The Japanese Secret to Boosting Productivity

A historical Japanese concept can help you improve your operations.
Strategic Facilitation & Ideation,
July 04, 2012

Project Raincloud was an appropriate name for the special task force chartered in June 1988 by Midland Bank in the U.K. Project Raincloud was challenged with finding an innovative alternative to retail banking, one that focused on providing real value to customers. At that same time, Midland Bank's senior managers had become aware of the rising reputation of quality in Japanese goods.

In the wake of the severe downturn in the U.S. stock market in 1987, financial institutions such as Midland Bank and Fidelity Investments, unable to control returns on investments, had cast about for ways to improve service quality. For example, Fidelity's Edward C. Johnson III, chairman and CEO and a highly regarded financial manager, had gone to school on kaizen, the Japanese term for continuous improvement, inspired by Masaaki Imai’s 1986 business management book of the same name. The book positioned kaizen as the key to Japan’s competitive success, and attributed Japan’s rise from the ruins of World War II to it.

Senior management at Midland eventually incorporated kaizen into their core values, and it became part of the guiding force behind the efforts of Project Raincloud.

Kaizen roughly translates to “change for the better,” and puts creating customer-defined value at the center of all business activity. The irony is that while kaizen may be a Japanese word, and responsible for Japan’s quality progress, it is an American-made method, born during World War II.

General Douglas MacArthur arrived on Japanese soil in 1945 to begin a seven-year occupation, facing what appeared to be an almost insurmountable challenge: stabilize the country. What he saw, though, was far from stable. Tokyo had been devastated. The economy was in shambles, the industrial base having been literally vaporized. Civil unrest, starvation, Communism and severe resource constraints in the way of land, facilities, money and labor skills all threatened the mission of getting Japan back on its feet. MacArthur reached back to Washington to enlist the help of a Roosevelt-created emergency service program called Training Within Industry (TWI). Unfortunately, it wasn’t there.

The Birth of Continuous Improvement

When France fell to Hitler’s Third Reich in 1940 and U.S. involvement in the European Theater looked imminent, U.S. factories needed ways not only to ramp up production quickly, but also to rapidly train people to replace the workers who had become soldiers. The Department of War formed TWI to help quickly boost production and productivity. Three programs were developed, and one of them, Job Methods, taught how to generate and implement ideas through hundreds of small changes that could be affected immediately. The term coined for the method was "continuous improvement." The focus was on improving the current work and existing equipment, because there simply wasn’t time for large-scale ideas or design of new tools. Improvement needs to be quick, cheap and lean.

Training happened rapidly, using a multiplier approach: five course developers each taught two trainers, who in turn trained 20 instructors each. These trainers taught and led “quality circles” in nearly 17,000 plants in America. By the end of the war, TWI had trained nearly 1.7 million people.

MacArthur saw TWI as a good way to jump-start the reconstruction effort. But TWI had been discontinued following the end of World War II. Fortunately, one of the original TWI instructors had formed TWI, Inc., and came to support MacArthur’s occupation forces. By 1953, the approach had become Japan’s de facto business practice and had been customized and incorporated into nearly every business operation in the country. Japan made continuous improvement on its own, dubbing it kaizen.

According to the kaizen view, there are two types of work: value adding and non-value-adding. Anything that doesn’t add value for someone somewhere should be targeted for reduction or removal, because the stated goal of kaizen is to constantly improve the tangible drivers of value: quality, cost and delivery speed. The best way to do that is to eliminate all the things that hurt quality, raise costs and slow things down.

The Project Raincloud team found that Midland Bank's branches did all three. So they decided to simply eliminate branches entirely. A subsidiary was formed, and Project Raincloud became the basis for a new concept, to be branded as First Direct, the first branchless bank in the world. Customers did their banking by phone, and eventually by Internet and smartphone. Today, First Direct finds itself flourishing in a cloud-based business environment.

Why Kaizen Matters

The late John Wooden once said, “When you improve a little each day, eventually big things occur. Don’t look for the big, quick improvement. Seek the small improvement one day at a time. That’s the only way it happens—and when it happens, it lasts.” This approach is the reason why the average number of ideas submitted per employee annually is 100 times greater in Japanese companies than in U.S. companies, while the average reward in Japanese companies is 100 times less than the average U.S. reward. The bottom line is that the Western business practice of rewarding only accepted "killer app" ideas simply doesn't work.

The kaizen ethic is all about idea submission, not acceptance. Embedded in any company, it fosters a strong ethos of lab-like curiosity, and is a proven, grass roots way to harvest human creativity.

Kaizen has three simple steps: First, create a standard. Second, follow it. Third, find a better way. Repeat endlessly. Trying to improve and innovate without a standard as reference is like a journey with no starting point. It’s like hitting golf balls in the fog.

What routines exist in your company for getting a little better every day?