part0023

We hope you’ve learned to distinguish value from muda and that you want to apply lean thinking to transform your business. But how do you “just do it”? We’ve learned from examining successful transformations across the world that a specific sequence of steps and initiatives produces the best results. The trick is to find the right leaders with the right knowledge and to begin with the value stream itself, quickly creating dramatic changes in the ways routine things are done every day. The sphere of change then must be steadily widened to include the entire organization and all of its business procedures. Once this is in hand and the process is irreversible inside your own firm, it’s time to start looking up- and downstream far beyond the boundaries of individual firms to optimize the whole.

The most difficult step is simply to get started by overcoming the inertia present in any brownfield organization. You’ll need a change agent plus the core of lean knowledge (not necessarily from the same person), some type of crisis to serve as a lever for change, a map of your value streams, and a determination to kaikaku quickly to your value-creating activities in order to produce rapid results which your organization can’t ignore.

Maybe the change agent is you, and if you run a mid-sized or small business like Pat Lancaster we hope it is. However, if you are the senior leader of a large organization, you may not have the time or opportunity to lead the campaign yourself. You’ll need your chief operating officer, or your executive vice president of operations, or the presidents of your subsidiary businesses to introduce the necessary changes, and these individuals may need some direct-report helpers as well. Sometimes there are inside candidates for these jobs, but often it’s necessary to go outside for a Wendelin Wiede-king or a Karl Krapek or a Mark Coran.

Individuals with a make-something-happen mind-set are not a commodity available freely, but in the fifty firms we’ve looked at it was possible to find the right change agent, and generally after only a short search. While chief executives in organizations failing to get started on a lean transformation often tell us that the problem is a lack of good candidates to take on the challenge, we generally find instead that it’s reluctance to bring in executives who will introduce truly fundamental change.

There are lots of resources for learning in North America, Europe, and Japan. Lean firms are themselves continually improving and most are happy to include visitors—in particular their customers and their suppliers—in their improvement activities. Freudenberg-NOK, for example, has involved more than five hundred executives from outside firms in its three-day kaizen activities over the past four years. And there is a vast literature available, some of it very good, on various lean techniques and when to apply them. 1

Because most change agents new to lean ideas need considerable time to master them, additional help is usually needed right away. In particular, firms will need someone in-house, like Ron Hicks at Lantech or Bob D’Amore at Pratt, who can act as the expert in quickly evaluating the value stream for different products and initiating kaikaku and kaizen exercises. In our research, we’ve been struck by just how many managers there are in Japan and North America, and increasingly in Europe, who are masters of lean techniques but who are frustrated with their ability to implement them in their current organization. This may make these experts available to you. 2

Even if you find one or more executives with the necessary knowledge, they may well need outside help to move your organization ahead rapidly. There are many consultants claiming lean credentials and some of them are very good. But several cautions are in order. Any consultant who has no links back to the roots of lean thinking and who relies mainly on seminars and off-site classroom instruction, or who wants to do the improvement for you with a large team of junior consultants without fully explaining the logic of what is happening, should be avoided. Similarly, a consultant offering massive offensives to quickly fix specific activities—the pulling-rabbits-outof-hats phase—but with no interest in working with you to create an organization which can sustain lean concepts for the long term is unlikely to be of real help in the end. This is the type of activity—usually aimed simply at quick headcount reduction—which has given the reengineering movement such a cynical cast and has caused so many reengineering projects to fail the moment the consultant leaves.

In addition, it’s unlikely you’ll find one adviser who can impart all the knowledge. Applying QFD to product development, introducing lean techniques on the shop floor, and creating a self-help supplier association require different skills and firms may discover they need a portfolio of advisers for specific types of knowledge.

One underused resource for firms all over the world is the generation of Japanese now in their sixties who helped pioneer lean thinking and create order out of chaos in the 1950s and 1960s. (For example, Yuzuru Ito, who took retirement from Matsushita and is now working to introduce lean quality tools across the entire United Technologies group.) The nature of these individuals seems to be that they can’t stop trying to eliminate waste, no matter how many years past “retirement” they may be. Like Ohno and Shingo in the generation before them, who continued to conduct improvement exercises right up to their deaths, they have no desire to slow down.

We’ve heard many Western firms give excuses for not availing themselves of this resource—the two most common being that Japanese of the immediate postwar generation typically speak only Japanese, and that these pioneers in lean implementation are too demanding (having learned this from Ohno and other leaders of the Japanese miracle after the war) and short on diplomacy when their clients fail to follow through.

But these are only excuses. Many of the change agents we’ve studied developed a successful relationship with a Japanese sensei after a careful search and a period of learning how to work with each other. Typically, the executive made several requests for help before an arrangement was finally worked out. For example, George David at United Technologies asked Ito to come to UTC on a half dozen occasions before he finally agreed and George Koenigsaecker asked his Japanese advisers to visit his plant many times before they agreed. For the true sensei, the change agent’s level of commitment is the single most important issue.

Finding a sensei who does not speak your language (and therefore needs an interpreter) can even be a help because it highlights the unusual nature of the interaction: This is not just another consultant peddling another quick fix; it’s someone changing your whole way of thinking about your business. Similarly, any teacher who doesn’t vigorously protest when a pupil fails to live up to his promises and potential is probably more interested in a secure fee than in lasting change.

