by applying the lean approach.
ing flexible labor practices, and build a high-performing frontline workforce.

The opportunity
In the next ten years, as more markets mature and resources continue to shift from manufacturing and agriculture to knowledge-based activities, services will probably account for about 75 percent of global growth (Exhibit 1). Emerging markets, in particular, are poised to lead the pace, with China, India, and Russia expecting compound annual growth rates of 8.5, 7.0, and 6.7 percent, respectively, in the service sector (Exhibit 2).
Efficiency isnt the only consideration. Successful companies comprehensively The ability of companies to deliver highapply four core principles to address the Web 2008 quality labor-based services plays a critichallenges: find innovative ways to manLean Services cal role in determining the ultimate winners age demand, Exhibit 1 of 2 optimize the way you process and losers ineconomic any industry. it, balance it with supply by implementGlance: Services will continue to constitute a high proportion of world output. Companies
Exhibit title: A world of service

Exhibit 1
A world of service
Services will continue to constitute a high proportion of world economic output.
Service sector's share of world economic output, % 90 85 80 75 70 65 60 55 50 45 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Global Insight World Industry Service Navigator
United States Russia Worldwide India Brazil
China
2012
2014 2015
Web 2008 Lean Services Exhibit 2 of 2 McKinsey on Service Operations Autumn 2008 Glance: Services become more important as economies grow richer. Exhibit title: Richer countries demand more services
Exhibit 2
Wealthier countries demand more services

Services become more important as economies mature and grow richer.
Service sectors share of GDP, 2007, % 90 France 80 India Brazil Russia
Developed countries Developing countries
United Kingdom United States
70
60
50 0 0 5,000
China 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
GDP per capita, $
Source: CIA World Fact Book,
; Global Insight World Industry Service Navigator
must strive to increase not only the productivity but also the quality of their service operations to improve their overall performance. Productivity creates significant value for shareholders and raises the bottom line; quality improves the customer experience and strengthens a companys overall brand and image. Better service performance also produces broad social benefits in operations that provide critical community services, such as government agencies, as well as hospitals and other health care providers. Companies beyond the service sector also have much to gain by reducing the cost, raising the productivity, and improving the quality of their service functions. OEMs, product distributors, and value-added resellers, for instance, derive much of their revenues and profits from installing, monitoring, and maintaining equipment. The productivity and quality of these services are key drivers of success. Similarly,
the cost of business support functions at all US midsize and large businesses equals 8 to 15 percent of their revenues. Companies can realize substantial savings by making these functions more productive. In the past five to ten years, many companies have taken advantage of offshoring opportunities by shifting some service operations to low-cost countries. In this way, these companies have not only saved money but also made the global economy more efficientfor instance, by creating jobs for skilled workers in developing economies and shifting the workforce of mature ones into higher-value activities. But while the cost savings have been substantial, the advantage is fleeting. Going forward, companies wont be able to extract the same level of savings year after year, because the price of labor in low-cost economies is even now rising as a result of their economic maturation and increased global demand. The companies that come out ahead in
the future will make sustainable and lasting gains by using lean principles to raise productivity and quality throughout their businesses, both on- and offshore.
The services challenge
Despite the potential opportunity, many companies struggle to implement lean services successfully. Three characteristics make them challenging: high variability, volatile demand, and dependence on a highly skilled and motivated workforce. One of the core tenets of lean is the importance of minimizing and, if possible, eliminating variability. Yet the processes involved in delivering most services are highly variable because the work depends on the circumstances of a specific customers situation. The time that a bank, for example, takes to evaluate and process loans can vary significantly; each of them may involve dozens of steps and hundreds of permutations. These characteristics make it difficult not only to establish standardized practices for service products but also to sell, market, and price them consistently. Likewise, demand for services is volatile, which makes it difficult to manage capacity, response times, and quality. Manufacturing and assembly managers have ways of accurately predicting and managing the demand coming into their plants. Even manufacturers who use build-to-order models have implemented supply chain practices that let them plan ahead of demand. Thanks to the relatively stable lead times of established products, managers can minimize disruptions and shortages. Service operations are quite different: there is virtually no lead time to deal with volatility, so demand in services is notoriously difficult to predict. Managers in such
diverse settings as restaurants and hospitals, for instance, can track activity and estimate demand for their services during particular days of the week or certain times of the year. But both kinds of operations must be prepared to handle unexpected peaks in demand. This kind of volatility can slow down the delivery of services and ultimately undermine customer satisfactionor, in a hospitals emergency room, lead to physical harm. Service companies, unlike manufacturing ones, cant hold inventory to smooth supply and demand; customers expect fast, if not immediate, service. Whats more, the products of service operations are to a considerable extent intangible, which makes it hard to manage quality and track output. The quality of a service product depends on the subjective experience of its customershow well it fulfills their highly variable, highly unpredictable needs and expectations. The frontline workforce (the public face of the company) interacts directly with customers and must use its technical and personal skills to tailor services to their customers whims. In fact, these employees actually are the product and the fundamental source of competitive advantage or disadvantage in any service operation. Elusive qualities such as attentiveness and a willingness to spend time with customers are critical. People, of course, bring unpredictable differences in experience, skills, and motivation to their jobs, so it is difficult to manage productivity and quality in a consistent and measurable way. Managers responsible for services must standardize them enough to reduce these natural differences while keeping costs sufficiently low to meet the budget. Yet waste is hard to find and address quickly because the product is intangible:
Autumn 2008
there is no manufacturing floor, with its clear view of bottlenecks, equipment downtime, and unused inventory. Further, many companies lack effective performance-management systems that can identify problems in the delivery of services and sustain the impact of improvement initiatives. Companies do track and report vast numbers of performance metrics, but they continue to operate in a fire-fighting mode: for services, not broken is supposed to imply good performance. Meaningful metrics and targets are either unknown or invisible on a regular basisand even when metrics are available, they are often complex and therefore hard for employees to act on.
principles to apply lean principles in service environments.

