To effectively design and implement an organization’s strategy, guided by TAKT PROFIT targets, two basic rules must be followed: (1) follow the 7 Strategic KAIZEN processes, which connect successive TAKT PROFIT targets to operational improvements, and (2) apply Strategic KAIZEN concepts to each process.
Opening and Current Challenges
In today’s fiercely competitive business environment, continuous improvement isn’t just a buzzword – it’s a necessity. Did you know that companies embracing continuous improvement strategies outperform their peers by up to 30% in profitability? On the other hand, senior managers frequently express concerns such as: “While we’ve seen some improvement, our cost reduction efforts are lagging significantly behind our needs,” or “We aim to implement continuous improvement initiatives to meet our strategic goals, but we lack a consistent approach.” Additionally, there is often a gap in senior managers’ ability to craft effective and efficient strategies.
Also, during the implementation of various production improvement programs, one often hears senior managers saying that their directives are not fully or accurately communicated to the operational level, which leads to substandard results. This problem is primarily attributed to two main factors:
- The organization’s overarching improvement goals are misaligned with those of field leaders.
- Improvements objectives are established, but the actual improvement activities are left to field leaders who are already extremely busy with day-to-day operations.
In feedback to this predicament, Strategic KAIZEN is a game-changer for senior managers aiming to align their strategic goals with operational excellence. This article delves into the aspects of Strategic KAIZEN and its critical role in driving TAKT PROFIT (profit per takt minute or the conversion of the operational target profit into TAKT PROFIT from operations level).
Section 1: Understanding Strategic KAIZEN
Strategic KAIZEN is a powerful 7-process methodology that aims to drive long-term success.
By aligning continuous improvement efforts with strategic goals, organizations can achieve sustainable growth and maintain a competitive edge in their industry.
a) Definition of Strategic Kaizen
Strategic Kaizen prompts us to ask: Do today’s improvements align with our company’s vision, both operationally and financially? If not, we must rethink our approach. If they do, we should continue refining our methods and practices to foster a culture of continuous, strategic improvement, driving us towards synchronized and profitable operations, towards the continued use of Strategic KAIZEN.
What is Strategic KAIZEN? Strategic KAIZEN is an advanced approach to continuous improvement that aligns with an organization’s long-term goals and strategic objectives. Unlike traditional KAIZEN, which focuses on incremental improvements at the operational level, Strategic KAIZEN integrates these improvements into the broader strategic framework of the organization. This approach ensures that every improvement initiative contributes directly to the company’s overarching mission and vision, fostering a culture of sustained excellence and innovation, KAIZENshiro Culture (in Japanese, ‘shiro‘ signifies potential for growth). Within the strategic KAIZEN methodology, “shiro” represents the continuously measured potential to increase productivity and reduce costs without additional investment. This potential is continuously exploited through strategic KAIZEN projects.
More precisely, Strategic KAIZEN is defined as follows:
”The Strategic Kaizen processes are used to direct strategic financial and operational improvements across the organization. Strategic Kaizen for performing Synchronous Profitable Operations is defined as a participatory, systematic, and scientific planning and control process used to align financial and operational business strategy with strategic systematic improvement activities to meet the goals of Takt Profit and takt time at the same time regardless of sales trend (increasing or decreasing). Strategic Kaizen ensures that everyone in the company knows their role in achieving strategic systematic improvement goals.” (Alin POSTEUCĂ, 2023, Beyond Strategic Kaizen, p. 22, Routledge – Productivity Press).
In this context, a question arises: How can top managers leverage Strategic KAIZEN to achieve significant profit boosts without incurring additional costs?
For this, the Strategic KAIZEN methodology offers a powerful profit formula:
Target Profit – External Target Profit = Internal Target Profit
Where:
- Target Profit means the target operational profit.
- External Target Profit means the profit brought by sales.
- Internal Target Profit means the profit brought by unit cost improvements and productivity increases. The scope of improvement is at the “shiro” level and is done strategically. This is where the Strategic KAIZEN methodology is predominantly positioned.
b) Why is Strategic KAIZEN needed in organizations?