A final point about lean knowledge is very important. The change agent and all of the senior managers in your firm must master it themselves to a point where lean thinking becomes second nature. What’s more, they should do this as soon as possible. If the change agent doesn’t fully understand lean thinking, the campaign will bog down at the first setback (and there will be a first setback). So he or she (or you) must truly understand the techniques of flow, pull, and perfection, and the only way to gain this understanding is by participating in improvement activities, hands-on, to a point where lean techniques can be taught confidently to others. While doing this, the change agent needs to involve the other senior executives of the firm as well, so everyone’s knowledge is brought up to a minimum level to grasp the power of lean thinking.

We have not found an organization free of crisis that was willing to take the necessary steps to adopt lean thinking across the board in a short period of time. So if your firm is in crisis already, seize your invaluable opportunity. Just remember that you can achieve spectacular results on cost reduction and inventories in six months to a year, but it will take five years to build an organization which can sustain leanness if your change agent is hit by a bus.

In the 1990s, most executives in North America, Europe, and Japan have come to realize that even large firms are more fragile and more prone to crises than they had imagined. 3 At any given moment, however, most organizations aren’t in crisis, and a substantial fraction is doing very well. How can you, as the change agent, take a seemingly secure organization (for example, like IBM in the 1980s) and introduce lean thinking, which you know will be needed to head off a crisis in the future?

One approach is to take some subunit of the organization which is in crisis and focus all your energies on applying lean remedies to it. 4 Ideally, this would be a business unit with a set of product families, but it could be a single plant, one product development group, or even one product line in a plant or one development team for a specific product. This is also the way leaders who are not near the top of their organization can take the lead on a lean breakthrough: Apply lean thinking to your own troubled business unit or facility, or get transferred to a unit which is in a crisis. Then, once dramatic change has been introduced in the unit, the leaders of other units can be invited over for hands-on learning and can take ideas back.

Even if no sub-unit of your business is in crisis, there may be an opportunity for dramatic change if you can find a lean competitor. (In our role as advisers to firms we’ve often wished that Toyota would diversify to compete against our clients!) For example, we recently encountered a case where a classic mass-production firm’s competition was mediocre and generally not a threat. However, one small business unit of a key competitor had recently made a lean transition with striking results. By focusing on this one instance of superior practice it was possible to introduce significant change in the corresponding business unit of the client, which then started a change process across the firm.

Yet another approach is to find a lean customer or a lean supplier. When John Neill at the Unipart Group in the U.K. set out to transform his company at the end of the 1980s, a key element of his strategy was to begin supplying Toyota and Honda in the United Kingdom because he knew they would make demands on Unipart’s performance far beyond those of any European-owned customer. He realized that the customer would not only create the crisis but could also offer hands-on assistance in introducing lean methods to resolve it.

For the truly bold executive there is one more lever of change available, and that is to consciously create conditions in which there will be a firm-threatening crisis unless lean actions are taken. For example, we’ve studied a manufacturer of long-lead-time, complex machinery which has recently begun to sell a critical new range of products, set for initial deliveries in a couple of years, at prices that can only be profitable if the firm quickly adopts lean methods to bring down costs dramatically across the board. This is clearly a high-risk path, but if the change agent truly wants to create a crisis, there are many ways to orchestrate one.

We’ve encountered many firms that truly are in a crisis but respond mainly with strategic analysis: “Are we in the best businesses for us to be in? Should we sell some of our troubled businesses [presumably to buyers who don’t know their problems] and buy some new businesses [presumably from sellers who don’t know their businesses’ worth]? Should we increase R&D spending and try to create a product no one else can duplicate? Should we form a strategic alliance with other firms to achieve synergies? Should we merge with competitors or wage a takeover campaign to gain scale economies and reduce competition?”

Some of these firms really are in industries with no opportunities, but it’s all too easy to start blaming your industry rather than yourself. If you quickly eliminate muda in product development, sales and scheduling, and operations, you’ll soon discover that as you fundamentally change your cost base, shorten production lead times and time-to-market for new products, and increase your flexibility, the prospects for your business(es) will look very different. Even if it turns out that some businesses have severe structural problems, you won’t be worse off for making them lean because very little capital investment will be needed. (Remember: If a major investment is required, you’re not getting lean.) Your cost base will fall, meaning your operating results will improve even if sales volume and prices don’t. You will also have bought time to think (for a very modest price), even if it turns out that a very lean business (like Showa’s parking carousels) is not sufficiently profitable to continue.

Many firms embracing business process reengineering may think they have already done this, but in fact they’ve only gone a small part of the way. Typically, a reengineering approach concentrates on information flow rather than production operations or product development (because functional resistance is much lower for these office activities formerly organized by department). Reengineering rarely looks beyond the firm to delve into the operations of suppliers and distributors, even when these account for the great majority of costs and lead times. And even within narrow business processes, the focus is usually on streamlining aggregated activities rather than on addressing the needs of individual product families.

Other firms we’ve recently visited have told us at the front door that they are “lean” because they have introduced cellular assembly or dedicated product development teams. In the words of the typical Porsche supplier, “There is really nothing more for us to do.” Yet we almost always discover that their accomplishments to date are tiny islands in a sea of muda. For example, we recently examined a computer firm which conducts final assembly of computer workstations in continuous-flow cells, one for each product family, rather than on the long assembly line used previously for all products combined. Time and effort for assembly itself have been reduced substantially and the new approach is more flexible. However, problems with in-house and upstream supplies necessitate an eight-week supply of the average part, so the plant still builds to forecast rather than to precise customer order, and the forecast is often wrong. The problem, of course, is that lean techniques have been applied only to the tiny course of the value stream which was easy to fix, specifically flow in one part of one plant, and which did not require any change in the behavior of internal or external suppliers.

