ChallengesinLeanImplementationinKnowledgeIntensive Services

Muhammad Asif*, Sandor Lowik, Wouter Weusthof, Erik Joost De Bruijn University of Twente, the Netherlands

*Corresponding author: School of Management and Governance, University of Twente, Postbus 217, 7500 AE Enschede, the Netherlands T: +31-53-489-4526 F: +31-53-489-2159 E: m.asif@utwente.nl

Muhammad Asif is a Ph.D. researcher at the University of Twente, the Netherlands. His research focuses on the management systems, integration of systems, quality management, lean production, and sustainable development. Sandor Lowik is a Ph.D. candidate at the Dutch Institute for Knowledge Intensive Entrepreneurship (NIKOS) at the University of Twente, the Netherlands. He holds a Master degree in Industrial Engineering and Management and has over ten years of industrial experience in Operations Management. His research interest is dedicated to absorptive capacity, dynamic capabilities and innovation management. Wouter Weusthof is a Master student of Industrial Engineering and Management at the University of Twente, the Netherlands Erik Joost De Bruijn is a professor and chair holder of the chair International Management group at University of Twente, the Netherlands. His research focuses on International management, entrepreneurship, modern management methods, and technology transfer. He has published extensively in a number of premier outlets.

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Challenges in Lean Implementation in Knowledge-Intensive Services

Abstract The application of lean principles in the service sector is not fully understood. What types of challenges emerge in lean services and how to manage them is yet to be determined. This research is an in-depth study of lean implementation in a knowledge-intensive service firm. The findings highlight a number of challenges and various types of waste associated with services. Removing one type of waste may give rise to another type of waste. In such cases, managers need to find trade-offs among different types of wastes. Since the types of wastes differ from service to service, these trade-offs are context-specific. The research underlines the need to optimize waste reduction and to develop context-specific lean service measurement metrics. Keywords: Lean service, waste management, knowledge management, knowledge-intensive services, waste optimization, 1. Introduction Services are an important element in the economy of any country. For example, in the year 2009, the contribution of the service sector in the total GDP was 76.9% in the USA, 79% in the UK, and 74.9% in the Netherlands (The World Factbook, 2010). This implies that lean initiatives to improve customer value and operational efficiency could have a significant impact on the economy of any country (Apte & Goh, 2004; Sarkar, 2008). It explains the growing interest in lean services as a means for firms for creating competitive advantage (Chase & Apte, 2007; Swank, 2003). Lean service is the application of lean production principles to the services. Whereas manufacturing firms have embraced the principles of lean manufacturing, service providers try to apply the lean principles of value stream mapping, 5S, Kaizen, etc on their service activities. However, one of the main difficulties in this regard is the unique nature of operations in services. Services are intangible, perishable cannot be stored, and are usually labor intensive. In many cases, the skills required for workers are very high and workers required for such services are also called as knowledge workers (Apte & Goh, 2004). Due to the customized nature of individual services, they vary from customer to customer. These specific characteristics of services require adjustment of the lean production principles, and hence development of new theoretical and practical insights. The existing literature on the application of lean principles in the services could be categorized into three categories: descriptive literature, normative literature, and positivist literature. The descriptive literature provides an elaborated account of the lean services and is thus helpful to understand the basic concept of lean services, see for example, Chase and Apte (2007), Hines et al. (2004), Holm (2010), Lee et al. (2008), Liker and Morgan (2006), and Swank (2003). The normative literature implies the desirability of actions to integrate the lean production principles in the services, see for example, Apte and Goh (2004) and May (2005). The literature that is positivist in tone is aimed at establishing theory of lean services using data, see for example Apte et al. (1999). Since the literature on lean services is still developing, there is more descriptive Page 1 of 16

