Mass production vs. Customer Value Principles

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Mass production vs. Customer Value Principles

There is a cataclysmic difference between mass production and the creation of a Customer Value Enterprise® through the application of Customer Value Principles. Customer Value Principles come from many sources – particularly from Lean Service and Systems Thinking – but the line between mass production and the Customer Value Enterprise® is not a continuum: these are completely different ways of thinking and working. You are either doing one or you are doing the other –you will not find yourself doing some elements of each.

Working to forecast vs. working on demand
Compare the activities and behaviours you would find in a mass-production environment with those found in a Customer Value Enterprise®. In the massproduction environment, the primary concern is to maximise all assets and capabilities. If there are several assets and capabilities, it is assumed that none of these should be idle: keeping them working all the time thus becomes the driver – the consideration that determines management actions (Womack and Jones, 1996).

Maximising production does seem to make logical sense – but only if there is demand for the product: if not, the business needs to reduce production. In the Customer Value Enterprise® world, however, the business aims to produce only in response to known demand – it doesn’t build up inventories. You don’t make things ‘just in case’, because if you did you might make the wrong things and waste resources, and you would certainly increase the cost of storage. Mass-production enterprises in the West are often driven by the production forecast: output is generated in the expectation that all products will be consumed.

Many production companies are now moving to ‘build to order’ – that is, ‘on demand’. The principles of operation between these two approaches are very different. In the ‘on demand’ world it is logical to keep some assets idle and to accept idle costs in exchange for the reductions in inventory, in storage costs, and in losses from discounting over-produced products. In the ‘on-demand’ world, even the idle-time cost can also be recovered if the organisation uses this time to improve and optimise the value chain and thus to reduce the cost of production still further and to increase quality.

The term ‘on demand’ is used by many today to mean simply the transfer of transactions and ordering to the internet. While in many cases this is an effective means of providing customers with access to products, it does not necessarily mean that the end-to-end organisation has been set up to respond ‘on demand’. Throughout this book extract  (from Sense and Respond – The Journey to Customer Purpose S.Parry) we will not use ‘on demand’ to refer to an electronic shop window: rather we will use the term to signify a complete change in how the organisation is designed built and operated end-to-end.

Processing all demand vs. removing unwanted demand
Whereas mass-production systems tend to process all demand and services irrespective of the nature of work, the Customer Value Enterprise® aims to remove certain types of demand – the demand that adds cost without adding value. The driver here is not just to do work as fast as possible, but actually to reduce work by removing non-value added activities. The thinking is very different.

Batch-and-queue vs. continuous flow
The way that work flows through an organisation is usually what is called batch-and-queue. Because of functional specialisation, the work gets fragmented. A given piece of work stops and starts each time it is put it into someone else’s inbox or passed to another department: while waiting for someone else to get round to it, the work stays idle. The customer may also experience the effects of this when trying to track progress as the work is passed around departments – this too adds more work, creates no value, and increases frustration.

Customers may feel as if they are being ‘timeshared’ by various people and departments. In a Customer Value Enterprise®, the aim is to create continuous flow and to make sure that this flow is as short as possible. When you get any sort of service demand, you act upon it now, this moment. And you see the work through to completion – you don’t half do it, put it in a queue and come back to it later (Womack and Jones, 1996).

Prioritising and expediting vs. on-demand capability
In the mass-production world, limited capability means that the business must choose to prioritise or expedite some  things, and other things therefore have to wait. But waiting causes waste. In mass production, managers think that they must prioritise and expedite because they don’t have enough resources: yet the systematic prioritisation of work actually creates more work. – Prioritisation is a symptom of the disease it purports to cure.

When instead you create continuous flow and work on demand, you remove this need to prioritise and expedite.

Continuous improvement vs. continuous value creation
In the mass-production world ‘continuous improvement’ is a familiar mantra. This aspiration has been around since the Industrial Revolution, and has been the biggest message in the quality movement. And it is an effective aspiration – as long as the products or services remain fairly constant and predictable, without variety being demanded.

Continuous improvement towards perfection is not enough, however – what is needed also is continuous value creation. There is little point in producing something that has no defects if it doesn’t completely meet the customer’s needs. At the heart of a responsive business strategy, therefore, is understanding what value looks like to the customer, and then using the pursuit of continuous value creation as the driver for the business.

Root-cause analysis vs. root-cost analysis
In the mass-production world, attention is often focused on analysing the root cause of any problems that arise. Despite this analysis, however, action to cure the problem does not always follow. Why not? To make change happen, the business needs also to focus on the costs of not correcting problems – the cost to the organisation, the cost to the customer (especially crucial), and the cost to society. Taken together, these costs provide the business case for change.

