Sep 15 2015
Originally “the art of the general,” strategy is about which armies or fleets you deploy where and for what purpose. It goes hand in hand with tactics, which is the way each unit then engages the enemy. Always fond of military metaphors, business people have chosen to use the term”strategy” for their plans and decisions on products or services, markets, promotion methods, technology, organization, and financing. To Harvard Business School’s Michael Porter “the essence of [business] strategy is choosing what not to do.”
In this context, it is easy to see how strategy and tactics could cascade down a multilevel hierarchy, where what is tactical at each level becomes strategic at the next level below. I say “could” because nobody wants to be associated with “business tactics.” Today, if you query Amazon books for “business strategy” you get 117,212 entries; for “business tactics,” 4,797. I can’t find any reference to Michael Porter discussing tactics. Strategy has the connotation of high-level, big-picture thinking; tactics, of low-level details that you don’t want to get entangled in. Tactics is such a turn-off that psychologists describe sending a kid to his room as a “strategy.”
In practice, however, tactics matter. Without tactics, strategies are ineffective. The tactics are the enabling building blocks. When you make the strategic decision of starting a plant as a greenfield project in a new country, it will be moot unless you have a team of people who knows the requisite tactics, and it takes specific steps to develop such a team. They must know how to select a location, negotiate with local governments, lay out the plant, set up its supply chain, recruit and train its work force, etc. You can’t just focus on the big picture; you have to dig into the tactical details. A blunt way of saying this is “culture eats strategy for breakfast,” a quote often attributed to Peter Drucker but not consistent with his writing style.
Lean and Business Strategy
Business strategy specifies what you do, Lean tells you how you do it. Lean, in all its forms, is a derivative of Toyota’s approach to making cars, intended to be useful in a range of business activities, from high-volume/low-mix to low-volume/high-mix in manufacturing, and from banking to hospital operations in services. The label has even been applied to product development and the management of startup companies.
As Sid Joynson pointed on on LinkedIn, Sun Tsu wrote “All men can see the tactics whereby I conquer. But what none can see is the strategy out of which victory is evolved,” (The Art of War, Chapter VI, §25). This is what happens when people try to copy TPS, applying Lean tools by rote.
I have defined Lean Manufacturing as the pursuit of concurrent improvement in all dimensions of manufacturing performance through projects that affect both the production shop floor and support activities. To expand beyond manufacturing to any organization, the definition needs to be generalized as the pursuit of concurrent improvement in all dimensions of organization performance by drawing on all members to apply their resourcefulness due to the assimilation of accumulated knowledge.
This 27-word definition unpacks as follows:
- It’s a pursuit, and therefore it never ends.
- Concurrent improvement in all dimensions of performance is what you accomplish by eliminating waste. If you need to, you can define waste as any activity that you can eliminate without degrading performance in any way.
- Drawing an all members to contribute is showing respect for their humanity. Everyone is called upon to use all their abilities. No one is asked to check their brains at the door.
- Resourcefulness due to the assimilation of accumulated knowledge is what the members acquire from being in an organization that is constantly working to improve itself. Every complete project is a cycle of learning and enriches the toolbox available for future projects.
Strictly speaking, the first two points express a strategy; the last two, tactics to implement it. In principle, all business organizations are always trying to improve, but they don’t necessarily go at it in the way described here. For example, in the form of industrial organization that emerged in the early 20th century in the US — largely under the influence of Taylor’s “functional foremanship” — a factory might have an Industrial Engineering (IE) department in charge of methods and their improvement, issuing work instructions for operators to execute without questioning them. The only improvement that can take place is on the most important problems that the IEs know how to solve and are allowed to work on. Quite often, they could do nothing at all. The two following pictures show the same work done the same way 30 years apart at Ford’s River Rouge plant.
The Lean approach, by contrast, is that improvement in work methods is not a job specialty but part of every member’s job, regardless of rank. As a result, many more problems are solved that were previously ignored. And the accumulating knowledge in the organization enables its members to take on increasingly difficult challenges.