Find innovative ways to manage demand The ability to ensure adequate capacity, fast response times, and high quality depends, first and foremost, on managing demand effectively. It is critical to understand the nature of incoming demand and to take the necessary steps to manage it proactively. For efficiencys sake, companies should automate some processes through customer self-service and alternative channels. Grocery stores provide a good example. Store managers dont know the exact patterns of foot traffic in their stores, when lines will build up at the cash registers, or when customers will seek assistance. To address some of these uncertainties, they have adopted specialized checkout linesfor limited items, cash only, and self-serviceto handle peak periods without adding to their workforce.
Companies that dont rigorously gather and use insights from customers to develop a service model will either overdeliver in unimportant areas or miss opportunities to capture new sources of value
The first step in designing a lean delivery model for services is to understand what gives them value to customersa particular service level or the way they are accessed, for example. The best way of determining the right targets is to engage customers in a dialogue about what they value most and then to focus on the areas most important to them. Companies that dont rigorously gather and use insights from customers to develop a service model will either overdeliver in unimportant areas or miss opportunities to capture new sources of value for companies and customers alike. Once the things customers value are clear, and targets have been set to meet their expectations, companies can use four core
Alternative channels allow companies to route and manage demand flexibly through efficient delivery channels designed specifically to handle particular services. Retail banks, for instance, have created a full suite of self-service channels, such as sophisticated ATMs that can handle certain transactions, phone-banking alternatives that provide an extensive menu of options to complete tasks, and a variety of online-banking options accessible through computers and handheld devices. Companies should also examine their demand drivers and seek opportunities to reduce waste, which in a services context means time spent unproductively. Field service agents, for example, constantly arrive at the addresses of customers only to find them busy or absent. Companies can analyze this type of unproductive demand using historical data and then
take steps to reduce it as much as possible for instance, by implementing call-ahead programs, giving priority to responsible customers, or adding service fees to discourage multiple visits.
Optimize the processing of demand Different services have varying degrees of complexity and therefore require quite different amounts of work. The response times that customers expect may range from a few minutes for one type of request to a few weeks for another. In a large or complex operation, what the customer perceives as a single service may actually involve many work streams, each comprising a number of tasks or activities, as well as numerous variables that can change from one situation to the next. Its an enormous challenge to assign work to the service operators who have the right skills to complete a task or series of tasks in an efficient and cost-effective way.
now provides special treatment only for highly customized ones. Making this kind of segmentation succeed in practice depends on the skill of the router: the person or system dispatching work to the appropriate channel. In hospital emergency rooms, for instance, the triage nurse segments the patients by determining how urgently they need medical attention. Call centers, in particular, segment customers successfully by using both keypad- and voice-activated menus based on an algorithm that gathers the required information, analyzes the nature of a problem, determines how to address it, and routes the caller to the appropriate delivery channel. First, however, companies must determine the optimal segmentation, which establishes a rhythm for taking in work without making it excessively hard to do or sustain. Often, companies either fail to develop meaningful segments or have segments too complex for routers to interpret, thereby burdening frontline employees with unsustainable, burnout-inducing performance requirements. Fine-tuning the segmentation scheme should be a collaborative process between management and the front line. After segmenting the workflow, managers should develop standard operating procedures where possible and make sure that frontline employees understand and use them. Call center reps, for example, follow standard scripts for common problems to ensure consistency. Field technicians follow standard steps to identify and fix specific problems. Other service businesses, such as restaurants, retailers, and hotels, have also adopted standard operating procedures to ensure consistent processes across their wide range of locations.
Successfully managing this variability hinges on the managers ability to segment incoming work by complexity and expected service levels quickly and accurately and then to route it to the most appropriate channel. Companies should isolate complex tasks that require special attention or expertise and then standardize processes for tasks that are relatively simple or involve repeatable sequences. A commercial loanprocessing operation, for instance, segmented incoming loan applications by size, complexity, and the level of expert attention required to create standardized processing tracks for them. Bankers with basic expertise easily and quickly process small loans to regular, credit-worthy customers. Senior specialists handle large loans with complex deal structures that require further examination and expertise. Thus, the lender standardizes processes for a majority of loans and
10
Autumn 2008
In our experience, intelligent segmentation and the standardization of processes make frontline workers significantly more productive. When they use standard procedures to undertake similar tasks with a similar degree of difficulty, they become highly proficient and therefore deliver better customer service more productively. To sustain consistently high service levels, companies should also develop strong metrics for individual performance and encourage regular performance dialogues.
Balance supply and demand Another core lean concept is the importance of maintaining a continuous flow of productive activity. Companies make this idea work in a services environment by actively balancing the availability of frontline operators (supply) with the volume of incoming work (demand). Managers should develop well-structured capacitymanagement models to direct that work through the system efficiently and in real time, while maintaining a high quality of service. One way of accomplishing these goals is to ensure a flexible supply of labor by adopting adaptable shifts, assigning temporary workers to peak periods, or developing networks of subcontractors to handle excess or specific types of work.
interact regularly with customers, their mindset and behavior play a huge role in shaping the customers perceptions and ultimate experience. The customer-facing element of service operations makes it essential to develop the softer skills of the front line in fact, improving its underlying culture is at least as important as improving its operational procedures. A disgruntled floor worker in an assembly plant may do poor work, but quality control teams will probably identify the resulting defects before products leave the factory. By contrast, disgruntled call center reps or bank tellers interact directly with customers and can alienate them beyond recall. The company may be none the wiser. The attitudes of frontline employees also determine the impact and sustainability of efforts to improve operations. Our experience has shown us that systematic talent development across all roles is a key requirement for changing mind-sets and behavior. Companies should invest in capability-building programs to ensure that frontline employees have the skills they need to be successful. Frequent and rigorous training, coupled with active performance management, helps to give these employees the service-oriented mind-set suited to a service operations overall delivery strategy. Despite the obvious benefits, some organizations refuse to invest sufficient resources in developing the front lines skills, because the impact isnt always immediate. Management must take a long-term perspective, because these investments pay off substantially over time. Performance-management systems in services must also be highly personal. Frontline managers should not only manage the workforce as a whole to meet its targets and performance levels but also coach individual workers to ensure
Another way of creating flexibility to manage volatile demand is to pool tasks across work units. Large companies often manage support functions by assigning frontline workers to specific business units or subfunctions. This structure makes it impossible to exploit economies of scale. Some companies instead cross-train certain groups of employees and use them as swing capacity either for similar functions or for the same function in different work units.
Build a high-performing front line In any service operation, frontline employees are the most important asset. Since they
11
they meet their individual targets. In services, first-rate oversight of frontline employees depends heavily on direct, faceto-face interaction between them and their managers. That is particularly difficult to achieve in a geographically dispersed workforce; effective performance management requires rigorous, daily, and onsite involvement with the front line. We find that organizations are increasingly adopting sophisticated tools and online systems to facilitate remote management, but our experience suggests that simple faceto-face approaches, such as a daily 15-minute team huddle, are much more effective. Finally, superior frontline performance management requires clear expectations and a frequent and transparent evaluation process. As a general rule of thumb, managers should make sure that frontline employees have clear and consistent answers to four key questions: What metrics will measure my performance? What are the targets for them? Are my team and I currently meeting them? What is the plan to close the performance gap if one exists? Regular discussions around
these questions provide the foundation for the individual coaching that is needed to help frontline employees meet their own expectations and develop a continuousimprovement mind-set.
The application of lean principles gives companies in many industries an opportunity to deliver better services more efficiently. Lean principles can be applied to achieve scalable benefits in on- and offshore service operations alike. The key to success is a rigorous, consistent, and daily approach to the execution of lean techniques. Sustaining their impact calls for active performance management, a substantial investment in frontline capabilities, and an emphasis on a culture of continuous improvement.
Scott Hensel (Scott_Hensel@McKinsey.com), a principal in McKinseys Stamford office, is the global knowledge leader of the service operations practice; Aditya Pande (Aditya_Pande@McKinsey.com) is an associate principal in the Silicon Valley office; and Vivek Sharma (Vivek_Sharma@McKinsey.com) is an associate principal in the Chicago office. Copyright 2008 McKinsey & Company. All rights reserved.
12
Toward a leaner nance department

Borrowing key principles from lean manufacturing can help the finance function to eliminate waste.
Richard Dobbs, Herbert Pohl, and Florian Wolff
Waste never sleeps in the finance departmentthat bastion of efficiency and cost effectiveness. Consider the reams of finance reports that go unread and the unused forecasts, not to mention duplicate computations of similar data, the endless consolidation of existing reports, and mundane activities such as manually entering data or tailoring the layout of reports. The impact is significant. In a exercise that benchmarked efficiency at consumer goods companies, the best finance function was nine times more productive than the worst (exhibit). Production times also varied widely. Among the largest European companies, for example, it took an average of 100 days after the end of the financial year to publish the annual numbers: the fastest did so in a mere 55 days, while the slowest took nearly 200. This period typically indicates the amount of time a finance department needs to provide executives with reliable data for decision making. In our experience with clients, many of these differences can be explained not by better IT systems or harder work but by the waste that consumes resources. In a manufacturing facility, a manager seeking to address such a problem might learn from the achievements of the lean-manufacturing system pioneered by Toyota Motor in the 1970s. Toyotas concept is based on the systematic elimination of all sources of waste at all levels of an organization.1 Industries as diverse as retailing, telecommunications, airlines, services, banking, and insurance have adopted parts of this approach in order to achieve improvements in quality and efficiency of 40 to 70 percent. We have seen finance operations achieve similar results. At one European manufacturing company, for example, the number of reports that the finance depart-
1 See Anthony R. Goland, John Hall, and
Devereaux A. Clifford, First National Toyota, The McKinsey Quarterly, 1998 Number 4, pp. 5866; and John Drew, Blair McCallum, and Stefan Roggenhofer, Journey to Lean: Making Operational Change Stick, Hampshire, England: Palgrave Macmillan, 2004.
13
ment produced fell by a thirdand the amount of data it routinely monitored for analysis dropped from nearly 17,000 data points to a much more manageable 400.
Borrowing from lean
the finance organization toward a mind-set of continuous improvement.

Focusing on external customers Many finance departments can implement a more efficiency-minded approach by making the external customers of their companies the ultimate referee of which activities add value and which create waste. By contrast, the finance function typically relies on some internal entity to determine which reports are necessaryan approach that often unwittingly produces waste.
In our experience, the finance function eludes any sort of standardized lean approach. Companies routinely have different goals when they introduce the concept, and not every lean tool or principle is equally useful in every situation. We have, however, found three ideas from the lean-manufacturing world that are particularly helpful in eliminating waste and improving efficiency: focusing on external customers, exploiting chain reactions (in other words, resolving one MoF problem reveals others), and drilling down Leaner nance to expose the root causes of problems. Exhibit 1 of 1 These concepts can help companies cut costs, Glance: to come increase efficiency, and begin to move
Consider, for example, the way one manufacturing company approached its customers to collect on late or delinquent accounts. The sales department claimed that customers were sensitive to reminders and that an overly aggressive approach would sour relations with them. As a result, the sales group allowed the accounting
Exhibit
Considerable variation in efciency Index: industry average = 1.0 Chemicals and basic materials
Considerable variation in efciency

