Did the writers of books about excellence and what makes great organizations get it right to begin with and does lean add anything new?
Many great management books such as The Fifth Discipline or Good To Great say things that are quite similar to general positions in the lean movement. So what would be specific to lean that contributes to performance improvement
It is a mistake to think of lean as just one of the many tools in the Operational Excellence portfolio. Operational Excellence is really a catch all label for many different “best practices”. Lean on the other hand is a very specific set of interlocking practices, tools and behaviours derived from a very clear reference model. Lean grew out of years of practice and experimentation at Toyota and at companies in other sectors that have followed their example. It did not come from applying theoretical insights to business practice.
Correctly understood, lean is a much more fundamental and comprehensive approach to solving business problems and creating value for customers. It is also a great deal more than engaging employees in continuous improvement and eliminating waste.
One of the key things that distinguishes lean is its scope – which encompasses the whole value creation process – such as a global supply chain or an end-to-end patient journey. Instead of developing new support systems – such as better forecasting or decision support systems – lean focuses on the actual work that creates the value customers pay for, which lean thinkers call value streams.
Lean brings many different tools to bear so each value creating step can be performed right first time on time, then links the steps together in a physical flow or through pull signals and then levels the workload to align capacity with demand. As the primary value creating work begins to flow lean applies these tools to synchronise all the supporting activities that enable the primary value stream to flow and all the elements a customer needs to solve their problem – such as the test results, medications and therapies for a hospital patient. This in turn requires the right lean management to coach the skills, respond quickly to interruptions and dig down to the root causes of persistent problems.
The net result is a value creation system designed back from the customers’ definition of value and around the activities that create this value, more accurately and with far less wasted effort and cost. While most organizations cut their teeth leaning their existing activities the true potential of lean comes from the opportunity to redesign the next generation products or services and the value streams that deliver them without the drag of existing assets. Manufacturers are for instance now looking to local rather than distant “low wage” suppliers and polyclinics are now offering services previously only available in big district hospitals.
The other thing that distinguishes lean is its depth. The more activities are linked together and synchronized and the physical or time buffers between them are removed the more the operation of the whole systems depends on the skills, behaviours and direction of every employee.
On the one hand such an integrated system multiplies the probability of interruptions that must be responded to quickly. On the other hand it provides extremely valuable feedback on the causes of these interruptions and other changes, which may otherwise be hidden or lost. It is precisely to leverage this feedback that the core lean skills are not just the tools and techniques, but the use of the scientific method to define and diagnose a problem, understand the facts, try several countermeasures and check which of them solved the problem. Because solving problems can only be done by combining a detailed knowledge of the work with the context of the problem these skills need to be learnt by every employee, not just the experts. Developing these skills and using this experimental approach to constantly improve the performance of each value stream is learnt by doing rather than in a classroom.
In order to enable value streams to flow across facilities, departments and organizations someone has to take responsibility for creating the conditions for collaboration between all the actors involved. Lean chief engineers, project managers and value stream managers carry the responsibility for the performance of their product, project or value stream while the authority over the resources needed to accomplish this remains with vertical department of function heads. The key to making this work is by creating the right visual management context in which to gain agreement from all parties on the facts of the current situation and to commit to a jointly agreed plan going forward. The team then reviews deviations from the plan very frequently, unblocks any obstacles and captures any learning for the future. Lean thinkers use visual management everywhere precisely because it reinforces collaborative behaviours.
Highly transparent and interdependent systems throw up literally thousands of possible things that could be improved across an organisation. The skill of a lean leader is to be able to set the direction and to focus everyone’s efforts on the vital few things that will make the biggest difference to the organization, its customers, employees and shareholders. This means being able to translate organizational goals into measurable gaps that need to be closed and using strategy deployment to create a dialogue down the organization to agree the actions that will contribute to closing these gaps, so these can be adequately resourced while others are deselected. It also means diagnosing and addressing the underlying causes of instability – such as the amplification of orders passed upstream or discharge delays causing queues for admission to a hospital. Finally leaders must act to use the freed up capacity or cash to reduce costs and grow sales without requiring additional capital.
The Lean Edge: What are the most difficult industries and activities to introduce lean to and why?
In your experience, where have you found lean most difficult to introduce? What specific barriers have you come across? How have you overcome them?
I remember two distinguished CEOs from the auto industry telling me that it was impossible to get their sales and marketing people to go lean. Although my colleague Dave Brunt and I have never given up this quest they have a point. In our experience the hardest people to convince are those whose natural temperament is doing deals, the traders and negotiators who are always looking forward to the next deal and have no patience for the discipline involved in improving processes. Although Dave has had some extraordinary success with what are now some of the best Toyota dealers, it has been a long road to get others to follow.
However these natural and impatient wheelers and dealers are not just found in the auto industry, you can find them in many places, including at the top of banks and branded consumer goods firms. However difficult it is to attract their attention in my experience if you can show them the potential opportunities for incased sales from meeting every order on time and in full or by faster response to consumer service enquiries or by getting new products to market faster they will listen with interest. They may be sceptical until you can prove it really can be done but if you succeed they will go with it.
The second obstacle after temperament is where the context is not conducive, usually where firms or whole industries are making so much money there is no real need for lean. If they do become interested in lean because it is now a good thing to be seen to be doing it they are likely to throw almost too much money at their lean programme. While programmes to engage staff in improving their work are a good thing, it is very different matter developing the deep problem solving skills necessary to make these improvements add up along the end-to-end value stream to generate lasting results. A shared challenge to improve their fortunes is a great driver. But again if you have a leader with the right vision it is not impossible to make lean successful in this environment.
