Even the most advanced organizations fall into the same trap: optimizing for resource efficiency (keeping people busy) rather than improving how value moves through the system. To visualize the difference, we developed the Efficiency Matrix published in the book This is lean – Resolving the Efficiency Paradox in 2011. Even though it was first published 14 years ago, it's still more valid than ever, very few companies have been able to eliminate their silos and adopt a more flow-oriented operations strategy. This article explains why it’s so hard to move from local efficiency to true flow.
But let’s start with defining flow and why I have stopped using the term lean. After decades of advocating for lean thinking, even writing the book mentioned above, I feel the term has outlived its usefulness and is often held responsible when transformations fail.
I prefer talking about flow, which is what lean was always meant to achieve: shorter lead times, less waste, better outcomes, etc. When companies claim that “lean isn’t working” it’s like blaming a diet for not helping. It lets people avoid the harder truth, that change is difficult.
Flow points clearly to what matters: better productivity and value for the customer. The opposite of flow is when companies focus on optimizing resources. Keeping everyone busy, maximizing labor hours, pushing tasks to available people. That approach disrupts flow and will eventually lead to suboptimization and silo creation.
To explain how these two dimensions interact, me and professor Pär Åhlström developed the Efficiency Matrix. A simple but powerful framework that allows organizations to examine how well resources are used, and how smoothly value flows through the system. When visualized, they create four distinct organizational states.
The Four States of Efficiency
Many traditional organizations find themselves in what I refer to as “Efficient Islands.” In this state, each department appears busy and productive on paper. People are working hard, KPIs are met, and resources appear to being utilized efficiently. However, when you take a step back, it becomes clear that the overall system is busy, but not efficient. Work gets delayed during handovers, customers are left waiting, and projects take longer than necessary.
A large vehicle manufacturer I have been working with, had been developing their own lean production system for many years. Still, they experienced a few extreme cases. For example, at the end of the distribution phase they had a 34-week lead time before the client received their delivery. Out of these 34 weeks, 24 were managed by a third-party supplier but no-one had the overall view of the end-to-end flow. This lack of transparency in the flow was making it impossible to start making improvements and made the objective of shortening lead times to the client feel completely out of reach. The consequences were increasing stress and frustration.
On the opposite end of the matrix, we have what we call the “Efficient Ocean.” Here, things move quickly, the customer experience feels smooth and responsive, and the organization gives the impression of being agile, however, this comes at a cost. By focusing so heavily on flow, these organizations often end up with underutilized staff, spare capacity, and other excess resources that keep things moving. While it looks impressive from the outside, it can become difficult to justify the expense when financial constraints arise.
The third state, the one most organizations want to avoid, is the “Wasteland”. In this situation, flow is poor and resources are overstretched. Teams feel overwhelmed, customers are dissatisfied, and the organization is stuck in reactive mode. There is little strategy or structure, just a continuous effort to put out fires. Sadly, this is a common state for any organization with teams operating under relentless pressure without sufficient support.
The fourth and most desirable state is what we describe as the “Perfect State,” where both flow and resource efficiency are high. This is the ideal that many aim for; a system that delivers value quickly while using its resources wisely. So why is this state so difficult to reach? The answer is called variation.
Why Variation Always Beats Perfection
Variation appears in two fundamental ways. First, there is variation in demand; what customers want, when they want it and how much of it they need. Even the most accurate forecasts cannot eliminate uncertainty. Secondly, there is variation in supply; machines break down, staff fall ill and processes fail, etc. These are natural, unavoidable parts of any system and they form what we call the efficiency frontier: a boundary that defines how close you can reasonably get to the perfect state.
A company producing the same product day after day, with stable demand and a predictable process has a better chance of nearing this balance. However, most organizations in complex environments operate under constantly shifting conditions. In these cases, the goal is not to pursue perfection but to make deliberate choices about where to position yourself within the matrix.
Why Even the Best Organizations Get Stuck
Your business strategy defines the kind of value you want to deliver, whether that's speed, cost-efficiency, premium quality, or personalized service. Your operations strategy then defines how you are going to deliver that value. Most companies focus on resource efficiency, not flow, therefore even the most advanced production systems can become stuck in the "efficient island" state.
This happens because years of perfecting cost control, utilization, and productivity make these practices deeply embedded in the organization's culture, making it difficult to question or change. On top of that, most systems are measured by resource-based KPIs such as machine uptime, labor utilization, and output per hour. These drive local improvements but don’t encourage teams to think about handover delays, flow time, or responsiveness.
Companies usually grow function by function, as demand for their product or services increase. This in turn, increases complexity and variation. To manage their day-to-day work, each function starts adding their own software, systems and methods. As time goes by, what was once an understandable and adaptable flow, has become a collection of systems, different ways of working and different KPIs to measure performance. The customer is unfortunately not in focus as every “island” is busy reaching their own targets, within their own suboptimized systems.
Shifting from an "efficient island" state to system-wide flow demands more than process tweaks, it requires a fundamental change in mindset and a shared understanding of value across the organization which is why it can be challenging to implement flow effectively.
Shifting Within the Matrix
Even so, it is possible for organizations to shift their position within the matrix over time. A start-up that begins in the "wasteland" state, overwhelmed and under-resourced, may move toward greater efficiency as it introduces structure and gains clarity. A software firm focused on speed might pause to rework its delivery pipeline, easing pressure on teams while sustaining flow. A food manufacturer that’s mastered cost control may turn to flow improvements by integrating more closely with its distribution partners, and a high-touch service provider may need to standardize elements of its offer to stay scalable without undermining its core experience.
Where your company is in the matrix is a strategic choice and depends on the organization, it’s competitive environment, customer needs and business strategy. There is no one solution fits all.
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