Finance and accounting efciency varies considerably among industries.
Consumer goods Number of nance and accounting FTEs1 1.8
Services 1.8
Retail
Assembly
1.5 0.2 0.6
1.4 0.6
1.4 0.6
0.2
Invoices per accounting FTE1
1.6 0.4
1.7
1.5 0.3 0.5
1.6 0.4
1.6 0.4
Best company
Full-time equivalents.
Worst company
14
Autumn 2008
department to approach only a few, mostly smaller customers; for all others, it needed the sales departments explicit approval which almost never came. The sales departments decisions about which customers could be approached were neither challenged nor regularly reviewed. This arrangement frustrated the accounting managers, and no one would accept responsibility for the number of days when sales outstanding rose above average. The tension was broken by asking customers what they thought. It turned out that they understood perfectly well that the company wanted its moneyand were often even grateful to the accounting department for unearthing process problems on their end that delayed payment. When customers were asked about their key criteria for selecting a manufacturing company, the handling of delinquent accounts was never mentioned. The sales departments long-standing concern about losing customers was entirely misplaced. In the end, the two departments agreed that accounting should provide service for all customers and have the responsibility for the outstanding accounts of most of them. The sales department assumed responsibility for the very few key accounts remaining and agreed to conduct regular reviews of key accounts with the accountants to re-sort the lists. Better communication between the departments also helped the manufacturing company to reduce the number of reports it produced. The company had observed that once an executive requested a report, it would proceed through production, without any critical assessment of its usefulness. Cutting back on the number
of reports posed a challenge, since their sponsors regularly claimed that they were necessary. In response, finance analysts found it effective to talk with a reports sponsor about just how it would serve the needs of end users and to press for concrete examples of the last time such data were used. Some reports survived; others were curtailed. But often, the outcome was to discontinue reports altogether.
Exploiting chain reactions The value of introducing a more efficiencyfocused mind-set isnt always evident from just one step in the processin fact, the payoff from a single step may be rather disappointing. The real power is cumulative, for a single initiative frequently exposes deeper problems that, once addressed, lead to a more comprehensive solution.
At another manufacturing company, for example, the accounting department followed one small initiative with others that ultimately generated cost savings of 60 percent. This department had entered the expenses for a foreign subsidiarys transportation services under the heading other indirect costs and then applied the daily exchange rate to translate these figures into euros. This approach created two problems. First, the parent companys consolidation program broke down transportation costs individually, but the subsidiarys costs were buried in a single generic line item, so detail was lost. Also, the consolidation software used an average monthly exchange rate to translate foreign currencies, so even if the data had been available, the numbers wouldnt have matched those at the subsidiary. Resolving those specific problems for just a single subsidiary would have been
Toward a leaner finance department
15
an improvement. But this initiative also revealed that almost all line items were plagued by issues, which created substantial waste when controllers later tried to analyze the companys performance and to reconcile the numbers. The efforts real power became clear as the company implemented a combination of later initiativeswhich included standardizing the chart of accounts, setting clear principles for the treatment of currencies, and establishing governance systemsto ensure that the changes would last. The company also readjusted its IT systems, which turned out to be the easiest step to implement.
Drilling down to root causes No matter what problem an organization faces, the finance functions default answer is often to add a new system or data warehouse to deal with complexity and increase efficiency. While such moves may indeed help companies deal with difficult situations, they seldom tackle the real issues. The experience of one company in the services industrylets call it ServiceCoillustrates the circuitous route that problem solving takes.
provide additional templates as a way of creating more structure, and to shorten the time frame for developing certain elements of the budget. While these moves did compress the schedule, quality remained low. Since the responsibility for different parts of the budget was poorly defined, reports still had to be circulated among various departments to align overlapping analyses. Also, ServiceCos approach to budgeting focused on the profit-and-loss statement of each function, business, and region, so the company got a fragmented view of the budget as each function translated the figures back into its own key performance indicator (KPI) using its own definitions. To address these problems, ServiceCos managers agreed on a single budgeting language, which also clearly defined who was responsible for which parts of the budgetan added benefit. But focusing the budget dialogue on the KPIs still didnt address the root problem: middle management and the controllers office received little direction from top management and were implicitly left to clarify the companys strategic direction themselves. The result was a muddled strategy with no clear connection to the numbers in the budget. Instead of having each unit establish and define its own KPIs and only then aligning strategic plans, top management needed to link the KPIs to the companys strategic direction from the beginning. Getting to the root cause of so many problems earlier could have saved the company a lot of grief. Once ServiceCos board and middle management determined the right KPIs, the strategic direction and the budget assumptions were set in less than half a day, which enabled the controllers office and middle management to
Everyone involved in budgeting at ServiceCo complained about the endless process loops and the poor quality of the data in budget proposals. Indeed, the first bottomup proposals didnt meet even fundamental quality checks, let alone the target budget goals. The process added so little value that some argued it was scarcely worth the effort. Desperate for improvement, ServiceCos CFO first requested a new budgeting tool to streamline the process and a data warehouse to hold all relevant information. He also tried to enforce deadlines, to
16
Autumn 2008
specify the assumptions behind the budget quickly. The management team did spend more time discussing the companys strategic direction, but that time was well spent. The result was a more streamlined approach that reduced the muchdespised process loops, established clear assumptions for the KPIs up front, and defined each functions business solution space more tightly. The budget was finalized shortly thereafter.
quality of data, for example, certainly adds value, but the real issue is generating relevant, high-quality data in the first place. The same kind of analysis can be applied to almost any process, including budgeting, the production of management reports, forecasting, and the preparation of tax statements. In our experience, such an analysis shows that controllers spend only a fraction of their time on activities that really add value. The challenge in developing value stream maps, as one European company found, is striking a balance between including the degree of detail needed for high-level analysis and keeping the resulting process manual to a manageable length. Unlike a 6-page document of summaries or a 5,000-page tome, a complete desk-by-desk description of the process, with some high-level perspective, is useful. So too is a mind-set that challenges one assumption after another.
Every activity should be examined to see whether it truly contributes valueand to see how that value could be added in other ways
Getting started
Introducing lean-manufacturing principles to a finance function takes timefour to six months to make them stick in individual units and two to three years on an organizational level. A new mind-set and new capabilities are needed as well, and the effort wont be universally appreciated, at least in the beginning. Integration tools can be borrowed: in particular, a value stream map can help managers document an entire accounting process end to end and thus illuminate various types of waste, much as it would in manufacturing. Every activity should be examined to see whether it truly contributes valueand to see how that value could be added in other ways. Checking the
Ultimately, a leaner finance function will reduce costs, increase quality, and better align corporate responsibilities, both within the finance function and between finance and other departments. These steps can create a virtuous cycle of waste reduction.
Richard Dobbs (Richard_Dobbs@McKinsey.com) is a director in McKinseys Seoul office, Herbert Pohl (Herbert_Pohl@McKinsey.com) is a principal in the Dubai office, and Florian Wolff (Florian_Wolff@McKinsey.com) is a consultant in the Munich office. Copyright 2008 McKinsey & Company. All rights reserved.
17
Applying lean to application development and maintenance

To make application development and maintenance more productive, IT managers are getting lean.
Noah B. Kindler, Vasantha Krishnakanthan, and Ranjit Tinaikar
Burdened by high costs for application development and maintenance (ADM),1 many businesses have offshored up to half of their application development to low-cost locations, renegotiated rates on outsourced projects, and tightened the governance of new projects. In spite of these efforts, the costs of developing and maintaining applications now account for about half of the average IT budget and continue to rise. Labor costs make up more than 80 percent of application development, so many organizations have already reduced head counts or labor expenses where possible. Now they must begin to focus on improving the productivity of their development and maintenance staffs. In the past, companies have tried many methodologies, with mixed results (see sidebar, Software-development productivity: Traditional methods). Companies that apply the time-tested principles of lean manufacturing, which hunt for and eliminate waste from the production process (Exhibit 1), are seeing a significant impact within a matter of months. Although lean principles were originally developed for manufacturing environments, they are increasingly (and successfully) being applied to service businesses, especially those with many routine processes. Application development and maintenance is a prime candidate for lean methods not only because it involves a great many processes with the potential to be optimized, but also because large differences in productivity among organizations suggest that some are far less efficient than others. In our experience, applying the principles of lean manufacturing to ADM can increase productivity by 20 to 40 percent (Exhibit 2) while improving the quality and speed of execution. Each category of waste in manufacturing has a counterpart in ADM , which can be thought of as a kind of factory that
1 Application development and maintenance (ADM) is the part of IT that works closely with the business to develop new software, keep it running, and make ongoing improvements. Within this part of IT, busi ness analysts and software developers communicate with executives on the business side to understand their requirements for new and existing applications. In most com panies, ADM teams are organized around application areas (for example, customer relationship management) rather than busi ness functions.
18
Autumn 2008
develops new applications according to designers rework their specifications, coders MoIT 11 2007 business requirements. Changes to an wait for specifications to stabilize, testers Lean ADM requirements are one common applications overproduce as their testing environments Exhibit 1 of 3 source of ADM waste, causing many have to be set up repeatedly, and unmet Glance: The time-tested principles of lean manufacturing can be applied pile to rooting and backlog. As of the classic varieties identified in lean: requirements up inout a large eliminating waste from the application development and maintenance production process. Exhibit title: Waste land
Exhibit 1
Wasteland
The principles of lean manufacturing can be used to root out and eliminate waste from the application-development and maintenance (ADM) production process.
Waste in application development and maintenance (ADM) Type Overproduction/overprocessing Rework Wasted motion
Example Fulllment of requests that wont be used within next 3 months Unnecessary functionality

Changes in business requirements during development Application bugs
Requests not tied to business priorities Ineffective prioritization of maintenance requests Unplanned task switching

Wasted intellect Wasted time
Limited cross-training of developers across different applications Poor usage of employees and offshoring resources Key resources not available Developers idling because of incomplete information on the request