When routine small improvements are exhausted, Strategic Kaizen becomes essential. It involves all managers and all employees to achieve new standards through scientific, measurement-based improvements. Strategic KAIZEN should not be misunderstood. Strategic KAIZEN, traditional KAIZEN (waste elimination), and Kaikaku (radical change) are inseparable. See the figure below.
The ongoing involvement of top and middle management ensures the efficiency and effectiveness of strategic improvement, eliminating excuses and ensuring that issues are addressed continuously and consistently to meet successive TAKT PROFIT targets.
c) What makes Strategic KAIZEN different?
Why settle for incremental improvements when you can achieve transformative change? Strategic KAIZEN provides a comprehensive approach to achieving the ideal state of Synchronous Profitable Operations (SPO). This method ensures operations are both market-aligned (fulfillment of Takt Time) and sufficiently profitable (fulfillment of Takt Profit).
Unlike traditional methods like Lean and Kaizen, which practice an “Improvement Focusing on Research (FR)”, or an “Outside-In” approach”, Strategic KAIZEN practices an “Improvement Focusing on Design (FD)”, or an “Inside-Out”. This alignment of strategic continuous improvement with profit objectives fosters sustainable growth through the continuous and total involvement of senior managers and then all people in the organization.
See below:
So, Strategic KAIZEN is not just another improvement methodology; it is a paradigm shift that enables organizations to move towards “Synchronous Profitable Operations – SPO”, the ideal state of operations. By focusing on design rather than just research, Strategic KAIZEN ensures that improvements are not only effective but also aligned with long-term strategic goals.
d) Benefits of Strategic Kaizen
Implementing Strategic KAIZEN offers numerous tangible and intangible benefits.
Tangibly, by continuously providing value to all key stakeholders (including customers), Strategic KAIZEN leads to increased effectiveness and efficiency, reduced costs and improved product quality, such as: productivity (equipment productivity – increase by 1.5 to 2 times or more; labor productivity – increase by 2.5 to 3 times or more), cost reduction (achieve 30-35% or mor), On-Time Delivery Rate (achieve 97% or more), inventories (finished product inventory and work in process (reduce by 50% or more); Return on Investment – ROI (achieve 5 times or greater).
Intangible, Strategic KAIZEN fosters a culture of continuous improvement and employee engagement, leading to: enhanced teamwork. increased employee motivation and morale, higher job satisfaction, improved problem-solving capabilities, elimination of internal barriers, etc.
The KAIZENshiro Cultural Change (or the culture of continuous strategic improvement focused on the approach of exploiting the measured potential for productivity growth to achieve target profitability, coordinated through Takt Profit and achieved through Strategic KAIZEN projects), empowers employees at all levels to significantly contribute to the company’s success. This process enhances their sense of ownership and motivation.
Additionally, it stimulates creativity among managers and employees, while bolstering the organization’s resilience and adaptability in a rapidly changing business environment. By adopting KAIZENshiro Culture, top managers can foster a dynamic, innovative, and resilient organization poised for long-term success. By embracing Strategic KAIZEN, top managers can drive substantial improvements in productivity, service levels, and overall organizational performance, ensuring long-term success and sustainability.
e) Strategic KAIZEN Case Study
”We feel we’ve reached maximum possible cost improvement and it’s still not enough”.
Many leaders say this in private. For example, a European manufacturer of auto components – we’ll call it Vaspare Corp.- began to lose its way regarding target profit. Years ago, Vaspare had launched an ambitious program to become a lean enterprise hoping to achieve better quality, lower costs and on-time deliveries. After the first six months, senior executives noted that sales fell by 10.2% and operating profit margin decreased to 7.1% compared to a 10% target. Through their Kaizen activities, only 3.1% of the 5% cost saving target was achieved. In the next six months, the Vice President of Operations had quite good operational results but the operating profit margin fell again.
