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Lean Enterprise Institute Webinar Questions Answered

The Lean Enterprise Institute (LEI) received hundreds of questions during our webinar “Lean Management and the Role of Lean Leadership.” After reviewing all of them, several major themes emerged. We’ve summarized them below with answers from Jim Womack, LEI founder and chairman.

Q. Can lean management and traditional management co-exist or does one defeat the other?
JW. These approaches are very different so it’s a bit hard to imagine how a company could operate in both modes at the same time: No value-stream managers and silo functions versus strong value-stream managers guiding the product across functions; management by results (particularly financial measures) versus management by processes; etc. However, it is certainly possible to start with a few experiments and this is likely to be the way any organization migrates from mass production management to lean management. If these show promise it is much easier to try additional experiments and eventually critical mass can be achieved.

Q. What is the role of finance in a transformation to lean management?
JW. At the minimum traditional financial metrics need to be removed from day-to-day management decisions about key processes. And, in fact, this is what Toyota does. It has a very conventional financial accounting system using standard cost for allocation of overheads. But operating managers don’t use it to manage. Instead, they look for waste and remove it, knowing from decades of experience that the financial numbers will be positive, although possibly with some lag.

More pro-actively, many folks in the accounting community are now working energetically to see how finance can play a positive role in the lean transformation. I just spoke at the second Lean Accounting Summit (Sept. 2006), where attendance was up by 60% from last year and real energy was present. Both Orry Fiume and Jean Cunningham spoke and you might want to check out their recent book, Real Numbers.

Q. I am trying to apply lean principles in a sales organization. What’s your advice to help senior managers shift from focusing only on the quarterly numbers and more on the process?
JW. There are really two ways to think about leaning the sales process. One is to examine the process itself – how sales are made and orders are handled. With a bit of value-stream mapping, it’s often apparent that many steps aren’t adding value and that steps customers would value are being left out. The other way to approach lean selling is to look at the incentives built into most selling processes that cause what Toyota calls “created demand.” By this they mean waves and troughs in customer orders that are not driven by true customer desires but by the incentives of the selling organization to meet quarterly or yearly targets and by promotions and special offers. The challenge here is to get sales, product development, production, and purchasing to look at the total cost of promotions and the artificial deadlines set for qualifying for sales bonuses. In my experience, the costs are much higher than senior executives realize and raising awareness can set in motion ideas on how to motivate the sales force without continually sending waves of created demand through the organization.

Q. Who does the value-stream manager report to? The Operations VP maybe? Should value-stream managers be long-term jobs or temporary?
JW. Like so many things, it all depends. First, it’s important to understand that a value-stream manager can be responsible for a short course of a long value stream. For example, for the flow of one product family through one plant.

But a value-stream manager could also be responsible for the complete flow of value for a product family through product development, fulfillment, and the supply chain. The first task can easily be handled by someone reporting to a plant manager, typically someone with another job who occasionally checks on the current state of the value stream for a given product family, envisions a better future state, and oversees implementation of the future state. The second task would typically be a job for the product-line manager who might be responsible for profit and loss for that product. The important point is to design the job to suit the need and to make the plan-do-check-act (PDCA) process to get from current state to future state a permanent part of management. The belief that someone just performs this task once and moves on to the next thing is a major cause of false starts and failures to advance toward a lean enterprise.

Q. Who does the Chief Engineer report to?
JW. At Toyota the Chief Engineer for each product is part of an Office of the Chief Engineer inside the engineering organization. Thus the Chief Engineer for a particular product reports to the head of the Office of Chief Engineer who reports to the head of the engineering function.

But stating the formal relationship this way misses the point. Toyota realizes that the Chief Engineer job is probably the most important one in the company because the Chief Engineer listens to the customer and then determines what the functions need to do to address the customer’s desires. Thus the power of the Chief Engineer is very large even though he (and they are all men so far) has no direct reports other than a secretary and a few assistants who are themselves being trained to be chief engineers.

The job of the Chief Engineer is to determine the needs of the product and then to negotiate with the heads of body engineering, drive train engineering, manufacturing engineering, production, purchasing, etc., about what their function needs to do to fully support the product. Once an agreement is reached, the Chief Engineer continually watches to make sure that the functions are following through. In the event there is an irreconcilable difference between Chief Engineer and function head, the issue can be elevated to a very high level, but apparently this doesn’t happen.

Q. How long should implementation take?
JW. In Lean Thinking Dan Jones and I observed that a few spectacular breakthroughs in production, product development, and purchasing could be achieved very quickly. But that’s very different from totally transforming an enterprise. We watched a number of firms – Lantech, Wiremold, Pratt & Whitney, Porsche – and I have subsequently observed many additional firms. My conclusion is that to totally transform a company requires several years even when there is an urgent crisis. And it can take much longer in a business where change is not so urgent.

Q. How do you get top management on board?
JW. We think about this all the time at LEI. And we are trying a number of initiatives to get the attention of top management and show them what really needs to be done. (Our Lean Enterprise Partners program is one; our private meetings for groups of senior executives is another.) What’s needed is a combination of a senior leader who, for whatever reason, is driven to dramatic change and a situation – a crisis, whether naturally occurring or created – widely recognized in the organization to require dramatic change. Lantech was in free fall in 1990 when Pat Lancaster decided lean was his last hope. Wiremold was losing money and facing collapse when Art Byrne took over in 1991. Porsche was on the brink when Wendelin Wiedeking hired his ex-Toyota sensei in the early 1990s.