The other context that looks impossible is the public sector. However over the last two years I have seen a complete turnaround in attitudes across the public sector in the UK as the economic crisis began to squeeze budgets by up to 20%. What is striking is that staff realise that lean can help them continue to deliver their services to the public even if their budgets are being cut. They are also tax payees and if the workforce is dealt with in the right way they will go along with it. The UK government is soon going to publish it’s continuous improvement strategy for the whole of central government – the beginning of a very interesting journey.
The final obstacle to doing lean are the circumstances – usually where individuals find it almost impossible to see the impact of what they do on the rest of the end-to-end value stream they are part of. The classic example is in healthcare, where everyone only sees the room they are working in and no one is responsible for the patient journey through the hospital. However in my experience the doctors and nurses are not the problem, they quickly understand the point of using the same scientific method to diagnose and treat organisational problems that they are very aware of as they use for diagnosing and tearing patients. Their usual reaction is why have we not been doing this before!
The problem, at least in UK hospitals but elsewhere as well, is that managers are caught up in endless meetings so they do not have time to go to the Gemba and problems never get fixed. However if you can help them see the entire patient journey and the deep causes of the variation that causes the overburden and waste then rapid progress ca be made. But this entails lifting our sights beyond point improvement activities. I have no doubt that as healthcare budgets worldwide continue to be squeezed this will prompt more and more healthcare organisations to do this in the years ahead.
One lesson from the TWI programme that John Shook is always reminding us of the adage “if the pupil has not learnt, then the teacher has not taught.” This is so true and whenever I face setbacks and experiments I am involved in do not work I take this is a signal to dig a little deeper to discover the real root causes of the problem, which are not always immediately visible. I do not share the pessimism of other pundits who pronounce on why lean will never work or why lean fails, but then maybe I am just a natural optimist and never give up.
The Lean Edge: What does “teamwork” mean in lean?
Lean focuses on individual problem solving yet stresses the importance of teamwork. What would be your definition of teamwork in the lean sense?
There is more to problem solving and teamwork in a lean organisation. This was brought home last week during another Gemba walk through a plant making fast moving consumer goods. As we snaked our way past a maze of hoppers, ovens, pipes and packaging lines it became clear than nothing was visible at all, to me or to the managers accompanying me. I kept asking what was today's plan, were they behind or ahead, what were the biggest problems and what actions were they taking to address them. The managers I was with could only answer these questions by going back to the office to check on their computers! Yet this is one of the best performing plants in the group.
The operators were quick to show me that they had all the necessary data in their computers on the line to analyse and solve their own problems, and they were obviously experienced and just wanted to be left alone to do so. A separate team of technical experts from quality, engineering, maintenance etc met on a daily basis in a room upstairs. Each of them brought their files of information with them and took them away again after the meeting. The uptime record of the plant was good so management left them to it. Management of course also had access to all this data but focused on high level performance and budgets, and did not regularly walk the Gemba.
While there is no visibility there is also no dialogue. The prevailing attitude was tell us what you want and which metrics you are going to measure and reward us by and leave us alone to get on with it. A classic management by objectives environment that was obviously working for them. Until I arrived asking difficult questions about how they focused efforts to tackle their biggest problems if they remained invisible, how they could make their value streams flow across departments if they never talked to each other and so on. They became even more uneasy as we talked about making small batches in line with demand and creating a series of rapid replenishment pull loops back from the end customer. But their ears perked up again as we talked about creating a stable schedule rather than changing the plan every lunchtime to cope with shortages!
You need three things to really solve a problem. First an understanding of the context of the problem that tells you why it is important to solve it. Second a detailed knowledge of the actual work to be done and third the right tools and knowledge to solve the problem. No one person or group has all of these perspectives, which is why working in teams with clear sight of the facts creates the right dialogue to get to the root causes and propose a series of countermeasures.
In a lean organisation this dialogue needs to happen in three different dimensions. First up and down the organisation to build agreement and focus actions on the vital few. Second horizontally along each of the main value streams to remove obstacles to flow. Third across departments to synchronise their activities with these flows and to address common problems. A3 thinking provides the common PDCA language for all of these dialogues.
What is the lean approach to capital expenditure?
What is the lean approach to capital expenditure? As Toyota announces a new plant in high-cost Japan, it also claims that the overall investment is 40% lower than an existing equivalent size plant. How is this possible? What is the impact of lean on the investment cycle?
Lean is undoubtedly about doing more with less, including less capital. Saving capital may be one of the early consequences of lean but a full realisation of the potential for designing capital saving equipment and systems only comes much later along the lean journey. Quite rightly early lean efforts are initially focused on improving customer satisfaction by performing every action right first time on time. This in turn allows many activities to be eliminated and the remaining steps to be linked together, saving cash tied up in unnecessary inventories and reducing costs by using less people. Very often this also means that planned capital expenditure on new equipment or warehouses is no longer necessary. When we began streamlining Tesco's supply chains over a decade ago they were able to save over £400m by postponing their warehouse building programme by four years.
But avoiding unnecessary capital expenditure is only half the story. The further down the lean journey the more you learn to see consequences across the value stream of the design and engineering choices made when the current products and production systems were designed. Feeding this lean knowledge back into the clean sheet design of the next generation products, production equipment and supply chains reveals all sorts of opportunities to save capital. I remember seeing a brilliant design for a series of simple desk top tools for making a complex automotive component that replaced long and very expensive lines of traditional machines, and that could be transported easily around the world over the life cycle of the product.