So, to repeat, look at the entire value stream for individual products. Your customers are only interested in their product and they generally define value in terms of the whole product (often a good plus a service). They are not interested in your organization or your supplier and distributor relations, and they are certainly not interested in the security of your job. Market-based societies permit to exist and thrive those organizations which do a good job of identifying and serving customer needs rather than the organization’s own interests.

It would be wonderful if you as the change agent could simply decree a new way: “We will take all of our value-creating activities and make them flow, starting this morning. Then we’ll introduce pull beginning tomorrow.” Unfortunately, that’s not how things work. Instead, you need to start as quickly as you can with a specific activity—perhaps it’s the fabrication and assembly of Product G. You need to involve the direct work group, the managers of all the levels between you and them, other senior executives you hope to convert to lean thinking, your sensei (internal or external), and yourself. Often, although not in every case, it’s best to start with a physical production activity because the change will be much easier for everyone to see.

We advise people to start with an activity that is performing very poorly but which is very important to the firm. That way, you can’t afford to fail, the potential for improvement is very large, and you will find yourself drawing on resources and strengths you didn’t know you had in order to ensure success.

One of the critical features of lean techniques is immediate feedback. The improvement team and the whole workforce should be able to see things changing before their eyes. This is essential to creating the psychological sense of flow in the workforce and the momentum for change within your organization.

So, don’t conduct a lengthy planning exercise. Your value-stream maps can be completed in only a week or two. And don’t bother with simulations to see about the “what ifs.” We have studied one firm which had even developed a complex computer simulation package to predict what would happen if a single machine was moved anywhere in its production system. Because the predictions were always unsettling, the company never moved anything!

Finally, don’t waste time on benchmarking if there is any way to get your firm moving without it. We gave the benchmarking industry a big boost with our previous book, which described the most ambitious benchmarking ever attempted in a single industry, and for companies that are completely asleep, benchmarking may be an essential first step. However, if you already understand lean thinking and lean techniques, you should simply identify the muda around you through value stream mapping and get started immediately on removing it. Benchmarking as a way to avoid the need for immediate action is itself muda.

Once you dive in, if nothing dramatic is accomplished in the first week of working on a problem activity—typically a halving of required effort, a 90 percent reduction of work-in-process, a halving of space requirements, and a 90 percent drop in production lead time—you’ve either got the wrong sensei or you are not really a change agent. Figure out which it is and take appropriate action immediately!

When you get your first results invite a cross-section of your firm to the report-out. The best way to communicate the changes under way is simply to take everyone to the scene of the action and show precisely what is happening.

We’ve found that it’s critical to quickly produce some dramatic results everyone can see by focusing on a particularly troubled activity, usually in physical production. However, as soon as the first round of improvements are in hand, it’s time to start linking the different parts of the value stream for a product family.

To take a simple example, once you’ve learned how to convert fabrication and assembly of Product G from large batches to flow, it’s time to learn to pull, both by converting the next upstream processes to flow and also by establishing a level schedule and a formal pull system. As you do this, “backward steps” are bound to occur because the precise purpose of these techniques is to expose and eliminate all types of waste. It’s only when the flow stops that you know you’ve found the next problem to work on.

Once you have flow and pull started on the shop floor, it is time to go to work on your ordering system. Kaikaku in the office is not as easy to see as moving machines on the shop floor, but it’s equally vital. Start with office activities that are directly linked to the activities you just changed on the floor. Prepare the way by involving office staff in the early shop-floor kaikaku weeks—where they can play a useful role just by asking dumb questions: Why do you do it this way? After they grasp the fundamentals and see the potential, they are ready to ask the same questions about office work. Then, once a bridgehead is established, go to work on all of your activities related to selling, formal order-taking, and scheduling .

At the same time you start to introduce pull in production and order-taking, you need to start thinking about flow and pull in product development for each product family. This is particularly the case because for most firms the quickest way to grow sales in order to absorb freed-up production resources is to speed up products already in the pipeline. We routinely found cases in our research of firms which were able to eliminate three quarters of their previous development time for routine or follow-on products while reducing manufacturing cost and improving quality and user satisfaction. In every case they boosted their sales substantially (at no cost) and found uses for their excess people.

As you progressively move your lean transformation beyond a physical manufacturing environment, you will find more of a need to transpose the logic of lean thinking to suit different mind-sets and circumstances. Even with the most positive attitude, staff in a warehouse or a retail activity will find it very hard initially to see how flow and pull apply to their activities. After all, they don’t “make” anything in a physical sense and they’ve spent years blaming manufacturing for not getting its job done on time.

For example, Unipart’s Industries Division had been receiving help for several years from Toyota’s supplier development group at their U.K. plant, but Unipart found it difficult to know where to start in applying lean thinking to its warehousing and distribution businesses. It was only after a recent visit to Toyota’s Parts Distribution Centers described in Chapter 4 that “the light went on” and Unipart’s managers could see how to apply lean concepts to their spare parts distribution operations for Rover and Jaguar.

For instance, once they understood that the muda of overproduction translates in the warehouse world as a “faster than necessary pace” and that leveling incoming orders is a necessary precondition for creating flow, they were able to make rapid progress. In their first weeklong kaikaku they freed up enough space and people to take on a large new account distributing service parts for a major manufacturer of laser printers.

