Is the digital revolution a more important business development than lean?

Dear Gemba Coach,

Isn’t the digital revolution, especially in services, a more important business development than lean?

That’s a very interesting question. People tend to want “one answer,” one silver bullet, yet in a complex world new solutions tend to be woven out of many strands. Absolutely, the digital revolution is sweeping through every field. But then again, most services have a brick-and-mortar dimension in order to deliver the service.

For example, I recently visited the digital office of a retail chain – the gemba for the team in charge of the chain’s web site and online shopping interface. They squarely blamed their poor Net Promoter Score on logistics at their warehouses that didn’t know how to either stock the right products or ship them on time. The number one issue for the digital team was basket fulfilment.

The warehouses operate on software that tells them what to procure from whom, where to store the items, how to put customer orders together and how to deliver. This is digital as well. Furthermore, the web team had never asked themselves how they make the warehouses’ job easier or harder with the way they display customer orders, offer promotions, discounts and so on.

Typical lean issues.

Lean thinking is relevant to digital services at four practical levels:

1. As always, at the strategy level of understanding how your company is going to eliminate a Waste (with a capital W) from society through digitalization
2. At the digitalization level itself in how the team is going to develop the software;
3. At the interface with bricks-and-mortar, particularly with created demand, and finally;
4. In the supply chain itself.

Strategy

Disruptive firms use the potential of digital to offer a service that is radically more practical to customers than traditional ones. When Amazon delivers books to your doorstep it takes two wasteful steps out of your own process:

1. Physically going to the bookstore;
2. Ordering a book that might not be on the shelves.

Before Amazon, we used to walk or drive to the bookstore, look for a specific book or browse a section of books, then either purchase it if it was there on the shelf or ask the bookstore to order it (which meant coming back). As customers, we now do the same, but on our phone or computer. These steps nonetheless still have to happen.

Taking the waste out of the customer experience also enabled Amazon to take waste out of the supply process. As the former head of global operations at Amazon, Marc Onetto illustrated how the entire Amazon concept was built around removing waste (https://www.youtube.com/watch?v=JfSgwqW4mFM ). According to Onetto, the traditional publishing operation would involve 40 to 50% returns of books from bookstores to publishers (and subsequent pulping of them). Amazon brought that number to 4% by starting print-on-demand. (https://www.youtube.com/watch?v=5M0aUOudbx0&t=2s )

Digitization

Then at the digitalization level, some customer interfaces are better than others. Here, lean’s relentless focus on customer satisfaction also makes a critical difference. The website is really digitalizing the salesperson who, rather than have one-on-one conversations is now handling one-on-many (or one-on-many-many). But it’s still a conversation. A smart website will adapt to how customers think and approach issues and evolve in consequence rather than impose its vision on customers (and encourage them to go elsewhere to find a friendlier person to talk to).

As another stunning example of lean thinking at Amazon, according to Onetto, happened in the early days. When there was a quality complaint about a product, it was immediately taken off the website pending resolution of the problem. This is like a salesperson refusing to sell a product a customer has complained about until the issue is resolved. This is a very powerful, very lean conversation, where digital and lean mesh to create responsiveness traditional businesses don’t have.

Brick-and-Mortar Interface

Then there is the problem of created demand. It’s easy to misunderstand Amazon as a retailer with a really good IT system. In truth, Amazon is a sales website that has developed its supply system – this is very different. Think about when you have an issue with any provider where you usually order online, but hit a snag – you just want to talk to someone. The company doesn’t want you to talk to a physical person because it’s costly. As a result, the site is designed to give you all sorts of useless information and FAQs when you just WANT TO TALK TO SOMEONE.

I recently ordered some books from Amazon (yes, quick plug, give-away copies of The Lean Strategy :^)). The last meter provider, UPS, somehow failed to wait long enough for someone to open the door of the office (there was someone there) and went on to deliver the books at a store across the neighborhood. As a result, I had to walk there and lug the books back. I e-mailed a complaint to Amazon from my phone, and had a personalized reply within 2 hours, saying, I quote: “If I relate it to myself I can completely understand how frustrating and annoying the situation can be when something like this happens but believe us it was never our intention.

To avoid this from happening again, I have left a special instruction on your account to our shipping department so that they could try avoid assigning UPS carrier to your orders as long as they can.”

Please understand that I am not a starry-eyed Amazon fan and that, as an author, Amazon’s disruption has seriously hurt my pocketbook (with a price list of $30, books sell on Amazon for $20 and on kindle for $10. In the professional book market, this does not expand sales, so do the math). But still this response merits notice.

Supply Chain

By starting from a website, Amazon can expand its supply chain flexibly. For instance, it can sell a product from an obscure local supplier, and take a hit on the cost of transport if the product is purchased. If the product becomes popular and is repurchased often, Amazon can bring it into its main process supply chain. Learning this enabled Amazon to start with books and expand to … virtually everything.

This is a similar trick to Toyota being able to build new car models on existing lines, taking risks on niche models without making them carry the weight of paying back the full facility investment. flexibility is a massive competitive advantage, one that has turned Toyota into the largest automaker in the world at the highest level of profitability, and one that enables Amazon to take over, well, pretty much everything.

Amazon is a spectacular example of how a lean strategy is the key to successfully scaling up your start-up, but it also applies in any service industry. At some point, someone has to do some real work, and without the lean thinking of noticing waste, exploring it, and eliminating its root cause, every company falls victim of its own Big Company Disease and falls short of its ambitions.