Maintenance backlogs Inventory waste MoIT 11 2007 Many partially completed requests Lean ADM Exhibit 2 of 3 Glance: Companies can reduce application development and maintenance costs by up to 40 percent. Exhibit title: Lean with IT
Exhibit 2
Lean with IT
Companies can reduce applicationdevelopment and maintenance (ADM) costs by up to 40 percent.
Application-development and maintenance (ADM) costs, %
Costs without lean Productivity improvement (cost reduction through lean)
US retail bank Application maintenance 16 to 27 Application development Management of relations with internal customers Total 25 to 41 35 8 to 12 5 1 to 2 100 60
European retailer 65 12 to 25 35 8 to 15 Included in above
100 20 to 40
19
in manufacturing, systematically eliminating these sources of waste improves the delivery time, quality, and efficiency of the ADM end product. Just as each element of waste has a counterpart in ADM , so too does each of the traditional principles for reducing waste:
Flow processing
Standardization
is common in most application-development organizations but can be more widely applied to reduce the waste that results when requirements are defined in an ad hoc way.
Segmentation
reduces overcapacity or excess inventory by aligning the rhythm of output with the flow of production. A release schedule helps prioritize projects, so it prevents the waste inherent in delays to accommodate new requests. forces the organization to make use of development staff across several locations, as well as outside vendors.
of projects by complexity eliminates waste by helping managers to route projects to the proper resources and by avoiding unnecessary overhead for simple tasks.
Quality ownership
Load balancing
should extend beyond the testing group to encompass the business (which must increase its discipline in specifying project requirements), the designers (who must build use cases fully aligned with business needs), and the coders and testers (staff resources that
Software-development productivity: Traditional methods
Over the past three decades, organizations have tried various methods to boost productivity in application development. Those efforts can be grouped into three categories:
1. Process. Standards from the International Organization for Standardization (ISO) and Carnegie Mellons Capability Maturity Model (CMM) index help organizations to improve quality by following uniform processes. They address one of the drivers of waste in application development: process inconsistency. CMM and other standards dont address other sources of waste, such as ineffective alignment between business and IT, the unavailability of the right resource at the right time, or architectural complexity. 2. Metrics. Measuring function points assumes that
the output of any application-development project can be standardized in much the same way as businesses measure productivityfor instance, the
volume of calls an agent can handle or the number of applications a loan agent can process. While such metrics may be helpful in environments with stable frameworks (say, embedded-systems development or mature and well-documented applications), they dont measure the waste that can occur in the early stages of development, such as the definition and design of requirements.
3. Technology. Techniques such as computer-aided

software engineering (CASE) can help eliminate wasteful activities by automating some aspects of code generation, document management, and version control. However, these techniques are limited in that they do not address the fundamental behavioral and cultural changes necessary to improve productivity (for example, working with the business to improve its understanding of IT).
20
Autumn 2008
must be allocated more flexibly). Unfortunately, in most application-development groups end-to-end quality ownership remains fragmented across multiple functional silos and is hardly ever tied to endto-end performance incentives.
system (changes to tools, methodologies, standards, and procedures), the behavioral system (convincing staff of the value of these changes), and the management system (new roles, metrics, and incentives to encourage the shift).
Each of these principles requires not only A lean transformation demands a substanchanges in processes (the technical part of tial investment of time, as well as a susthe equation) but also shifts in behavior tained focus from upper management and and new management tools. To improve the an ongoing revision of incentives and way project requirements are communimetrics. Implementing the lean philosophy cated, for example, the business must make is a continuing and long-term goal that experts available to IT. But ITs access can deliver some results quickly, but it may to these experts often takes a backseat to take years before the approach becomes more pressing priorities. Similarly, with a core aspect of an organizations culture. flexible staffing, ADM managers must share Applying lean personnela practice that individual A lean transformation begins with a managers might resist because they have MoIT 11 2007 diagnostic phase that estimates the level of learned to rely on certain people over the Lean ADM waste in ADM processes. Since most years. Thus, a lean transformation requires Exhibit 3 of 3 ADM organizations dont track waste, the simultaneous changes in the technical Glance: An analysis of the steps in the application-development process reveals opportunities for improving productivity by up to 50%. Exhibit title: Wheres the fat?
Exhibit 3
Wheres the fat?

An analysis of the steps in the application-development process reveals opportunities for improving productivity by up to 50 percent.
Stages in application development Time spent as % of total time in process Initial user request Single point of contact Technical analysis Prioritization Planning and design Building 5 10 15 5 10 40 Share of activity in category that does not Sources of waste add value, % 20 50 20 50 0 2025

Lack of guidelines, so business user struggles to describe what is wanted Ambiguous or incomplete maintenance requests that must be claried and nalized Need to clarify technical aspects of maintenance requests Frequent reprioritization of projects because of lack of clear rules or canceled requests
Requests for clarication of requirements too late in process Failure to bundle similar requests
Testing
10
50
Lack of bundling, resulting in repeated test setups and quality testing for each individual request Poor quality assurance specications
Release
25
Release overhead from repeating release setup each week
21
assessment is based on interviews and questionnaires asking how information (such as the requirements for new applications) and materials (such as the code under development) move through the system. In the parlance of lean, this diagnostic method is called a materials and information flow analysis. One of its goals is to discern how much time is spent productively and how much is wasted. The wasted time is then examined to discover the root causes and to determine the opportunity for improving productivity (Exhibit 3). A large financial institution going through a lean transformation of its applicationdevelopment department discovered two primary drivers of waste within application maintenance. First, the process for defining project requirements was chaotic and inefficient, involving more back and forth than it would in organizations where processes were more efficient. IT had no standard procedure for obtaining a comprehensive description of the businesss requirements for maintenance requests, so developers had to keep going back to the business to clarify requirements an approach resulting in delays and a lot of rework. Furthermore, there was no clear and effective way to prioritize projects. As businesses requested exceptions (for example, rush jobs), developers had to shift focus from one application to another, and some projects were never completed. The ADM department measured a projects cost and staffing, but not waste, and had no specific goals to improve productivity. There appeared to be little quality ownership and scant incentive for individuals to exert extra effort. After the diagnostic phase, the financial institution decided to launch a pilot program to learn how to implement the
lean philosophy and to create momentum for a broader transformation of the entire ADM organization. The pilot managers, basing their moves on the diagnostic findings, decided to apply three lean principles that would help reduce waste: a process redesign for improved flow, load-balanced work groups, and end-toend performance management.
Redesign processes to improve flow In the pilot program, the team redesigned the application maintenance process to improve the way work flowed through the system. First, they set a schedule of bimonthly releases with clearly defined steps and a fixed capacity based on available resources (that is, designers, coders, and testers). Deadlines for final requirements from the business were clearly spelled out, as were the dates for finishing the development of code and delivering applications. This predictable schedule allowed the business to plan for current and future releases and diminished the tendency to rush late requests into the process.
The team then replaced the ad hoc prioritization practices with a formal process that involved regular meetings between the business and IT. The team also established a more formal set of procedures for handling any exceptions, such as highpriority changes that might come in after deadline.
Balance the load of work groups This aspect of the pilot solution was based on a more flexible definition of work groups. Developers and testers were crosstrained so that they could work on projects throughout the organization, not just within the group they had focused on. This move allowed managers to use these people more efficiently; for example, when a group was particularly busy, it could
22
Autumn 2008
borrow developers or testers from another group with available resources. Managers could also tap offshore resources and the staffs of third-party vendors to meet peak demands without hiring additional personnel in the more expensive locations.
the development of new applications and infrastructure provisioning, further broadening the impact of the initiative.
Overcoming stubborn resistance
The key to making the case for change is to demonstrate positive results in a pilot program, generally undertaken in an area open to change
Manage performance across the entire process New metrics to track performance at the group and individual levels focused on measuring and reducing waste. A new management dashboardessentially a spreadsheet that tracked performance and highlighted trouble spotsallowed managers to identify potential problems before they happened. In one case, managers saw that a particular task was taking longer than estimated, so they redistributed that developers workload and minimized the disruption. The tracking of individual performance encouraged developers to take on more tasks, since their efforts were now more visible.
Applying lean to an applicationdevelopment organization is a substantial transformation taking two to three years. From discussions with chief information officers (CIOs) and other executives at 30 companies across a range of industries, we have learned that three challenges are the most difficult to overcome: changing behavior, broadening the focus from specifics to general principles, and setting up the right incentives. Perhaps the most difficult part is changing the behavior and convincing the staff and managers of the value of lean approaches. The key to making the case for change is to demonstrate positive results in a pilot program, generally undertaken in an area open to change. The financial institution in the earlier example publicized the results of the pilot in a series of company meetings that created support and momentum for a broader initiative. In another organization, management decided to emphasize the importance of the program by appointing a senior executive, who reported directly to the CIO, as the manager of lean transformations. It also assigned specialized teams to help implement lean efforts across the organization. A common pitfall can be fixating on the specifics of a particular lean implementation rather than the more widely applicable lean principles. At the financial institution, the bimonthly release schedule is one such specific change. Twomonth release schedules may not be appropriate for dynamic environments requir-
The pilot surpassed expectations, boosting productivity in the targeted application maintenance areas by 40 percent in less than two months. Furthermore, ITs business counterparts were more satisfied with the process, and employee morale was up. As a result of this successful pilot, the company rolled out process redesign, loadbalanced work groups, and performancemanagement systems to the rest of the application maintenance organization over the following year. In addition, the champions of the successful pilot helped to extend it to other parts of IT, including
23
ing shorter times to market, but the underlying principleestablishing predictability and eliminating delays caused by the ad hoc definition of requirements still applies. Segmenting projects by complexity and flexibility will help IT determine the appropriate implementation program for achieving alignment with the business. Finally, no transformation can sustain itself without the proper metrics and incentive systems that ensure change. In application development, function points measure the level of effort devoted to a project. A successful lean transformation requires new metrics to identify waste and set goals for reducing it. Leaders must adjust incentive programs, including financial awards and public recognition, to track and reward managers and staff for meeting goals on both measures.
Addressing the barriers to change is no small feat and requires management to sustain a commitment to change. Given the urgent need to improve productivity and the opportunity at hand, a lean transformation is a journey well worth the effort.
Noah Kindler (Noah_Kindler@McKinsey.com) is a consultant in McKinseys New York office, Krish Krishnakanthan (Krish_Krishnakanthan@McKinsey.com) is a principal in the Silicon Valley office, and Ranjit Tinaikar (Ranjit_Tinaikar@McKinsey.com) is a principal in the Mumbai office. Copyright 2008 McKinsey & Company. All rights reserved.
24
Lean cuisine
Proven techniques from manufacturing might be the recipe for improving productivity in restaurants.
John R. McPherson and Adrian V. Mitchell
Beset by waste and operational variability, food service operators are taking a page from industrial manufacturers and applying lean-production approaches to their own operations. Lean techniques seek to improve product and service quality while simultaneously reducing waste and labor costs. For food service operators, the additional trick is to link such improvements to customer loyalty. For one operator, this effort meant tackling unpredictable demand and excessive error rates and wait times (ten minutes for simple sandwiches) on orders. The operator mapped daily changes in demand to highlight fluctuations, introduced a self-service counter, and redesigned kitchen and food preparation procedures to standardize sandwich making and eliminate waste, which consequently fell by 40 percent. Meanwhile, labor costs dropped by 15 percent and service times improved by one-third. Best of all, sales increased by 5 percent and margins on affected products more than doubled, since employees could spend more time influencing customers and less time apologizing to them.
25
Q1 2005 Lean foods FOB Exhibit 1 of 1 Glance: Standardizing procedures saves time
Exhibit
A recipe for change

