The Value of Standard Work

I recently had a conversation with a colleague about standardizing and documenting some of our work. He commented, in a mix of humor and exasperation “nothing we do here is standard.”

I’ve spent most of my career in R&D, and usually management have stated things a little more seriously and strongly: “we can’t standardize what we do; it’s not possible.” Their argument usually takes one of two forms: (A) this is R&D, so we can’t possibly know what the next step is, and therefore we cannot standardize; or (B) this is R&D and standardization is the enemy of the creativity that is needed.

Hogwash.

What I’ve found, and others have also reported, is that standard work is the best and surest way to improve R&D effectiveness and efficiency. Standard work enables and facilitates

  • Avoidance of errors, assuring that lessons learned are utilized and not forgotten;
  • Team learning and training;
  • Improvements to make the work more effective;
  • Reduction in variability;
  • Creation of meaningful job descriptions;
  • Greater innovation by reducing the mental and physical overhead of repetitive or standardized work.

In one job, I had the responsibility to develop a small problem-solving group, responsible for initiating and overseeing root cause analysis and corrective action activities. The problem solving activities had been performed on an as-needed basis by another group of experts, but were largely ad hoc. There was an element of customer interface, and my job was to maintain customer satisfaction through timely resolution of problems while reducing the overall cost of the work.

The workload increased by five to ten times during my tenure, but total, bottom-line costs remained roughly constant, representing an increase in efficiency of roughly eighty percent. These cost savings came about almost entirely by developing standard work: documenting processes and developing a suitable set of tools

Mind you, this wasn’t cut-and-dried work; it was problem-solving at its most difficult and “creative.” We were identifying and tracking down new problems with no idea of where we would end up and little indication of where to start. We didn’t have a pre-defined roadmap for tracking down the problems, and the information we had going into each case sometimes looked the same as other cases, yet we would end up with completely different root causes and corrective actions. The work required a high degree of thoughtful assessment and planning of next steps, with a very narrow look-ahead window (in almost every case, the next step would depend on what we learned from the test that we were initiating).

Despite the fact that we were learning at each step and determining what to do next based on newly-available data, we were able to standardize much of the work, reducing the error rate, reducing the effort required for each case and reducing the variation in effort required from case to case.

Standard work does not preclude flexibility. You can still do a lot of different jobs, and be able to address new problems. Standard work just takes the things you do repeatedly and makes them routine, so you don’t waste time thinking about them.

Individual and Team Learning

If product development is about learning, then there must be at least two kinds of learning going on: individual learning and team learning. By their very nature, individuals and teams must learn in different ways, so our product development and management processes need to support both kinds of learning. I will lay the groundwork for future posts by looking at how people and teams learn and what sort of behaviors they engage in as part of the learning process. Learning and behavior are open fields of research, with volumes of published material. I will be brief.

Nancy Leveson, in her book Safeware: System Safety and Computers, has a couple of excellent chapters on human learning and behavior, from which I’ll borrow. I recommend her book; the first ten chapters or so are well worth reading even if you’re not involved with computers. Borrowing from Jens Rasmussen, she discusses three levels of cognitive control: skill-based behavior; rule-based behavior; and knowledge-based behavior.

Knowledge-based behavior sits at the highest level of cognitive learning and control. Performance is controlled by explicit goals and actions are formulated through a conscious analysis of the environment and subsequent planning. One of the primary learning tools used at this level is the scientific method of hypothesis formulation, experimentation and evaluation.

Rule-based behavior develops when the environment is familiar and fairly unchanging. Situations are controlled through the application of heuristics, or rules, that are acquired through training and experience, and that are triggered by conditions or indicators of normal events or states. This sort of behavior is very efficient, and learning is achieved primarily through experimentation, or trial and error, that leads to further refinement of the rules and improved identification of conditions under which to apply those rules. People transition back to knowledge-based behavior when the environment changes in unexpected ways, but only as they become aware that the rules-based behaviors are failing to produce the usual results.