and normative literature than the positivist literature. In the absence of a rigorous theory, managers are left with their subjective perceptions and common heuristics to deal with lean implementation problems. The aim of this paper is to find the challenges in the application of lean principles in knowledgeintensive services through a case research. Based on these challenges and support from academic literature, propositions are developed to guide further research. 2. Lean services and waste reduction The central concept in lean services is removal of wastes from service processes. Womack and Jones (2003) classified tasks into three types: (1) those that add value (by directly transforming the product into the form desired by its user), (2) those that do not add value but are necessary with current production methods (Type 1 muda), and (3) those that do not add value and are unnecessary (Type 2 muda or obvious waste). The wastes in services may be both tangible and intangible. The intangibility of waste makes it difficult to manage. For instance, the excess inventory of physical products is considered a waste in manufacturing processes. However conventional concepts of inventory and inventory reduction do not apply readily to the service processes. Therefore the types of wastes and their management are fundamentally different in services. Sarkar (2008) elaborated on eight different types of wastes in the service sector. These service wastes include (1) waste of overproduction processing more or sooner than required, (2) waste of motion movements that are unnecessary and are not required for completing a job, (3) waste of inventory excess items or supplies, (4) waste of transportation movement of materials which is more than just-in-time processing, (5) waste of waiting individuals and items being idle in operations, (6) waste of employees under-utilization, (7) waste of defects, and (8) waste of over-processing the efforts that do not add value for customers. Examples of each type of service waste are provided in Table 1.

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Table 1: Types of waste in a knowledge-intensive service based on Sarkar (2008)

1. Waste of overproduction - Purchasing items before they are needed - Executing the service activity before the next person is ready for it for instance, processing paperwork before the next person is ready for it 2. Waste of motion - A layout of facility that promotes un-necessary movement of employees such as to discuss with other employees - Scattered departments in an organisation - Walking to/from copier, central filing, fax machine 3. Waste of inventory - Printed documents and files more than necessary - Filled in-boxes (electronic and paper) - More stationery than required - More IT equipment than required in a workplace - Documents/records stored beyond retention period 4. Waste of transportation - Excessive e-mail attachments - Multiple handoffs adding little or no value to the overall process - Bureaucratic procedures such as multiple approvals - Files moving from one branch to another - Un-necessary movement of documents between employees 5. Waste of waiting - Customers waiting for the delivery of service - Employees waiting to receive from others preceding them in supply chain - Services activities waiting to be processed by the person next in supply chain for instance, files and documents waiting for signatures or approval - New employees awaiting infrastructure/computer - Information technology system downtimes such as intranet, internet, and enterprise information systems downtimes - Time taken to respond to customer queries 6. Waste of underutilized people - More people involved in a job than necessary - Not involving the associates in process improvements - Not leveraging the potential of individuals to the fullest - Not using the creative brainpower of employees - Not giving the right assignment/work - Uneven work distribution/load balancing 7. Waste of defects - Errors made in the execution of service - The end product/service not up to the specifications - Rework on the project - Incorrect data entry 8. Waste of over-processing - Redundant steps in a process which produce waste and add little or no value - Multiple inspections in a process the task of one person being checked by others - Overdesigning a product or service for a customer - Inept design of service delivering processes - Inadequate technology for handling, storing, and archiving information and planning processes

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3. Research approach 3.1 Research Methodology The methodology employed for this research is the case study. The case research is preferable when the mode of inquiry is inductive and the purpose of research is exploration of a problem (Yin, 2003). Data was collected over a period of six months. The main source of data was semistructured interviews (5 interviews). The researcher was also able to talk to company employees whenever it was needed. In addition, data was collected through consulting the company documents and archives. The findings regarding the challenges faced in the implementation of lean are based on triangulated evidences obtained from multiple sources. 3.2 The Houseconsult The Houseconsult (pseudonym) is a Dutch consultancy company that provides solutions for housing problems. Its main activities are consultancy on sound-proofing facilities at houses near airports, protection and maintenance of monumental buildings, health and safety requirements for schools, and long-term maintenance programs. The company is a service-oriented company and its main processes are based on integration of knowledge in its processes planning, execution, control, review and delivery. The main objective of the company was to make its processes lean, and to decrease the cycle time, reduce the costs associated with each project, improve the service quality, complete more projects in a given time period, and thus increase profitability. We studied two projects both executed in 2009. Project Alpha (pseudonym) consisted of an advice for a long-term maintenance program for 10 school buildings. The activities executed by the Houseconsult included the physical inspection of the buildings from health and safety point, analyzing the inspection results and writing the consultancy report. The value stream map of the project revealed that the total lead-time time was 9 months, as the total processing time was 45 days, indicating the existence of 75% of waste time. Project Beta (pseudonym) consisted of the annual execution of a long-term maintenance program of 10 buildings, owned by a geriatric foundation. The activities of this project included the determination of the actual maintenance activities for 2009, based on an advice of 2007, to look after the progress of maintenance activities by third parties, and to report progress to the client. The value stream map indicated that the actual processing time was 60 days out of 16 months of the total lead time, indicating 81% of waste time. 4. Challenges in the implementation of lean A number of challenges were faced in the implementation of lean. These challenges pertain mainly to the management of various types of wastes 4.1 Management of knowledge For knowledge-intensive services the management of knowledge is a core requirement for developing and maintaining competitive advantage. Knowledge management consists of four

