I attended MIT’s Lean Advancement Initiative (LAI) conference in Boston this week. The food was better than the typical rubber chicken and the weather was better than I expect from Boston, but what I found most memorable were the three overarching messages:

1. Market leaders are good at embracing enterprise change;

2. Enterprise change requires a holistic approach that engages all stakeholders. This includes employees, suppliers, customers, unions, and investors/owners;

3. Positive enterprise change, and hence market leadership, require a foundation of organizational factors that includes: shared goals, shared knowledge, mutual respect, frequent and timely communication, and problem solving communication.

Nothing new here, right? Drucker, Senge, Kotter, Peters, Collins, Liker, Womack and others preach similar messages about managing change and achieving excellence.

What strikes me is the forum. This is the Lean Advancement Initiative Conference. Instead of 6S, we discussed stakeholders; instead of one piece flow, we learned about organizational factors; instead of root cause analysis, we got relational competence.

The underlying lesson from LAI? To achieve market leadership, the bar is raised. Kaizen events on the factory floor and improvement projects conducted by experts are not enough. LAI is telling us that we must change the game from tools and projects to holistic enterprise transformation. We must cultivate leadership which supports and drives enterprise behaviors. We must develop towering professional competence in all employees through daily training, mentoring, and coaching. And we must value our employees as long-term assets whom we engage in the continuous improvement of our company.

Lately, I’ve been running into manufacturing companies that have off-shored much of their value stream. One company’s “China strategy” involves buying components from vendors and also building sub-assemblies at a company controlled plant in China.

That’s fine, and I certainly understand the compelling economics in some situations (for example, commodity items with high labor content). But too often, the visible savings with direct labor overshadows the less obvious yet greater wastes that are created. For example:

• Less agility. As Bill Waddell wrote earlier, “you can’t pull from China“. Your ability to adjust to customer demand is compromised if your total lead times are four times longer.
• More inventory.
• More defects. Why? There’s a longer delay between defect creation upstream, and defect detection downstream.
• More transportation.
• More management costs. The effort to integrate operations overseas is usually underestimated.
• Product development and launch. Lean product development principles require concurrent engineering and a minimum of knowledge “hand offs”.

I’m not saying that having an off-shore strategy means that a company is not lean. I am saying that having some of your value chain somewhere else in the world for the sole purpose of reducing direct labor costs is a huge red flag. Be sure you understand the significant waste, cost, and additional lead time that will be created as a direct consequence.

Finger pointing, the blame game, excuses for unexpected or poor results…these are all too common behaviors in organizations today. Why is that?

Much of the reason is due to an organization’s intolerance for tactical failures and mistakes. If people know that regardless of intention and the soundness of strategy they will risk their reputation and maybe their job by admitting a mistake, then what behavior can you expect? Instead of sharing what is learned and creating a recovery plan, time and energy is spent on denial, cover up, and excuses.

I remember a scene from the HBO mini-series “To the Moon and Back”: While Grumman was testing the Lunar Excursion Module, its spider like landing gear frequently collapsed during simulated landings. This was a total surprise since the gear was designed with a generous safety factor. One evening while reviewing his work, the engineer responsible for determining the landing gear loads discovered that he made a simple yet large mistake in his calculations – resulting in an under-engineered landing gear design.

The next morning the engineer is in his boss’s office showing the mistake that he made. The boss then THANKED the engineer for finding his mistake quickly and bringing it to his attention. What behavior did the boss’s reaction encourage? It gave a clear message to the entire design team that he wants their energy focused on discovering problems and quickly fixing them as a team. He knew his team could not afford the time and energy needed for denial, cover up, and excuses.

Not long ago, I had a conversation with the hired CEO of a $200 million manufacturing firm, and I asked, “What’s your purpose?”

“Our purpose is to provide superior return for our stakeholders and market leading value for our customers” the CEO said.

“Ok, I get that. But tell me why this company exists. And tell me why you work here.” At this point, the CEO may have wondered if I was a lean consultant or communist. As our talk continued, it was clear that the CEO intellectually understood how his company’s products benefited society (every viable product does), but it was also clear that this was not that important for him personally. He was there mostly for the money and to build his resume. And his presence lacked passion (not to be confused with urgency – which he did express since he was not achieving plan).

So, why does an operations consultant ask questions about purpose? Over the years, I’ve discovered that one of the most telling leading indicators of success for a lean enterprise transformation (or just about any major change initiative, for that matter) is clarity of purpose.

