'Lean' Principles to Service Industries

Executive Summary:
Toyota and other top manuIacturing companies have embraced, improved, and proIited by lean
production methods. But the payoIIs have not been nearly as dramatic Ior service industries
applying lean principles. HBS proIessor avid Upton and doctoral student Bradley Staats look
at the experience oI Indian soItware services provider Wipro Ior answers. Key concepts include:
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coordlnaLlon Lhrough connecLlons and paLhways and sLandardlzaLlon
O uccessful lean operaLlons aL Wlpro lnvolved a small rollouL reduclng hlerarchles conLlnuous
lmprovemenL sharlng mlsLakes and speclallzed Lools
Bringing 'Lean' Principles to Service Industries
Thanks to the pioneering success oI Toyota, the concept oI a "lean" operating system has been
implemented in countless manuIacturing companies and even adapted Ior industries as diverse as
insurance and healthcare.
With its Iocus on standardization, quality improvement, cost reduction, and eIIiciency, lean's
inIluence (and various interpretations oI its tenets) continues to grow. In their working paper
"Lean Principles and SoItware Production: Evidence Irom Indian SoItware Services," HBS
doctoral student Bradley Staats and proIessor David Upton examine what happens when Wipro
Technologies, an Indian outsource provider oI soItware services, launches its own lean initiative.
"In terms oI operations and improvements, the service industries in general are a long way
behind manuIacturing," Upton says. "The motivation Ior this work was to gain some well-
grounded research on how improvements can be brought to services through some oI these lean
concepts."
Not all lean manuIacturing ideas translate Irom Iactory Iloor to oIIice cubicle. For example, tools
such as the andon cord, a rope that manuIacturing workers pull when they encounter a problem
on the line, are not directly replicable in soItware as there is no line to stop.
"What we hope to do," Upton says, "is to distill the relevant aspects oI lean manuIacturing so
that managers can see how these tools were applied successIully in a service environment similar
to their own."
UnIortunately, lean's prevalence has led to some misconceptions.
"Some people think lean means 'not Iat,' as in laying people oII," Upton says, noting that in their
paper they propose that the diIIerence in a lean operating system comes Irom how it alters the
way a company learns through changes in problem solving, coordination, and standardization.
They also draw on a Iramework oI 4 principles oI the Toyota Production System deIined by HBS
proIessor Kent Bowen and Steven Spear (HBS DBA '99):
Rule 1: All work shall be highly speciIied 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 Ior every product and service must be simple and direct.
Rule 4: Any improvement must be made in accordance with the scientiIic method, under the
guidance oI a teacher, at the lowest possible level in the organization.
ipro gains efficiency
In the paper, Staats and Upton describe how Wipro Iirst launched its lean initiative in 2004 with
a core team oI managers. The small group visited lean manuIacturing companies and discussed
the concept's basic principles beIore each manager adopted a project in order to implement this
new approach to soItware services. OI the projects, 8 out oI 10 showed greater than 10 percent
improvement in eIIiciency.
ome people Lhlnk lean means noL faL as ln laylng people off uavld upLon
With those results in hand, the core team decided to roll out the approach across the Iirm. By the
end oI 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 oI the important lessons we've seen on the ground is how Wipro approached the launch oI
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 Irom there. It was a very controlled experimentation."
In their research, Staats and Upton document how the use oI lean principles aIIected the
workIlow at Wipro. The concept oI "kaizen," or continuous improvement, Ior example, resulted
in a more iterative approach to soItware development projects versus a sequential, "waterIall"
method in which each step oI the process is completed in turn by a separate worker.
By sharing mistakes across the process, the customer and project team members beneIit
individually and collectively Irom increased opportunities to learn Irom 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 speciIic to the soItware development process based on lean principles. The
DSM (design structure matrix), Ior example, deIines connections and pathways Ior a project's
workIlow and suggests an order oI tasks. A complementary tool, the SCE (system complexity
estimator), ranks a soItware 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 Iewer
skilled members. The company also employs the more Iamiliar lean technique oI value stream
mapping (VSM) to identiIy and decrease wasted time and eIIort throughout the soItware
development process.
mproving from tbe bottom up
While most organizations struggle with implementing a new system, Iighting the general inertia
that many employees experience when Iaced with yet another new initiative, the goal oI 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 oI the less senior team members, because they were getting
involved in much bigger-picture issues than they ever had beIore," he says. "In the case oI value
stream mapping, every member oI the team was able to get a sense oI the overall picture oI what
they were doing and spot problems they wouldn't have been able to see beIore."
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Staats suggests that the use oI lean principles at Wipro could have qualities oI a "Trojan Horse
initiative." From the outside, lean accomplishes the short-term goal oI productivity (getting
inside the city's gates), but it could also lead to more radical, innovative change (the sacking oI
Troy).
"One oI the main ideas behind lean is to take parts oI a task that don't require human intervention
and give them to machines so that humans can Iocus on the important issues," Staats explains.
"The same is true in soItware, where you have the added beneIit oI being able to give some oI
your work to a computer, which can process it more reliably and quickly than a human."
More time, coupled with a better understanding oI the diIIerent moving parts oI a project, creates
Ieelings oI empowerment in workers who haven't traditionally taken part in innovation.
"It's about unlocking the power oI thousands oI soItware engineers and encouraging innovation
up and down the organization," Staats says. "You can impact productivity while also changing
the problem-solving capabilities oI the organization."
Veas into action
Wipro is typical amongst Indian Iirms in its thirst Ior knowledge, Upton adds.
"These companies are intellectual environments. People are very interested in taking conceptual
ideas and Iiguring out how to put them into practice. There's not the same division between the
'real world' and university research that you oIten encounter in the United States."
Staats and Upton traveled to Wipro's oIIices in Bangalore on multiple occasions, interviewing
employees at all levels to examine the company-wide eIIects oI lean; they plan to return to India
this Iall 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 reIlect on it and
apply it to services more broadly."