Toyota with it's focus on target costs has long been a master at both designing products that are easier to make and designing what we call right-sized tooling to perform just the necessary tasks rather than buying over-engineered general purpose tooling from outside vendors. Indeed Art Smalley often makes the very important point that we have heard far less about the contribution of production engineering at Toyota than we have about operations management. To be fair this is something Toyota has not wanted to draw too much attention to and their latest smart tooling has always been off limits to visitors. It is no surprise that in these tougher times they and several German manufacturers have redoubled their efforts to design smart, right-sized equipment that makes it possible to complete from high wage locations without excessive capital.
Are Toyota’s troubles really over? What lessons should we learn from this?
The main lesson from the Toyota affair is that the lean movement will now have to live on it’s wits and not on the coat tails of Toyota. It will grow and prosper if it deconstructs the many lessons learnt from Toyota and turns them into actionable practices, frames of reference, learning pathways etc to enable other organisations to build their own functional equivalents and achieve demonstrably superior performance. Simply copying Toyota's practices misses the point and does not work without understanding and internalising the thinking behind them and adapting them to the circumstances facing organisations in different industries and at different points on their lean journeys.
Really clear descriptions of how Toyota actually manages every aspect of it's business are a vital starting point. We can now also learn a lot from other organisations that over the years have developed their own versions of what Toyota has done. Ex post attempts to retro-fit our own theories onto Toyota are usually mistaken and are unhelpful and a distraction. What these real descriptions give us is a frame for thinking in the right way about a situation, problem or gap we are trying to close and some starting hypotheses about the right countermeasures to try to address them. What actually works in practice in a given situation can only be determined through many controlled experiments. These in turn give us further hypotheses about what might work in a different situation and context next time. They also often send us back to the original example when they do not work as we thought they would.
Building this knowledge base from carefully chosen controlled experiments is the real work of a lean transformation. Sharing the results from many experiments in communities of practice and building a lean culture from telling these stories is the key. But the lean movement has to go one step further to seek out the opportunities for the next set of experiments to deepen our knowledge and to test and verify practices that work in one place but need modification to work elsewhere. If we have the courage to use the same scientific, experimental approach to evaluating what works and what does not then we will build a robust body of knowledge and practice that will change the work of management and stand the test of time.
Why is it so difficult to see the financial benefits from lean?
Why is it so hard to see the financial consequences of lean? Failure to answer this dilemma has derailed many lean initiatives. This is not such a problem if top management really understands the significance of focusing on getting everything to flow right-first-time-on-time to customers. Like top management at Toyota and Tesco, they know that good processes lead to good results. Alternatively if you have an experienced Sensei who knows where the gold lies buried and who has worked on similar situations before, there is a good chance that they can help you to deliver the kind of results you expect from lean.
But in my experience help is needed if you are pioneering lean in your organisation while at the same time trying to convince top management that it can deliver lasting financial results. This is particularly true when you are dealing with a complex shared pipeline with multiple steps and routings through which many different products or services flow. It becomes much harder to see where to act to deliver the greatest gains for the organisation and for its customers. And as my colleague John Darlington has shown traditional accounting systems and even sophisticated product costing systems end up rewarding the wrong kinds of actions.
As John puts it, they encourage overproduction by valuing what has been made not what has been sold, they do not recognise the importance of bottlenecks and constraints, they encourage point optimisation rather than flow, they have nothing to say about lead times, they promote the idea that bigger batches lower the unit cost and they encourage cost reductions that often prove to be mirages. In other words they fail to show the power of focusing on compressing lead times, which lies at the heart of lean. Struggling against this kind of headwind is almost impossible for any length of time.
Unlike Financial Accounting for reporting results to the outside world, we are free to choose how to construct our internal costing systems to drive the right kinds of actions. For instance lean organisations use Target Costing systems to focus improvement efforts in new product development. Why do we not do something similar to design and improve how well we run our end-to-end processes or value streams, particularly where they involve shared resources and cross several departments?
John shows how adding operating expenses to value stream maps for all the products going through these shared resources and turning inventories into time gives us the basis for Flow Costing, which relates the time products take to flow through the value stream (rather than to the cycle time through each operation) to the operating expenses of running it. Inventories (and delays in services) are the richest source of insight into how well we are using our capacity to generate money through sales. Shorter throughput times increase the ability to respond to quality problems and to introduce engineering changes, they may make it possible to raise margins and postpone the need for new investment, and meet due dates with lower finished goods stocks.
The real value of Flow Costing is to help set the priorities for lean improvement actions by being able to see the financial consequences in terms of increased sales, less cash tied up in inventories, reductions in operating expenses and postponed investments. These priorities can then be built into the policy deployment goals for each department, and the resources in their budgets to accomplish them. Flow Costing is a powerful way to help to bring throughput times much closer to value creating times, by which time the differences between Flow and Product costing systems almost disappear.
How do we develop people? How do Lean organizations develop their employees if Lean considers expenditure of resources other than for creation of value to be wasteful?
The power of the very tight lean definition of waste as only those actions that directly create value for customers is to throw a spotlight on all those actions that clearly do not create any value at all and should be stopped, and to raise questions about those actions that might be necessary to enable the value creating work to be done, such as planning and procurement. This is also true over time looking into the future.
We can also distinguish between work that creates value today and work that will create value in the future, in for instance designing future products or services. In addition we can also see the development of new capabilities of employees as future value, but only when it is manifest for instance in an improved production or delivery process. Although not so easy to see, both new product development and training can also contain a lot of wasted time, effort and cost. We will discuss waste in new product development at another time.
At one end of the spectrum traditional training courses, such as those taught in universities, teach a big batch of things that participants may or may not use in the future. Very little of what is learnt is turned into value. At the other end of the spectrum is teaching a team the next tool they need to solve the business problem they are facing, with direct benefits to the organisation and its customers. Many years ago at Unipart we designed their corporate University, Unipart U, to be able to teach the new knowledge in the morning that was used that afternoon to solve a specific problem, whose results were captured on their problem solving sheet and logged on their intranet. The specific knowledge was pulled by the team just when it was needed to solve their problem.
