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RESEARCH & IDEAS

Bringing 'Lean' Principles to


Service Industries
Published: October 22, 2007
Author:
Julia Hanna
Toyota and other top manufacturing
companies have embraced, improved, and
profited by lean production methods. But the
payoffs have not been nearly as dramatic for
service industries applying lean principles. HBS
professor David Upton and doctoral student
Bradley Staats look at the experience of Indian
software services provider Wipro for answers.
Key concepts include:
In terms of operations and improvements,
the service industries in general are a long
way behind manufacturing.
Not all lean manufacturing ideas translate
from factory floor to office cubicle.
A lean operating system alters the way a
company learns through changes in
problem solving, coordination through
connections,
and
pathways
and
standardization.
Successful lean operations at Wipro
involved a small rollout, reducing
hierarchies,
continuous
improvement,
sharing mistakes, and specialized tools.

Thanks to the pioneering success of


Toyota, the concept of a "lean" operating
system has been implemented in countless
manufacturing companies and even adapted for
industries as diverse as insurance and
healthcare.
With its focus on standardization, quality
improvement, cost reduction, and efficiency,
lean's influence (and various interpretations of
its tenets) continues to grow. In their working
paper "Lean Principles and Software
Production: Evidence from Indian Software
Services," HBS doctoral student Bradley Staats
and professor David Upton examine what
happens when Wipro Technologies, an Indian
outsource provider of software services,
launches its own lean initiative.
"In terms of operations and improvements,
the service industries in general are a long way
behind manufacturing," Upton says. "The
motivation for this work was to gain some
well-grounded research on how improvements
can be brought to services through some of
these lean concepts."
Not all lean manufacturing ideas translate
from factory floor to office cubicle. For

example, "poka-yoke," the method of


preventing mistakes by limiting how an
operation can be performed, doesn't translate so
easily to a software engineer writing code.
"What we hope to do," Upton says, "is to
distill the relevant aspects of lean
manufacturing so that managers can see how
these tools were applied successfully in a
service environment similar to their own."
Unfortunately, lean's prevalence has led to
some misconceptions.
"Some people think lean means 'not fat,' as
in laying people off," Upton says, noting that in
their paper they propose that the difference in a
lean operating system comes from how it alters
the way a company learns through changes in
problem
solving,
coordination,
and
standardization.
They also draw on a framework of 4
principles of the Toyota Production System
defined by HBS professor Kent Bowen and
Steven Spear (HBS DBA '99):
Rule 1: All work shall be highly specified as
to content, sequence, timing, and outcome.
Rule 2: Every customer-supplier connection
must be direct, and there must be an
unambiguous yes or no way to send requests
and receive responses.
Rule 3: The pathway for every product and
service must be simple and direct.
Rule 4: Any improvement must be made in
accordance with the scientific method, under
the guidance of a teacher, at the lowest possible
level in the organization.

Wipro gains efficiency


In the paper, Staats and Upton describe how
Wipro first launched its lean initiative in 2004
with a core team of managers. The small group
visited lean manufacturing companies and
discussed the concept's basic principles before
each manager adopted a project in order to
implement this new approach to software
services. Of the projects, 8 out of 10 showed
greater than 10 percent improvement in
efficiency.

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

"Some people think lean


means 'not fat,' as in laying
people off." David Upton
With those results in hand, the core team
decided to roll out the approach across the firm.
By the end of 2006, Wipro had 603 lean
projects completed or in the works (the
company typically had 1,100 projects under
way at any one time).
"One of the important lessons we've seen on
the ground is how Wipro approached the launch
of this lean initiative," Staats says. "They didn't
come out with big banners and say, 'OK, today
your work is lean work, and yesterday it wasn't.'
They started with a small group and recruited
other people from there. It was a very controlled
experimentation."
In their research, Staats and Upton
document how the use of lean principles
affected the workflow at Wipro. The concept of
"kaizen," or continuous improvement, for
example, resulted in a more iterative approach
to software development projects versus a
sequential, "waterfall" method in which each
step of the process is completed in turn by a
separate worker.
By sharing mistakes across the process, the
customer and project team members benefit
individually and collectively from increased
opportunities to learn from their errors; the
project also moves along more quickly because
bugs are discovered in the system earlier in the
development process.
Wipro also uses tools specific to the
software development process based on lean
principles. The DSM (design structure matrix),
for example, defines connections and pathways
for a project's workflow and suggests an order
of tasks. A complementary tool, the SCE
(system complexity estimator), ranks a software
module based on its complexity and compares
its actual architecture with its ideal (simplest)
architecture in order to learn where a team
might need more or fewer skilled members. The
company also employs the more familiar lean
technique of value stream mapping (VSM) to
identify and decrease wasted time and effort
throughout the software development process.

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Improving from the bottom


up
While most organizations struggle with
implementing a new system, fighting the
general inertia that many employees experience
when faced with yet another new initiative, the
goal of lean is to open up the work process and
abolish the usual hierarchies. According to
Staats, this seems to have happened at Wipro.
"It was interesting to talk to some of the less
senior team members, because they were
getting involved in much bigger-picture issues
than they ever had before," he says. "In the case
of value stream mapping, every member of the
team was able to get a sense of the overall
picture of what they were doing and spot
problems they wouldn't have been able to see
before."

"It's about unlocking the


power of thousands of
software
engineers."Bradley
Staats

Staats suggests that the use of lean


principles at Wipro could have qualities of a
"Trojan Horse initiative." From the outside, lean
accomplishes
the
short-term
goal
of
productivity (getting inside the city's gates), but
it could also lead to more radical, innovative
change (the sacking of Troy).
"One of the main ideas behind lean is to
take parts of a task that don't require human
intervention and give them to machines so that
humans can focus on the important issues,"
Staats explains. "The same is true in software,
where you have the added benefit of being able
to give some of your work to a computer, which
can process it more reliably and quickly than a
human."
More time, coupled with a better
understanding of the different moving parts of a
project, creates feelings of empowerment in
workers who haven't traditionally taken part in
innovation.
"It's about unlocking the power of thousands
of software engineers and encouraging
innovation up and down the organization,"
Staats says. "You can impact productivity while
also changing the problem-solving capabilities
of the organization."

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

Ideas into action


Wipro is typical amongst Indian firms in its
thirst for knowledge, Upton adds.
"These
companies
are
intellectual
environments. People are very interested in
taking conceptual ideas and figuring out how to
put them into practice. There's not the same
division between the 'real world' and university
research that you often encounter in the United
States."
Staats and Upton traveled to Wipro's offices
in
Bangalore
on
multiple
occasions,
interviewing employees at all levels to examine
the company-wide effects of lean; they plan to
return to India this fall and will continue to
monitor developments at Wipro.
Says Upton, "There's a question as to where
things go down the road: whether this continues
to be a lean implementation or evolves into the
Wipro Production System when they develop
enough new approaches to their work. We want
to stay around that question to reflect on it and
apply it to services more broadly."

About the author


Julia Hanna is associate editor of the HBS
Alumni Bulletin.