What every CEO needs to know about 5S and signal to noise ratio

Ron Ashkenas tells the following story:

In one large consumer products company, the CEO insisted on having detailed operational reports rolled up every month to the corporate level, which she then used for a monthly review meeting with business heads and corporate staff. Creating these reports required a small army of corporate financial analysts while also creating a cascade of work within all of the business units. And since the financial analysts were not always busy with the monthly reports, they also generated additional activities for the businesses that they thought were value-added. When the CEO retired, her successor decided that these detailed operational reports were unnecessary since each business unit already reported its key numbers — and the big review meetings never resulted in substantial decisions anyway. In other words, he quickly determined that this form of operational roll-up was not critical to the company’s success and it was eliminated (along with the small army of financial analysts and the additional work they spawned).

People commonly think about 5S (a place for everything, and everything in its place) in manufacturing terms: organizing and decluttering the physical space around you. That’s too limiting. It’s also the wrong focus for knowledge workers. In other words: no, it doesn’t matter where you hang your damned sweater.

Factory workers manipulate and process titanium alloys or scratch-resistant iPhone glass faces. Knowledge workers manipulate and process information. Regardless of what kind of worker you are, you need 5S to provide you with quick access to what you’re working on, and to allow you to spot abnormalities.

So, when the signal-to-noise-ratio approaches zero — when there’s just a little bit of information coming through the static, as at the consumer products company described above — you know it’s time for information 5S. It’s time to identify what information is necessary to serve the customer, make decisions, and manage the business, and eliminate the rest. Anything else may be interesting, but is ultimately irrelevant — and even worse, it sucks valuable resources into the giant maw of waste.

In my upcoming book (A Factory of One, out in December 2011) I tell the story of the nurses at the Covenant Health System in Texas. They analyzed their work and found that they spent 51% of each shift filling in forms (rather than doing something useful, like, say, taking care of patients). The vast majority of that time and effort was waste. An information 5S project cut that time in half.

Take a look at the information you create and ask others to create for you. How much of it is waste, and how much of it is value? How much of it is just “legacy work” — stuff that’s just always been done, and no one remembers why anymore — and how much of it really helps you make decisions to lead the business?

3 Responses

  1. Mark Graban says:

    That hospital story is especially illustrative of the majority of time spent on non value adding activity in the daily work of healthcare professionals. Searching for supplies and physical stuff takes up time, but so does searching for information, so you’re right to focus on that.

    In the example of the CEO, there was the waste of gathering and creating those reports, but (speaking of signal vs. noise), how much waste was generated by leaders overreacting to signal instead of noise – reacting to “common cause” variation in the numbers instead of knowing how to look for “special causes”? Leaders tend to react to every up and down in the data, not knowing Dr. Deming’s lesson about not “tampering” with the system.

    That’s why Donald Wheeler’s book “Understanding Variation” is probably the single most impactful book I’ve read in my career…

  2. Dan says:


    I’ve never read that book (though I think you’ve mentioned it in your blog before). I completely agree that leaders often overreact to signals. Because they’re farther away from the gemba and the customers, it’s often hard for them to discern what’s really significant.

    I think that’s where standard work for managers can help. By talking with front line and middle management workers on a regular basis, leaders can gain context for the signals they’re getting.

  3. Mark Graban says:

    Dan, it’s a great little book… about the size of “Who Moved My Cheese?” (a book I absolutely hate).

    Being smart about reading daily, weekly, or monthly reports and using SPC thinking to properly interpret trend lines is certainly not a substitute for going to the Gemba!

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