Skill-based behavior “is characterized by almost unconscious performance of routine tasks, such as driving a car on a familiar road.” The behavior requires a trade-off, often between speed and accuracy, and learning involves constant tests of the limits of that trade-off. These tests are experimental in nature, but largely sub-conscious (not planned). Only by occasionally crossing the limits (making “mistakes”) can learning be achieved. As with rule-based behavior, people transition from skill-based behavior to rules-based behavior only after they become aware of a change in the environment that is having a negative impact on outcomes of the skill-based behavior.

When people learn new skills they typically progress from knowledge-based behaviors to rule-based behaviors and eventually to skill-based behaviors. A surprising amount of engineering is based on heuristics rather than knowledge. This is often a good thing, as it allows us to efficiently deal with very complex problems and systems, making it possible to arrive at approximately-correct solutions much faster than through more explicit planning and evaluation. It can also go badly wrong when signs incorrectly lead one to apply the wrong rules to a situation that appears familiar but is not.

What might not be obvious is that learning at any level is only possible through a mix of successful and non-successful experiments. Unexpected outcomes (“mistakes,” “errors” or “failures”) are a necessary part of learning. In fact, the rate of learning is maximized (learning is most efficient) when the rate of unexpected outcomes is 50%.

Teams learn when individuals communicate, sharing and synthesizing the knowledge and heuristics that they’ve learned. This occurs primarily through two behaviors or tools: assessment and feedback. Assessment involves observation and reflection on what behaviors are working or not working in pursuit of the team goals. It should be performed by both by individuals and by the team as a whole. Feedback is comprised of constructive observations provided by others and objective measurements, and is the input to assessment. Because feedback and assessment are so important to team learning and growth, they should be planned, structured and ongoing.

For assessment to be effective at generating team learning and growth, some action needs to follow. An action might be to change an existing condition (e.g. change how meetings are run, explore design alternatives, etc.), or to document a process or norm that “works” and sharing the result with team members (e.g. documenting the work flow, standardizing parts, implementing decision processes, etc.).

Repeated and effective use of both individual and team learning behaviors results in team learning cycles. In any product development project, these learning cycles occur in different domains simultaneously. The main forms of feedback in product design are testing and design review, and there are multiple ways to assess and plan those feedback loops. Project feedback comes primarily from monitoring the schedule performance. At the same time, the team should be eliciting feedback about its ability to make decisions, work together and work with the rest of the organization, and assessing that feedback.

Peter Scholtes’ The Team Handbook is a well-written and practical guide to implementing team processes and behaviors, and is geared toward both team members and team leaders. It’s the kind of book that a new team could refer to throughout a project to guide them in becoming more cohesive and effective. His The Leader’s Handbook: Making Things Happen, Getting Things Done also provides an excellent supplement, geared more toward team leaders and business managers.

To summarize, product development processes and organizations must be designed to support repeated structured and “accidental” experimentation by individuals and team processes of feedback, assessment, decision-making and actions that result in either change or standardization.

Waste in TPS vs. Lean PD

The Toyota Production System (TPS), or Lean, is widely considered a remarkable and effective system for improving operations. People naturally try to apply the same system to other product streams and other activities. However, I have found that people often struggle with the correct application of the concepts, especially to product development. For instance, Glen Reynolds, an experienced project manager, is working to understand Agile, and has recently come across the statement by some Agile advocates that “testing is a waste.” Calling testing a waste, as a general statement, is nonsense, and Glen is engaged in some excellent discussion on the subject.

I have encountered a fair number of people with experience in product development, and a fair number with experience in Lean manufacturing, but few people with sufficient overlap in the two domains to combine them. The TPS is very formulaic, laying out clear rules or guidelines that are easily followed. Unfortunately, product development is sufficiently different from manufacturing that the TPS cannot be applied directly.

The TPS defines waste as any activity (or inactivity) that does not add value to the product. Value is defined from the customer’s perspective as any activity that the customer is willing to pay for as a part of the product. Assembling the product adds value; holding the product in inventory does not. Shipping product in exchange for payment adds value; the time spent processing that payment through Accounting does not.