Many leaders who don’t fully understand lean thinking jump to the wrong conclusion after the exhilarating success of the initial “breakthrough” exercise. “We’ve done it for one activity,” they’ll say. “Now all we need to do is replicate what we’ve done in every other activity and we will be lean within a few months.” The reality is that you are only at the beginning. The next leap is to create an organization which can channel the flow of value and keep the stream from silting up again. You’ll also need to devise a practical strategy to fully utilize all of the resources being freed up .

Doing this requires reorganizing your business by product families with someone clearly in charge of each product and creating a truly strong lean promotion function which becomes the repository of your hard-earned skills. It also requires a consistent approach to employment in your firm and a willingness to remove those few managers who will never accept the new way. Finally, it means creating a mind-set in which temporary failure in pursuit of the right goal is acceptable but no amount of improvement in performance is ever enough.

As we noted in the Introduction, the proper purpose of a business organization is to identify and channel the value stream for a family of products so that value flows smoothly to the customer. As you get the kinks out of your physical production, order-taking, and product development, it will become obvious that reorganizing by product family and value stream is the best way to sustain your achievement. And as you right-size your tools, it will become apparent that a large fraction of your people and tools can be dedicated to specific product families.

This means identifying your product families and rethinking your functions to realign marketing/sales, product development, scheduling, production, and purchasing activities in coherent units. The exact way to do this will vary with the nature of the business, the sales volume for products, and the type and number of customers. But the basic idea can be applied in most businesses. The organization chart for your lean business will begin to look like the one in Figure 11.1 .

The boxes are drawn in proportion to the number of employees in each, making clear that the product family teams account for the great bulk of human effort in the business. The functions with their allocated overheads have shrunk dramatically by contrast.

Your sensei will need a place to sit down (although a good sensei doesn’t sit very often). Your process mappers will need somewhere in the organization to call home. The extra people you will soon be freeing up will need a place to go (which explains the size of the “lean” function in Figure 11.1 ). Your improvement teams will need logistics support. And your operating managers will need continual education in lean methods and periodic evaluation of their efforts to make sure there is no backsliding. In short, you need a permanent lean promotion group and it should report directly to the change agent .

An even better idea is to combine your quality assurance function with your lean promotion function so that quality enhancement, productivity improvement, lead-time reduction, space savings, and every other performance dimension of your business are considered equally and simultaneously.

One of the standard problems in getting started on lean implementation is that your operating managers may think that your quality assurance experts and your lean experts are telling them to do different things. In fact, they are telling them to do the same thing—eliminate the muda of errors and of waiting at the source so value can flow smoothly—but they use different terminology. (For example, Ed Northern at Pratt remembers that “Mr. Ito was yelling one thing in my right ear while Mr. Iwata seemed to be yelling something different in my left ear. I found this frustrating and confusing until I realized their messages were consistent once you got the terms straightened out.”) Some initial attention to “standard language,” so everyone is using the same terminology, and a consolidation of the quality and lean functions is an excellent investment.

Our rule of thumb is that when you convert a pure batch-and-queue activity to lean techniques you can eventually reduce human effort by three quarters with little or no capital investment. When you convert a “flow” production setup—like the Henry Ford–style production line at Porsche—to lean techniques, you can cut human effort in half (mostly by eliminating indirect activities and rework plus line imbalances). And this is before your lean development system rethinks every product so it is easier to make with less effort. Meanwhile, in product development and order-taking, converting from batch-and-queue to flow will permit your organization to do twice the work in half the time with the same number of people.

So you’ve got too many people if sales remain constant. What are you going to do? The one thing you must do is remove excess people from activities where they are no longer needed. It will be impossible to make and sustain superior performance if you don’t take this step. But what do you do with these people?

As we’ve noted, many organizations refuse to consider lean thinking until the crisis is very deep. If your ship is truly foundering (like Pratt in Chapter 8 ), some of the crew will have to man the lifeboats or everything will be lost, and you must face this simple fact. The correct thing to do is to face it up front, by estimating the number of people needed to do the job the right way, and moving immediately to this level. Then you must guarantee that no one will lose their job in the future due to the introduction of lean techniques. And you must keep your promise.

What you can’t do is conduct drip torture in which you move through your organization activity by activity, asking your employees to help you eliminate their jobs with no end in sight. As we’ve tried to explain, in a lean world there is no end to improvement: Jobs are always being eliminated in specific activities. Your employees will react as they should to the introduction of what they will call “mean” production with subtle but effective sabotage. Improvements will be impossible to sustain.

If you are not foundering, you have a luxury and you have a problem. You can protect jobs, but it’s harder to get people to change. The correct approach is to concentrate on particularly troubled activities and build momentum for change while sending people no longer needed for these activities to the lean promotion function or elsewhere in the organization. As you demonstrate over time that no one loses because lean techniques are introduced, and that in fact everyone’s job security is increased, employees gradually become more cooperative and proactive. On the other hand, just one slip—one failure to honor your commitment to protect jobs—will take years to overcome.

We are sometimes contacted by managements who are making adequate profits but see lean techniques as a clever way to quickly raise margins by eliminating as many people as possible under the guise of “embracing the new paradigm” and “world-class competitiveness.” We always tell executives with this mentality the same thing: Don’t bother. You can save some money at the outset but you will never sustain leanness.

