Lean for Services: An Interview With Jon Wetzel

Brian: Today I’m speaking with Jon Wetzel, Vice President of Operations at AdeptBio and Lean evangelist blogging at Lean For Everyone.  Jon, welcome to Professional Services Leadership!

Jon: Thanks for having me here Brian.

Brian: Last year while I was at LabVantage, I blogged about our lunch together.  We only touched briefly on Lean during that lunch conversation, but I promised my readers that we would get back together and talk about your passion for Lean.  Well, I guess this is it!

Jon: That’s right. Before I learned about Lean I thought that I knew how to create and manage a process and that our team’s work was very efficient.  What I learned is that bad processes beat good people every time.  In reality we spent much of our time managing our processes, workarounds and inventory levels as opposed servicing our clients.  Lean taught me how to convert all of that time managing our work into time spent creating value for our customers.

Brian: Sounds compelling, but let’s back up a bit for those who aren’t familiar with Lean.  What is it, and why is it important?

Jon: Lean is the culture of identifying and eliminating waste while listening to what the customer really wants.  Examples of waste in a process are un-necessary paperwork or the time work sits on your desk waiting for you to get to it.  Lean helps hone your mindset on what “waste” is and also gives you the tools to get rid of it.

To me, Lean’s greatest benefit is improving people and giving them not just the tools to solve problems, but also the know-how and authority to do it.  When you have a Lean culture everybody works more efficiently because it becomes engrained in their everyday life.  I practice Lean just as much outside the workplace as inside.

Brian:  Lean was originally a set of metrics and tools used to optimize manufacturing processes.  But Lean can also be applied to services.  Are there any special considerations when Lean is applied to services?

Jon:  Compared to a manufacturing process, the service process is usually an ad-hoc set of steps that were strung together in sequence by the first employees doing it.  Later hires change the process slightly to suit their personal habits.  The result is that there is no standard process.   A service process that hasn’t been “Leaned” is fertile ground for improvement.

When you apply Lean to a service you have an entirely new variable to contend with.  It’s called human perception.  Getting “buy in” from the team is paramount.  In Japanese this is called “Nemawashi” which roughly translates to laying the “groundwork”.  If the team doesn’t believe in Lean, then you will not succeed in implementing it.

What I like to do is to pick a small process and start with a “current process map”.  Most service-based systems are ad-hoc or organic processes that just evolved overtime.  More interestingly the people involved in the process don’t know what or how other group members do their jobs.  The most common answer is “I don’t know….but I know this works for me”.

This is the discovery step that makes the process visible.  All the communications, handoffs and deliverables are on one process map and everyone can see it.  What instinctively happens next is that people see how wasteful some of the steps are and they immediately want to fix it.

Now I have “buy-in”.  Now everyone can see the benefits of a “process map”, and I can start to implement change in a Lean fashion.

Brian:  Do you have an example from your own experiences of a Lean services project?

Jon:  I love accounts receivables.  It’s the most overlooked part of any business; however, it goes to the heart of a company’s cash flow.  Usually, everyone is so focused on completing projects for their clients that what gets forgotten about is invoicing for the service itself.

I went thru a two hour exercise with a controller and his entire team involved in invoicing and accounts receivables.  After creating the “current state map”, we noted that there were several process steps that were batched on a weekly or sometimes monthly basis.  Some of these steps were out of sync with each other, adding weeks onto the invoicing process.

In short, before we started optimizing, the DSO (Days Sales Outstanding) was in the 85 day range.  Within two weeks we dropped that to 50 days, simply by applying some minor improvements. Within one month it was down to 35 days.

We made a number of changes to achieve this time reduction, many of them quite obvious once we saw the process on paper.  For instance, we began invoicing on the same day as shipment, as opposed to once a week on Friday.  This cut 4-5 days out of the process.  We began to invoice by fax or e-mail instead of regular mail, saving 2-3 days per invoice.  The most significant change was that we began to run an invoice aging report on a daily basis and followed up on the results immediately. This report had previously been run only monthly; running it daily cut a full 20-30 days out of the process!

Brian:  That’s a fantastic case study for Lean.  I’m sure there are countless processes in any services business that can benefit from close scrutiny and the application of Lean.  What resources exist out there for a newbie to become familiar with Lean?