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interrelated processes: knowledge creation, knowledge storage and retrieval, knowledge transfer and knowledge integration (Alavi & Leidner, 2001). We will address these four processes next. 4.1.1 Knowledge creation The important insights regarding knowledge creation could be obtained from Nonaka (1994) and Nonaka and Takeuchi (1995) who elaborated on various modes of knowledge generation through an interplay of explicit and tacit knowledge. The explicit knowledge consists of knowledge that can be codified and is thus capable of being clearly stated. Collective explicit knowledge resides in operating procedures, documentation, information system, rules, blueprints, etc. The tacit knowledge, on the other hand, is acquired from experience and learning by doing. It is difficult to articulate in words. The tacit knowledge is found in organisational routines (Huff, Floyd, Sherman, & Terjesen, 2009). The theory of knowledge creation contends that knowledge is created through the interplay of explicit and tacit knowledge. The four different patterns of knowledge creation are socialization, externalization, combination, and internalization (Table 2).
Tacit knowledge Tacit to tacit (Socialization) Learning through interaction with other people Learning through observation, imitations, and practice Explicit Tacit to explicit (Externalization) Conceptualizing tacit knowledge of employees through metaphors, analogies, hypothesis, models, and storytelling

Tacit knowledge

Explicit knowledge

Explicit to tacit (Internalisation) Learning by doing Reframing and extending ones knowledge through sharing explicit knowledge

Explicit to explicit (Combination) Such as combining information from various sources to put it into one financial report

Table 2: Knowledge generation from interaction of tacit and explicit knowledge based on Nonaka (1994)

Knowledge creation occurs through an iterative process of socialization, externalization, internalisation, and combination. In knowledge-intensive processes, it is important that management promotes knowledge creation through multiple channels and in multiple forms. A heterogeneous knowledge creation could create multiple stores of knowledge including organisational routines, documents, employee skills, and collective knowledge and competencies in an organisation (Grant, 1996b). The heterogeneous knowledge generation from multiple channels then could provide an organisation a sustainable competitive advantage (Barney, 1991; Davenport & Prusak, 1998). In knowledge-intensive organisations, the individual members create knowledge with every customer-specific project. They have to address unique customer requirements asking for, at least partly, creative solutions. Therefore, individual knowledge creation is embedded in the characteristics of the job. The challenge for organisations is to extend this individual knowledge creation to the organisational level. How to diffuse the 'best practices', so others can benefit from individual knowledge creation? Zollo and Winter (2002) argued that organisational learning requires knowledge articulation and knowledge codification. This is illustrated by a project member of the Houseconsult: (..) an important aspect of communication is the documentation of Page 5 of 16

