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Book Notes from 'This Is Lean' By Niklas Modig


The Efficiency Matrix

  • The plethora of definitions and usages of lean provides a rather confused picture of what lean actually is.
  • A new framework that we call the efficient matrix
  • The efficient matrix
    • Many definitions of lean are made at a low level of abstraction.
    • The fact that organizations in many different industries are now starting to work with lean makes it necessary to have a definition of lean that is on a sufficiently high level of abstraction to ensure its applicability outside of large volume manufacturing
    • The efficiency matrix depicts four different operational states in which organizations find themselves.
    • Efficient Islands
      • Resource efficiency is high and flow efficiency is low
      • Efficient utilization of resources comes at the expense of efficient flow.
      • Flow efficiency for every individual flow unit is low
      • Products spending much of its time as inventory.
    • Efficient Ocean
      • Flow efficiency is high but resource efficiency is low
      • The focus is on the customer and meeting their needs as efficiency as possible.
      • Flow is efficient at the expense of an efficient use of resources.
    • Wasteland
      • The organization is unable to use its resources efficiently or create an efficient flow.
      • This is not a desirable state to be in because it wastes resources and creates less value for the customer.
    • Perfect State
      • Organizations that achieve this state have both high resource efficiency and high flow efficiency.
      • It should be clear by now that it is difficult to reach the perfect state.
  • Variation limits possible positions in the matrix
    • In order to understand what positions an organization can achieve in the efficiency matrix, its critical to understand variation and its impact on the organization.
    • In order to reach the star and organization would need two things.
      • Perfect access to all information regarding the customers present and future needs
      • Require perfectly flexible and reliable resources -
    • Variation in demand prevents organizations from reaching the star.
      • The first prerequisite for being able to reach the star is perfect predictability of demand
        • What is demanded
        • When it is demanded
        • Which amount is demanded.
      • A demand pattern is extremely difficult to predict.
    • Variation in supply prevents organizations from reaching the star.
      • Reaching the star would require perfectly flexible and reliable supply
      • First of all - resources must be perfectly flexible.
      • The organization needs perfectly flexible resources in terms of
        • What is supplied
        • When it is supplied
        • Which amount is supplied
      • Perfect flexibility and reliability of the organizations resources would allow it to adapt to any situation.
    • Level of variation establishes the efficiency frontier
      • It is the level of variation in demand and supply that determines which operational states an organization can achieve.
      • The existence of variation limits the possible operational states and organization can achieve.
      • The main point to understand here is that it is impossible to reach an operational state beyond the efficiency frontier.
      • Whether the organization prioritizes resource efficiency or flow efficiency -
        • The efficiency frontier has been pushed in as the level of variation increases.
      • Examples of organizations facing high variation are those in which the main flow unit is people.
      • We cannot standardize or control people in the same way we can material or information.
      • It is often possible to become better at eliminating, reducing or managing variation.
  • Strategy decides position in the matrix
    • Many definitions of lean define it as a means rather than a goal.
    • Be clear about the difference between a business strategy and an operations strategy
    • A Business strategy defines what type of customer need the organization wishes to satisfy
    • An operations strategy defines how the organization will meet this need.
    • A business strategy defines what:
      • Defines the value the company will offer the customer.
      • A fundamental idea is the literature on business strategy is the importance of choosing between differentiation and cost.
      • When devising a business strategy - the level of differentiation that will be offered to the customer at what cost.
      • Business strategies - are about understanding and choosing which objective to prioritize.
      • What the customers value, what competitors do, what the organization is good at doing.
    • An Operations Strategy defines how:
      • Helps realizes the business strategy and defines how value is produced.
      • Operations strategy answers the question - 'how shall we product value'
      • How will we product a product given our business strategy
      • An operations strategy can be broken down into operational objectives.
  • Lean 2.0
    • The efficiency matrix serves as a foundation for understanding what lean is at the 'fruit level'
    • We want to define lean at a sufficiently high level of abstraction for it to apply to all kinds of organizations
    • The matrix highlights the importance of strategic choice
    • Organizations have a choice regarding where to position themselves and how to move within the matrix.

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Posted on Tuesday, September 6, 2016 12:04 PM Agile , Lean | Back to top


Comments on this post: This is Lean - The Efficiency Matrix

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