Management Whack-a-Mole and the Value of Lean

On 5/24/2011, NWLEAN moderator Bill Kluck launched the richest, most vigorous debate in the 13-year history of that forum by asking members whether they were cost cutters or capacity enhancers. Over the following three weeks, 29 authors posted 68 spirited, yet courteous messages accessible from NWLEAN to anyone with Yahoo! ID.  The contributors included several well-known authors and some of my favorite sparring partners. In alphabetical order, they were  Dan Barch, William Bowman, Robert Byrd, Abhijit Deshpande, Mark Graban, Jim Harrington, Jonathan Harrison, Rob Herhold, Blair Hogg, Gangadhar Joshi, Bill Kluck, Joachim Knuf, Ed Larmore, Paul Layton, Ted Mayeshiba, Jim McKechnie, Larry Miller, Joe Murli, John Nelson, Stephen P. O’Brien, Anthony Reardon, Tom Robinson, Sunita Sangra, Dale Savage, Patrick D. Smith, Tom Stogsdill, Mike Thelen, Chuck Woods, plus a few others who did not use their real names.

The message that started the thread was as follows:

“It seems more and more (especially in this recession!) that lean professionals fall into 2 camps:
– Cost cutters
– Capacity enhancers
There are some out there that are saying that you HAVE to cut costs, or you’re not getting lean.
There are others that say lean is about improving capacity, so you can enhance the customer experience.
Which are you, and why? Is this driven by the top of your organization, people who may not understand what lean is? Do we risk becoming cost cutters, or smoke-and-mirror guys?
Just askin’!

Bill”

Although I didn’t participate initially, it was clear to me that the effect of a successful Lean implementation was limited neither to cost cutting nor to capacity enhancement. Instead, I see Lean as the pursuit of concurrent improvement in all dimensions of manufacturing performance, but I had already shared my thoughts on this matter in Lean as the End of Management Whack-a-Mole. Management Whack-a-Mole is the game illustrated in Figure 1, in which managers  boost performance in one dimension at the expense of the others, shifting focus every few months without ever achieving a genuine overall improvement.

Figure 1. Management Whack-a-Mole

Several of the early posts, however, prompted me to  jump into the fray and respond on a variety of topics, initially as follows:

  1. People trained in Finance and Management Accounting have had their shot at running US Manufacturing from the 1950s to the 1970s, with outcomes that should make them modest about the value of their approaches.
  2. Companies that have grown through Lean include Toyota since 1950, Wiremold from 1991 to 2000, and many others that are not publicized. A successful Lean effort helps Sales in specific ways, as, for example, when more flexibility enables Manufacturing to accept a sample order for a new component by a customer, who then designs it into his own products and becomes a major OEM.
  3. Cost reductions are a by-product of Lean but not its primary purpose. Manufacturing is a competitive sport, and Lean a strategy that makes you a stronger player, and not just right now but in the long run as well. When you hire a top coach for a sports team it’s not to cut costs but to win games.
  4. ROI is just one ratio, invented at DuPont 100 years ago to report in a common form the activities of multiple business units. There is nothing magic about it, and, by itself, it certainly does not give a complete picture of the health of a business, as even finance people recognize.

This caused further exchanges with Robert Byrd, who wrote: “…The most basic concept is Profit = Price – Cost. The market dictates price, so we have the best leverage for maximizing profit through controlling our cost structure…”  My response:

Is this always true? What about situations in which time to market is of the essence? I remember a client that was introducing a new frozen food product. On one of our visits they had us taste the R&D prototype, which was delicious. Three months later, they had a jury-rigged production line making 900 units/minute. The line left much to be desired, but we could not argue with their focus on getting the product to market. During all that time, their focus was not on getting it done cheaply but on getting it done at all. Then they could go back and improve the line.

He also wrote: “…Which is best accomplished through the elimination of waste and problem solving…”  My response:

This is the key point. We have yet to encounter a manufacturing or service organization in which the details of how work is being done contains no improvement opportunity, and this is what most managers simply do not believe. They are trained to think in terms of “big pictures,” and look for cost cutting opportunities like eliminating entire departments or reducing every department’s budget by 5%.

