FEATURE – By offering an alternative approach to management, lean thinking has disrupted the business world in the past three decades. But in what way has it really innovated?

Words: Michael Ballé, Dan Jones and Jacques Chaize

In the two decades following the publication of Lean Thinking we have worked with senior executives determined to adopt the full lean system to transform their companies and invent genuine lean enterprises. We have continued to study Toyota’s evolution, as well as given a fresh look at the early findings of The Machine That Changed The World study. This led us to revisit slightly the original principles of lean thinking but also to place the methodology in a much broader context. Takahiro Fujimoto has long argued that the Toyota system is the result of an organic evolution more than the mechanistic application of fixed rules. Hirotaka Takeuchi has pointed out that continuous knowledge creation was a distinctive feature of Toyota’s success and Jeff Liker has captured Toyota’s focus on systematic leadership development. More broadly, Nobel Prize economist Joseph Stiglitz has taken just-in-time as a sign of the emergence of a new form of economy in a learning society.

We believe that Toyota’s success in the face of stiff adversity is due to its invention of a new management system better adapted to the current evolution of developed societies.

Indeed, if companies are selected by competition for their ability to better fit-to-market, Toyota has shown us the way to design a new kind of organization for a new hypercompetitive, global and turbulent business environment where rapid market swings and technological tsunamis keep shaking up the game.

Lean holds the key to a much deeper transformation than many believe. Toyota has developed organically a system to deal with change by learning to learn. Lean is the method to develop this capability in your own business. Lean is not about making your current organization more efficient but fundamentally transforming how managers think in order to grow a business designed for constant renewal and change through continuous improvement. We’re not looking at an optimization of the current way companies are structured and managed, but a full-fledged revolution in management thinking. To understand how deep this transformation is we need to take a step back and look at the bigger picture.

HOW BUSINESS CHANGED THROUGHOUT HISTORY

Our societies are built on a mishmash of technical, organizational and political changes. For instance, back in the early 19th century, steam progressively became the dominant source of power (replacing wind and water) in fast industrializing nations: by 1860, it provided 80% of the total power consumed in the US (it was 5% in 1840). In the same period, the concepts of division of labor and task specialization as described by Adam Smith in a pin factory in 1776 led to the creation of workshops where each person would perform a small, very specific part of a job as opposed to crafting an entire product – which dramatically increased output.

Steam-powered machines then took over some operations and the combination of steam power and division of labor made it possible to establish centralized factories, drastically reduce the cost of making things, and create huge consumer markets. One of the most obvious effects of industrialization was the exponential growth of urban areas at the beginning of the 1800s. In England, for example, urban population grew from 17% in 1801 to 72% by the end of the century; London’s population grew sixfold. The resulting upheaval brought great political changes and rapid democratization, establishing our current system of liberal democracies and welfare state.

Technical, organizational or political breakthroughs happen quickly from a historical point of view, but not so quickly for the people living them, taking at least a generation or two to become matter of fact.

A well-known organizational improvement is Henry Ford’s famous moving assembly line. Under this innovative idea, workers didn’t have to go to the product any more, but it was the work that was brought to them using a conveyor belt. Several technical and organizational elements had to come together to make this possible. First, the use of electricity became widespread. Until then, machines had been steam powered, which means they had to be lined up under a line shaft. Electricity-powered machines could be placed along the process. Second, parts had to be standardized so that they could be picked randomly from a container and assembled without the need for a fitter. Third, operator tasks had to be both specialized and standardized to make the work flow at the conveyor’s speed – which was made possible by Frederick Taylor’s organizational innovation. Electricity was first used for lighting and it took decades to retool factories from steam powered line shafts to electricity-powered machines. As mentioned, it takes at least a generation.

We’re currently living through a similar upheaval. We’ve all grown up with computers, but so far we’ve used them to run 20th-century companies – problem is, in the meantime the Internet came along. The first companies designed entirely around it were Amazon, Apple or Google. Amazon has created a sophisticated logistics supply chain around its website; Apple’s iPhone and iPad have become portable platforms for apps; and Google is fitting wheels to its search engine.

These technological changes come at a time of unprecedented globalization and market saturation. The upshot? Web-based companies provide ongoing free value to their customers in a bid to persuade them to purchase. Whereas 20th-century companies were designed to push black Ford Ts on every person in the world, 21th-century firms are designed for constant renewal to remain attractive to customers who can be tempted to change provider at the drop of a hat or a whim. It’s a whole new ball game.

The organizations we’ve grown up with aimed to give the world stable products. McDonald’s, for instance, came about from, first, task specialization as the McDonald brothers concentrated on selling hamburgers having realized that was where most of their profit came from, and then from Ray Kroc, a seller of milkshake machines to the McDonalds’ hamburger restaurant, who decided to franchise the restaurants across the country. The parallel success of the automobile led to a mass move to the suburbs and allowed for the expansion of the franchise. Kroc’s obsessive search for standardization and automation enabled the golden arches franchise to maintain its quality and cost balance, and expand all over the world.

The dominant model at this point in time was to patent an innovation to protect it, standardize the process, roll-out to all markets by attacking them in military fashion, through a blitz marketing campaign and then cookie-cutter replication. Managers think in terms of product lines sold to customer segments and delivered through task-by-task specialized supply chains where costs and quality are secured by means of extreme standardization – and adopt IT systems to drive this forward. This works superbly. The only downside of this model that companies like McDonald’s still struggle with is that it doesn’t handle variety very well. Supply chains are complex, processes are rigid, change is by nature a problem, and IT often confuses issues even further.