information. It results in knowing what you are talking about. It is obvious that knowledge articulation and codification are costly, while implementation of best practices by others does not automatically guarantee success, as best practices are context specific. So the balance has to be found between disseminating individual knowledge or best practices to prevent wastes of overprocessing and underutilized people who re-invent the wheel, and wastes of defects on the one hand, and the waste of over processing as a result of codifying the relevant knowledge, on the other hand,. 4.1.2 Knowledge storage and retrieval For knowledge-intensive firms, the stock of knowledge is an important determinant of competitive advantage (Windrum & Tomlinson, 1999). The stock of knowledge is often referred to as organisational memory. This encompasses written and digitized documentation, expert systems, procedures and routines and tacit knowledge held by organisation members (Alavi & Leidner, 2001). However, storage of knowledge is not a sufficient condition for competitive advantage the knowledge has to be relevant, needs to be updated and needs to be accessed easily and quickly. In our research we observed several examples of wastes that relate to knowledge storage and retrieval. First, we discovered problems regarding the supply of knowledge to the organisation's knowledge repertoire. A project leader was so occupied with arranging daily activities and meetings, that he did not find time to codify employees personal knowledge. This resulted in project members consulting him frequently on simple matters, further reducing the project leader's time to document his knowledge. Project members not only complained that they had to personally contact the project leader for simple questions, but also about the time they had to wait before contacting, as the project leader was busily engaged. Here several wastes can be observed simultaneously: waste of motion (employees walking to the project leader's office), waste of waiting (before contacting the project leader), and subsequently waste of underutilization of people. Second, the maintenance of the firm's knowledge base was poorly organized. For instance, the firm's sales department did not retain a customer relations management system. The consequence was that different sales persons called the same client to offer services. This is an obvious example of waste of over processing. Related to this issue was the loss of valuable client information when a project manager left the company, leaving his successor with an informationdeficit about an important client requirement. Third the housekeeping and the retrieval of information from the information system appeared a daunting task. No rules were developed for information archiving and physical location of files. The extensive dossiers for each project were not only difficult to comprehend but also difficult to manage. The dossiers and other commonly used documents constituted a large repository which the company had to manage. As the files from multiple projects accumulated, they required more efforts in handling and housekeeping, and contributed to disorder at the workplace. From these examples, the challenge of knowledge storage and retrieval becomes apparent. A good storage and retrieval system reduces wastes of motion (employees searching for documents), waste of waiting (searching for information) and waste of underutilized people (e.g. Page 6 of 16

assisting colleagues with searching). However, storage and maintenance of knowledge is costly, time consuming, and bears the risk of information over-processing. Due to the context specificity of knowledge in knowledge-intensive services, the risk of storing non-relevant or non-usable information is apparent. The balance has to be found between the wastes of information overproduction versus wastes of motion, waiting and underutilization. 4.1.3 Knowledge transfer In knowledge intensive services, the knowledge of several experts has to be integrated into the ultimate product. Due to the tacit characteristic of this knowledge, transfer is often problematic and 'sticky' (Szulanski, 1996). To overcome this stickiness, especially personal knowledge transfer mechanisms are used, like face-to-face meetings, on-the-job training, and job rotation. Although personal knowledge transfer mechanisms are effective, they are costly, time consuming, and inefficient when knowledge needs wider diffusion. For knowledge diffusion the use of impersonal transfer mechanisms is preferred, like memos, procedures and directives. In our research we observed several wastes of this category. For instance, one project leader had to organize weekly meetings with all project members to get updated on the project progress, due to lack of any other information system. This led to waste of motion (all project members moving to meeting room) and waste of underutilized people (most project members only needed limited time to discuss their progress). Another project leader used e-mails as the only communication channel with his project members, leaving a lot of questions unanswered. This led to a lot of problems in the execution of project activities, leading to all kinds of wastes as a result of rework. The main challenge with knowledge transfer is to find the appropriate transferring mechanism. This depends on the kind of knowledge, the willingness of the sender and recipient to share the knowledge and the absorptive capacity of the recipient (Gupta & Govindarajan, 2000; Szulanski, 1996). The challenge is to choose the communication channel that facilitates sufficient information richness that matches the information requirements of the recipient. For the sender, it means that he needs to minimize the effort for knowledge explication, preventing the waste for over-processing. For the recipient, it means that he needs to minimize the effort to acquire and assimilate the knowledge, preventing the waste of underutilization. 4.1.4 Knowledge integration An important characteristic of knowledge-based firms is the integration of a broad range of specialist knowledge (Grant, 1996a). The efficiency of knowledge integration depends on the degree of common knowledge, task variability and communication structures. The degree of common knowledge is the level of commonality in language, behavioral norms, conceptual knowledge and expertise between specialists. The right level of common knowledge facilitates communication between specialists who maintain their distinctive and specific knowledge. Common knowledge requires some redundancy in knowledge overlap between specialists. Although too much overlap leads to waste of underutilizing personnel, too little overlap may lead to other types of waste. For example, the Houseconsult had one employee who was trained as a fire-protection specialist. This specialist was needed for inspection and evaluation of buildings, which was one of the Houseconsult's main activities. When the specialist left the company,