A far more promising approach is to devise a growth strategy which absorbs resources at the rate they are being freed up. Precisely what to do will depend on a firm’s situation, but the arrows in the lean firm’s quiver are easy to list. Some may wish to pass cost savings directly through to gain volume. (This has been Freudenberg-NOK’s prime strategy to get started. Total sales have tripled in only five years while headcount has been held constant.) And some may wish to speed up development of projects in the pipeline to spur sales and increase market share. (Wiremold did this.) Others may focus on shortening production lead times, delivering exactly on schedule, and making exactly the configuration of product the customer wants, again to boost sales of conventional products. (Lantech.) Still others may try to convert their product from a good to a service and add downstream distribution and service activities to their traditional production tasks. (A path Pratt has just entered into.) And some firms may integrate backwards upstream to consolidate previously scattered production activities into single-piece flow. (The example we cited in Chapter 3 on the glass industry.) Ultimately, most lean firms may want to do all of these things for their existing product lines.

However, this may still not be enough. You may need an additional strategy, but it’s best to devise it after you’ve changed the way you think and run your business rather than making a desperation lunge at your problems beforehand. Once you’ve seen what lean techniques can do in your firm and reviewed the map of the entire value stream for every product family, you are ready to figure out what to do.

The lean firms we have examined usually find that they can capture adequate growth and profits by sticking to what they know, often by acquiring related lines of business. (Showa was the one exception.) What’s more, they find that they can largely finance their acquisitions with the cash they free up in the inventories of the batch-and-queue firms they acquire.

Those firms which need to branch out into unfamiliar activities can do so by establishing product teams for each new product family and continually evaluating their performance against expectations. The virtue of this approach is that product families can be added or dropped without changing the fundamental structure of the firm.

In every organization we’ve looked at there was a small group of managers, generally less than 10 percent, who simply could not accept new ideas. Hierarchical personalities needing a clear chain of command and something to control were particular problems.

And in every successful transition we’ve examined, change agents, in looking back over their experience, wish they had acted faster to remove managers who would not cooperate. This sounds harsh, of course, but it is the simple lesson of experience. A small percent of managers will move quickly to accept lean ideas—the “early adopters” in marketing parlance—but the great mass will be undecided. The problem is with the few percent who will never go along, because they send an opposite message from the early adopters and take special pleasure in highlighting all the mistakes made along the path to leanness. The result paralyzes the great mass in the middle and jeopardizes success.

To repeat: As you begin the process, most managers and employees will not understand what you are doing but will be neutral to positive if you make employment guarantees. Take action quickly to remove those managers who won’t give new ideas a fair trial.

At the end of the first improvement initiative on an activity, tell the line management and the work team that in three months it will be time to fix it again. It’s critical to get your employees to understand at the outset that no level of performance is ever good enough, and that there is always room for improvement. This will usually mean moving every machine and changing every job.

In the early years of the lean transition, the lean promotion function will have to take the lead in planning successive improvement campaigns. Increasingly over time, however, improvement becomes the most critical job of the product team leader and the primary workforce. You must instill the idea that management is no longer about running activities in a steady state and avoiding variances. Instead, it’s about eliminating the root causes of variances (so they permanently disappear and managers can stop fighting fires) while improving performance in periodic leaps that never end. How much did you improve performance? must become the critical question in evaluating managers.

A critical moment in the lean transition at Pratt & Whitney occurred when the energetic general manager of the turbine blade plant took on a task which was correct in principle but too ambitious in practice. When Mark Coran reassigned this manager and his direct reports to other jobs in Pratt instead of firing them (the usual step taken in this situation in the past), he sent a critically important message that mistakes in pursuit of the right goal are not a failure.

When Coran at the same time terminated the general manager of another Component Center for anchor-dragging on the lean conversion (in an operation that was performing no worse than it had historically), he sent the complementary message that it’s not acceptable to do nothing to improve your operation on the grounds that the risk of failure is too high. Getting these twin messages across is a critical task of the change agent.

Once you’ve got momentum (in the first six months of the transition) and have rethought your organization (over perhaps the next year), you’re a long ways toward your goal of a lean transformation. However, additional steps are important to make the new approach self-sustaining. Once you’ve overcome the initial inertia, the number of proposals for improvement will snowball and you’ll need a mechanism for deciding what’s most important to do now and what can wait until resources are available. You will also need to create a new way to keep score and to reward your people so they will continue to do the right things, and you’ll need to make everything in your organization transparent so everyone can see what to do and how to improve. In addition, you will need a systematic method for teaching lean thinking to every employee (including your customers’ and suppliers’ employees along your value streams). Finally, you’ll need to systematically rethink your tools, ranging from monster machines in the factory to computer systems for scheduling, with the objective of devising right-sized technologies which can be inserted directly into the value stream for individual product families.

We’ve tried to emphasize that to get started in a brownfield you need to “just do it.” Get started and show some striking results. However, Lantech’s experience of taking on too many lean initiatives once the ball was rolling is the norm rather than the exception. Therefore, it’s vital to use the tools of policy deployment to reach agreement across your whole organization on the three or four lean tasks your firm can hope to complete each year. An example for year three might be: Reorganize by product families, introduce a Lean Accounting System, kaizen every major production activity four times, and kaikaku order-taking and scheduling.

An even more important task for your annual policy deployment exercise will be to identify the tasks you can’t hope to succeed at just yet but which some parts of the organization will badly want to tackle right now. You’ll need to publicly acknowledge that these are important but they will need to be “deselected” until the next year or the year after, when resources are available.