In between we have the less specific training associated with for instance building a multi-functional team or training in problem solving practices. Lean places value on these skills when they are directly related to a specific, demonstrated capability to improve something. Which is why, in my view we should place less reliance on external assessments and “ticking the boxes” and instead judge the capabilities of employees by the quality of their actions in solving different problems. Toyota’s A3 problem solving sheets not only help employees learn how to think in the right way about the right things but they also demonstrate the ability to use this knowledge to achieve a clearly documented result. I would be much more confident of judging the capabilities of an employee by reviewing their portfolio of A3s than the list of training courses they had been on.
According to Wikipedia, “Lean, is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination.”
Do you agree with this characterization (and if you don't, why?)
The premise behind this question and the Wikipedia definition reveals three common misconceptions about lean. First lean is not limited to production activities. Although the original insight to streamline the flow of work as well as improve the way each step is performed was developed on the shop floor, it has long since been shown to have widespread application to other processes. Indeed over time the principles of lean process design we articulated in Lean Thinking have transformed all kinds of activities from supply chains to service delivery and administration to flows of patients through hospitals. They are even helping to design new operating systems and improve development and response times in IT and software processes. All value creation, even one off project work, is actually the result of a process not just the sum of the steps.
Second lean is not just about eliminating waste. Although many managers were originally attracted to lean as a more effective way of engaging employees in eliminating waste, this is just the beginning of a journey. As soon as you learn to see how broken your current processes are you begin to see the opportunities for fundamentally redesigning the next generation product, process, tooling, location, route to market etc. Indeed as processes are streamlined and compressed it opens up new business models that were previously unaffordable. In Lean Solutions we explicitly address the lean approach to defining value back from the customer and show how lean rapid response supply chains enabled modern convenience and multi-format retailing and how streamlined back office processes in banks will make it possible to design new bundled and customised services to clusters of customers with similar needs.
Third lean is not just a set of tools or practices. What distinguishes lean from all the other process improvement streams is that it is not just based on theory but on a complete business example in Toyota. The more we understand about Toyota’s shop floor practices, underlying principles for process design and management tools the more we realise that they only really work in the context of a complete lean business system. Indeed Toyota’s lasting contribution to the practice of management is that it wove together process improvement, learning by doing and the scientific approach of the quality movement into a complete business system that delivers superior performance. Our task now is to not only describe the way Toyota’s management system works but to do so in a way that enables other organisations to create their own functional equivalents of it that deliver similar leaps in performance.
Is there a lean way to look at an organisation’s IT?
There are many ways to answer this question. IT systems reflect three things. First the way management thinks about setting priorities, controlling operations, problem solving etc. Second the way at least the bigger systems are sold – like construction, you bid low and promise novel features to get the contract and then make money on the changes, so they are over budget and late. Third, the belief that the only way to control complex systems is to model and simulate them in order to control every action and make sure every asset is fully utilized from the centre.
Lean thinkers approach each of these from a different perspective. As management recognises the potential for optimising the end-to-end flows of value creation rather than keeping individual activities busy and as they see how essential it is to engage front line management to respond immediately to the many interruptions to this flow as steps become more interdependent they realise that their IT systems, designed for a different purpose, are actually the hardest, slowest and most expensive things to change!
Moving from batch ordering to continuous replenishment at Tesco more than a decade ago took years after all the operational pieces were ready and by building their system based on large batch reorder quantities WalMart could not follow Tesco in using their systems to supply smaller convenience stores at little extra cost (although they are now doing so a decade later).
Today many CEOs biggest concerns are how to improve the productivity and responsiveness of the huge legacy of several thousand support staff round the world (more than in many of their key operations combined) to keep their big central systems running. It is shocking to discover that making a simple change to their systems can take up to a year; operations staff spends huge amounts of their time feeding the system with data and complain that it is the biggest obstacle to responding quickly to their competitors.
Lean thinkers and Agile software folk, whose perspectives are very similar, have a lot of experience in mapping the work flows to design new software, upgrades and system maintenance to eliminate delays and co-locate steps. They also know how to improve the flow of work through shared resources by for instance spending more time firming up the specification and only then working on the project in a tight, synchronised sequence with minimum changeovers and handoffs. Pushing more work through this shared resource simply delays everything else, unless such action is taken. Ironically they also know that managing this flow of projects visually, rather than hidden on computers, is the most effective way of changing behaviour and gaining agreement on what needs to be done as well as responding quickly to glitches and delays rather than waiting until the next gate review meeting.
The good news is that many IT and service delivery organisations like Banks, Utilities and telecoms are beginning to rethink their customer and technical support activities back from the problem solving dialogue with the customer and around the escalation process to those who can solve them. The boldest of these are in fact building new internal operating systems, designing all the management and technical roles around the support needed to enable the front-line work to flow smoothly. In doing so they are turning these big expensive assets into really customer focused problem solving support activities. (Some of these stories will be told at our next Lean Summit).
I sometimes hear IT folks say they lead all the changes in an organisation. Lean operations folks would beg to differ – and would first do a lot of work simplifying and streamlining the main value creating work flows before automating them. They would go further in showing that optimising end-to-end flows rather than keeping separately managed assets busy also means overturning many of the assumptions on which today’s MRP and ERP systems are built. Ian Glenday in Breaking Through to Flow shows how even in process industries bigger batches are not better and trying to continually adjust both the inventories and production schedules simply causes chaos. Indeed lean thinkers would use these systems for planning capacity, but not for scheduling every batch or shipment. High volume product flows with little variation require much simpler and different planning than the long tail of slower moving products. Actually it turns out that some of these principles also apply to organising the flows of work to upgrade and manage IT systems.