Standardizing procedures saves time.
Service steps for fullling order (example: hot chicken sandwich) Before improvements
Phone, fax Sink Trash Samples Soup Bread 3 1 Register Pastries 4 Toaster 9 Warm prep/food station 10 5 12 2 7 13 11 Oven 8 6 Coffee station Proofer (thaws food)
Prep station
After improvements
Phone, fax Sink Trash Samples 1 Soup 2 3 Toaster 4 5 Self-service case Coffee station Oven Proofer
Cockpit prep station
Time to prepare before/after improvements, minutes, seconds Breakfast sandwich Before After 2:15 1:24 Lunch sandwich Before After 3:10 1:59
John McPherson is a director and Adrian Mitchell is an alumnus of McKinseys Dallas office. Copyright 2008 McKinsey & Company. All rights reserved.
26
Autumn 2008
The choreography of expertise

Even steps that require customization and expert judgment can be streamlined effectively.
Dan Devroye, Andy Eichfeld, and Franklin Garrigues
In recent years, financial institutions have dramatically improved many of their operations, enhancing speed, quality, and customer experience even while reducing costs. These breakthroughs owe much of their success to the creative adaptation of lean principles, first developed in the manufacturing world. Institutions found that any process that could be standardizedfrom check processing and insurance claims reviews to loan originations and customer carecould also benefit from lean. But some of the activities that add the most value to a company require customization and expert judgment and thus resist standardization. For a sophisticated undertaking, such as a corporate loan in the aviation industry, there may be dozens or even hundreds of identifiable steps. Even for projects in the same workstream, the sequence of required actions may differ significantly from case to case. Any particular expert say, an attorneymay find herself weighing in at multiple stages; moreover, her contribution may change depending on input from other experts, such as underwriters or engineers. These sorts of convolutions often produce high costs and disappointing outcomes. Senior leaders are frustrated as they get beaten to market by a faster competitor, or hear that their teams must run a gauntlet of approvals to close every deal, or find their companys growth limited by an inability to scale up their experts contributions. And leaders see little promise in applying lean methods to these activities. They rightly recognize that complex tasks cannot be standardized, so they doubt the benefits of using an assembly-line model. Yet despite the obvious differences between customized, highly skilled activities and the traditional lean environment, we have found that lean principles do, in fact, apply to complex operations. The approach we use, which we call expert choreography,
27
addresses the shortcomings that plague workstreams that depend on expertise workstreams that too often lack urgency, predictability, clear authority, and a sense of common purpose. The model bears some similarity to the lean work cells that have achieved dramatic results in repetitiveprocess contextsbut the complexity of the problems means that the solution must be even more flexible and tailored (see sidebar Expert choreography in product development). The essence of expert choreography is to assemble experts into a new type of team, with a new champion-based leadership
structure; standardized tracks to create adaptable yet consistent processes; and a pacing mechanism to ensure that the team meets its commitments for quality, quantity, and speed. The approach has already had a dramatic impact in helping financial-services providers increase their output from high-value processes whose inefficiencies had become suffocating.
The expert conundrum
The credit analysts, lawyers, product managers, technology specialists, and other experts whose contributions are so important to so many profitable lines of business also pose some of the most significant
Expert choreography in product development
The challenge for data services company SpeedData was to fulfill its CEOs publicly stated promise that a certain share of the companys revenues would accrue from new products. Managements initial response was a textbook stage-gate product-development process, which clearly defines the roles for the necessary experts (product management, operations, technology, finance, etc.) along with the milestones that any new concept would have to clear. Although in principle everyone in the company approved of the process, the few new products that it produced were late and poorly received. Dissatisfied with the results, the companys top executives sought to review every idea, further diminishing output and slowing the progress of promising concepts. Our diagnosis revealed that the four common challenges applied to this case and that the most important was a lack of end-to-end leadership. The individual product managers tasked with leading the productdevelopment effort often lacked not only sufficient time to devote to the project but also the necessary resources and authority. Consequently, new ideas failed to progress from one approval stage to the next, either because of inertia or internal opposition.
To solve the problem, SpeedData designed a version of expert choreography that focused on a small number of dedicated new-product champions who would manage portfolios of new concepts, assuming responsibility for all stages of their development. For each new concept, the champion would assemble a team with appropriate resources from all relevant functionseach of which now had its own coordinator to ensure that the resources would actually be available. Senior executives would then assign the concept to one of three tracks, based largely on the concepts sophistication and expected cost; the three tracks in turn defined the depth of analysis and level of approval required at each stage of the process. To ensure pacing, champions would hold weekly in-person team meetings, even though not all of the team members were colocated. The new structure would reduce new-product cycle times by some 40 percent. By focusing resources on the most important tasks and reducing time spent on small or less important projects, the new approach put SpeedData on a path to double the share of its revenue generated from new products, in line with the CEOs aspiration.
28
Autumn 2008
operational challenges. The very characteristics that enhance an experts worth can impede coordination to a much greater degree than in simpler operations. Four related issues form the core of the problem.
Silo mentality. By nature, experts tend to focus primarily on their own experience and skillsa habit developed over years spent learning from others in the same field. This focus allows experts to maintain an independence that can be crucial for tasks such as assessing credit risk. But another consequence is that unlike, say, account executives whose credibility depends on closing deals, experts may have no stake in a particular deals outcome, much less in the effectiveness of an overall process governing many deals. And even if the experts can see the flaws in existing practices, they may have little reason to collaborate with the rest of the group to devise solutions. Unclear leadership. Complex efforts also tend to suffer from a leadership gap. In many cases, these workstreams have no endto-end leader; responsibility changes hands as the work moves from one expert function or specialty to another. But even in cases where there are nominal leaders for a workstream, they may have limited or no authority over team members and thus little power to ensure that the work is completed at all, much less in a timely fashion. Instead, each team member reports to a boss who is outside the team structure and who may have no direct stake in the teams success. If no one makes an effort to coordinate the different functions at each stage, an important workstream can easily stall or die. Lack of standardization. A critical driver of complexity is variability: in any work-
stream, the more variables there are that are subject to change, the fewer the opportunities for standardizationmeaning there is more need for expertise. Only experts know how a seemingly minor change in a contract term could vastly increase a lenders financial exposure or how a new line of software code could cause embarrassing privacy violations. The content of the experts contribution thus cannot be any more standard than the project itself. Moreover, in most organizations the process the expert follows is also nonstandard, leaving managers with no method to track progress or to make improvements.
Lack of flow. One of leans great insights is its focus on continuous flow rather than batch production. For example, an insurer responds to the ongoing demand to process claims in a timely fashion by creating a system that continuously pulls files forward to the next stage. But in projects with greater complexity and longer duration, bottlenecks and stalled work are less apparent, leaving the overall process more vulnerable to inertia. And because experts tend to focus on their own contributions, not on the process as a whole, they may not even realize that anything is wrong. Indeed, they may think that they are being effective even though their collective efforts produce more waste than results.
A lean solution
Expert choreography is an approach for addressing the challenges of complex processes, with the goal of enhancing speed and productivity while delivering the highestquality output. The approach typically involves four elements: a closely knit multifunctional team; a leader with crossfunctional authority playing a coordination role; standardized tracks that accom-
29
Expert choreography in loan origination
Specialized commercial lender CreditCo had made a significant investment to expand its sales force with the hope of fueling additional growth, but many transaction types were taking months to complete, limiting its capacity to absorb additional deals. The size of CreditCos dealsranging up to about $500 millionand their complexity meant that each transaction could require upward of 40 internal handoffs among various experts. Yet these very constraints became an opportunity. By reducing turnaround times, CreditCo could increase its capacity without increasing its head count. The key was to coordinate the various functions more tightly to address CreditCos top problems: siloed functions and lack of standardization. Because the industries that CreditCo serves require an unusual depth of expertise, the first step was to establish separate expert-choreography teams for each major client sector. To foster buy in from the functions and ensure common practices among the teams, the client created a two-part leadership structure. First, each team had its own champion, responsible for overseeing the teams day-to-day activities and
output. The champions then reported to a new-deal committee comprising senior executives from each of the functions represented on the sector teams. Proposals would progress along one of four major tracks based on a combination of risk and regulatory factors. The new-deal committee would assign deals to tracks, and the champion would enforce the deadlines within each plan, calling on the new-deal committees authority to command resources as necessary. Daily huddles further reinforced pacing, while new communication protocols strengthened the teams problem-solving capabilities. The result has been a reduction of up to 60 percent in the time required to complete a transaction. Customers have been pleasantly surprised at the clients newfound responsiveness, creating the potential for further increasing the clients deal flow. Morale also has increased markedly.
modate variations while limiting waste; and a pacing mechanism to focus attention on process efficiency.