In what parts of the business strategy can Lean help? Most of the Lean implementation to date is in operations, the routine activities that generate income. The focus for TPS is car making; for Lean Manufacturing, the making of a range of industrial products; for Lean Construction, erecting buildings; for Lean Healthcare, treating patients in hospitals…
The contribution of operations to performance is not the same in every business. To take an extreme example, Pablo Picasso’s studio was a successful business for 7 decades, and its operations consisted of Pablo Picasso doing whatever inspired him at all times, with art dealers dropping by to pick up his output. Success was due to Picasso’s creativity, and neither to the organization of the flow of work through his studio, nor to customer service. Picasso would not have had much use for Lean.
At the opposite extreme, the manufacturing of common, everyday products like electrical outlets or scissors is a team effort, against competitors with access to the same equipment under the same conditions, paying the same prices for materials. There, the way operations are designed and run makes the winners and losers.
Most business are on a spectrum between these extremes. In luxury goods, for example, operations matter, but they are secondary to brand management. When a diamond-encrusted, inaccurate mechanical watch sells for $5,000, it is not primarily because of the way it is made in the factory. To make a profit selling accurate watches for $10, on the other hand, you have to excel at production operations.
When you make custom-configured or custom-designed products, the customization process itself is part of operations, as are support activities like production control, logistics, technical data management, quality management or maintenance.
Lean Beyond Operations
Hoshin planning, which is used at Toyota, is not part of operations. It is a method to set strategy, for the next year or the next three years. “Hoshin Planning” is often translated as “strategy deployment,” implying that it is less about setting the course than cascading the directions set by top management through the organization and translating them into actions and projects at every level. This is, of course, an oversimplification, because it’s not a purely top-down process, and the give-and-take involved can alter the strategic direction itself.
In The Lean Startup, Eric Riess describes methods for starting up an innovative business from scratch, and his concepts, like “pivoting” or developing “minimum viable products,” have permeated all discussions of entrepreneurship in Silicon Valley, both the actual place and the TV series. Riess chose to apply the “Lean” label to his ideas, but their connection to TPS or to anything anybody else called “Lean” is tenuous at best.
Product Development produces designs for Operations, but is not part of Operations, and is outside the scope of Lean Manufacturing. There is a body of knowledge called Lean Product Development, based on the Toyota Product Development System, as Lean Manufacturing is based on TPS. While there is no doubt that Toyota has been more effective that GM, Ford, or Chrysler at product development, it is not the only organization worth considering in this area. Apple and Google are not part in the car industry, but their product development practices command as much attention as Toyota’s. In fact, much of the content of “Lean product development” has other roots, like Lockheed’s Skunkworks, or Tracy Kidder’s The Soul of a New Machine. Collocating all core members of the development team to free them from the procedural constraints of normal operations was done at Apple for the Macintosh in the early 1980s, and at Ford for the 1996 Taurus, but what Toyota does is more complex and subtle.
Making Lean Part Of Your Strategy
The evidence is clear that the Lean transformation of a company can only be successful as a result of a strategic decision by top management, with personal involvement by the CEO. It cannot be delegated to a “VP of Lean” or to a “Lean department.” It must instead, over time, become part of the way everyone works. It is not easy and requires sustained effort.
What Is The Priority of Lean?
In any manufacturing organization, shipping products to customers always is the top priority. Lean implementation must be second to shipping product, but ahead of any other initiative. Some “Lean consultants” warn that performance will get worse before it gets better. In doing so, they are violating the principle of “First, do no harm!” Even in its initial stages, there is no excuse for a Lean implementation to delay deliveries, hurt quality, increase costs, cause injuries, or drive employees to quit.
From the very beginning, projects should be selected and executed with sufficient care to provide spectacular improvements in their target processes, and perceptible improvements in the performance of the organization as a whole. If production must be locally halted for a day to move machines, you build a window of inventory before so as to protect downstream operations and customers. And when production restarts, productivity and quality gains should be immediately apparent and documented. An “improvement” program that starts out making things worse is immediately in trouble. The key point to avoid this is to remember that nothing takes priority over meeting obligations to customers.
On the other hand, Lean must take precedence over any other change program. Lean implementation cannot be successful if employees are distracted by ERP, Six Sigma, or ISO-900x. There are several reasons for this:
- No organization has the capacity to meet the needs of customers, implement Lean, and deal with any of these other programs at the same time.