The IT and Lean worlds still have a lot to learn from each other. But the dialogue and the pioneering experiments have begun. I look forward to seeing where this will take us.
A few of the thinkers and authors on this page have actually been in my operations, and I’ve used Michael’s The Lean Manager as required reading in our lean book club. We’re a multi-site process (extrusion/molding) medical contract manufacturer, four or five years down a successful lean journey that has made us more agile and competitive, with great 5S, value stream organization, daily accountability, etc. But one big struggle has been basic kaizen – creating the culture and finding the time. Over the past couple years with help from Art Smalley we’ve successfully dived into TWI. Now it seems like the JM side of TWI has created “our way” of doing kaizen – breaking down and reconstructing the job method prior to JI lets us remove wasteful steps. Any thoughts on the pros and cons of this simply being our method of larger kaizen? We do have some success with Bodek-style “quick and easy kaizen” with small changes.
In my experience a Kaizen culture is set by example, is enabled using a common method and language and is nurtured by recognising achievements, telling stories and building upon the resulting learning. In 1993 I was fortunate to be involved in creating what is still one of the best examples of a Kaizen culture at the Unipart Group of companies in the UK, who make and distribute automotive components. From the beginning the initiative has been led by the Chief Executive, who teaches regularly in the company university, reviews progress on the shop floor of their many operations and attends every one of their monthly recognition ceremonies. Quite simply if managers don’t have time for Kaizen then neither will their employees.
From the beginning Unipart found and developed lean experts from within the group who could teach and support all aspects of continuous improvement. They created and branded their Kaizen programme, which encouraged and facilitated continuous improvement across the group, using a common reporting methodology. The resulting success stories, both individual efforts to go the extra mile for the customer and team projects to redesign their work processes, were reviewed by management and presented at regular recognition ceremonies. Telling the winning stories at award ceremonies and on the group intranet profoundly changed expectations about “the way things a done round here” and were really appreciated by employees.
But perhaps the most significant result is that every improvement activity is entered into a group wide intranet database, searchable by topic in every work location. Over time this proved to be an invaluable resource base enabling anyone in their widely dispersed locations around the world to learn whether someone had already found a solution to this or a similar problem. It also shows who solved the problem, what tools they used and which internal experts taught them and how they went about solving it. It not only avoided reinventing the wheel again and again but brought focus and discipline to everyone’s Kaizen efforts.
All of this continued to deliver real savings year on year and allowed Unipart to win new business by distinguishing themselves from and delivering superior performance to their competitors. But it required sustained management attention to continually refresh the importance of the programme. Building a Kaizen culture has to be central to the way an organisation works, not something to do if or when you have the time.
How can we convince decision makers that lean is not a program to justify, but a way of doing business to achieve superior performance?
The best way to answer this question is to summarise two contrasting real stories – one that got it and one that still does not – at different ends of the same sector.
The successful case began with a question from a senior Director – “How could these lean Toyota ideas help my business?” “Let’s take a walk and see” was my answer. As we walked it because clear there was waste everywhere. This very quickly led to a meeting with the CEO who was intrigued and gave us the go ahead to begin some experiments to demonstrate the potential scale of the improvements that might be achieved. But I insisted that we begin by taking a team of top managers from this company and a few of their suppliers to walk the end-to-end process back from the customer. This proved to be a game changing experience – they were shocked at what they now learnt to see!
So we were quickly given several places to carry out experiments and these quickly showed huge amounts of wasted time and effort could be saved. At the time no one had tried to do these things in this industry, even though I had the Toyota example as my reference model. Meanwhile teams from both companies began meeting to reap the low hanging fruit they could now see. And their internal team worked with other consultants to calculate the financial implications of the process savings we were demonstrating from each of our experiments. This was essential to get Board approval to go further and do the next set of experiments. In each case once this had happened their team worked out the operational detail before rolling out the next piece of the system as the new standard across the business.
Gradually as the different pieces came together more savings were uncovered. The fastest things to change were the physical operations and it took a few years before the systems could be changed to support the logic of continuous flow. But the CEO was quick to spot new capabilities he could build on to introduce new business models that were previously too expensive to do. The rest is history – they moved from an also ran in the UK to number three in the world in a decade and their competitors are still struggling to catch up with them! The Board never lost sight of the core insight that removing any interruptions to the flow of products through their system would be good for them and their customers and they never used lean language to describe what they were doing, even though their Chairman is a great admirer of Toyota!
The other case also started with the same question – but from the head of improvement. Several meetings in hotels eventually led to a visit to HQ to meet the new CEO. This company was making huge profits so I did not get a clear answer to my question “Why do you want to do Lean?” This was followed by days of meetings with armies of very bright staff in the improvement function at HQ and a few awareness training sessions. Which were followed by more visits and more meetings to refine our PowerPoint proposals and to develop their Training Manual and the Plan for rolling this out across several hundred plants across the world. These visits continued for several months, and frustration began to set in.
Meanwhile we persuaded them to allow us to begin some experiments in chosen plants to build some demonstration sites and create a network of people with hands-on experience. Because this company had a long history of rolling out new initiatives from HQ local plants were very wary of this new programme as they saw it and jealously guarded their independence and as a result these experiments quickly ran into political problems. Our approach was seen as rocking too many boats and they began to look for more traditional consultants who would stick to training and improvement workshops. This came to a head when we were only allowed to do our workshops in hotels and not on the shop floor and when their central improvement team asked for our proposals and then blocked us sending them to the CEO!