A new team. The first component is a stronger team dynamic. Companies have long been assembling disparate experts into multifunctional project groups, but few have managed to break the silos that keep these groups from working as genuine teams.
tise. Second, the team must interact closely; if colocation is not feasible, there should at least be frequent interaction, such as establishing office hours for experts to come to work and holding daily or weekly huddles that involve all team members. This interaction is critical to foster the sort of collaborative behaviors and joint problem solving that result in continuous improvement.
A project champion. Expert choreography also requires a champion, typically a senior manager with a comprehensive view of the process. The champion bears ultimate responsibility for the teams performance against key business metrics,
We have found that two basic factors are essential. The first is to sharpen the teams focus, which must either be on a single, larger project or on a stream of smaller projects all requiring the same mix of exper-
30
Autumn 2008
such as the number of successful new products or deals completed under its workstream. Champions must therefore have sufficient top-level support to ensure adequate resources, to cut across traditional functional boundaries, and to exercise real authority over all experts on the team (see sidebar Expert choreography in loan origination). These powers are especially critical for balancing the experts independence, but they can also lead to resistance. Two techniques have proven effective at fostering buy in. The first is vesting the authority in a committee of senior representatives of all functions; although this committee will itself need clear leadership, the structure ensures that each of the functions has a strong institutional voice. The second technique is revising the experts incentives. Rather than focusing only on the quality of the ultimate decision, evaluations should also assess how well team members are contributing to solutions and whether they are using their capacity effectively.
Standardized tracks. As in traditional lean, expert choreography seeks to smooth handoffs from one function to the next, all in the context of a complete, end-to-end process. But the complexity of an expert teams activities means that a single, standardized procedure is usually neither possible nor desirable. Instead, the goal is to specify possible tracks for projects to follow, depending on key characteristics such as the level of risk involved in a project,
the expertise required to assess it, and the time required to complete it. One possibility is to structure the tracks based on a combination of duration and complexity. In the new-products context, simpler ideas such as line extensions, entry into adjacent markets, and repackages of existing products would all move on a fast track, while long-term projects requiring extensive strategic planning would move on a slower track. Alternatively, tracks could correspond to any issues that might impede a projects completionthe more serious the issue, the slower the track. The track structure must also specify when and how functions can raise legitimate objections to a proposal. Most projects should be subject to at least two screenings. The first, a form of triage, is an initial quality check that weeds out the projects whose weaknesses are large and obvious; at this time, senior leadership (which may include the champion) classifies the surviving projects into the various tracks. Each track can then include one or more opportunities for additional screening to decide on a projects outcome. Leadership should then give teams the flexibilityand the incentivesto manage projects according to each tracks requirements.
A pacing mechanism. What ultimately makes expert choreography tick is a mechanism for pulling projects forward in a timely fashion, a task complicated by the
31
fact that many complex projects lack obvious benchmarks for completion time. This issue can be addressed through two common lean techniques. The first is to make end-to-end progress visible to all by incorporating standard milestones and deadlines into each of the tracks described earlier. The project champion is then responsible for ensuring that the projects progress on schedule. The second technique is to adapt the visual management tools common in other lean solutions, such as real or electronic white boards, to track progress over longer time frames. What is important is not so much the tool itself but the teams use of the tool to support its regular meetings, in which the core team identifies bottlenecks, develops and makes improvements, and then reports them to senior management.
process hampered by a silo mentality, unclear leadership, a lack of standardization, or the absence of project flow? This assessment will in turn inform the design of a solution appropriate to the specific problem, drawing on some combination of multifunctional teams, project champions, standardized tracks, and a pacing mechanism. A pilot of the design allows for additional refinement before expanding the test to a larger subset of the business. The final (and most difficult) step is to implement the solution companywide, incorporating further lean insights to achieve continuous improvement. Whatever the right answer for a particular situation, success will depend on a thorough understanding of the challengeand the courage to bring about significant change. Those who are willing to reexamine their operations from a new perspective stand to unlock significant value from even the most complex environments.
Although designing and implementing expert choreography requires a substantial commitment, the rewards are well worth the effort. Based on our clients experiences, the first step in adapting expert choreography is to build a business case, identifying the most pressing customer and company needs that current processes do not and cannot satisfy because of complexity and waste. These may include a need for increased quality, quicker turnaround time, or greater productivity. Next comes an assessment of the key issues in the clients current situation: To what extent is the
The authors would like to express their sincere thanks to Christian Johnson for his tremendous support in preparing this article. Dan Devroye (Dan_Devroye@McKinsey.com) is a consultant and Andy Eichfeld (Andy_Eichfeld@McKisney .com) is a principal in McKinseys Washington, DC, office; Franklin Garrigues is an alumnus of the Montral office. Copyright 2008 McKinsey & Company. All rights reserved.
32
Autumn 2008
Lean in media: The art of making creative work efficient

Companies can ferret out waste and variability without damaging creativity. A customized approach to lean can help.
Rebecca Granne, Jon Wilkins, and Jennifer Wong
Since the rise of the mass market, the success of media businesses has rested on hits and it still does. For senior executives of movie studios, publishing companies, television networks, music labels, game developers, and Internet companies, scoring a hit with audiences is the best way to increase financial returns. Indeed, there are few problems that a major hit wont solve, at least for a while. Accordingly, media companies have long sought to improve their hit ratio, or batting average, with approaches ranging from innovative forms of audience testing to predictive modeling techniques. But these have failed to generate sustainable improvements. The problem with most of these efforts is that they strive to convert an artistic or creative process into a scientific or analytical one. A better alternative, we believe, is to get more hits by taking more swings. In media companies, as in baseball, batting averages tend to revert to the norm over time. Rather than trying to increase batting averages, the key to getting more hits may simply be to get to the plate more often. With cost pressures high and budgets fixed, how can companies finance these additional opportunities? Simple cost reductions will not help, and in fact often hurt, since cost-cutting efforts tend to be broad based and indiscriminate. With such gestures, it is possible to sacrifice unwittingly the next great show or movie. Instead, we believe that the best way to fund more at bats is through productivity improvements. Of course, this is not easy. Creative processes and people are notoriously resistant to standard approaches such
33
as Six Sigma. The blind application of these rule-based frameworks in businesses that thrive on creative judgment does not work. In recognition of that reality, we have successfully customized the principles of lean manufacturing for the unique challenges posed by creative work. First, despite the obstacles, companies can in fact gain the trust and help of creative staff, a requisite for this kind of transformation. Then, by examining the development process and separating the elements in which judgment and creativity are vital from those in which they are not, companies can identify places to expunge waste and variability safely, without damaging creativity. (These areas often lie in downstream stages of production and in distribution.) Similarly, companies can adopt a tiered content strategy, in which they allow branddefining content its customary creative freedom and make other, less essential products in more uniform ways. Companies that have implemented a systematic, lean-based performance-improvement program such as the one we describe below have started to capture 10 to 20 percent savings on their end-to-end production costs, which represent 30 to 50 percent of total costs. Full value is expected to hit the bottom line in 18 to 24 months; in some circumstances, even greater savings have been achieved more quickly. These savings can be a valuable currency: Managers can use them to satisfy consumers seemingly infinite appetite for better quality and excitement, ever-escalating talent demands, and the dictates of the head office. The savings might also go to fund growth in new digital businesses, which many regard as
the future of the industry. The savings can be allowed to float through to the bottom line, improving current earnings. And of course, these funds can be plowed back into the production budget, giving the company those additional at-bats (new pilots, content for other platforms, offshoot publications, and so on) that are so critical to a hit-based business system.
Creativity, productivity or both?
Although lean manufacturing was pioneered as a technique for continuous performance improvements on Toyota Motors assembly line, it has since broadened into an operational-effectiveness discipline that has been put to powerful use in an array of industries, from hospitals to retail to government. Like manufacturing, these industries feature complex and costly operational systems, where improving core process efficiency can bring tremendous savings. Toyota and others have also managed to extract these efficiencies while actually improving quality: Toyota is consistently ranked first in quality ratings, even as it maintains the lowest cost structure in the business. Efforts to apply these principles to media companies, though, have run afoul of four main challenges characteristic of the creative enterprise. First, media companies know which side their bread is buttered on and are loath to interfere with the creative processes, however disorderly, that ultimately deliver the goods. That spirit pervades many companies, and it protects not just the artists who may need it but also the artisans and even the regular business staff who do not. As a result, companies do not have a good sense of those activities that truly require creative flexi-
34
Web 2008 Lean Media McKinsey on Service Operations Autumn 2008 Exhibit 1 of 3 Glance: The assumption that imposing process rules will inhibit innovation can result in variability throughout the production chainat times, to no good effect. Exhibit title: Creative exibility or inefency?
Exhibit 1
Sacricing efciency for creativity?