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nobody could take over these activities, due to lack of knowledge redundancy. This led to waste of waiting, and was a major cause for not meeting the projects deadlines. Frequency and variability of task performance is a second factor for efficiency of knowledge integration. The more the routine task is performed, the higher the efficiency of knowledge integration (Grant, 1996a). Although every project of the Houseconsult is unique, the execution of activities has certain commonalities. Determining these commonalities and establishing routines and procedures will increase efficiency of integration. Organisation structures is the third factor of knowledge integration efficiency (Grant, 1996a). The design of these structures has to facilitate knowledge transfer and integration, with a minimum of redundancy. Although the Houseconsult has a functionalized structure with departments for sales, planning, finance, (they established a separate unit with specialist who share the same office and work on the same projects. 4.2 Coordination of activities In knowledge-intensive services, the processes are extensively inter-related. An important requirement in such services is the use of multidisciplinary expertise and effective coordination among individuals. The use of multiple handoffs and requirement for coordination also poses certain challenges. Firstly, the involvement of multiple handoffs may create problems at each interface. In an ideal situation the processes pass on from one employee to another in a continuous and non-interrupting manner. However in practice variations from the standard time are inevitable. Such variations in the processing time interrupt the whole value chain and thus are potential sources of waste such as waste of over-processing, underutilization, waiting, and waste of over-production. These wastes can be overcome, to some extent, through enhanced communication such as regular meetings and effective capacity planning. But this brings in other types of waste, such as waste of moving and underutilization, as noted earlier. In such cases, a trade-off between different types of wastes may be inevitable. In our research, different activities during the project execution included formulation of the planning schemes, the combination of the planning schedules and the financial system and the integration between the human resources management system and the capacity planning of employees. All these activities were carried out manually. One employee pointed to this problem, fast and efficient integration is not possible right now; we have to do much extra work because we have to combine the various systems manually. At another instance, different project leaders kept inquiring their workers about their specific projects progress; project workers felt that it interrupted their work. Another challenge regarding the coordination of activities is the capacity planning. The management of skilled employees having specialised knowledge is difficult in uncertain times. When the company does not have a project, the under-utilisation of skilled employees is high. For example, the financial manager receives every week the information about the declarable hours from every employee of the previous week. This also provides the manager information about employees utilization in the project. In an ideal scenario the manager would like to have this information at the beginning of week to have a more effective planning. In such Page 8 of 16