Traditional line hierarchies had the clear drawback of creating functional silos with poor information flows. Frederick Taylor came up with the notion that “one best way” could be defined by engineers and adopted as a standardized process. His assumption was that workers could not both carry out the work and think about their own work methods in the way an overseeing engineer could. Taylor’s solution was widely adopted throughout the 20th century and staff departments were created to run line hierarchies, generating the infamous matrixes where one person has both a line boss (division) and a functional boss (sales, finance, logistics, quality, lean, etc). Such organizations are obsessed with process standardization and all too often staff departments behave as silos as well, solving their own problems from their perspective and burdening line managers with ever-increasing constraints.

WHY TOYOTA IS DIFFERENT

Toyota’s approach developed from a very different standpoint. Its leaders realized that as it grew the company would develop what it calls “big company disease”: shifting focus away from customers and towards internal concerns; bureaucratic concerns trumping employee problems at the workplace; complacency fostering unnecessary investment and legacy choices. Rather than worry about having the perfect organization, Toyota leaders committed to keep their focus on adding value for their customers and encouraging a healthy dose of fear of falling behind customer expectations and competitors’ capabilities. Toyota developed a model based on:

The lean concepts of “standardized work” and “work standards” are misleading inasmuch that they can easily be interpreted as the intent to standardize all processes. In fact, these notions mean one should perfectly understand operations locally at the workplace, but in no way imply that one given process should be replicated across the company. Actually, replication goes against the spirit of kaizen as one should never copy without thinking deeply about the context and improving ideas.

Value streams are not the idealized processes of Business Process Reengineering either. Silos are recognized to be necessary to develop the expert specialized knowledge needed to design, build and distribute complex products or services. Value streams are about clarifying the interfaces within silos so as to focus on teamwork between specialist functions with the aim of delivering value to the customer. Continuous improvement is a practical way of bringing functions together to solve specific problems or try improvements and thus clarify information paths across the organization. Value-driven organizations stitch together highly specialized experts by setting and improving the information interfaces that, taken as a whole, make the design of the product or service. A value stream consists of specific products/services, made for specific customers, in specific workplaces within specific cells using materials from specific suppliers.

Value streams align these various specific aspects (customers-workplace-process-supplier) in a stable way in order to enable the constant improvement of the value of the current offer and learn how to design a better offer for the next cycle. An organization designed around its value streams is constantly working on improving its quality, flexibility and productivity by learning to, in Kiichiro Toyoda’s terms, seek “The ideal conditions for making things are created when machines, facilities, and people work together to add value without generating any waste.”

With the continuous improvement of value streams in terms of safety, quality, flexibility and productivity, Toyota has pioneered a new enterprise model based on:

1. Knowing customers better by increasing variety and designing products for narrower customer segments in order to gain deep understanding of customer lifestyle preferences.
2. Raising everyone’s value added productivity by building in quality and designing systems that recognize abnormal conditions and stop rather than producing poor work and generating rework.
3. Fully utilizing capital by continuously reducing lead-times and increasing flexibility in order to eliminate waste created by the organization’s set-up.
4. Daily developing capabilities for innovation by teaching people to change through on-the-job problem solving and encouragement of improvement initiatives.

Reviewing 25 years of research, we are confident that Toyota’s consistently superior performance is a result of the dynamic of continuous improvement and not the static optimization of every process. As Toyota’s own veterans explain, their lean approach is to develop the kaizen spirit in every person, not apply lean tools to every process.

On the shop floor, Toyota’s approach is fairly straightforward. At suppliers, it teaches executives to see and tackle, one by one:

1. Safety and ergonomic problems that operators are left to struggle with on their own.
2. Quality issues that the company imposes on customers, often considering these problems would be too costly or too rare to fix.
3. Poor mix or volume flexibility due to equipment designed for high volume production and difficult to change from one reference to the next or to adapt the production pace to the sales pace.
4. Costly infrastructure projects such as new warehouses, IT systems upgrades, consulting assignments, reorganizations, etc. that increase overall costs without ever delivering the hoped-for results.
5. Technological platform changes, such as sustainable production or the Internet, hard to envision because of the status quo embedded in legacy systems.

Toyota’s approach entails expressing these challenges in practical terms at the workplace to engage and involve every employee in solving problems locally or experimenting with new ideas. It is the executive’s job to study each of these initiatives and evaluate strengths and weaknesses of people, products and processes and look for creative ideas that could lead to true innovation at the business level. Problem solving is explicitly aimed at thinking deeply about what we do and developing the capability for renewal through continuous improvement.

Innovation flows directly from kaizen. As Toyota has demonstrated, the real challenge of the Prius did not lie in fundamental principles – all automakers understood quite well how to build a hybrid engine – but in the determination to make it work seamlessly for customers. Today’s innovation is far more a question of co-evolution in a fast moving technological environment than fundamental breakthroughs.

The trick to innovate is to take new ideas from partners and suppliers and make them work. Lean thinking is at the forefront of this momentous change. Mainstream management assumes that a company’s highly-specialized (and indeed firewalled, isolated, and segregated) R&D department will simply come up with the next big thing, and then operations will then standardize the delivery process in order to inundate the world. What lean offers is the revolutionary idea that technological breakthroughs are, critically, the beginning of a continuous improvement process that will make an new product fit for the market.

Today’s innovation pace is faster than ever, but this comes from intense collaboration across boundaries, from adding solutions together in various parts of the process, and – in other words – from continuous improvement. The real promise of lean is much larger than simply “effective processes.” The real promise of lean is making better products from better thinking – and the key to success is relentless kaizen.

_{THE AUTHOR}