The assumption that imposing process rules will inhibit innovation can result in variability throughout the production chainat times, to no good effect.
Process example, cable programmer Step Development Green light Preproduction Production Incoming quality control Editing

Inefciencies
Rework: ideas often handed over lacking detailseg, number of episodes, pilot requirements
Rework: producers pressured to begin shooting without contract and before idea is fully vetted, creating need to reshoot Rework: high incoming failure rate; limited communication of standards to producers Overproduction: some contractually required products are made but go unused

Excess motion: content is digitized and returned to tape several times during quality control and editing processes Overprocessing: frequent executive interference; lack of standards for appropriate executive involvement
Outgoing quality control Transport to uplink center Incoming quality control Log Advertisements Master control Uplink Your TV

Rework: duplicate quality control required due to trucking fragile tapes Rework: unclear ownership of and approval responsibility for log Overprocessing: frequent last-minute changes made by ad sales group; unclear whether added revenue exceeds change costs

Rework: international and new-media requirements often determined at end of process, driving reshooting and repurposing of existing footage
bility and those that are instead merely undermanaged. The often untested presumption that imposing process rules will only inhibit innovation results in variability throughout the production chain, even in many areas where variability brings little to no creative benefit (Exhibit 1). Second, media companies suffer more than most from fragmented decision making, with many managers trying to accomplish similar tasks in different ways. This creates inefficiencies in coordination among
internal activities as well as with external providers of creative inputs, such as outside production companies and freelance journalists. Third, many media companies fail to make those who manage creative processes accountable for process execution. This proves costly later: because of the unambiguous need for error-free product, those at the tail end of the production process (for example, in distribution) scramble to correct upstream mistakes, almost always
35
taking significant extra time and involving additional expense. When they succeed, as they usually do, the system is perceived to work. However, this approach burdens many production organizations with excess resources in areas that engage in very little creative work. Finally, this state of affairs persists because of senior managers focus on trailing indicators of revenue (for example, Arbitron ratings, newsstand sales, and box office returns) and their lack of attention to operational productivity metrics. This oversight limits their ability to assess the true costs of content production and the corresponding return on investment of improvement efforts. As a result of these barriers, few (if any) Web 2008companies have successfully applied media Lean Media productivity-improvement programs to Exhibit of 3 their 2 methods of content creation and distriGlance: Process efciency can fund more development. Exhibit title: Improved efciency
Exhibit 2
bution. Pockets of process excellence sometimes exist within some functional areas. But at most companies, this part of the business has proved stubbornly resistant to even the most powerful tools.
Lean in media
Lean can, however, be an effective approach for productivity improvement in media companies. And it can achieve this goal without inhibiting a companys ability to create compelling content. Indeed, it can even enhance this ability by certifying the paramount importance of creativity in some processes and freeing companies to dedicate more resources to these areas (Exhibit 2). For lean to succeed, however, the company must customize it. Whereas classic lean manufacturing ruthlessly stamps out process variability wherever it exists, lean in media must instead acknowledge the unique characteristics of media companies and eliminate variability and waste only
Improved efciency
Process efciency can fund more development.

From Siloed processes High levels of variability Ad hoc efforts to use ideas and content systematically Suboptimal efciency, pockets of waste To Streamlined processes Variability and exibility purposely built in for truly creative activities Improved use of assets across platforms Faster time to air and therefore fewer active productions at any given time and lower overhead requirements

Development
Preproduction
Production
Postproduction
Transmission
Current time to air = 9 months
Development Preproduction
Production
Postproduction
Transmission
Potential time to air = 7 months
36
Autumn 2008
where it does not compromise the companys core competencesproducing great movies, writing, games, and television shows. One way to target areas suitable for lean is to examine processes carefully. In every production system, there are places (script development in film production, manuscript acquisition in book publishing) where it is important to have some flexibility, so seasoned executives can deliver creative input. But flexibility becomes simple inefficiency when creative judgment is not truly part of an activity; in these cases, companies can dispense with it. For cable networks, to take one example, this change could mean minimizing rework by producing the right cut-to-clock formats the first time, every time, and by reducing turnaround time for contracts. For magazine publishers, this could mean eliminating excessive rounds of editing and copy rereads and repurposing more editing-room floor material to online offerings.
step approach to lean-based performance improvement in media. 1. Work with the creative front line to gain trust. In our experience, frontline personnel are willing to engage in efforts to improve content creation processes and maximize their time for creativity. Working up front to win the support of staff members and to ensure their true ownership of all process changes is crucial to success. Creative personnel such as development executives, producers, and marketers readily recognize the longer-term benefits of realizing productivity improvements. They want to spend their time creating content and building audiences, and processes that impede creativity lead to extremely high frustration levels. Freeing people to focus on the part of the job they love is its own incentive. 2. Understand the entire content production process. Given the fragmented nature of many production organizations, most large media companies do not have a comprehensive understanding of how their content is made and what truly drives economic performance. Companies should map their content production process from idea to delivery, including every step, handoff, and loop. Costs for each step can be derived from financial systems; a consistent logic should be used in allocating overhead expenses (Exhibit 3). 3. Define activities that should be variable. As discussed, not all activities in the content-generation process are creative in fact, the majority are not. Organizations can drive efficiency by differentiating tasks that take an uncertain amount of time to complete (for example, graphics, editing, writing) from those whose completion time it is reasonably possible to plan (for instance, quality control, encoding, printing). This step will help companies
Flexibility becomes simple inefciency when creative judgment is not truly part of an activity
A second way to make the distinction is to look across tiers of content. Every media company has some content whose success requires its full resourcesespecially the creative judgment of its managers and leaders. Likewise, every company has content that requires less creative review. A good example is the second and later seasons of a successful series. With the values established in the first season, later production runs can be made more efficiently. Our work with publishing companies, film studios, television production companies, and others has helped us refine a six-
Web 2008 Leanin Media Lean media: The art of making creative work efficient Exhibit 3 of 3 Glance: Companies should map their content production process from idea to delivery and examine costs for each step. Exhibit title: A complete picture of costs
Exhibit 3
37
A complete picture of costs

Companies should map their content production process from idea to delivery and examine costs for each step.
Content production spending for midsize cable network,1 % 12.0 72.5 3.8 100
9.1 Development Network general and administrative Network compensation and benets

2.7 Preproduction Legal Business affairs Productionmanagement department Finance

Production Program spending with third-party production companies2

Postproduction In-house production Language customization Library Content, footage Space2 Television operations group3 Broadcast equipment3

