Speaker A I think the reason people use Lean and Six Sigma in the same sentence is that Lean provides a set of tools for improving a process. Six Sigma provides a set of tools for improving your process. There are a bunch of tools that sit in a toolkit, and people here, their objectives here are always to improve their process, to get better outcomes. And sometimes Lean is a useful tool, and sometimes Six Sigma is a useful tool. And that's why they use both of them.
Speaker B I would add to that that if you think about effectiveness and you think about how high quality product you have, right, that's an effectiveness issue. So that you have all these tools from Six Sigma, and I studied them as a statistician that are quality control kinds of charts. On the process side, think of efficiency. Six Sigma doesn't come to mind right away. The tools think of the tools for Six Sigma and think of efficiency. Now, of course, the Toyota production system, which is from where all this arises, builds the quality in at each stage. So they had by the time they implemented Lean at Letter Kenny, the quality people who were always at the end of the line were almost unemployed. It was like the Maytag repair man, because what came out of there was quality checked at every stage. Prior to that, it was kind of at the level. They had some of it built into each step, each activity. So it's a matter of the toolkits. And that's why I distinguish it. The tools of Lean are totally different from the tools of Six Sigma.
Speaker C I was going to make an observation as Jenny was talking. In some ways. We established a burning platform. And before we deployed anything Lean, we had deployment directors, which were always the boss. We started with the Four Stars, and if you're not serious, then we're not serious about doing this. Because if you don't take ownership of the project at your level to implement, it's not going to be successful. And so before we even got into the green belts or black belts or master black belts, we had deployment directors took their time and said, you have to commit because it's going to be tough work. And then we went one step further, which we can do. We just took the money away and we said, okay, now you're going to have to figure out how you're going to pay for it, because I've got it. Now here's a set of tools that will make you more efficient, that will reduce your costs. Now, why do we take money away? Because 84% of our costs are personnel. So at the end of the day, you got to get rid of bodies if you want to save money. And so we said, you've got to become more efficient because I'm not going to give you as much money. So that created a burning platform. We had ownership and then they said, wow, maybe we better look at these tools.
Speaker D Money. Did you know to take away without breaking the system?
Speaker C Well, I just took a billion. I needed a billion dollars, so I allocated it out and said, your share is actually, it turns out we're taking 7% a year. 7%. We figured out that that's what they owe us. Lean should give you 7% gains in productive effectiveness every year.
Speaker D Year over year over year over year should be the absolute value creation.
Speaker C So our target, and we got that from our experience at Rio Tinto, so that's our target, operating target 7%. So if I'm looking for money, I take your share of 7% of your operating budget. Thank you very much.
Speaker D That's what makes it real, right? You take the money away. So you're still going to get the output done.
Speaker C I want the same output. Same output with 7% fewer resources.
Speaker E Ah.
Speaker F The very first thing we do is go out and find customer requirements. As a matter of fact, in the briefings that I would give to commanders, we would always talk about effectiveness as being effectiveness at meeting customer requirements efficiently with the efficiency set as the supporting condition for customer requirement meeting rather than as the driving condition. And I think you're right. If you take out the voice of the customer first, you're really just sort of piloting your ship around towards failure. By creating efficiencies that have nothing to do with the output.
Speaker D You can't differentiate between direct value add.
Speaker C Indirect value add, and what the customer.
Speaker D Values and is willing to pay for it. Stop.
Speaker F I think that task one or the one thing in quality improvement efforts that I've seen is the connection specifically to well defined customer requirements. And if you haven't got that, you lost your point of orientation or you've got a false one.
Speaker B When I toured Letter Kenny, the first time, the customer quality control people were right there on the floor. The two other people, they were building a specialized Humvee for the special Forces coming down the production line. Two of the actual special forces people were on the floor at the end to see whether it met their requirements. So you're absolutely right. The customer was shown back here. But as you know, David, bringing the customer perspective to the army is a challenge because they don't think that way. Bringing it to a commercial corporation is not.
Speaker C I'll try that because remember, we separate the institution into two parts. The warfight redundancy is built in. I can't afford to make an error. So I build in redundancy for a couple of reasons casualties and other things. I'm not going to fool around with their effectiveness. I do not tolerate a redundancy in the efficiency side of the enterprise. I drive them saying, you've got to be efficient to pay for their effectiveness. So you have no choice. You've got to become more efficient so I can pay for the redundancy. Because I can't afford the risk over here. And so then they're not real happy because they move back and forth. So the guy says, over here, wow, I was able to have a little bit of fat. Now I come over here and I have there is no fat. I said that's right over in this side of the equation. You've got to be efficient because I've got to have a certain amount of redundancy over there. And that's an interesting term because we call it resiliency redundancy, et cetera.
Speaker A I think that lean and redundancy are two very different things. So take your steel mill. You want to design redundancy in, and it needs to be a matter of conscious design. For example, maybe we need to have a separate part of our production process in case this bit fails. You can then apply lean to both lines. So you can build redundancy in, but remove the fat. So what I'm saying is fat doesn't equal redundancy. And so applying lean, unless people are silly enough to actually take out the redundancy because they think that's fat, then it should be entirely compatible to build redundancy in and make sure that your processes are still lean.
