Benefits of a lean framework

This article discussed how a value-centric philosophy can benefit businesses that contribute the most value to national income.

Lean Six Sigma, when referenced as an operational philosophy, is always associated with manufacturing firms. Perhaps this is because the principles it uses are derived from the Toyota Production System and other manufacturing firms such as Motorola. Nonetheless, what people seem to forget is that companies like Toyota, do not only deal with manufacturing; but conversely the Toyota production system, applies to all the different divisions and segments in the company, including those that are more related to the service sector of the economy.

According to the World Bank, businesses in the service sector include; “value added in wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services” (World Bank). In Kenya the net output of the service sector of the economy accounted for 45.4% of gross domestic product of the Sub-Saharan nation in 2017 (World Bank).

More economically developed countries (MEDCs), share a common trait in that-the service industry almost always contributes the overwhelming share to the national income. The more developed an economy is, the higher the national income contribution from the service sector. This shift in sector contribution amounts is termed as ‘the service economy” or the “shift to services” (Kim 2006). Kenya’s economy is therefore in a macroeconomic position of preference; as having an economy with a foundation dominated mostly by financial contribution from the knowledge-based sector is a preferred state to be in-especially since this is a position shared with advanced economies such as the United States and France.

When an economy is experiencing the “shift to services”, the service sectors contribution to the economy is not the only value that increases in magnitude. The sector’s share of production, employment, consumption, trade and its proportion of services in intermediate inputs for other industries also see a significant increase in value (Kim 2006).

There is however a theory that uncovers the issues with an economy being dominated by the service sector, it takes issue with an economy’s “shift to services”. Baumol’s Cost Disease Theory states that an economy’s change in dependence on services occurs because of the non-commodity-oriented sector’s lower productivity, higher costs and consequently generally higher prices compared to prices in the manufacturing sector (Kim 2006). Put plainly, the Cost Disease Theory attributes the “shift to services” to the service sector’s lack of competitiveness and economic progression.

Generally, the Cost Disease Theory can be seen in effect if a country’s service sector contribution in total value added is substantially lower than its share in employment, indicating its low level of productivity overall. Even though this is not the case in Kenya, productivity in certain sub groups of the service sector is very low compared to productivity in finance, insurance, real estate and business services. Services such as wholesale and retail trade, transport, storage, advertising, broadcasting, public administration, defense, education, health care, social welfare, hotels, restaurants, entertainment, recreational services, cultural services, repairs and personal services are all left with lower employment contribution compared to net output.

Lean Six Sigma is a customer centric philosophy, the customer defines the value and the goal is to increase customer value by reducing waste. Manufacturing firms in general as compared to firms in the service sector, have fewer customers due to the B2B nature of the businesses. Service firms such as those in retail trade or healthcare and hotels potentially have thousands of customers in a day. Service firms have more customer touch points and therefore interact directly with customers more frequently daily. If a firm in the service sector does provide a quality service, and then fails at reproducing the same quality the next day, it is very easy for customers to defect. Lean Six Sigma brings the standardization of quality and processes from the manufacturing sector to the service sector. Regardless of how intricate the service being provided is, if it cannot be provided in the same manner to all a firm’s thousands of daily clients-the business will not maintain a solid reputation in the market and customer satisfaction levels will be skewed.

Service industries can benefit from Lean Six Sigma by implementing solutions such as visual management of processes, decreasing hierarchies, integrating a continuous improvement mindset in the workforce, as well as using simple approaches such as having a documented forum where workers at all levels of the organization can share there slip ups and errors, come up with solutions and improve by learning from sharing oversights (Hanna 2007).

The inherent customer centric nature of a lean framework as an operational philosophy is perhaps more suited to firms in the service sector-than to manufacturing firms- purely because service sector businesses interact more frequently with customers and have more customer touch points than firms in the manufacturing sector.

Works Cited

Kim, Hyun-Jeong. “The Shift to the Service Economy: Causes and Effects.” Institute for Monetary and Economic Research The Bank of Korea, 7 July 2006, pp. 1–49., faculty.washington.edu/karyiu/confer/seoul06/papers/kim_hj.pdf.

Hanna, Julia. “Bringing Lean Principles to Service Industries.” HBS Working Knowledge, Harvard Business School, 22 Oct. 2007, hbswk.hbs.edu/item/bringing-lean-principles-to-service-industries.

“Services, Value Added (% of GDP).” World Bank National Accounts Data, and OECD National Accounts Data Files., data.worldbank.org/indicator/NV.SRV.TOTL.ZS?locations=KE.