Testing is used in manufacturing to detect defects. The customer is willing to pay for a correctly-manufactured product; not for the rejects. From this perspective, testing is a waste, because it does nothing to add value to the product. In fact, all of product development should be considered waste, because product development does not produce any product (unless, of course, your product happens to be product designs for others to manufacture, as with Ideo).

However, in product development, testing can add value. In fact, testing is probably the only way to maximize value creation in product development.

Manufacturing is a highly repetitive activity, which takes as its input a product and process design and tooling, and produces as its output a physical product. The physical product generates revenue. Ideally, the product is manufactured exactly to specification, and there are no activities required that do not lead directly to the manufacture of the product. There is no uncertainty as to what the output should be. Waste, then, is any deviation from this ideal state. Economically, the assumption is that the product is designed to maximize revenue generation, and the process is designed to correctly manufacture the product. Since nothing is perfect, the TPS seeks to improve profit by eliminating or minimizing those activities that do not generate revenue.

In contrast, product development is a highly variable activity, with variable inputs. The goal of product development is not simply to produce product designs according to some predefined specification. If it was, then product development would be a simple exercise in transforming specifications into conforming drawings. In fact, product development operates under a high degree of uncertainty; from the start of the project, the desired outcome is not fully known. In order to overcome this uncertainty, product developers have to learn. They have to learn about the customer—the end user—and about the technology that they are working with. Value is created as the uncertainties are resolved. The goal of product development is to maximize the rate of learning, thereby maximizing the rate of value creation.

The best way to learn is through trial and error, following the scientific method of hypothesis testing. So testing not a waste if it generates new knowledge. Testing that does not generate new knowledge is a waste. If you generate data that you already had, you’re generating waste. If you generate data that you don’t use, you’re generating waste. If the organization learns something, then you’ve created value.

Notice that this definition of product development follows the same principle that is used in the TPS: do what creates (or produces) value; eliminate or minimize everything else. The details change in the presence of uncertainty about the desired outcome.

We can take this a step further, to develop a more sophisticated approach to managing product development projects, if we understand the economics of our project. The uncertainty that is reduced through testing is all technical risk that the product will not meet the market’s requirements. This means that testing translates into increased sales volumes. Testing in product development adds time, which means a later entry into the market and possibly reduced sales volumes. If we have some estimate of what the cost of delay and the cost of risk are, we can then perform a cost-benefit analysis on the proposed testing to determine whether or not it results in a net creation of value.

Such economic models do not have to be complex, and they do not have to be highly accurate. They need to be just accurate enough that they do not lead to very bad decisions and they must be usable. This suggests, as Reinertsen has advocated, that new product development projects should develop economic models as early as possible and derive decision rules that project managers and lead engineers can use on a daily basis.

Developing Products Is About Learning

Product development is a learning activity, fundamentally no different than any class you’ve had in school.

You start off with a goal, and only a general idea of how to get there. As you learn more about the product you are developing you get closer to that goal. Sometimes you hit roadblocks that you cannot find any way to overcome. Once in a while, things go exactly the way you thought they would. Most of the time product development falls somewhere in between these extremes.

I think that we all recognize this. The path through a product development project is uncertain, making project planning difficult. How many times are we going to design/test/redesign? What testing will we be doing? We can guess, be we don’t know. The duration of even “standard” activities have a lot of variability, and may easily vary by a factor of ten. Telling the boss or a customer when you expect to complete a product development project is very difficult, because the schedule is necessarily uncertain.

Instead of being an exercise in executing a project plan, product development is a sequence of learning cycles; it’s about constantly climbing the learning curve.

Project planning for product development can take this into account. Instead of drawing up plans where we say “specify this, then design it, then build it” in very sequential and defined steps, we can instead focus on the unknowns and the learning curve. Our plans can be focused on the unknowns; on the things that we need to learn in order to successfully complete the development. This turns our development process into a series of learning cycles, with known activities worked in around the learning activities.

More importantly, it forces us to plan. At the very beginning of the development process, we will have to think about the things that we don’t know and think about ways to turn them into designed product. We will have to think ahead. Planning like this is priceless.