circumstances the capacity planning is left to subjective perceptions of managers. There is, thus, a potential for waste generation. 4.3 Standardizing customized services The company runs projects of various types. The project proposals are sent to potential as well as existing customers. Each proposal is different and is unique to requirements of customers. In order to make project proposal more professional and appealing, participation of multiple employees is encouraged. This is a source of waste since it involves more employees than necessary as well as underutilization of employees who could be trained to do it more professionally on their own. Thus, while there may be multiple methods to make this process lean; the current process of proposal preparation is a potential source of waste. In addition, the project specifications and other technical and administrative communication with external parties need to be professional and accurate. Again using multiple individuals promotes an organisational culture where employees believe that their work would be checked by others and thus relieves responsibility from them to some extent. One employee pointed out I am glad that my documents are checked by another person. The involvement of people more than necessary also keeps employees underutilized and thus not availing their full potential. This underutilization of skilled employees having specialized knowledge is itself a major waste and is contrary to the principles of lean. In addition, this also promotes multiple handoffs without clearly defining the responsibility. All these actions promote un-necessary use of organisational resources and are counteractive to the companys endeavors for lean services. Most importantly this creates a culture where responsibility remains ambiguous. Obviously the company is making expensive trade-offs in this case the quality assurance of communication is traded off with a large number of wastes: employee underutilization, waste of defect, waste of transportation, and waste of waiting. 4.4 Developing systematic continuous improvement The service companies usually work under time pressures. Delivering the service and completing the project in time is of utmost importance for the Houseconsult. Time pressures are further accentuated in the presence of next projects in line. The need for a systematic review of the finished projects, lessons learned from completed projects, and their integration into knowledge sources of the company was often ignored in such pressures. The lessons learned from previous projects and their integration into main sources of knowledge remain a challenge for the company. As such it carries the risk of not learning from previous mistakes and experiences and thus repeating same mistakes again and again. This is a potential source of waste generation. This clearly highlights that the company is making trade-offs between the future learning and current time pressure for projects next in queue. More specifically, the company is making tradeoffs between currently perceived waste of over-processing (since such reviews are not customer requirements), waste of waiting (the time pressure to start next projects), and waste of motion (due to review process in the form of meetings and exchange of documents) with the potential wastes of all types in the future.

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4.5 Managing external parties Knowledge-intensive services are characterized by their intangibility, hence are open for discussion with customers and suppliers. It is often difficult to exactly specify the services to be delivered beforehand, due to the customers' specific requirements. Often the actual service is shaped during interaction between customer and service provider. This specific character of knowledge-intensive services is prone to several types of wastes. For instance, in our research a customer requested services from a supplier of his choice regarding paint and maintenance. This was not discussed beforehand. This led to frequent communication between the company, the customer and the suppliers on specifications, offers and orders. These activities were not budgeted, nor billed to the customer, hence contributing to financial loss. Spending more time in preparation of the offer and determining the conditions of accepting the offer, could have prevented wastes of waiting and wastes of motion (sending all the documents around). The challenge is to what extent the ordering conditions need to be detailed to prevent these wastes, as detailing contracts carries the waste of over-processing. The same counts for suppliers. To be a full service provider, the company offers maintenance activities to customers. Services for maintenance are outsourced to preferred suppliers. In project Beta, the company required services of a painting firm. Although the painting firm agreed to execute the painting activities in 2009, it actually started in 2010, without consulting the company or its customer. This led to waste of waiting, resulting in exceeding the project's lead time. Here the company should have exercised better control on its suppliers. Again the challenge is to balance waste of over-processing due to more elaborated contract with supplier and waste of waiting. A summary of trade-offs among different types of wastes as noted in this research is provided in Table 3. The table emphasizes that managers may experience certain trade-offs among different types of wastes.

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Table 3. A summary of trade-offs among different types of wastes at the Houseconsult

Challenge Observed trade-offs between and Waste of over processing Knowledge creation Wastes of underutilizing people and defects Knowledge storage/retrieval Wastes of overproduction and inventory Knowledge transfer Waste of over-processing Knowledge integration Waste of underutilization Coordination of activities Standardizing customized services Systematic continuous improvement Managing external parties Waste of motion, waste of transportation Waste of under-utilization and Wastes of motion, waiting and underutilization. Waste of underutilization Waste of waiting Waste of defects, waste of underutilization Waste of defects

Managing knowledge

and and and and

Waste of over-processing

and

Waste of waiting

Waste of over-processing

and

Waste of waiting and transportation

5. Lean implementation in knowledge intensive services theory development 5.1 Managing waste in knowledge-intensive services The important characteristics of service processes are intangibility of service, task interdependency, multiple handoffs, and integration of knowledge. During the execution of service processes, different types of wastes emerge. The common wastes included waste of under-utilization, waste of over-processing, waste of defects, and waste of waiting. Managing one type of waste by changing the service processes may give rise to another type of waste. Various examples of such instances are noted earlier. For instance: I. In managing organisational knowledge, the need of integrating specialized knowledge into organisational knowledge was realized. However codification of knowledge is costly and time consuming. The codification of tacit knowledge is also difficult as the tacit knowledge resides in the schemes and minds of individuals, and it is difficult to capture the tacit knowledge completely. The context specificity of information also poses the risk of storing non-relevant and non-usable information. The company struggled with managing the existing codified knowledge which constituted a large repository and required extensive housekeeping efforts. The need for effective communication and sharing information caused the waste of motion and waste of under-utilized people. On the other hand, use of information sharing systems Page 11 of 16

II.