We probably learnt more from this “failure” than from the earlier success. In retrospect we failed to get them to define the business problem the CEO was trying to solve with lean. We never managed to persuade his senior team to take a walk through the process with us. We were told this could only be done with an army of minders and a big security presence. We never convinced them that this was not about rolling out new tools across their plants but about getting to action quickly to design a set of carefully controlled experiments to create hands-on knowledge and examples.
But the biggest obstacle turned out to the very bright staff in the improvement function at HQ who wanted to control the roll out of the programme based on their theoretical understanding rather than hands-on operational experience with lean. I have since seen very similar situations in several big multinationals, where we were in danger of getting sucked into a never ending cycle of meetings to discuss ever more elaborate PowerPoint presentations that never result in any action!
But I do not despair – we planted the seeds of lean. I know that several of their competitors have got it and are making steady progress and achieving dramatic results. As these translate into growing market share and volumes this company will be back in a couple of years asking why all the money they spent on more traditional consultants did not yield the same kinds of gains. Resisting the temptation to say “we told you so”, we can begin again with a bottom up programme of controlled experiments, tightly focused on closing the vital few gaps that will make the biggest difference to the business. Over time we will link them together and build the community of experienced lean line and plant managers who can make it happen day in day out. The focus and the will to work across functions to make this happen can only come from the top. I have always said that I only need one company in each industry to really get what lean is all about – and in time the rest will be forced to follow!
I ran an innovation event with a manufacturer of pumps a couple of weeks ago, which went very well, with a huge number of powerful ideas. This organization is a devotee of lean, and although there is a very large overlap between lean and innovation, it’s often hard to see how to exploit this in practice: how would you practically develop innovation through lean and vice versa?
I have always thought that innovation rather than simply quality, delivery and cost was the real purpose and ultimate result of lean thinking; innovation in terms of the products and services we design, in how we relate to customers and in how we find new ways of working together to create value. The experience with lean is that it leads to new capabilities which in turn open up new business models that turn the tables on the competition and reshape whole industries. In other words lean insights can lead to lean innovations. There is no short cut.
Think of it this way – the first stage of lean is to improve the operations to make existing designs with existing assets. Although substantial improvements are possible it will necessarily be constrained by decisions made well before working with lean. We are in fact establishing a new stable base line with a full understanding of what this involves.
Having learnt how to use lean to remove a lot of waste from existing systems the second opportunity is to design the next generation products and processes in a very different way – delivering superior capabilities and lower costs with differently configured equipment and supply chains. But as we link lean improvements across the whole business we realize that we can now also do new things that were previously impossible to do cost effectively. The third lean opportunity then is to use these new capabilities to develop new business models that the competition will find it hard to follow.
Examples of this are Toyota’s pioneering of hybrid engines which could only have become cost effective in a relatively short space of time because of the rapid iterations of its much quicker new product development process. Tesco was only able to pioneer cost effective web shopping, modern convenience stores and multi-format retailing because it developed lean rapid response supply chains for its core products combined with a more precise insight into real customer demand from its loyalty card and home shopping orders. Streamlining back office processes in banks can potentially open up new ways to manage more complex portfolios of risk, cash and investments for ordinary customers rather than just the very rich.
As we outlined in Lean Solutions, the right combination of insights into consumption processes on the one hand and production and service delivery processes on the other point to the right combination of products, services and knowledge to help customers solve their problems in the future.
“Lean” sounds efficient, and I like that. But I worry that it also sounds like “no backup inventory” or “no backup system”. I've heard stories about what sound like too-lean operations disastrously disrupted when unexpected problems caused severe delays and there were no backups. So what is the relationship between lean and robustness in the face of unexpected problems? Can a lean system also be resilient?
I have met many of these folks too who talk about lean but whose heads are stuck in the old cost cutting mind set. Organisations that employ them, whether as internal or external consultants, deserve what they get – traditional cost cutting! A great shame and a missed opportunity. On the other hand I have also met good lean folk who know all the tools but who do not have an A3 plan to guide their actions. And I often encounter quality folks who imply that improving quality is somehow more virtuous than the grubby task of eliminating waste, which usually means no longer wasting someone’s time. While it is easy to cast blame, the truth is that we the teachers in both movements have not reached or taught these pupils or their paymasters well enough. We still have a lot more to do.
This is why I am convinced that these two movements must come together and stop sniping at each other. Improvements in quality are not sustainable in my experience unless they are embedded in a lean process with no room for regression when we move on to tackle other problems. Many quality folks more fascinated with eliminating point variation and establishing standard ways of working before moving on to the next problem are if they are honest not really convinced of this. It is too easy to blame the client for not being able to sustain their improvements.
Equally it is impossible to link steps together to create flow without first establishing what lean folk call basic stability and the quality folk call reducing variance. The two have to go hand in hand. The lean folk who know Toyota always tells us to start with quality, then delivery and then cost take this for granted and wonder what all the fuss is about. But many quality folk are often unsure whether this level of cooperation along a value stream is really realistic and possible to sustain. They are right that the changes in how we work together to manage a lean process are more radical and challenge traditional ways of managing operations. While quality may at least initially be compatible with modern management lean is not. Together however they can change the world!
If thermodynamics is the science of getting useful work out of engines, then surely organodynamics is the science of getting useful work out of organisations. Thermodynamics is based on three laws (or according to some purists, four): what three (or four!) laws of organodynamics would you suggest?
It is not too far-fetched to think of lean as the science of getting useful work out of an organisation. But in this case the organisation does not exist in isolation – it has to serve its customers, work with its partners (employees, suppliers, distributors, shareholders etc) and find its place in the physical, economic and social environment in which it operates. This changes over time and so the laws of lean organisations will also change as societies face new challenges in the future. This is how I would summarise the “laws of lean”.
