INDUSTRY INSIGHTS | FALL 2009 EFFECTWhat Can Nonprofits Learn From Manufacturers?
by Craig PopenhagenIn a down economy, all organizations are actively looking for ways to reduce costs, focus on core missions, and eliminate waste. But how can a nonprofit control costs and still carry out its mission?
The answer may be to eliminate waste by borrowing from the concept of lean manufacturing. The goal of lean is to eliminate waste from processes and by doing so, improve quality. Lean’s basic principles have applicability beyond manufacturing and can lead to major performance improvement in the nonprofit arena. Lean measures waste in units of time, not dollars, and costs inherently decrease when wasted time is eliminated. For instance, if you are spending 10 minutes looking for a student file, you are wasting time. For a nonprofit entity, waste should be considered as any process that doesn’t contribute to your mission.
Defining value added
John Connelly is a lean expert at Enterprise Minnesota, Inc., a consulting firm that helps manufacturing enterprises grow profitably. As a first step toward becoming lean, he suggests reviewing organizational processes to understand where you create value in eyes of the customer. For nonprofits, these customers include program participants, funding agencies, and donors.
Once value is defined by the customer, lean aims to eliminate everything else—the waste. If your customer sees very little value from one of your processes, even one you consider a necessity, it is not value added. For example, consider the accounting approval process in a literacy education program. How many signatures are required to get expense reports, grants, or checks approved? How much did each signature help a child learn to read? If the answer is none or not much, determine which signatures are required and cut out the rest. And while eliminating multiple signatures is a good start, remember that even a single signature still does not help a child learn to read.
The answer may be to eliminate waste by borrowing from the concept of lean manufacturing.
Additionally, there’s always a certain amount of non-value-added time required by laws, regulations, and compliance, such as preparing files for your accreditation review or filing your 990 tax return. Compliance isn’t the same as adding value. Customers expect it; it’s the cost of doing business. These efforts don’t add value in the client’s perspective, but they are tiny in comparison to the truly non-value-added time, which is what lean focuses on. This is where there are huge opportunities to achieve efficiency.
When you begin applying this concept of adding value throughout your organization, you will realize the vast majority of activity in your organization falls into the category of waste. If this feels discouraging, even in the best-run organizations, value-added activities only account for five percent of their time, according to Connelly.
Where to begin
Viewing an entire nonprofit organization for process improvement is too broad. To get a flavor for the process, begin with a single department by listing all of your process improvement ideas. Then narrow it down and prioritize the items on the list by asking three questions:
- What is our department doing?
- Who are we doing it for?
- What steps or processes are we performing to do it (or how much time are we spending doing it)?
Going through an official lean exercise might require you to hire a consultant, but for nonprofits on a tight budget, you can get a head start by:
- Bringing people together in a room
- Putting all of your departmental processes on the table
- Agreeing to change or remove the processes that do not help carry out your mission
If you start with a small area, define how it is valuable in your customer’s eyes, and try connecting everything you do to your mission, you will begin ridding your organization of waste. And when you remove non-value-added processes, you will free up capacity to accomplish more.