Vaspare’s challenge is common, with sometimes abrupt decisions: some corporations have experienced sharp drops of 24% in operating profits amid market pressure to cut prices (#Tesla) and others have resorted to massive layoffs to contain costs (Ford). Like Vaspare, Tesla and Ford, the focus on maximizing flow and satisfying customer needs often leads to forgetting real purpose – to make profit for stakeholders. When the financial results show that they are not so profitable, it is already too late and they are forced to make painful decisions. They never examine how to modify or change their cost improvement system. External investors and board members start to question the skill and commitment of senior executives.
In our experience, however, the approach of cost improvement system is the cause of lack of performance and not the lack of skills and effort of the managers. By a cost improvement system, we mean an integrated set of processes, concepts and tools for budgeting feasible total productivity growth to support the cost improvement target using strategic and systematic improvements, using Strategic KAIZEN. Various studies regarding failures in cost improvement are pervasive, such as that almost 50% of the companies that have concerns about cost improvement do not reach their targets – profit being continuously diminished.
In this context, Vaspare adhered to the Strategic KAIZEN methodology. In the first 3 years, profit targets were met every year. For example, to hit the profit targets for the third year, senior managers decided to roll out 12 strategic KAIZEN projects. Each project was specifically designed to boost both unit profitability (Takt Profit) and overall profitability (Speed-Based Target Profit, SBTP). These projects successfully met their financial and operational goals, so no additional projects were needed.
Vaspare’s progress towards Profitable Synchronous Operations (SPO) improved from 78% to 83%. The gap between 83% and 100% is identified at the operational level by Ideal Takt Profit and at the financial level by Ideal KAIZENshiro Budget, Ideal KAIZENshiro Costs, and Ideal Speed-Based Target Profit (SBTP) for each product family and the entire plant.
By sticking to the annual KAIZENshiro budget, Vaspare hit the strategic KPI targets and achieved the desired levels for Takt Profit. Ultimately, the annual SBTP target was also met.
Section 2: The Role of TAKT PROFIT in Strategic KAIZEN
Measuring the success of Strategic KAIZEN involves consistently achieving TAKT PROFIT targets.
By consistently meeting these targets, organizations can ensure that their Strategic KAIZEN efforts are effectively enhancing productivity, reducing costs, and ultimately driving profitability. This approach helps maintain a balance between meeting customer demands and achieving financial goals.
a) Defining TAKT PROFIT and its Significance in Strategic KAIZEN
By transforming target profit into Takt Profit, or profit per takt minute, organisations can enhance planning and optimise production to consistently meet profit targets. This methodology proves effective in both scenarios of sales growth and sales decline. In the context of sales growth, the focus is on boosting productivity by enhancing effectiveness and minimising the cost of losses – cost of not efectively used input. Conversely, in a sales decline scenario, the emphasis shifts to increasing productivity by improving efficiency and reducing the cost of waste – cost of excess amount of input.
b) Incorporating TAKT PROFIT into Business Processes
In many industries, profitability driven by sales growth has slowed down quite a bit. Expected profit margins have been replaced by profitability driven by productivity gains, cost reductions, and improved customer relationships. This is one of the core goals of Strategic KAIZEN. Despite this shift, nearly 50% of companies with significant concerns about cost improvement fail to meet their objectives.
The challenge lies in balancing the objectives of the market (customers) with those of the company (shareholders, employees, suppliers, society, etc.). This balance encompasses three dimensions: quality, speed, and price/cost. Market objectives include delivery (quality, capacity, and time limit) and price. The company’s objectives focus on achieving marginal profitability by meeting targets for man-hours per product, set-up time, utilization, costs (transformation and materials), total lead time, production delivery performance, replenishment time, and scrap and rework percentages. Additionally, the company’s objectives encompass employee safety, health, and morale. The Strategic KAIZEN methodology strategically approaches all these improvements and aims to achieve cost reductions in processes.
A performance measurement system must originate from the company’s objectives, with KPIs adjusted to market objectives, or vice versa. Therefore, the flow design must aim for simultaneous orientation towards profitability and customer satisfaction. This is the innovative approach of Strategic KAIZEN methodology, which offers a combined perspective of profitability and ensuring customer value from the outset of analyzing activity volumes and the need for strategic operational improvements.
c) Impact: Enhancing Business Performance using TAKT PROFIT
Many organizations already recognize the critical role of TAKT PROFIT in aligning production with market demands. Variations in customer delivery requirements and variations in internal production capacities can have a significant impact on operational efficiency and profitability. By determining TAKT TIME based on customer demand and Takt Profit based on profit demand, companies can synchronize production with sales and target profit, ensuring customer-oriented and profitable operations at the same time.