- Some of these programs work at cross purposes with Lean.
For example, even if you had the resources to implement a new ERP system and undertake Lean transformation at the same time, you would configure the ERP system to support the pre-existing approach to manufacturing, as opposed to the one you want to migrate to, and much of this work would be for naught. At Wiremold in the 1990s, ERP rose to the top of the priority list in the 5th year of the company’s Lean transformation. Success had led the company to acquire competitors, and the acquisitions had their own, obsolete legacy systems. These were obstacles to the integration of all their businesses. At that point, management decided that it made sense to replace the legacy systems with a new system, and made it a Hoshin for the year.
What The CEO Should Do
The following is not a complete list, and the specific actions required of the CEO will vary among organizations. What is a constant is that, for a Lean tranformation to succeed, the CEOs involvement must be massive, wholehearted, and long-lasting.
The decision on whether to use consultants and their selection should be made by the CEO. A CEO who has personally led the Lean transformation of another company may not need consultants, and there are a few rare individuals who can learn enough from books or on-line courses. The consulting profession is unpopular but, in the vast majority of companies, the Lean transformation will proceed faster and produce better results if started with the help of a competent consultant. I am a consultant, and it is an awkward subject for me to discuss, so I am using recommendations from a Japanese publication.
The CEO needs to launch the Lean transformation with his management team, but without unnecessary fanfare until the first successful pilot projects are completed. The level of top management communication needs to be carefully ramped up as achievements accumulate and the number and scope of projects grow. You may do the first two pilot projects without even a steering committee, but the CEO should be present when the teams report their results, and you need to set up a steering committee for the next ten projects started concurrently.
As the number of employees involved or affected by the Lean transformation rises, management may organize orientation sessions to introduce Lean to all operators, let them understand how it will affect them, and motivate them to join in the effort. If the CEO is unable to give an introductory speech at all these sessions, a professionally produced, 5 to 10-minute video will help.
Bumps in the road and redirection are to be expected in the Lean transformation of any organization, and the steady hand of the CEO is necessary to overcome these challenges and keep going, as opposed to abandoning Lean in favor of a currently more fashionable initiative.
Attention to the details of how the work is done, and concern for the people who do it. When I was at the Honda engine plant in Anna, OH, in the late 1990s, many employees remembered the visit by 79-year-old founder Soichiro Honda more than a decade earlier. He was retired, but he made a point of shaking hands with every employee on every shift. This is to be contrasted by Ben Hamper’s account of a visit by GM chairman Roger Smith to the Buick plant where he was an assembler, about the same time Soichiro Honda visited Anna. The GM workers were all given half the day off so that the chairman would not have to see them.
What the CEO should not do
There are also things the CEO should not do, such as demanding, recommending, or even suggesting technical solutions to problems. There are two reasons for this:
- To avoid taking ownership of projects away from the teams in charge.
- Because the boss’s ideas will never be evaluated objectively.
This applies not just to CEOs but, more generally, to managers in charge of technical people and projects. Once, a CEO who saw golf balls used as Kanbans in Japan and moved through pneumatic tubes thought it was a terrific idea (See Tim McMahon’s blog for an example) that he tried to implement it back home, but his work force mutinied against it and it failed. Perhaps it was technically a good fit for his plant, and perhaps not, but it was certainly the boss’s idea. No one on the floor owned it, and no one was motivated to make it work.
Executives who are former engineers often cannot resist the urge to speak in technical project review meetings. Regardless of the intrinsic value of their input, the majority of team members will agree because of who it comes from, and the others will make a point of disagreeing for the same reason. In the end, they will never be discussed, argued over, experimented with, and decided upon the way everybody else’s ideas are. I once met an executive from the French national utility EDF who came every year to work incognito as a researcher at Palo Alto’s Electric Power Research Institute (EPRI), simply so that he could have technical exchanges with colleagues that were not influenced by his position.
If the CEO thinks technical direction is needed, it is best to get it from external trainers or consultants. Once done, they leave, giving project teams the opportunity to process their input and take ownership of it.