Jon:  Most obvious will be my shameless plug for my blog Lean For Everyone, where I like to talk about everyday Lean…things you can do in your home life to make it easier.  I’ve learned that by practicing Lean outside of the workplace, you get a greater sense of satisfaction because you reap 100% of the benefits.  This then makes you want to implement Lean in the workplace, and over time turns you into a Lean champion. Some other great blogs are Curious Cat by John Hunter, Shmula by Pete Abilla, Lean Blog by Mark Graban, and Startup Lessons Learned by Eric Ries.

Some of the best books I’ve read on Lean for services are “The Complete Lean Enterprise: Value Stream Mapping for Administrative and Office Processes” by Keyte and Locher and “The Toyota Way to Continuous Improvement” by Liker and Franz.  Also, if your company is in more of a startup or entrepreneurial phase, then you can’t miss with “The Lean Startup” by Eric Ries.

Brian: I’ll put in a plug for one of my favorite books on Lean, “Lean Six Sigma for Service” by Michael George.  George does a great job of making the transition from Lean in manufacturing to applying it to services.

Well, it’s been an interesting discussion.  Jon, thanks for taking the time to share with us today!

Jon: Thanks for having me Brian!

Update 6/22/12: If you work in a laboratory, read my interview with Jon about applying Lean to the lab on the Informatics Insights blog!

Have you used Lean to optimize your business processes or the services you provide to your customers?  Do you help your customers to optimize their services using Lean?  Leave a comment and share your experiences!

 

Driving Professional Services Growth

Want to drive the value of your professional services business?  Understand and then intentionally manage the triple constraint of PSO profitability.

Professional services leaders are constantly being challenged to deliver more with less, to provide more services to more customers with fewer resources, all the while maintaining the quality of those services.  Savvy customers have further complicated this seemingly impossible task by requiring prototypes or workshops prior to the services sale, demanding specific resources for their projects, and inserting procurement professionals to aggressively negotiate pricing.1

The Triple Constraint of PSO Profitability

The key to driving services growth in the face of these ever increasing challenges is to understand and intentionally manage the triple constraint of PSO profitability.  The concept of a triple constraint was introduced in project management, and simply states that a change in any one of the scope, budget or schedule of a project will impact the other two — they are intimately interrelated.2 In his book Building Professional Services: The Sirens’ Song, Thomas Lah proposes the “Iron Triangle of PS Profitability”, wherein the three interdependent variables for professional services organizations are revenue, references, and repeatability.  Lah suggests that the way to drive professional services growth is to focus on these three factors, where revenue and references impact the top line of the business and repeatability impacts the bottom line.

The Triple Constraint of PSO Profitability

The triple constraint of PSO profitability is analogous to the triple constraint for project management. It is essentially the same triple constraint, but applied to the larger professional services organization instead of to a single project.  Time is replaced by revenue rate3, budget by delivery cost, and scope by service qualityA sustained increase in profitability only occurs when the revenue rate is increased and/or the cost of services delivery is decreased without adversely impacting quality of service.

Profit Levers: References and Repeatability

So how do we meet the demands of delivering more with less, without sacrificing quality and our sanity?  Here is where references and repeatability come into play.  Building and maintaining a solid list of reference customers will tangibly help you to navigate an increasingly complex services sales cycle.  References reflect your quality of service and help to drive your revenue rate. The triple constraint, however, says that in order to realize increased profits from this uptick in revenue rate, you must minimize any increase in delivery costs required to satisfy the additional demand.  Repeatability — offering pre-defined services and pre-configured solutions (reusable IP) — can be used to minimize or even reduce your delivery costs.  In addition to lowering delivery costs, repeat services and pre-configured solutions also reduce the risk and increase the quality of service delivery by eliminating the learning mistakes inherent in custom services.  Repeat services and pre-configured solutions can themselves drive your revenue rate, as they typically result in shorter delivery time frames compared to custom services.

Lah’s iron triangle of PSO profitability, or the triple constraint of PSO profitability presented here are complementary ways of thinking about the same challenges. So which works best for you?  If you’re a seasoned professional services leader who is already using the iron triangle to help manage your business, there’s no need to change.  If you’ve not been introduced to the iron triangle, and in particular if you come from a project management background, the triple constraint may make more sense to you.  In either case, it is critical to the success of your professional services business that you understand these constraints, and that your strategy and operational tactics are built to intentionally manage them.

