THE LEAN CHARITY NIGEL KIPPAX NCVO

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1 THE LEAN CHARITY NIGEL KIPPAX NCVO ACHIEVING COST EFFICIENCY WHILE PROTECTING CAPACITY In this series of articles on innovation and continuous improvement we turn our attention to LEAN approaches. Passing fad or an essential tool in achieving the long term sustainability of your charity?

2 THE LEAN CHARITY 2 ACHIEVING COST EFFICIENCY WHILE PROTECTING CAPACITY In the current challenging economic times it is perhaps not surprising that many charity leaders have focused their attention on raising funds or cutting services. However, there may be another option to secure the future of your organisation. So called lean approaches can help eliminate wasted effort, time and costs while protecting core services. In this article we introduce process centred improvement approaches and compare them with traditional cost reduction. We give examples of voluntary sector organisations that are progressing in this area and suggest ways for you to get started in your organisation. The current economic challenges are putting enormous financial pressures on voluntary sector organisations. Furthermore, the pressures are not going away, in fact they are becoming the new norm for the sector. Approaches to cost reduction How are leaders responding to these challenges? Recent employee recruitment figures in the UK show that commercial and public sector opportunities fell during the first two years of the current downturn. In the charity sector, however, recruitment increased. Further analysis showed that recruitment within the sector was targeted at fund raising. It would appear that many sector leaders believed that raising more funds was the solution to their problems. Unfortunately, as we now know, striving for a larger proportion of finite pot cannot satisfy every charity. A more balanced approach is required which includes a focus on reducing operating costs. Cost reduction approaches can be considered broadly within two major categories which I will refer to as a) salami slicing and b) process centred cost reduction. Salami slicing places the responsibility for reducing costs firmly on each head of department. It fits well with current lines of authority and control, enabling rapid deployment from the senior team. This approach can deliver success in the short term but is not sustainable in the longer term. Salami slicing will drive functional thinking and will often fail to realise major opportunities for improvement which lie between, not within, departments. Approach Pros Cons Salami slicing Process centred Easy to understand Quick to implement Fits with current structures and lines of control Driven from the core purpose of the organisation Outward facing Brings departments together Identifies improvements that don t destroy capability Silo thinking Inward facing Misses opportunities for improvement Risks destroying capability Requires cross departmental team working Often not a single person s responsibility Requires leaders to think and act in two dimensions

3 THE LEAN CHARITY 3 ACHIEVING COST EFFICIENCY WHILE PROTECTING CAPACITY Process centred cost reduction is more difficult to implement. It requires different departments to work together towards a common goal and is unlikely to be the responsibility of a single manager. It starts with the customer or beneficiary and seeks to fully understand the way in which core services are delivered. A process centred approach will often identify opportunities for improvement that a departmental approach cannot. Over the past 18 months my colleagues and I at NCVO have observed a growing interest in exploring process centred improvement including the use of so called lean tools and approaches. Lean workshops have grown in popularity to such as degree that we have now created an Innovation Forum to help sector leaders share their thinking and learn from the experiences of each other. Lean thinking has its origins within the automotive sector but the five key principles are equally relevant and applicable to voluntary sector organisations: 1 Understand your customer: The value that you and your team deliver is defined through the eyes of your customer or beneficiary 2 Take a holistic approach: View service delivery as a continuous chain running through your organisation, and not restricted by departmental boundaries. Your team will often have internal customers as well as external customers/beneficiaries that they need to serve 3 Eliminate wasteful steps: Seek to eliminate stops; starts; checking or doing things more than once. Reducing time and effort will lead to reduced costs or the opportunity to redeploy resources to support front line services 4 Think outward-in : The timing and nature of delivered services is driven by the needs of your customers or beneficiaries 5 Improve continuously: However good your organisation is today, it must be better tomorrow. CLIC SARGENT Two years ago the charity embarked on a programme of lean-six-sigma and other process centred improvement methodologies to innovate and prepare for future growth. The results of their better by design initiative were published in 2014 showing how over 1m had been saved from recurring overheads without affecting front line services. CHILDREN S SOCIETY The charity faces increasing competition for local authority service delivery contracts and has set out to transform the way the charity operates to ensure the long term success and sustainability of their work. Their selected approach includes the use of a target operating model incorporating architecture on the key areas of strategy; people; technology; process and performance. THE GUIDE DOGS ASSOCIATION Leaders at Guide Dogs recognise that the process of breeding; training and placement of dogs is similar in many ways to a production process. The organisation has embarked upon an extensive programme of lean awareness and skills training aiming to improve efficiency and effectiveness, thereby helping to use valuable funds in the best way possible