In the Customer Value Enterprise®, therefore, change occurs when customer intelligence data has allowed the true origins of cost to be determined and quantified. In other words, root-cause analysis is superseded by root-cost analysis.

Working to standard vs. working beyond standards
In a mass-production world, the drive is to obtain standardisation. This makes sense provided that there is little complexity and variety in the nature of the demand, and that the adoption of ‘standards’ does not prevent improvement.

Having standard processes and standard products can help to ensure high quality, for example in manufacturing, but it can also lead to a work ethic in which ‘working to a standard’ is accompanied by the abdication of any improvement responsibility to the owners of that standard. This mindset, we believe, is the biggest constraint on creativity, innovation and workplace ownership. We are advocating instead a world in which employees work beyond standards, breaking through to higher performance and continually raising the bar.

Measuring output vs. measuring capability of means
In the mass-production world, the performance of individuals and departments can be measured by determining their output – how many items they have produced, how many they have sold, or how many they have shipped. Much more important to know, however, is what those individuals and departments are capable of doing: do they have the means of production overall, and what is the capability of the operation?

It is actually much more productive for managers to spend time in developing the capability of their organisation than in trying to push the organisation to meet production targets. Whereas in the mass-production world you measure the performance of people and departments in terms of their output, in the Customer Value Enterprise® you measure performance in terms of the capability of means.

Capability of means is more important than output. For example, if you were asked to drive 50 miles when your car had only one gallon of fuel and a capability of 30 miles to the gallon, it would be silly to set out on the journey. The ability to measure capability can thus be more important than the ability to measure output. In their book Profit Beyond Measure (2001), H. Thomas Johnson and Anders Bröms write encouragingly about companies that have moved away from ‘managing by results’ and towards ‘managing by means’. They call upon managers to move from targets to pathways.

Delivering to specification vs. delivering to purpose
In the mass-production world, the business delivers to a contract or to specification, and endeavours not to deviate from that. In the Customer Value Enterprise®, continuous value creation accepts that customer purpose is constantly changing and that contracts can’t keep up: instead of delivering what was specified, you need to deliver what matters. Construct your whole proposition to the marketplace around continuous value creation, and continually change your products and services to meet that proposition.

Traditional contracts and specifications can never keep up with changing customer needs. Although specifications may still be helpful in manufacturing, they will tend to constrain the delivery of services. Instead of working to a specification or contract, and defining itself by the products or services it delivers, it is better for a service organisation to define itself in terms of the value it creates. This basis leaves the organisation free to experiment and to innovate with new products and services.

Flexible specialisation in a mass-production world is just a more sophisticated means of controlling customers. It is not about being flexible by offering variety, as in mass-customisation and personalisation: it is about responding quickly to customer purpose. In the mass-customisation world, the organisationis still in control; in the Customer Value Enterprise®, the customer is in control.

People performance vs. system performance
When things go wrong in an organisation, managers in the mass-production arena usually start to criticise their staff: ‘You didn’t make your quotas’ or ‘You didn’t make your output numbers’. Yet performance problems can have other causes, such as when demand exceeds the end-to-end capability; when an unknown and inappropriate demand enters the system; or when someone along the value chain improves performance locally and inadvertently creates a knock-on effect downstream.

Factors such as these account for over 90 per cent of the variation in service performance (Edwards Deming, 1982).

Most of this variation is outside the power of the individual – individual performance can only contribute as much as the constraints of the current system will allow. Performance is created by the system, not by individuals, so systemic changes are needed if there are to be breakthrough improvements. In the Customer Value Enterprise® model, changing the system is the responsibility of those who work in that system.

As has been said above, the mass-production paradigm contrasts significantly with the Customer Value Enterprise® paradigm, and there is no continuum from one to the other. Yet in practice most organisations currently work using mass production. How can one flip from one paradigm to the other? To make this shift takes strong leadership which allows staff to work in both ways for a short space of time while transitioning from one to the other. With a lot of courage, tenacity, honesty and clarity of purpose, staff and managers can drivethe organisation from one paradigm to the other. This allows staff to experience both paradigms – and the flip, when it happens, is very quick.

Three major components are necessary. First, you need to collect data about how your organisation responds to the real needs – as opposed to the perceived needs – of your customers. Second, you need to assess how your organisation performs end-to-end in achieving the customer purpose. Once staff have collected the data, they can discuss it with their manager and talk more easily about change. Third, as well as gathering data, staff also need to understand what the reality is like. As they grasp this reality, they become better able to collect the data. This process thus becomes an iterative one with these three elements.

The type of change that we are advocating depends on learning the principles of all three and bringing all three together. Because they are so interdependent, change will occur only when all three are addressed at the same time.

Copyright Extract from Sense and Respond: The Journey to Customer Purpose (MacMillan) Stephen Parry


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