III.

IV.

such as emails failed to provide rich information required by individuals. This led to different kinds of waste as a result of re-work While the people having specialized knowledge of processes were required to facilitate quicker execution of processes, the unavailability of such personnel caused waste of waiting and other potential wastes such as waste of defect. Different types of wastes also appeared during streamlining the service processes, capacity planning, and coordination among individuals. The company also introduced some wastes in an attempt to improve performance. For instance, when the company involved multiple employees in the quality assurance of external communication, it introduced waste of employee under-utilization while managing the waste of defects.

Similarly an attempt to make the continual improvement more systematic might introduce some structures such as procedures, formal management reviews, and means of knowledge integration after reviews. However these structures channelize the course of action and also introduce some bureaucracy in the processes. The development of such structures is counterproductive to the lean principles. The above noted examples clearly demonstrate that an attempt to remove one type of waste may give rise to another waste. This highlights the need to strive for an optimal level of waste reduction rather than a maximum level of waste reduction. Striving for maximal waste reduction could lead to sub-optimization, reducing the targeted waste, but creating new waste(s). Focusing on reducing these new waste(s), the organisation might be trapped in a never-ending waste reduction cycle. Effective waste management, thus, starts with acknowledging this interplay between different types of wastes and finding the optimal acceptable waste level. This leads to our first proposition: Proposition 1: Effective lean service strategy in knowledge-intensive services requires waste reduction optimization rather than waste reduction maximization. Our first proposition implies that some degree of waste may be inevitable. Organisations, however, can trade-off one type of waste with another that costs less, taking a longer-term perspective. For instance, while the post-project reviews are (1) time consuming, (2) are not a customer requirement, (3) may be considered as over-processing, and (4) keep the next projects in waiting; their real value can only be realized in the long run in preventing wastes in future projects. Another example where such trade-offs are important from a temporal perspective is the codification of the tacit knowledge. The tacit knowledge could provide an organisation a competitive advantage because it makes task execution quick, and makes the knowledge inimitable and thus a strong means for sustainable competitive advantage. While the advantages of tacit knowledge are established; too tacit a knowledge base also make the measurement and analysis difficult (Choo, Linderman, & Schroeder, 2007; Linderman, Schroeder, Zaheer, Liedtke, & Choo, 2004). The explicit knowledge, on the other hand may be preferable because it provides a backup when the tacit knowledge is not available or an employee with specialist knowledge leaves the company. Explicit knowledge is also preferred for integration of individual knowledge organisation-wide. In our research the problems of managing knowledge were conspicuously prominent at one occasion, the knowledge required for routine tasks was not codified, creating difficulties for some employees. At another instance, when the fire-protection specialist left the company, replacement was not available. While it is clear that knowledge codification is (1) time Page 12 of 16