Transmission Playback, uplink Space2 Television operations group Broadcast equipment
Total ($1 billion)
Figures do not sum to %, because of rounding. On cash basis, including both operating and capital expenditures before amortization. Not amortized.
make sure that variability is concentrated where it should bein development and in the most creative steps of production. 4. Define content whose production should be variable. Inherent differences in content translate into process differences. Studio-produced shows are created differently than documentaries; a magazines special editions work on different timetables and with different processes than its weekly publication; and so on. Identifying these differences is one way to review content for suitability to lean. Companies should consider other factors as well. For example, strategic importance is a critical driver of process choices. The bigger the hit (or the bigger the perceived
chance of a hit), the higher the level of permitted variability in lead times, editorial and creative-management review, and rework cycles. We estimate that at many creative enterprises, only 10 percent of the content rises to this level. Much of the rest, while creative, is nonetheless working to an established set of values. And some content, especially on television, is truly C level material. With this content, companies are filling air time and trying to monetize their channel position and brand, rather than the content itself. 5. Identify variability and waste. In the processes and content types for which variability is not necessary, companies should look for sources of variability and waste. Bottlenecks often include inputs from exter-
38
Autumn 2008
nal content providers (for example, production companies), superfluous editorial oversight and approvals, and the recent need to support fast-changing multiplatform distribution initiatives. One television company found inefficiencies and waste along its entire system. In development, the disparate production groups rarely shared ideas. As a result, the company missed easy opportunities. Some development ideas were incompletely thought through; these proved difficult and expensive to produce. In preproduction, negotiations and budgeting often dragged on for months. In production, episodes often failed the companys stringent quality controls. Late and incomplete deliveries resulted in last-minute, budget-busting fire drills. And in postproduction, many functions were overresourced, given the flow of work.
ing on content type and page size. It staggered the close of its various publications and created a new role, closing manager, to ensure that this process was supervised effectively. It redesigned sections in several of its titles to expedite layout creation and approval. It eliminated top editing for a few sections that could bear a slightly lower level of quality. And editors agreed to begin working across related disciplines to improve flexibility. In these ways and others, the company saved more than $20 million across three titles, equivalent to about 15 percent of its total content production costs. 6. Embed the approach for continuous improvement. While media companies launching lean-based improvement programs typically find quick wins in areas such as temporary staffing levels, the greatest gains usually demand sustained effort, which requires mechanisms for tracking progress over time and for rapidly identifying deviations from expected results. Companies must build skills and cultivate lean practitioners in a variety of places in the organization. They should change performance management systems to include achievements in removing waste and variability. And there are many other steps they can take to build a culture that celebrates and rewards continuous improvement.
Just as a companys own inefciencies can have a negative effect on its commercial relationships, external providers problems can wreak havoc on a companys internal ows
Companies will also have to review interactions with external providers such as independent production companies, as these processes, too, can be ripe for operational improvements. Just as a companys own inefficiencies can have a negative effect on its commercial relationships, external providers problems can wreak havoc on a companys internal flows. A magazine publisher worked with editorial staff and found a number of ways to remove inefficiencies. The company instituted new spending guidelines for photos, with different maximums depend-
Successful application of this approach does not come easily. It requires commitment from management, active participation of people throughout the organization, and a minimum of 12 to 18 months. As noted, this kind of performance transformation includes significant changes to the fabric of
39
organizations, from incentive plan adjustments to wholesale shifts in skill levels. Media is likely to remain a hitdriven industry in which one year brings blockbuster financial results and the next is less successful. The temptation is always to retrench during off years, cutting development and slashing production budgets while hoping for a better bat-
ting averageanother hit. We believe that a program that substantially enhances productivity will deliver what constitutes any players best chance at a hit: more swings at the plate.
Rebecca Granne is an alumnus of McKinseys Stamford office, Jon Wilkins (Jon_Wilkins@McKinsey.com) is a principal in the Washington, DC, office, and Jennifer Wong (Jennifer_Wong@McKinsey.com) is a consultant in the New York office. Copyright 2008 McKinsey & Company. All rights reserved.
40
Autumn 2008
Related thinking on mckinseyquarterly.com

Service strategy/customer experience The moment of truth in customer service Marc Beaujean, Jonathan Davidson, and Stacey Madge Focus on the interactions that are important to customersand on the way frontline employees handle those interactions. A better hospital experience Kurt D. Grote, John R. S. Newman, and Saumya S. Sutaria Hospitals must learn what commercially insured patients and their physicians look for when choosing facilitiesand how to deliver it. The right service strategies for product companies Byron G. Auguste, Eric P. Harmon, and Vivek Pandit As products evolve into commodities, services become more important. But companies that play this new game must understand its rules. Customer care Getting more from call centers Keith A. Gilson and Deepak K. Khandelwal A good customer service strategy should balance costs, quality, and revenues. Companies that restructure call centers in this way can often cut their costs. A call centers last line of defense Adam Braff, Zakir H. M. Gaibi, and Jon C. Garcia All save desks are not created equal: the best help companies to cut their churn rates, become more profitable, and even develop new products. Using call centers to boost revenue Andy Eichfeld, Timothy D. Morse, and Katherine W. Scott Many companies can turn their inbound call centers into powerful engines for growth.
Business support functions Getting more out of offshoring the nance function Michael Bloch, Shankar Narayanan, and Ishaan Seth Companies arent getting the most out of their offshoring programs. Key design changes would help. Managing IT for scale, speed, and innovation Sam Marwaha and Paul Willmott Companies must govern IT as they govern their businesses: with different rules and metrics for different parts of the organization.
Frontline/eld service delivery Improving eld service productivity Timothy D. Morse, Mitesh Prema, and Jonathan Shulman Real-time information can help companies manage invisible employees. Measuring performance in services Eric Harmon, Scott C. Hensel, and Timothy E. Lukes Services are more difficult to measure and monitor than manufacturing processes are, but executives can rein in variance and boost productivityif they implement rigorous metrics. Transforming sales and service Thomas Baumgartner, Roland H. John, and Tomas Nauclr Incumbents can serve the whole marketwithout getting stuck in the middle.
Introducing McKinseys Operations Extranet

McKinseys Operations Extranet is a global platform dedicated to exploring the latest developments in manufacturing, product development, supply chain management, procurement, and other operations topics.
We invite you to apply. Qualified applicants enjoy access to an exclusive, online global
community of operations professionals. Members can participate in conversations with peers at leading institutions to test and shape opinions, grapple with shared operational challenges, and broaden their professional networks. Members also receive exclusive articles, commentary, and analysis from experts in McKinseys operations practice. To apply, follow this link: http://operations-extranet.mckinsey.com
Recent articles include: The race for supply chain advantage: Six practices that drive supply chain performance Excellent supply chain management helps leading companies around the world achieve better service, lower costs, lower inventory, and ultimately competitive advantage. Our research shows that the best organizations are creating this advantage by using six valuable practices. Thinking lean, acting lean Transforming mind-sets and behaviors is often the biggest challenge banks face on their journey to lean. However, its also the new ways of thinking and acting that often have the most impact on operational improvement. Supplier development: Staying close to home Low-cost country sourcing has been the method of choice to cut supply costs in many industries of late. But sometimes it makes more sense to develop local suppliers. Designing the value in Relentless focus on product cost reduction can be a one-way street to lost prots. Instead, companies should concentrate on the cost-effective delivery of the features that their customers value most. New techniques allow different functions to work more effectively together in order to achieve this. Case study: Uncovering the hidden plant Leaner operations in the chemical industry By focusing on improving the performance of its ve existing facilities, a medium-sized chemicals company hoped to improve throughput and increase competitiveness. The result, achieved by applying lean-manufacturing techniques across its production and maintenance processes, was additional capacity equivalent to an entirely new plant.
Copyright 2008 McKinsey & Company

MCK On Serviceops

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

MCK On Serviceops

Caricato da

Copyright:

Formati disponibili

McKinsey on Service Operations

The next revolution in lean services

McKinsey on Service Operations

McKinsey on Service Operations

Keith Gilson and Scott Hensel

Bringing the lean revolution to services

Scott Hensel, Aditya Pande, and Vivek Sharma

ing flexible labor practices, and build a high-performing frontline workforce.

Exhibit title: A world of service

United States Russia Worldwide India Brazil

Wealthier countries demand more services

Service sectors share of GDP, 2007, % 90 France 80 India Brazil Russia

Developed countries Developing countries

United Kingdom United States

China 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

GDP per capita, $

Source: CIA World Fact Book,

; Global Insight World Industry Service Navigator

Bringing the lean revolution to services

McKinsey on Service Operations

principles to apply lean principles in service environments.

Bringing the lean revolution to services

McKinsey on Service Operations

Bringing the lean revolution to services

Toward a leaner nance department

Richard Dobbs, Herbert Pohl, and Florian Wolff

1  See Anthony R. Goland, John Hall, and

the finance organization toward a mind-set of continuous improvement.

Considerable variation in efciency

Consumer goods Number of nance and accounting FTEs1 1.8

1.5 0.2 0.6

Invoices per accounting FTE1

1.5 0.3 0.5

McKinsey on Service Operations

Toward a leaner finance department

McKinsey on Service Operations

Applying lean to application development and maintenance

Noah B. Kindler, Vasantha Krishnakanthan, and Ranjit Tinaikar

McKinsey on Service Operations

Changes in business requirements during development Application bugs

Wasted intellect Wasted time

Application-development and maintenance (ADM) costs, %

Costs without lean Productivity improvement (cost reduction through lean)

European retailer 65 12 to 25 35 8 to 15 Included in above

Applying lean to application development and maintenance

Software-development productivity: Traditional methods

3. Technology. Techniques such as computer-aided

McKinsey on Service Operations

Wheres the fat?

Release overhead from repeating release setup each week

Applying lean to application development and maintenance

McKinsey on Service Operations

Applying lean to application development and maintenance

John R. McPherson and Adrian V. Mitchell

A recipe for change

Cockpit prep station

McKinsey on Service Operations

The choreography of expertise

Dan Devroye, Andy Eichfeld, and Franklin Garrigues

Expert choreography in product development

McKinsey on Service Operations

The choreography of expertise

Expert choreography in loan origination

1 See Anthony R. Goland, John Hall, and