Like any good project plan, there will be a planning horizon. We will progressively add detail as we go. At the earliest stages, we will just set out blocks of “we need to figure this out.” The team that will be doing the work needs to be involved in this, and they need to estimate the duration and possible variability of such events. As we get closer, the team needs to plan in greater detail, until you get to well-defined “learning events” with two- to four-week durations. Each “learning event” needs to have the desired outputs specified and the activities for each member of the team clearly laid out. At the end of each learning event, the team needs to regroup, share what they’ve learned and plan the next event. The level of planning conducted and the duration of each event needs to be determined by the amount of risk that the organization is willing to adopt.

Of course, not all learning events are going to come out with the desired results. That’s the nature of learning, and the cause of uncertainty and variation in product development. In fact, if you have an effective organization, about fifty percent of each learning cycle will have to be repeated. Unlike manufacturing, where repeating the same work—rework—is considered waste, this “rework” is value-added, because learning is a necessary part of the job. If your organization does not have mature processes for organizational learning, then you may have to repeat as much as ninety percent of the work. These extra repeats are not value-added; they are waste.

There are ways to reduce the cost associated with the learning cycles, and to reduce the number of cycles. TRIZ, for instance, can greatly shorten learning cycles and reduce the number of them by enabling engineers to learn from the hard-earned lessons of others. Processes that help the organization better understand the customer, such as QFD, add cycles at the beginning of the project. However, these cycles cost little and are entirely value-added, and they prevent or significantly reduce the number of costly, non-value-added cycles “fixing,” or reworking, a product design late in the development process.

When you have a roll in product development—whether as engineer, customer interface, product testing or manufacturing—keep this in mind: in product development, the real value to your organization comes from learning, and design your organization and processes accordingly.

I will discuss TRIZ, QFD, organizational design for product development and planning for product development in more detail in the future. In the meantime, I suggest reading Joel Spolsky’s thoughts on obtaining reliable schedules in product development.

Innumeracy

A number of blogs that I follow are talking about a recent article in the Wall Street Journal, We’re Number One, Alas. The author argues that the U.S.’s corporate tax rate is too high, claiming that countries with somewhat lower corporate tax rates generate more revenue from those taxes as a fraction of GDP. He uses the graph below to make his point.

Corporate Taxes and Revenue, 2004

The Laffer Curve on this graph is claimed to show the relationship between revenue and tax rate. A Laffer curve is based on the hypothesis that a government generates zero revenue when the tax rate is at either zero percent or one hundred percent, and that the maximum revenue from taxes falls somewhere in between these two extremes. The author is claiming that the optimum is below the current U.S. rate, and illustrates this by placing the U.S. on the far side of a big cliff.

This is an egregious case of innumeracy. I told myself when I started blogging that I would steer clear of the blog echo chamber as much as possible, but it is not all that uncommon to see similar presentations in the corporate world. Some data points are plotted, and then some chartjunk is added to tell a story…a story that may not be supported by the data at all. There are a few things that managers and engineers can do to combat this. For instance, if there’s supposed to be a correlation between values, we can ask for the correlation coefficient.

In this case, the correlation coefficient is about 0.1. This is equivalent to saying that just ten percent of the variation in revenues from taxes is due to the tax rate. If you were working on process improvement, you would not want to focus on a factor that only accounted for ten percent of the variation; you would be looking for a factor that explained greater than fifty percent.

Another approach would be to ask for a hypothesis test. The hypothesis would be that there is no correlation; the alternate hypothesis is that there is some correlation. As a business manager, you want to select the level of risk that you’re willing to accept. This is an economic decision, as risk analysis usually is. For the sake of argument, we will accept a risk of five percent. This is our “alpha” value (α-value), which we’ll express as a fraction: 0.05. We now need to perform the appropriate hypothesis test and compare the resulting p-value against our α-value. If the p-value is lower than the α-value, then we have correlation; if the p-value is greater than the α-value, there is no correlation.