As we already said, Strategic KAIZEN aims to achieve Synchronous Profitable Operations (SPO) by balancing TAKT TIME and TAKT PROFIT. This involves targeting both customer demand and profit per minute in bottleneck operations. The ideal TAKT PROFIT is the difference between current and maximum operating profit margins, taking into account non-productivity costs and without involving investments in improvements.
Strategic KAIZEN projects focus on mitigating the impact of fluctuations and on successively achieving TAKT PROFIT targets.
d) Coordinating Improvements: TAKT PROFIT vs. Traditional Methods
In today’s competitive business landscape, choosing the right improvement strategy is crucial. This introduction contrasts the innovative TAKT PROFIT method with traditional approaches, emphasizing the benefits of aligning customer demand with profitability, synchronizing processes, and using real-time data for continuous improvement. Understanding these differences helps businesses optimize operations and achieve sustainable growth.
Section 3: Practical Steps for Implementing Strategic KAIZEN
This section is designed to provide Senior Managers with practical steps to implement Strategic KAIZEN effectively within their organizations. By following a clear, actionable plan, utilizing specific tools and techniques, and addressing common challenges, senior managers can foster a KAIZENshiro Culture that drives long-term success.
a) The Stone Foundation for the Seven Processes of Strategic Kaizen
This subchapter presents the fundamental elements underlying the 7 processes of Strategic KAIZEN, highlighting the continuous, total and consistent involvement of senior management along with all other people in organizations.
b) The Strategic KAIZEN: The 7 Processes and the Involvement of Senior Managers
The following figure presents the seven core processes that underpin Strategic KAIZEN, highlighting how the active participation of senior managers not only drives operational efficiency but also aligns organizational goals with long-term strategic objectives. Through this comprehensive involvement, organizations can leverage Takt Profit to achieve free profit expansion, setting a new standard for executive success.
The 7 basic processes of the KAIZEN Strategic Methodology are:
The 7 basic processes of Strategic KAIZEN are as follows (details can be found here):
- Process 1: Studying the Potential for Strategic Systematic Improvement Points
- Process 2: Calculating Ideal Takt Profit & Setting Stratified KAIZENshiro
- Process 3: Annual Financial Reconciliation (financial catchball)
- Process 4: Annual Operational Reconciliation (operational catchball)
- Process 5: Organizing, Planning and Learning for Strategic Kaizen
- Process 6: Implementing Annual Feasible Strategic Kaizen Projects
- Process 7: Results, Standardization, Horizontal Extensions and Future Plans
Therefore, in the realm of continuous improvement, Strategic KAIZEN stands out as a pivotal methodology that ensures the continuous, total, and consistent involvement of senior managers. Unlike traditional approaches, Strategic KAIZEN integrates senior leadership into every facet of the improvement process, fostering a culture of sustained excellence and proactive engagement (a free chapter of the book can be viewed here).
Conclusion
Strategic KAIZEN is not merely a set of practices but a philosophy that demands the continuous, total, and consistent involvement of senior managers. Their engagement is pivotal in driving the organization’s commitment to excellence through Strategic KAIZEN, fostering a culture (KAIZENshiro Culture) where every level of the hierarchy is aligned with the overarching goals of improvement and profitability. By leveraging their leadership and vision, senior managers can ensure that the principles of Strategic KAIZEN are not only implemented but also sustained, leading to significant and lasting benefits for the organization.
Ready to transform your business? Dive deeper into the Strategic KAIZEN Methodology and discover how this approach can lead to sustainable success. Embrace the future of business improvement and make Strategic KAIZEN a cornerstone of your organizational strategy.
Thank you for dedicating your valuable time to read this article. I genuinely hope it serves as a source of inspiration for your endeavours.
Dr. Alin Posteucă
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