The first lean law states that the leaders of the most successful organisations drive their businesses out of a deep understanding of the real needs of their customers. They know exactly what their organisation should be doing to design new products and solutions and how to help customers’ acquire and use the right products, services and knowledge they need to solve problems in their lives.
Great leaders like Jeff Bezos introducing resellers on the Amazon website and Sir Terry Leahy pioneering home shopping and modern convenience stores at the UK supermarket retailer Tesco both had to do so against strong internal opposition. They said that what is right for customers will ultimately be right for the business, whose task it is to make it work. In other words as Jim Womack and I showed in Lean Solutions, organisations need to first define value from the customers’ perspective, which then becomes the purpose of the organisation.
The second lean law states that the most successful organisations will create and deliver this value with the minimum wasted time and effort of its staff and assets, without excessive cash, costs and capital expenditure and in a sustainable fashion in harmony with the environment. Organisations do this by eliminating unnecessary variability, overburden and waste from the core processes that create the value customers are paying for and from all the enabling support processes. And they work with partners to apply the same principles to entire value streams from raw materials to the use of the product. We described the principles of lean process design and the techniques of value stream analysis in Lean Thinking.
The third lean law states that the most successful organisations are able to focus the efforts of people in the organisation on achieving the purpose and streamlining the processes to deliver that purpose by teaching them to use the scientific method to plan their work and to solve problems interrupting the flow of work. Real progress is only made by conducting successive experiments and real learning is only gained from participating and reflecting on these experiments. In other words creating a learning organisation able to continually respond to the changing needs of its customers and the changing context in which it operates. John Shook very ably describes the management practice that drives this learning process in Managing to Learn.
I know of a service delivery organization plagued by administrative difficulties. Many service requests are mishandled. People within the organization who handle things effectively become known, and then everyone goes to them for help, which causes them to become overwhelmed; usually they either burnout and quit (or move to another job), or they become ineffective as a result of being overwhelmed. The reward for doing good work is that you get buried by an overwhelming volume of additional service requests.
One problem this organization has is that its people don’t have a habit of making problems visible. When you point out a systematic problem, they diagnose it as a one off, in part so they can avoid embarrassing anyone, and in part so can quickly get back to their backlog of work that urgently awaits their attention. A big part of the problem is that they want to reassure themselves that things are not all that bad, so they never really spend time on systematic improvements, and things don’t get better. Thus, the larger problem is that there seems to be no time for improvement activities, and no incentive to identify problems that deserve systematic attention, because they are so busy dealing with the overwhelming demand for services, a large part of which is fixing things that were mishandled the first time through (rework).
What advice can lean offer about breaking this dysfunctional cycle? That is, in a situation that is already seriously degraded, so that every spare bit of effort is devoted to fire fighting, how do you shift the focus from urgent rework to systematic improvement?
Taiichi Ohno is reported to have said that the shop floor is a reflection of management. In my experience this is so true. Unless management can articulate a convincing case to change it is easy to get stuck in fire-fighting mode. Good people trapped in a broken process without a clear purpose will never improve. Well intentioned efforts to change the culture or even to redesign processes will run into the sand if the purpose or the performance gaps that need to be closed and the financial consequences of doing so are not clear.
This means management seeing lean not just as a way of empowering employees to improve their own work but also as a management task to focus efforts on the vital few actions that would make the biggest difference to the performance of the organisation, and to the experience of its customers and employees. This in turn means digging down to the root causes of the broken value streams that fail to deliver the required performance and having the courage to deselect and focus efforts on these vital few.
Deselection and focus should start at the top. Stand up rather than sit down meetings, visual project management instead of death by Powerpoint and only working on the vital few actions all free up the time to walk the value streams and ask searching questions. The five whys translate diffuse high level performance gaps, such as costs are too high or customers are being let down, into precise actions at key locations that will make the biggest difference. What to do and where to act are not obvious from the executive suite.
Although widespread involvement in Kaizen is nice, the key to improving performance and changing hearts and minds is not to try to do everything the same way at once! There are two dimensions to this. First in service delivery organisations a large part of the work is what Toyota would call created demand, unnecessary demand or rework that results from the poor “right-first-time-on-time” at each step down the broken service delivery process. Stephen Parry in Sense and Respond shows how to categorise this created demand by the underlying question being asked so that the most frequent and costly root causes can be tackled one by one. Doing so turns front line staff into problem solvers. They love it and stay, created demand falls away and customer satisfaction soars. But this only works if the organisation can get away from piece-work payment systems for employees and by clients.
Second Ian Glenday in Breaking Through to Flow shows that 5% of everything we do, whether it is policies, orders, patients or products, typically account for 50% of the workload. By initially separating these high-volume, standard jobs from the rest it is relatively easy to streamline and error proof these work flows. This creates stable and predictable routines and improves customer satisfaction while eliminating much of the frustration with the work. This in turn frees up the time to give adequate attention to the tail of complicated jobs and for staff to improve their own workflows. Staff love it because it breaks the vicious circle of blame, fire-fighting and hiding problems. Again this is only sustained if management recognises this is just the beginning of a virtuous circle of improvement rather than a one off opportunity to cut heads.
Toyota is making news for its product recalls and for suspending production on the bulk of its models to work out its problems. Naturally most public accounts focus on the question of what Toyota did wrong. I think this is a very challenging question, and perhaps not the most important moving forward. I would prefer to ask that you reflect on what remains to be learned. Given the news, could one conclude that the company has reached the limits of its potential? Has the full promise of its true practice been sufficiently uncovered and shared yet? Most of all, what are the key questions we should be asking right now? What can be learned from Toyota as the company moves forward from its current state?