There are plenty of statistics packages out there that can perform these analyses for us. Some are easier to use than others; some are more powerful than others. We use Minitab at work, and I find it indispensable. I also drop into R occasionally. R is much more powerful and free, but it’s all command-line programming, so it also has a much larger learning curve.

The p-value on this data is greater than 0.05, which means there is no linear correlation between the revenue and the tax rate.

Linear, though, means you have a straight line, and the Laffer curve is not linear by definition. The data fails our first tests, but the assumptions in our tests may have driven us to a false failure.

Let’s go back and start by plotting just the data.

Corporate Taxes and Revenue, 2004, data only

The exaggerated Laffer curve in the original presentation is not evident in this data. Excluding the outlier where revenue is 0.1 of GDP (looking at the Wall Street Journal’s graph, we see that this is for Norway), the data is roughly linear: zero revenue at a zero percent tax rate, and slightly increasing revenue with increasing tax rate. There may be a slight rounding-off or flattening in the tax rate range 0.20 to 0.35.

Since we do not know what shape the Laffer curve should take—where the maximum should be—and we don’t have enough data to find it, we can use the Lowess algorithm to create a smoothed curve.

Corporate Taxes and Revenue, 2004, with Lowess curve

This confirms our observation that the relationship is essentially linear, with a possible rounding off above 0.20. I’ve added a rug plot to the axes, which gives a tick for every data point. This is useful because it helps us to focus on the distribution of the data, much as a separate histogram would.

Where does all this get us? It tells us that the author’s curve was most likely drawn in just to make his point and does not fit any data or data analysis. It also tells us that the author’s story had nothing to do with the data.

I have seen this many times in the corporate world. Graphs of neat lines, where all the data points have been averaged out and left out. Graphs where a preconceived curve is fitted to data without regard for how well (or poorly) the curve fits the data. Data may be removed completely and fitted curves smoothed until they look “look right.”

Combating this is not hard. It just takes some thought and a few questions.

First, make sure you actually see the data, and not just some prettified lines. Graphs should contain data points, and real data usually is not terribly clean or smooth.

Second, when a curve is fit to the data, ask what the correlation is. This should be a number, and less than 0.5 (or 50%) means there is no useful correlation. The closer to 1 (or 100%), the better. Ask, too, what the basis of the fitted line is: is this just some high-order polynomial or spline that was selected because of the high correlation, or is there a solid physical—or theoretical—basis for the selected line? If there is no physical basis, straight lines are preferable to curves.

Third, ask for a numerical analysis. Graphs are powerful; they allow us to see all the data, to see the trends, and to determine what sorts of numerical analyses are possible. However, graphs are not a substitute for numerical, or statistical, analysis. The two compliment each other. So ask for the hypothesis statement and the alternate hypothesis. Ask for the p-value and the α-value (which should have been selected before the experiment was conducted).

I realize that this is unfamiliar territory for a lot of managers, who have little mathematical background and often no training in statistics. It’s not hard to ask the questions, and it’s not hard to understand the answers—they’re pretty straight-forward—and I don’t think that you need to have a deep understanding of the mathematics. Let the experts be the experts, but ask questions to make sure that you are covering the risk.

Lean Product Development Implementation Summit

A couple of weeks ago, I attended the Lean Product Development Implementation Summit, hosted by the Management Roundtable and chaired by Don Reinertsen, author of Developing Products in Half the Time and Managing the Design Factory. Don’s been a big advocate of understanding the theoretical underpinnings of Lean Manufacturing and applying them, sensibly, to new product development. His basic approach, if I can summarize in a single sentence, is to understand the development project’s economics, make sound decisions based on cost/value trade-offs and to engage in practices that encourage the flow of work. Since this is Lean, the goal is to be approximately correctly rather than wasting time trying to be perfect.

The Summit was delivered as a series of case studies, presented by the people actually implementing Lean in new product development (NPD). Presenters came from backgrounds ranging from software development to aircraft design.