And finally: “If the aim is only to increase profit by reducing cost, without focus to grow the business, then the culture will never take root and only a short-term improvement will be realized. Or the company will never achieve it’s true potential.”

Your point does not fit in a 30-sec sound-bite or tag line. Good managers are able to monitor all aspects of performance at the same time, from growth to costs. But communication is tricky. For example, if you showcase ” Profit = Price – Cost,” what behaviors do you expect to stimulate, other than cost cutting?

In his second response, he added: “However, what was their business objective once they focused on improvement? I would venture to guess that it was focused on cost reduction.” My response:

I don’t recall them mentioning cost reduction explicitly. When the line first started, about 20% of the units were defective, and that was a focus of concern. Of course, quality improvements reduce costs as a side effect, but they also have other effects: quality problems have an impact on customer perceptions of the product because of variability among the units that are not defective.

In their other production lines, improvement was driven by marketing concerns. This was in Europe, and, in spite of the existence of the EU, frozen food packages had a different sizes by country, in addition to having labels in different languages. Based in Italy, they pursued quick changeovers in package sizes in order to be able to export to Germany, France, the UK, etc.

Their Lean program fit within their business strategy, but it is a stretch to say that this strategy was centered on cost reduction.

10 comments on “Management Whack-a-Mole and the Value of Lean

  1. Comment in the Schlumberger discussion group on LinkedIn:

    The core idea is to maximize customer value while minimizing waste.
    Essentially, lean is centered on preserving value with less work. Lean manufacturing is a management philosophy derived mostly from the Toyota Production System.
    Value in Lean « Thinking for a Change
    In recent years, some practitioners have combined Six Sigma ideas with lean …. The greater this distance, the greater is the spread of values encountered. .

    • We have to separate sales pitches from communication with operational people during implementation. Slogans like “maximize customer value while minimizing waste” resonate with MBAs and their ambiguity is actually helpful when addressing them. This sort of speech is generic, vague, and sounds like business school talk.

      On the other hand, on a production shop floor, in a maintenance department, or in an engineering office, you need clarity, and clear, actionable principles are what my post was about. On the floor of a machine shop, the customer is an abstraction. Value or value added can be interpreted in five or six radically different ways, and so can waste.

  2. Comment in the Schlumberger discussion group on LinkedIn:

    Gents,

    Back to the Future…

    I have been involved with fashionable quality programs: TQM, six-sigmas, Continuous Improvement, Reengineering.

    Lean seems to be an avatar of Gemba Kaizen, developed by M. Imai, whom I was honored to meet… about ten years ago.

    Imai wants to reduce Muda, i.e., waste. Sounds familiar.

  3. In 1985, Masaaki Imai published his first book, Kaizen, which argued that Kaizen was the key to the competitiveness of leading Japanese companies, and started the Kaizen Institute based on that premise. Gemba Kaizen was his second book.

    By 1985, Lean, then known as JIT, World-Class Manufacturing, or the Toyota Production System, was pretty mature already, with Kaizen in various forms as part of its implementation toolkit.

    The Kaizen Institute puts everything under the umbrella of Kaizen. For historical reasons, they have no choice, because that it where they started from. In terms of technical and managerial content, however, Kaizen in general, and Gemba Kaizen in particular account for no more than 10% to 15% of Lean.

    Lean is not an avatar of Kaizen; Kaizen is a component of Lean.

  4. Comment in the Supply Chain Optimization discussion group on LinkedIn:

    I agree that Whack-a-Mole is indeed a problem in many if not most management teams. I have certainly observed it regularly in my own company. A focus on cost-cutting alone will ultimately drive whack-a-mole because without considering the effect on capacity, quality, etc. reality is eventually going to force one to look at these other components. When one shifts their focus to solve a capacity problem and ignores the impact of decisions on cost, they’re demonstrating the same whack-a-mole behavior. In the end, it’s important to ensure a balanced management approach to decision making. You started your blog highlighting this issue with whack-a-mole, but the focus of the remainder of the article seems to be the issues with cost cutting. Isn’t a singlular focus on any one component equally indicative of whack-a-mole?

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