Many firms today still run standard cost accounting systems, although many more have made some move toward Activity Based Costing. The latter is a great advance, but you can go even further. What you really need is value-stream/product-based costing including product development and selling as well as production and supplier costs so that all participants in a value stream can see clearly whether their collective efforts are adding more cost than value or the reverse.

Once you reorganize by product family and shrink your traditional functions with their allocated overheads, it becomes a lot easier to assign rather than allocate costs to products so that product team leaders and their team members can see where they stand. Your own accounting group should be able to figure out how to do this—you don’t need a consultant—but we strongly recommend that you start with the chief financial officer and involve him or her in several weeks of hands-on improvement activities to get started. Then ask the simple question: What kind of management accounting system would cause our product team leaders to always do the right (lean) thing?

You will still need a financial accounting system for your profit-and-loss statement, which does strange things like value potentially obsolete inventories as assets, but you won’t need or want to show it to your product team leaders. What’s more, you will need to make a gradual transition from your current system to the new lean approach over a year or so to avoid chaos.

The ideal compensation scheme would pay each employee in exact proportion to the value they add, as value is determined by the customer. However, actually doing this would present insurmountable technical problems and could in any case only be achieved with enormous, non-value-adding effort.

We have found that in a lean firm the simplest and cheapest method of calculating compensation is generally the best. This means paying a market wage to employees based on their general qualifications—for example, whatever assembly workers or entry-level product engineers receive on average in the area of a facility—along with a bonus tied directly to the profit-ability of the firm. Because a lean firm should be substantially more profitable than average, the bonus should be a significant fraction of total compensation. (For example, Wiremold has set a target for its bonus of about 20 percent of base pay, on the presumption that Wiremold should be at least this much more profitable than the “average” manufacturing firm in the Hartford area and in its industry.)

As you consider bonus schemes, it will quickly become apparent that the total amounts on offer, while substantial, will not be enormous. This underlines the reality that the primary incentive for working in a lean system is that the work itself provides positive feedback and a psychological sense of flow.

We are often asked about incentive pay for employees in the manufacturing area and about adjusting compensation by product family. There is something to be said for both of these ideas, but on balance, we don’t support them. Incentive pay is really a carry-over from the old days of piecework and is sometimes used today to deal with the perception that work pace is harder in lean systems. In fact, the pace of minute-to-minute exertion is the same. The difference is that lean systems identify and eliminate practically all of the nonproductive slack time for employees at every level. Therefore, it initially feels as if the work is harder, but after a period of acclimation, when a lack of muda begins to seem normal, people often report that the pace is actually much easier than before. In any case, trying to buy the allegiance of your workforce to a lean system with cash is approaching the problem from the wrong direction. Instead, stress the positive aspects of the new work environment.

With regard to separate bonuses for members of each product family, lean accounting makes them technically feasible, but we think they’re also a bad idea. In a lean system, work tasks are evaluated very carefully by the work team itself to achieve an even pace with no wasted time. Looking across a firm, the pace of work inside each product family should be very similar. What’s more, it will frequently be necessary to reassign employees from one product family to another, sometimes after an interlude in the lean promotion function, as the needs of the business change. Reassignments will generate continuous conflict if bonuses vary from product family to product family because of varying competitive conditions in the marketplace.

Benchmarking others usually wastes time you could better spend doing the right thing. However, benchmarking your internal performance, especially your rate of improvement, is critical. In addition, it’s vital to create a “scoreboard” which shows everyone involved in a value stream exactly what’s happening in real time. These don’t need to be complicated or require significant investment. We’re always amazed in touring lean firms (like Porsche) at how much about the status and improvement trajectory of an operation can be shown with simple diagrams and process status boards. Many of these require little in the way of language or math skills to understand yet give a clear sense of what’s happening.

It has become conventional wisdom that higher levels of management should learn to listen to the primary work team since they know the most about how to get the job done. Unfortunately, this bit of common sense is only half right. Your primary workforce probably does know the most about the hard technical aspects of getting isolated jobs done (including all the deviations from poorly maintained official procedures which are necessary in order to get products made at all). But what primary workers and front-line managers typically don’t understand is how to think horizontally about the total flow of value and how to pull it. Nor do they typically understand the methods of root cause analysis to eliminate the need for fire fighting. Therefore, if you ask your primary workforce to implement lean techniques or permanently solve problems today, you are likely to get a rush of suggestions followed by general disillusionment when they fail to work properly.

To gain the critical lean skills, your workforce needs training, but of a special type. One of us (Jones) has recently worked with the Unipart Group in the U.K. to totally rethink skills acquisition and to create a “Unipart University” immediately adjacent to the value stream. While many firms have created corporate “universities” in campus settings in recent years (of which Motorola University is probably the best known), these mostly utilize dedicated faculty and off-line learning activities. At Unipart, the faculty are entirely line managers (which means they must learn operational skills themselves, skills rarely mastered by senior managers in Western firms) and the skills being taught are precisely those needed immediately for the next phase in the lean transition.

Thus lean learning and policy deployment can be carefully synchronized so that knowledge is supplied just-in-time and in a way that reinforces the commitment of managers and all employees to doing the right thing. Everyone learns the same approach to problem solving and everyone experiences the direct benefits of continuous learning, even though they may have left formal education many years ago. Over time, the investment in training can also be directly connected to the resulting improvements in the business .