It was extremely interesting, and generated a lot of ideas for me. Some of these ideas I have already implemented in my day job; others I’m working with on a longer time-frame, and some I’ve squirreled away for when I need them. For instance, Bernard North, V.P. of Global R, D & E at Kennametal and David J. Anderson, Senior Director of Software Engineering at Corbis, both presented (independent) case studies showing how simple visual controls allowed them and their teams to control both planned work and work in progress, greatly reducing cycle times and accelerating output. In the case of Kennametal, work in progress in the test labs was significantly reduced, eliminating the need to prioritize incoming requests and actually decreasing the amount of work in each request. Within five years, mean lead times were less than twenty percent of previous levels and the percent of revenue from new products had doubled. At Corbis, a very similar visual system enabled them to reduce “hot” requests while greatly accelerating the rate of sofware releases, all by limiting the number of active tasks or projects (applying WIP constraints).

These are two very different environments, but both used essentially the same solution to their problems of cycle time and communication.

Boeing implemented Lean PD, Theory of Constraints and Six Sigma in their development process. If I read the numbers right, it looks like they have cut their development cycle time in half by working to achieve flow in product development and managing projects to the buffers. Other presenters showed how creating very short cycle times (reducing batch sizes) and pushing testing further upstream greatly accelerates product development and reduces design defects.

Another company explicitly re-engineered their new product development process (PDP) around the idea that product development is a learning activity. Their PDP starts with a team meeting in which the goals for the next learning cycle are laid out and the work is divvied up. The team then breaks out for about two weeks to complete the planned work, and completes the cycle with another team meeting, in which they integrate what they’ve learned and plan the next cycle. These planning steps are essentially design reviews, but very explicitly focused on learning and team processes.

I have now put up a whiteboard for warranty returns, in the warranty processing area. It is divided up according to the phases of our analysis process. Each return is now tracked visually with a sticky note. Queued work (returns that have not been touched) is visible, as are heavy loads on resources. We can now calculate the lead time for our entire process, as well as for major phases within our process. In just a week’s time, the flow of work has smoothed out noticably, and our ability to communicate the status of each return–and problems such as resource overload–has changed from chaotic to dirt simple.

In the past week, we have realized that we also need to track dates, so that we know how old each request is. Our implementation is to simply write the date on the sticky notes each time we move them. This sort of change o.k.; we implemented the system knowing it was not perfect, and that we would improve along the way. This is continuous improvement in action.

There are still clear areas for improvement. One of the big ones is that we still have a push process rather than a pull process. I have not figured out what to do about that, as I have no control over the rate of incoming returns and our customer generally pushes hard to see activity on each return.

Still, this is a simple and effective technique, and can be applied in all areas of R, D & E. One of my long-term projects is the transfer of this technique outside of my sphere of authority.

Presenter David Anderson has posted his own thoughts on the Summit.

Getting Started

Getting started doing something is usually fifty percent of the battle. It’s hard to start. It’s such a common problem that it goes by many names: Student’s Syndrom; Analysis Paralysis; deferment; procrastination.

Take this blog, for instance: how do I start off the first post of the new blog; how do I say “hello world” without losing you, the reader, in the first sentence? Do I create a striking manifesto? Do I just jump right in, without providing any orientation?

So, how to start? Start where you’re comfortable. Start in the middle. Or the end. Start whereever you can. Just so long as you get started. Once you get going and have a little momentum, it’s relatively easy to shift gears and start doing it “right.”

It’s true for this blog, and it’s true for product development. There’s a high value on doing things right, especially when there are consequences for failure, but you’ll never get it right if you don’t first start. So get going.

In some later post, I’ll contradict myself by admonishing you to not start too early, but we have plenty of time to get there. Along the way, I’ll be writing about managing products and about product development. My focus will be on taking a systemic approach to the innovation “value chain,” that is: integrating all the steps from first concept through successful commercialization. I’ll write about how to develop the right products and avoid developing the wrong ones, about how to manage product development and how product development differs from other kinds of projects. I hope to create a dialog not just on how to design mechanisms but on how to create successful products. Since product development does not happen in a vacuum, but is part of the broader social and technical context, I’ll throw in other items of interest at times.

I hope to entertain and inform, and most of all to get you thinking.