  1. Winning the Professional Services Sale: Unconventional Strategies to Reach More Clients, Land Profitable Work, and Maintain Your Sanity by  Michael W. McLaughlin
  2. Some references interchange “quality” for “scope”, “cost” for “budget”, and “time” for “schedule”. In all cases the implications remain the same.
  3. The revenue rate is a measure of the growth of an organization’s revenue stream (measured month to month, quarter over same quarter previous year, year over year, etc.). According to the triple constraint, increasing the revenue rate without sacrificing quality of service would typically require an increase in delivery cost (i.e., more resources).

Professional Services by Design (PSbD)

Applying Quality by Design practices to your professional services offerings results in predictable margins, on time delivery, lower risk and more happy clients!

Quality by Design (QbD) has been embraced most fully by the automotive industry as well as others such as electronics and semi-conductor manufacturers.  It was more recently endorsed by the FDA in its guidance to drug makers (Pharmaceutical Quality for the 21st Century: A Risk-Based Approach).

I am a big proponent of lean and six sigma practices for improving and maintaining quality, both in my own organization and for improving and optimizing customer business processes.  Practitioner Michael L. George has written Lean Six Sigma for Service, an excellent book on applying lean six sigma to services. It is highly recommended reading for professional services leaders who want to get the most out of their organizations.  While lean six sigma is great for optimizing services and speeding service delivery, it assumes an existing process that needs improvement — that is, these are reactive techniques.  QbD is a proactive approach that seeks to build in quality from the start.

What does poor quality look like for a services business? The age old challenge for professional services is delivering projects on time, on budget, within scope and with minimal defects.  We’ve found ways to mitigate these risks, such as time boxing, applying agile techniques, and actively managing customer expectations.  But often times these efforts are not enough, and the end result is missed deadlines, busted budgets and the unplanned “firefighting” needed to salvage endangered client relationships.  Wouldn’t it be nice to be able to confidently predict delivery dates and project margin, and consistently make customers happy?

INTRODUCING PROFESSIONAL SERVICES BY DESIGN

The solution that I propose is what I call Professional Services by Design, or PSbD.  PSbD means designing services from the start, by offering repeatable processes and pre-configured, targeted products and solutions that drastically increase the probability of success and decrease overall risk.

The traditional services engagement starts with a scoping study, where you identify unique requirements and then plan and estimate an engagement that is unique to that client.  But most likely you service customers in a small number of markets, who for the most part do the same kinds of things.  This repeatability from customer to customer is rarely leveraged by professional services firms, and is the key to successful PSbD.

A PHARMACEUTICAL CASE STUDY

Let’s take a look PSbD in action.  A number of years ago, my team was struggling with the large, risky enterprise software deployment projects that we were undertaking with our customers in pharmaceutical manufacturing.  While the configuration of the software was often very similar from customer to customer, each engagement was started from scratch and treated as unique.  This led to implementations that were subject to scope change, cost overruns, and unnecessary risk of dissatisfied customers.
Upon analysis, we determined that these customers were mostly doing the same things in the same or very similar ways, from sample tracking to chemical analysis to product release.  Not only that, but all of these companies were using the same ICH methods for chemical analysis, and were under the same FDA mandates for validating their regulated systems.  They were not so unique after all.
Our consultants combined had decades of experience working with pharmaceutical manufacturing customers, so we decided to package a common, pre-validated configuration of the enterprise software and a repeatable engagement methodology (service offering) to go with that configuration.  The result was a combined product and service offering that we were able to demonstrate saved the customer more than 75% of the cost and time to deploy as opposed to a traditional implementation project.  At the same time, we were able to drastically increase our confidence in project profitability, predictably allocate resources, practically eliminate the chance for project failure, and quickly create ecstatic reference customers. 

STILL ROOM FOR IMPROVEMENT

There will always be the need to improve the quality of your service offerings.  There will always be value to applying lean six sigma and other techniques to your existing service portfolio.  But you should start by applying PSbD to new service offerings, creating them with quality in mind from the start.  The additional work up front will result in happier customers, who will be more likely to serve as reference customers and help to drive your business success.
What do you think about PSbD?  Do you have an example of PSbD in action at your professional services firm?  Post a comment and share your thoughts!