Toyota’s impressive growth to become the largest vehicle manufacturer in the world undoubtedly gave the lean movement its unique strength. Organisations who try to follow Toyota’s example only have themselves to blame if they cannot make similar progress. They cannot claim that lean does not work, only that they have not yet fully understood what it entails.
But Toyota’s example also means that the lean movement, unlike almost every other movement, was driven by practice and not theory. Indeed it was well over twenty years after the Toyota Production System was codified that Jim Womack and I described the theory and principles behind its superior practice in Lean Thinking. Toyota has proven to be an invaluable source of reference to go back to time and time again to uncover deeper and deeper layers of its counterintuitive practice.
I have no doubt that there is still a lot to be learnt from watching Toyota respond to today’s dramatic setbacks. But what will live on, whatever happens to Toyota, are the profoundly new ideas and practices that have already begun to transform industry after industry, from automotive to aerospace, construction, distribution, utilities, services and healthcare. As long as these ideas and practices help organisations to do more with less they will live on, long after those who simply want to ride the next “programme” (probably driven by theory rather than practice) have moved on.
One of the profoundly new lessons is how they overturned one of the foundations of modern management, namely the separation of thinkers at the top and doers at the bottom of the organisation. Toyota found a way to turn every one of its employees into a scientist, guided by mentors to use the scientific method to solve ever deeper problems obstructing the value creation process itself. Where we initially saw tools and continuous improvement, they had in fact developed an experiential learning process to teach employees how to think.
Another very important lesson is how to manage the entire, end-to-end value creation processes (which we call value streams) that flow horizontally across departments and organisations, while at the same time maintaining strong vertical functions essential to the deployment of knowledge and resources across the organisation. Most organisations driven by strong functions, departments and business units fail to realize their full potential because everyone focuses on managing their activities in isolation, while no one sees, manages or optimises the horizontal value streams. A relentless customer focus all along the value stream needs to take precedence over narrow departmental interests.
These are just two examples of the way lean thinking goes beyond modern management. On the one hand it is right that as these ideas and practices migrate to new situations they should become the “new common sense”. On the other hand it would also be short sighted to lose sight of the original and continuing source of these ideas and practices.
As a financial manager, what I’d really like from operational managers is a commitment to realizing specific targets - cost reduction, productivity improvement, whatever - on a schedule. Then I want to see people work to deliver those results on schedule. Can lean help me get that?
Goals and means have to go together. Either one without the other does not lead to lasting improvements. To do this managers need to work together to dig down to the underlying root causes of the often vaguely defined performance gaps facing the organisation. Understanding these root causes helps everyone to focus on closing the vital few gaps that will make the biggest difference to the organisation, its customers and its employees. At which point someone can be given the responsibility for gaining agreement across the organisation using the evidence based, scientific method to implement and test the right countermeasures to achieve the desired results. This is how good doctors go about diagnosing and treating medical problems. Too often modern managers do not use the same rigor in diagnosing and treating operational problems.
At its core lean is about developing the skills and experience of every employee in using this evidence based, scientific method to solve the business problems they are responsible for. It also adds a critical, missing dimension to modern organisations, namely a focus on the horizontal flow of work across departments and organisations that creates the value that customers are paying for. It brings a very powerful framework and set of tools for redesigning these horizontal flows or value streams to eliminate unevenness, overburden and waste. The net results are better value and experience for customers, reduced frustration and wasted effort for staff and freed up capacity and the elimination of unnecessary costs for the organisation. Top management must match this with actions to use this freed up capacity and lower costs to improve the financial performance of the organisation. Turning separately managed activities into an integrated flow of work is the most powerful way of closing significant gaps in performance.
In Making Hospitals Work we describe just such a journey of a typical district general hospital which discovered that by improving the timely discharge and streamlining the end-to-end flow of emergency medical patients through the hospital they could reduce length of stay by 50%, eliminate errors, infections and waiting time and free up the capacity to treat 30% more (and more profitable) elective patients with existing resources. Prior to this their 80 plus rapid improvement events and more than 500 improvement projects were scattered across the hospital, were difficult to sustain and did little to improve the operational or financial performance of the hospital.
From a distance, lean looks like such a nice, humanistic improvement approach—one that treats people with respect and generates knowledge from the ground up. That ‘s all well and good, but the practice of teaching, and doing, lean invariably involves conflict, frustration, and, to be honest, what seems like a fair amount of bullying from superiors to prod their employees to “get it ”. Isn’t the reality of doing lean far more frustrating and conflicted than one would think? How do you get people on board in a meaningful way? How do you teach the gospel of respecting people without bullying them in practice?
There is no doubt that employees very much prefer to work in a lean organisation. When you hear them say “we would never want to go back to the old ways ” you know that at least this part of the organisation is serious about lean. If lean is misused as a fig leaf for crude cost cutting you know it will go backwards in a hurry – it is difficult to misuse lean for long.
But that does not mean that employee involvement is all there is to lean – or that it is all plain sailing – far from it. To work lean has to be a real “win-win-win ” for employees, customers and the organisation. It is about helping every employee to learn to use the scientific, evidence based method to remove the obstacles and frustrations that prevent them from doing their jobs well. It is about managers focusing everyone’s effort on streamlining and integrating the flow of work to deliver superior service to customers. And as a result creating a profitable and sustainable future for the organisation.
If every employee knows what the objectives are and are enabled to take the right actions then they can achieve individual breakthroughs and extraordinary results they will be proud of and that their competitors will struggle to match. Seeing the results is the only real way to ensure lean will continue to grow. The real challenge to making lean work is not with front line staff but with managers reluctant to give up old ways of thinking and working.