consuming and costly, (2) not a customer requirement, and (3) may bring some resistance from employees who feel more comfortable with their tacit-knowledge based mastery, the knowledge codification is also required for (1) maintaining knowledge back-up, (2) to make measurement and analysis more systematic, and (3) to develop a heterogeneous knowledge base. Thus, while knowledge codification may not seem necessary when everything goes smoothly, it may be an inevitable requirement from future perspective. In this example the future wastes of all types, and in particular the waste of defect, can be traded-off with the current waste of over-processing. Thus, while making trade-offs among different types of wastes, managers would also need to make trade-offs between current waste acceptance and future waste avoidance. Finally, the trade-off among different types of wastes could also be observed from the perspective of employees training and development and the capital investment decisions such as technology adoption. The managerial decision in such cases could be anticipated from two perspectives: managers may prefer enhanced utilization of their employees (preventing current under-utilization) and more exploitation of currently existing technical systems and thus focusing more on gleaning from current resources and competencies. Alternately, from a future perspective, managers may prefer employees training and development and, according to agency theory (Eisenhardt, 1989), capital investment on adoption of performance managing technologies such as IT system. In any case, certain trade-offs are a must. Managers in such a situation would need to find optimal trade-offs between current waste acceptance and future waste avoidance. This leads to our second proposition: Proposition 2: Effective lean service strategy in knowledge-intensive services requires balancing current waste acceptance and future waste avoidance. 5.2 Measuring lean service The need of measurement lies at the core of lean services. This is based on the well known axiom what gets measured, gets managed. However the measurement of lean service is different from common methods of measurement used in lean manufacturing. The very different nature of the service operations, inputs, and outputs makes it difficult to use the performance measurement criteria used in the manufacturing sector. As noted earlier, the inventory level a common metric in the manufacturing sector, cannot be a good indicator because there are little or no inventories in services. Indeed the use of lean manufacturing metrics could be misleading in services. Since there may be many variations in the types of services, the lean services metrics would vary from one service to another. For knowledge-intensive services the more appropriate metrics could include: cycle time, costs incurred per project, and man-hours per project. Finally, while service processes may have multiple types of waste, and managers may need a trade-off among different types of wastes, the need of appropriate lean measurement metrics is further highlighted. The need for the development of context-specific lean metrics is in line with Apte and Goh (2004) who found that lean manufacturing measurements metrics may not be suitable for lean services and organisations may need to develop more specific measures for their lean service programs. This leads to our third proposition:

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Proposition 3: Effective lean service strategy in knowledge-intensive services requires developing context specific lean service measurement metrics. The need for developing trade-offs among different types of wastes or activities is in line with the contingency theory which states that no method can be applied in all cases (Lawrence & Lorsch, 1967). Organisations need to design their own service processes to suit their unique business characteristics. 6. Implications for theory and practice The literature on the lean services is developing. In the absence of a lean service theory, the propositions can provide a starting point for researchers and practitioners. For researchers, they are the starting point for answering new questions like: How can the optimum level of waste reduction be determined? What are typical trade-offs between wastes, and what are good solutions? What are good metrics that facilitate effective decision making on waste reduction? These propositions can assist scholars in developing new theory and advancing the field of lean service. The propositions offer managers a tool to understand the lean implementation in services. Most importantly, these propositions suggest practitioners to take a holistic approach in identifying wastes and finding the optimal level of waste reduction. Practitioners also need to find the cost of each waste, as the trade-offs are determined on the cost of each waste. This research provides a number of examples of different types of wastes and the need of trade-offs among wastes. Managers can find similar types of wastes in their service processes and they need to develop context-specific trade-offs among wastes. Managers also need to develop the metrics that measure the lean services in their unique settings. Conclusions The lean production principles have their origin in the manufacturing sector and do not apply readily to the service operations. This research provides a case study focusing on the challenges faced in the implementation of lean principles in knowledge-intensive services. The findings of research highlight five key challenges: managing knowledge, coordination of activities, standardizing customized services, developing systematic continuous improvements, and managing external parties. The various types of knowledge and the varying need of each type of knowledge combined with intangibility of services and multiple handoffs give rise to wastes of various types. The findings highlight that removing waste of one type may give rise to waste of another type. To prevent organisations to step into the waste-reduction-cycle-trap, an effective lean service strategy should strive for waste-reduction optimization, rather than waste-reduction maximization. This implies that organisations need to accept a minimal level of waste. Managers, thus, need to identify existing and potential wastes in each service process. The cost of each type of waste and tradeoffs need to be determined to find the optimal level of acceptable waste. Further, this study suggests that short-term waste is acceptable to prevent more costly wastes in the future. This is illustrated by project reviews and the codifying of tacit knowledge. Due to the context-specific character of wastes, specific metrics for evaluation of wastes need to be developed. Page 14 of 16

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