Lean and the Paradox of Efficiency

Professor Par Ahlstrom, author of a book titled “This is Lean: Resolving the Efficiency Paradox,” notes that

…an efficient business is one through which the unit — whether that’s a product, information, or a person — reaches the end-user with no bottlenecks. Companies and organisations often don’t understand the key message of flow efficiency. It’s not about cost cutting. It’s about reducing waste, which will lead to lower costs, but it’s not about cutting costs in itself.

Part of the challenge is getting organizations to understand that the very things that might allow you to improve efficiency for a given area and set of resources is the very same thing that makes the entire system or process less efficient. This happens because the idea of specialized resources focused on honing their specific productivity also tends to create silos of experts who do not communicate with others or if they do try to communicate, are often speaking in a different language of concepts, metrics and priorities. The specialization makes each island more efficient but the ability to shift resources in response to variation of demand is often lost.

Resource efficiency works best in the industrial context, as a result, particularly when there is little or no variation in the end product. In services, there is often a great deal of variation.

The trick, therefore, is to understand for a given process the right level of specialization of each part of the process — to get the benefits of honing a repeatable skill — but also keeping the resources generalized enough so that although each resource in the process is less efficient than a highly specialized set of resources the whole system is more efficient.

For those of you who are inclined to mathematics, this is expressed by an expansion of Little’s Law called the Law of Innovation Variation or the Pollaczek-Khintchine equation.

Professor John Little