Speaker G One of the reasons I'm asking is because there are lots of utilities in particular, I know it's important in the armed forces as well. Efforts to be economical lead to reductions in capacity, when actually you're not planning for this week's thing or next year's thing. You're planning for a one in 40 winter or maybe a one in 200 year summer or drought, exactly two wars or whatever. And I get extremely concerned that we draw into places where society's resilience is actually what we're looking at. And we drag in things sometimes I'm not saying on this panel, but lots of people drag in things from the commercial sector that are entirely unrelated to the needs of a big, complex social structure that's not there just to make profit. It's not there value added measure in the normal way that we do, and we're all happy to do it, but they're actually there for different purposes. And I just think we need to take a care in terms of the philosophical reasons why we do these things. So there's a bit of me that thinks level five and level six thinking needs to get into this about what is the social structures of scientists create? What are the institutions that we actually need to do that? What level of resilience do they need? How much redundancy does that require, and how much are citizens willing to pay for it? And then within that, we can be lean and mean, and we can be Six Sigma, and we can use all the sort of quality we want. But we need to get those arguments right first.
Speaker E The key question relates somewhat differently in the military, which comes, where are you drawing your information? Where are you drawing your profits from? Are you drawing it from things, machines, technology? Are you drawing it from people? Which comes first? The people come first. Are they the source of your profits or are the machines and technology the source of the profits? Most business people today pick machines and technology because they're taught that. In terms of the economics, they're taught that. But in reality, once you at least the people, we know perfectly well that's where the profits are 30% 50% more than technology and machines alone. The question is, which one do you prefer? Are the machines extensions of people or people extensions of the machine? And that's a tough value question. In the military, the work at the.
Speaker C Higher levels, which gets into relating with your stakeholders or your society, all that work falls on I don't care if you're a small level five Yarra Valley water operation, you got to do all that work at the top. So you've got to be focused out to your stakeholders to ask those social questions because it comes with a cost. You can be as efficient as possible, but if you can't meet the customer requirements, then you're going to fail. And so the customer doesn't even know he's got that requirement until all of a sudden you got the 100 year flood. So the next year I get the 500 year flood in San Antonio and I'm not very happy because you can't give me utilities. You should have thought about that and told me what the cost was in terms of those kinds of issues beforehand. I'm prepared to make the trade off as the member of society. But whose work is that? It goes back to the question, whose work is that? That's not the guy at level, at the lower operating level, he can do his job or her job. It's the senior people who get caught up in running this thing as a business without understanding that it's not just the business, it's a hospital or it's something else. It's a public utility. And so there's a whole lot of value stuff in there. I mean, we're an army, but we also are part of our society. And so we have to live with the values. Therefore don't send all of our people to graduate schools in our own schools, send them out into society so they bring back those values and that interaction. But people don't like to do that because it's nebulous. So they beat on you to do the easy stuff, which is here's the statistical controls, and get this thing down there to cut it, boom. And then you can't deliver the product or service. So that's a good question. Got to balance them.
Speaker B Well, I would start with the idea of the value proposition and what your bank's value proposition is. And presumably the attention towards processes is such that it is in some way making the path to that, accomplishing that view proposition easier or more efficient. And so from your point of view. You're coming in and talking about the vertical alignment at high levels and so you speak towards that value proposition at those higher levels and it is easier to speak to it at the higher levels. And the interaction of the two. We are talking about aligning what you're doing with what they're doing and who comes in first and who comes in second. That may be a matter of money, which is the case in the army. It may be a matter of the secretary because he was more familiar with Lean and less with organization structure. Had he come from McKinsey, it could have been organization structure first. But it comes around, I think, to aligning both the horizontal and the vertical.
Speaker A Basically your organizational structure has to be around work. So it's what is that process line at level one? What is that work? If you understand that if you go in first and you understand that, then you can design a structure that makes sure you've got the right roles for the process that's being implemented. You've appropriate level twos who are doing both supervision and the diagnosis around the process and you can leave with that the process. People come in and they might say, look, if we put more effort up front, then we need six more people up the front, but that'll save us eight people in quality check at the end. In terms of impact on your structure, all that does is move the deck chairs on the level one level. So it's got to be iterative. Which comes back to Joe's point, is that who's integrating the work? And this is where most of us suffer in organizations, particularly people like you in specialist roles and the process. People are specialist roles. You're trying to do your bit, they're trying to do that bit, and your boss ain't doing the job of trying to integrate it.
Speaker H You need to have somebody who's accountable for integrating that work. If that's not you, then you need to go back to your boss and say that my need from you is to do this and I can't do my job effectively if you don't help me do this. But you are accountable for integrating this work and we can't do structure without process. I mean, it doesn't work that way.
Speaker B So I think you have to push backy.