By tools we don’t mean just production equipment but also information management systems, test equipment, prototyping systems, and even organizational groupings. For example, think of a department devoted to a specific activity—let’s say accounts receivable—as a type of tool.

You can begin to rethink your tools from your very first kaikaku. However, your major monuments will present a major challenge and one which can’t be solved immediately. First, you will need to counter the ancient bias of your managers that large, fast, elaborate, dedicated, and centralized tools are more efficient. This, of course, is the cornerstone of batch-and-queue thinking. Instead, for every activity you should ask them to work backwards by asking, What kind of tools would permit products in a given family to flow smoothly through the system with no delays and no back loops? And, What types of tools would permit us to switch over instantly between products so there would be no need to make batches?

As you think about this, you will be surprised to learn that many of your existing “monuments” can be made much more flexible with a bit of creative thinking. You will be further surprised to discover that two small machines with only the features needed generally cost much less in total than one big one with all the bells and whistles. Finally, you will be surprised to discover how much of your new tooling can be built inside your firm using excess materials at very low cost by excess people freed up by lean techniques. (Consider throwing away your industrial equipment catalogues and getting directions to your local junkyard!)

The more you think, the more you will realize that you can provide most value streams with their own dedicated equipment to completely cut out bottlenecks at monuments and stoppages due to changeovers. Then, when the value stream shifts its course, you can quickly redeploy your right-sized tools to serve new needs. However, tackling your major monuments and completely replacing them with right-sized apparatus will probably only get into full swing after several years of making the best of what you have already.

When you’re moving ahead at full speed, have your organization reconfigured, and have the appropriate business systems in place (probably after three to four years of strenuous effort), you’re well on your way to a complete transformation. The final steps needed are to make sure that your suppliers and distributors are following your lead, that you are creating value as close to your customer as possible, and that you are making lean thinking automatic and bottom-up, rather than merely top-down.

It’s a rare firm today whose internal activities account for more than a third of the total cost and lead time needed to get its product to market. The de-integration Toyota started in 1949, which eventually decreased its in-house “cost added” from 75 percent to less than 25 percent of total costs, has become the norm for firms across the world. Therefore, you will get only so far along the path to leanness—one quarter to one third of the way in most cases—unless you get your suppliers and customer firms to take the steps just described.

It won’t help much to hurl insults or play suppliers or customers against each other. You can make them mad and squeeze their margins, but these tactics generally do nothing for their costs and lead times because they simply don’t know what to do. And as time goes on, they either find someone else to do business with or underinvest in product development or their distribution channels.

The only alternative is to actually fix their production, product development, and order-taking systems by sending them your lean promotion team. (This is also an excellent way to be alert to broader trends in industry and to keep your lean thinkers sharp by continually exposing them to new situations.) Don’t do this until you’ve fixed your own activities which the supplier or downstream firm links into, but then go as fast as possible and accept no excuses. “We’ve done it quickly. We know you can, too. Here’s how. Let’s get going.”

To make this approach feasible, it’s obvious that you will need to winnow down your upstream and downstream partner list and prepare to work with them for the long term. When you go to help them, don’t charge for your help. Instead, agree up front on how you are going to share the savings. (Porsche and its suppliers decided on a three-way split in which the suppliers kept a third of the cost savings and Porsche got two thirds with Porsche agreeing to pass half of its savings on to the customer in lower prices.) It should be easy to get paid back as well in better quality and shorter lead times for your products.

Point out that there is an extra “win” for your suppliers in this “win-win-win” situation because they will learn how to cut costs and lead times on all of their activities but will probably not need to pass these savings along to their other customers who are still bogged down in short-term, market-based thinking. This is how Toyota and its Japanese suppliers both became fabulously wealthy in the 1970s and 1980s. The suppliers, after learning from Toyota, sold to all of Toyota’s direct competitors except Nissan at higher prices than they sold to Toyota while steadily gaining business from these firms by underpricing batch-and-queue competitors in the supplier community.

Finally, as soon as your suppliers and downstream customers start to improve their in-house performance, insist that they send their newly created process improvement teams to fix their own suppliers or downstream customers. (Remember that your suppliers and downstream partners are typically no more integrated than you are.) Set continually declining target prices and continually increasing quality and reliability goals, which make it impossible for them to relax.

It will help this process to bring your first-tier suppliers together in a supplier association for mutual learning of the type long utilized by Toyota. 5 Your first tiers may then wish to draw up a short list of second-tier suppliers they wish to work with. Then the resources of the first tiers can be concentrated on a much smaller number of second-tier firms. (Chrysler has recently launched an initiative in North America to do just this.) Similarly, the assembler firm near the customer at the end of the physical production stream may need to join forces with other lean-minded assemblers to take on the most intractable “batch-head” raw materials suppliers and show them a better way. (Buying raw materials in large lots at lower prices on behalf of your suppliers will seem like a much easier path, but this approach can only squeeze the margins of the raw materials firms unless someone shows them how to run their businesses in a different way.)

Some firms can exist happily by doing everything in only one place. For example, Porsche can sell a modest volume of exotic cars to the entire world from one design/scheduling/production location in southwest Germany. Ferrari can do the same thing from northern Italy. The mystique in their products protects firms of this type from knockoffs. In addition, volatility in some export markets, due to currency shifts or changes in tastes, can be tolerated if no one market accounts for a large fraction of total sales. The world as a whole will provide a stable enough market.