In any case, we are all struggling with how we get senior managers with financial or strategic orientations to try something totally different. I’m an optimist by nature but the path is never going to be easy.

Q. Even though lean is a continuous journey, how do I assess where my company is? What are some good ways to measure the success of a lean transformation?
JW. I’m always fascinated by this question because it shows a lack of understanding of what lean thinkers should be trying to do. What is your business problem? What level of improvement do you need to make your organization successful? What results have you gotten in relation to the results you need to get?

Those are the questions to ask rather than what everyone else is doing or how quickly everyone else is progressing. Shingo Prizes and lean certifications are fine if they help motivate your people but the only measure that counts is what your efforts have done to make your company competitive.

Q. Many people seem to confuse lean, value-stream mapping, and the Toyota Production System (TPS) and don’t relate them together. Is it accurate to look at lean as the overall concept and vision, value-stream mapping as the process flow from start to finish, and TPS as more of a tool for improving the individual sub-processes within the value stream?
JW. People are indeed confused. When I use the term “lean” I mean a complete business system consisting of a product development process, a supplier management process, a fulfillment process from order through production to delivery, a customer relations process through the useful lives of the products or services being provided, and a management and improvement system. Value-stream mapping is a tool that constitutes a tiny part of “lean.” TPS is the Toyota system for managing and improving any operational process within Toyota, its dealers, and its suppliers. TPS is much more than “improving individual sub-processes within the value stream.” Indeed, it sets the context for value-stream improvement. Value-stream mapping is a small thing. It’s a tool and a way to think about problems. TPS is a big thing. Lean is a very big thing indeed.

Q. How do you create a crisis for starting a lean transformation? Isn’t this dangerous for your firm and your career?
JW. Well I certainly hope so! Some folks are simply driven to make a difference and in a complacent organization with no immediate need to change the only option is to create a condition where failure will be very painful. Let me give two examples, one of which worked and one of which didn’t.

In 1996 the then head of the Boeing Commercial Airplane Company set out to make sure that Boeing garnered a 2/3 share of the global large aircraft market as the airframe industry emerged from the sales trough of 1995. He quickly sold more airplanes than the company was able to deliver unless the production system was fundamentally transformed toward lean enterprise, particularly in the management of the supply base.

Unfortunately, as a salesman by background and instinct he had absolutely no concept of how actually to transform the production system and supplier management. Despite some excellent consultant advice from Toyota-trained advisors – advice that has paid off for the company in the past few years – the effort was a failure. Production ground to a halt as suppliers failed to keep up with final assembly in 1998. The president was then fired.

In 2004 Toyota noted in its annual report that the success of its hybrid technology was double edged. Consumers loved it and the company’s image has been greatly enhanced by the technical success of the concept but the cost of the technology was more than customers were willing to pay with gasoline prices in the $2 to $3 range. If Toyota was to avoid subsidizing this technology now tied to its image, it was imperative to cut the fundamental cost of the hybrid elements of vehicles like the Prius by 50% in two years, from $4,000 to $2,000. So a stretch goal was set in very public way. Two weeks ago Kazuo Okamoto, Toyota’s head of research and development, announced that the third generation hybrid technology now ready for production will be half the size, half the weight, and half the cost of the system in current vehicles. Surely setting such a public goal created a crisis inside Toyota that led to additional leaps in lean thinking. The difference between Boeing and Toyota was that Toyota had a method for responding to a crisis while Boeing didn’t. You, of course, need to judge whether your organization can respond to any crisis you might create.

Q. Do you think that we will ever be able to move away from short-term management-by-objectives and go to a long-term, sustained continuous improvement culture in the U.S. and Europe?
JW. I always say that managers will try anything easy that doesn’t work before they will try anything hard that does work. In the past 20 years, American and European managers have tried many easy programs as overlays on the basic management system. And these can produce only modest results, many of which can’t be sustained. So I think conditions are forming for an embrace of lean thinking, which is hard but which does work. Toyota seems to be able to run its system with great success in the U.S., Canada, the U.K., and France. Why can’t managers of domestic companies in all of these countries do the same, particularly if they are facing a crisis and have exhausted all the easy options?

Q. Look beyond lean; what’s next?
JW. I love this question because most folks who ask see lean as another program. “There was total quality management, then there was business process re-engineering, then there was six sigma. Now there’s lean. So what’s next?” But lean isn’t a program overlaid on everything else an organization is doing. It’s a complete business system based on very different principles than the still dominant General Motors/General Electric manage-by-results systems. Programs are easy but changing business systems is hard. So we are going to be at the lean transformation for a very long time. In that sense, there is no “what’s next” on the horizon.

But looked at another way, there is something next. Lean thinking so far has mostly been applied inside firms. Indeed, it has usually been applied inside only the production operations portion of firms. So there is lots of “next” in introducing lean product development and lean supplier management and lean customer management and lean policy deployment.

And beyond that Dan Jones and I see big opportunities for rethinking the fundamental unit of consumption. Most firms are now configured to provide isolated goods and services to customers who are mostly strangers. In our recently published book Lean Solutions (Free Press), we make the case that what consumers want today is for companies to completely solve their problems as partners rather than pushing products as strangers. Fortunately, lean tools for value-stream analysis make it much easier to see how firms will need to work together to completely solve customer problems. This is the “next” – and a very big “next” – that I’m anticipating.

Lean Enterprise Institute