4 THE LEAN CHARITY 4 GETTING STARTED With any initiative for change there is a balance to be struck between the big bang and slow burn approaches. The big bang may have a rapid impact but may also run the risk of lower long term engagement of employees and volunteers. The slow burn approach may not deliver such rapid results, but can often become more deeply rooted in people s thinking and behaviour for the longer term benefit. No two organisations are the same, so it s best to avoid off-the-shelf solutions. Instead, design an approach appropriate for your own culture, challenges and required timing. A major lesson learned in the corporate sector has been to avoid sheep dip training ; putting swathes of employees through standardised training courses in the hope that their new found skills will, in themselves, lead to improved organisational performance. Beware! Simply training in a given tool rarely achieves the desired benefits and, worse still, can lead to negative feelings if these tools are not implemented in a timely manner. Far better to focus training on those areas of greatest need, and on those employees or volunteers who will be able to use their new found skills immediately. A particularly pragmatic way to get started is exemplified by a major disability charity that we are currently working with who have embarked upon a proof of concept initiative in which an improvement team focus on a single cross-departmental process. This charity have selected one of their support processes, invoicing, which is considered to be sufficiently representative of potential savings while not incurring high risks that a front line process may incur. The team is tasked with sizing the prize from which an estimate of the potential savings across the organisation will be evaluated. This work has five key steps: Quantify the benefits When it comes to reducing operating costs a process centred approach will uncover opportunities that departmental approaches, or salami slicing, will not. Working across departments can be fraught with challenges and external facilitation is often a cost effective option at this point. Furthermore, we have seen that a methodology with its origins in manufacturing can be successfully adapted for charity services. Create a phased roll-out plan to realise the wider benefits Capture learning and estimate the potential for savings organisation wide Identify areas of waste and opportunities for improvement 2 Map the invoicing process 1

5 THE LEAN CHARITY 5 WHAT NEXT At NCVO we have a range of ways to support you on your journey. Breakfast briefings Held monthly these short sessions provide an introduction to various topics of interest creating a valuable opportunity to network, learn from the experiences of others and hear from thought leaders. Learning workshops One or two day workshops, including an introduction to Lean thinking, which go into more depth on the subject area, each highly interactive providing time to network, learn new things and practice what is learned. Innovation & CI Forum Designed for senior managers who are interested in, or actively engaged in, innovative changes to the way their charities operate. These sessions offer opportunity to hear from thought leaders, share personal experiences and learn together. The forums are by invitation only. If you are interested in joining, please contact us. Consulting Tailored support from NCVO s team of consultants who specialise in the areas of governance; board development; strategy; innovation and continuous improvement. For more information, visit consultancy@ncvo.org.uk or call Donna James on ABOUT THE AUTHOR Nigel Kippax is Head of Consulting & Training at NCVO. He has over 20 years experience working with organisations in the voluntary and corporate sectors including the RNLI; British Council; the BBC and Airbus. Nigel has been a trustee of the Royal Blind Society and a judge on the Youth and Philanthropy Initiative (YPI) for schools. He qualified in Chemical Engineering from Imperial College, holds an MBA from Ashridge Business School and is a Fellow of the RSA. nigel.kippax@ncvo.org.uk Mobile:

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