Other firms may be happy to remain small. Wiremold, for example, sees no prospect or need for significant markets for its products in Europe or Asia while Lantech is happy to take advantage of export opportunities as they arise but to treat them as a windfall rather than a core aspect of the business. There is plenty of growth potential for these firms in their home markets to utilize the resources freed up during the transition. What’s more, expansion into related product lines will be sufficient to absorb resources in the future.

Many other firms, however, like the major automotive, electronics, and aerospace firms and their first-tier suppliers, need a global market and production presence. The adoption of lean thinking will call for a very different strategy from many of those being pursued today.

Many people initially believe that lean techniques are mostly about cost reductions. In fact, they provide the one feasible way to cut costs while also shortening production lead times and time-to-market, improving quality, and providing customers with exactly what they want precisely when they want it. They also make it possible to design, order, produce, and deliver goods at smaller production scales by means of dedicated product teams, without paying a scale or investment-cost penalty.

It follows that for most products with global market potential, the correct global strategy is to develop a complete design, order-taking, and production system within each major market of sale. This makes it much easier to communicate with the customer and also makes it possible to design, produce, and deliver the product very quickly with just the right specifications. “High-tech” mass production at a centralized global location—an example of which we examined in Chapter 10 —and a far-flung design and production system seeking to find the lowest wage cost for every activity along a complex value stream can never achieve these combined objectives. These alternative strategies optimize one course of the value stream at the expense of the whole.

Initially, the process improvement group will work top-down because the pressing need is to change the way your employees think by directly demonstrating a better way. Over time, however, the process improvement group will focus more on making every line manager a sensei and every employee a proactive process engineer. The function can then tackle only the very toughest problems where line managers still need outside help. This is the present-day assignment of the Operations Management Consulting Division within the Toyota group.

One of the paradoxes of lean thinking is that the ideas themselves are extraordinarily antihierarchical and pro-democractic. Every worker inspects his or her own work, becomes multiskilled, and participates in periodic job redesign through kaizen activities. Layers of management are permanently stripped away. Transparency makes every aspect of the business open for everyone to see. Yet getting the critical mass of employees to change their traditional way of thinking requires stern direction as employees are commanded to try things which seem completely crazy .

So, there is a critical transition as you move your organization through the lean transformation, a point when managers must become coaches rather than tyrants and employees become proactive. This transition is the key to a self-sustaining organization. And please note: If you are the change agent, you may become the biggest problem. We’ve encountered more than one change agent who wanted to continue commanding change from the top when those on the bottom were quite capable of sustaining it on their own. This can easily become a negative sum situation.

One solution is to change your behavior. Another is simply to move on. Many of the best change agents we’ve encountered seem to work best by converting an organization over a period of several years, then turning senior management over to a more collegial personality, and moving on to another firm still full of “concrete heads.”

Whenever we encounter a would-be change agent who wants to transform his or her firm, we ask a simple question: Are you willing to work very hard, accept the one step backward which comes with the two steps forward, and stick to your task for five full years? Taking all the steps forward typically takes about this long, as summarized in Table 11.1

While a few firms (for example, Wiremold) can go much faster if the change agent is firmly in command and has done it all before, this extended period is usually needed because a large number of people, including the senior leadership, must be taught to see the difference between value and muda. And a significant period of experimentation by ordinary managers—complete with backward steps—is necessary before everyone begins automatically to apply lean thinking and move the organization ahead from the bottom and the middle ranks. It’s only at this point that the change agent can step in front of the bus without being missed and it’s at this point also that the full financial benefits of lean thinking are apparent. From this point we believe there will be no turning back and the change agent may even want to move on to a new challenge.

There is today an enormous amount of cynicism in the industrial world—cynicism fueled by the latest quick-fix “program,” business process reengineering. However, a growing fraction of managers seem to understand that real change and building a solid foundation simply take time. We believe, based on conversations with many of you, that you’re willing to rise to the challenge if you are sure that something is really there at the end of the rainbow. One of our major objectives in this book has been to show that there is.

If you are really determined to be the change agent and you get a good sensei (or become one yourself), we guarantee you will achieve extraordinary things. The techniques we have described in the earlier chapters have been tested around the world in a wide variety of industries, and they always work.

Of course, even a brilliantly performing firm can fail for reasons beyond anyone’s control—an unsuspected environmental problem with the product, a drastic shift in consumer tastes, the sudden appearance of a new technology which totally eliminates the need for the old product (for example, the clothespin after the home dryer, the vacuum tube after the transistor). Nevertheless, with a lean tool kit, the chances of succeeding in your chosen activities will soar .

Just as the introduction of lean thinking forces problems and waste to the surface in all operational areas, new organizational problems will inevitably arise as you apply these ideas. As you shrink your traditional functions, which were formerly the key to career paths in your organization, many employees will start to express anxieties about where they are going and whether they have a “home.” And as you place more employees in development and production activities relentlessly focused on the here-and-now, you may begin to wonder about their hard technical skills. Are your engineers retaining leading-edge capabilities or are they simply applying over and over what they already know?

Perhaps most striking, as you take all of the inventories and waste out of your internal value stream, you will become much more aware of the costs and performance problems of firms above and below you along the stream, including your suppliers’ suppliers and your distributors’ retailers. Offering them technical assistance will be necessary, but it won’t be sufficient. To move farther down the path to leanness it will soon be apparent that you will need to work with all the participants in a value stream in a new way.