For a senior executive, purpose is the answer to the question: Why? Why does your company exist? Why do you get up every morning and go to work? Why do you choose to lead this company?

It’s not a good indicator when the answer is some B-school gibberish about stakeholder return and value. As a front line worker, it’s just not inspiring to hear that your leadership team’s purpose is to make the owners richer.

My point is that a major change initiative requires engaging employees. Engaging employees requires a compelling, passionate purpose that your people can feel strongly about. It requires leadership that all stakeholders – employees, customers, investors, and suppliers - sense are genuine and authentic.

If you’re struggling with this message, then you will probably struggle with your lean transformation. Having a meaningful purpose really does make a difference.

So, what’s your purpose?

A COO of a large manufacturing firm lamented to me recently about the burden of assessments. “My plant managers see less and less value with the ISO, Baldrige, and corporate assessments.”

“Why is that?” I asked.

“Well, there’s a corporate requirement for semi-annual ISO assessments, plus and annual Baldrige assessment for each plant. It takes so much of their staff’s time, I think they feel it pulls them away from their work.”

“The goal of assessments is to show the path for improvement. Why would your plant management feel that this would pull them away from their work?” I asked.

“That’s just their point – the plants don’t feel that the assessments are helping them to improve. They view them as a grading exercise by corporate…just another bureaucratic reporting requirement.”

We then talked about the importance of adding value during the assessment process. And why this value must be perceived by those being assessed, not just by corporate. For example, if an assessment highlights that the daily management process is not well defined, go ahead and provide some training and coaching with daily management. In other words, offer help and coaching, not just a report card.

Here’s a lesson I learned…again…about how to talk about process thinking and TPS with non-manufacturing people. Last week I visited an organization whose primary output is events (conferences, seminars, workshops) and publications (books, journals, articles – not the physical product, but the content – the intellectual capital and ideas).

They shared that their organization is over 50 years old, yet they have never formally reviewed their business processes. Like many companies, when there was a new product, service or regulation, the teams put together the process to deliver or comply. This was usually done at a department level, so several departments often created their piece of the process on their own. And there was no practice to review the effectiveness of this process over time.

Message I got loud and clear: They really need some help.

They then asked me how lean thinking could help. And although I thought I had a short, eloquent answer, I made a near fatal mistake: I mentioned that many of the roots of lean come from the Toyota Production System. That’s a fact, but I’ve leaned a lesson: I need to be more conscious about sharing this fact too soon.

Because mentioning lean’s manufacturing roots invariably brings up the question of how can a manufacturing business model possibly apply to their service company with mostly knowledge workers?

And because mentioning lean’s manufacturing roots usually hijacks the conversation from talking about their business (productive conversation) to a lot of time spent handling their concern about using a manufacturing based methodology (less productive conversation).

Lesson learned: For non-manufacturing organizations, talk less about the origins of the methodology and more about how you can help the business.

Henry Ford embarrassed himself later in life and left his company with a dark legacy surrounding his public and published anti-Semitism. He’s certainly no role model, but his genius for manufacturing is legendary, and he is easy, even fun, to read when he focuses on business. He had a gift for envisioning simple solutions to unsolved engineering and business issues.

As an example, here are excerpts from Ford’s My Life and Work (available from Amazon and B&N) that I categorized by current topics that challenge us still today:

Continuous improvement

Hardly a week passes without some improvement being made somewhere in machine or process…The factory keeps no record of experiments. The foremen and the superintendents remember what has been done.

Not a single operation is ever considered as being done in the best or cheapest way.

Try new processes

The saving on one style of bolt alone amounted to half a million dollars a year.

Engaging Everyone in Continuous Improvement

We get some of our best results from letting fools rush in where angels fear to tread.

None of our men are “experts.” The moment one gets into the “expert” state of mind a great number of things become impossible.

Target costing

We have never considered any costs as fixed. Our policy is to reduce the price, extend the operations, and improve the article. You will notice that the reduction of price comes first.

Driven by our strong economy, many of our manufacturing clients have plans to increase production capacity. I sometimes share with them this strategy that Richard Schonberger describes in World Class Manufacturing:

Increase capacity in increments. If your sales forecast calls for increasing capacity by 100 widgets, start by adding a line that can handle 25. Then add separate lines as needed to handle growth.

This approach:

• Lowers the risk of hiring too many people and over investing in capital equipment if the sales forecast is wrong.
• Creates several parallel lines instead of one line. This improves flexibility, reduces the impact of a line going down, and simplifies new product introductions.

Our client continues describing how staying close to operations helped with their problem solving (see part 1 and part 2):