The Impact of Continuous Improvement on Innovation

Recently there was a blog on Harvard Business Review that was titled, Time to Rethink Continuous Improvement  http://blogs.hbr.org/ashkenas/2012/05/its-time-to-rethink-continuous.html?goback=.gde_41982_member_114013156  by Ron Ashkenas.  The author believes that Continuous Improvement (CI) ultimately has a negative impact on the health of an organization because a rigid CI structure can stifle innovation and Research & Development (R&D) processes.  To explore this statement further, we need to understand the history of Continuous Improvement.

Continuous Improvement Raises up Japan

In 1950, Japan was near last place in terms of global manufacturing.  Some of the American Lean entrepreneurs led by W. Edwards Deming were welcomed into Japan in the 60’s with open arms to fix the manufacturing problems.  With the use of CI and Lean, Japan moved from the worst, to one of the top low-cost, quality manufacturing countries in the world in the 1970s.  To compete with this turnaround, western companies such as Motorola adopted CI which ultimately became Six Sigma. 

Japan’s Collapse; Motorola and GE Struggle

In the mid-1990’s Japan began a collapse and is now being displaced by China and South Korea in the electronics space.  Even the US has gained strength over Japan in the automobile industry.  In the US, companies that have embraced CI and Six Sigma namely Motorola and GE have struggled in recent years with innovation.

Link to Continuous Improvement?

All of these struggles cannot only be correlated to a loss of innovation due to CI and Six Sigma initiatives.  First, the Japan collapse in the 1990’s can be attributed to an asset bubble (real-estate), financial policies (cheap credit and bad debt), a banking crisis, and bad political policy.  CI had little to do with Japan’s struggles as they had many other structural problems in their economy.  Also, many other companies have been very successful in the past 10 years implementing tightly managed processes with Lean and CI along with innovation efforts for their products and services.  Here is an article that reminds us of 2002 when Amazon had one of its first successful quarters fueled by process improvement and innovation:     http://news.cnet.com/2100-1017-886784.html.   Since 2002 Amazon has gone from $12/share to over $200/share. 

 Using CI Alongside Innovation

It is tough to draw a straight-line between the use of CI and Six Sigma and the loss of innovation.  But, it is not unreasonable to think some organizations implement process improvement disciplines and structure without considering the impact to R&D.  If CI requires R&D to follow strict processes and business rules, then yes, innovation can be stifled.  To guard against this, these are some best practices when applying Lean and CI without disrupting innovation efforts:

1.      Lean is applied differently in operations vs R&D.  In operations, Lean eliminates waste, streamlines opportunities, and standardizes and controls processes.   In R&D, entry processes use Lean to manage the criteria from which research begins but,   during R&D, the processes and operations do not use Lean.  R&D is fast paced and unstructured testing and development,  As tests and development is completed, a standard set of documentation is required which can drive workflow and reporting for analytics and results. 

 2.      Lean is Innovation for Processes.   Innovation happens in labs, behind closed doors, where everyone is dressed in white garb.  Innovation also happens in business process and in physical operations where process engineers are implementing new solutions to streamline activities.   When CI is used properly it is innovation for process changes.  Use CI when you need innovation to better run your processes and use R&D when you need innovation to design new products or services.

 3.      CI Cannot be Directive.  A theme in failed CI, Lean, or Six Sigma is how an organization implements it.  CI is not based on a directive or edict style of management.  When CI is forced down to employees they will follow the process, keep quiet, and disengage.  When implemented in this manner, innovation stops.  Maybe short-term gains are seen in this environment but over the long-run, process and innovation will degrade.  At the end, companies blame CI for their failures when in truth it was their application.

 4.      Customize how CI is Applied. Ron Ashkenas appropriately states: “One size CI does not fit all parts of the organization”.  Determine what the right level of CI is for each department considering the repetitive nature of their operations and the structure or rigor needed.  Manufacturing, Order-to-Cash, and R&D will all have different implementations of CI.

In Summary, the evidence does point to CI as being a sole source contributor to a lack of innovation in organizations.   CI does attempt to keep companies on the fore front of process improvement and innovation but it must be implemented carefully with the right management philosophy.