If anyone is looking for proof-positive that Mulally and Ford still don’t get it, that proof can be found in his statement, “We’re not going to chase market share. We’re not going to put out vehicles where demand is not there and then discount and make it even worse. It’s the most important thing in the business that you always deal with the reality in the marketplace and match the capacity to demand. Because if not, it just gets worse. That’s the highest priority.”
Like most American manufacturing managers, stuck in the misguided past of management accounting, Mulally seems to have accepted the notion that manufacturing’s sorry lot in life is to chase sales up the peaks and down into the valleys of demand, blowing in the wind of “the reality of the marketplace” as it has been defined by marketing folks selling on the basis of full costs and prices based on those costs.
I have to wonder if Mulally thinks Toyota has been “chasing market share”? In any event, Toyota has somehow managed to avoid the “reality of the marketplace” and has maintained a steady rate of gradual improvement in annual production and sales volume – matching “capacity to demand” quite nicely.
The fact is that Toyota creates demand in pursuit of market share – not any and all market share – not as much market share as they can grab for the moment without regard for the future – but the amount of market share needed to drive a steadily growing rate of demand through their plants. They do that by viewing prcing as a strategic exercise, rather than a cost based exercise.
Boeing was late to the lean accounting party under Mulally, and Ford has been a complete no-show. Ironically, the first Lean Accounting Summit took place at the Dearborn Inn – a great old hotel built at the direction of Henry Ford himself; a place where you can literally look across the road to the Ford headquarters building. But not a single representative from the vaunted Ford finance department chose to amble across the street to see what it was all about; and no one from Ford took the time to attend this year’s Summit in Orlando either.
Lean is a completely different economic model of manufacturing. When Toyota said that inventory is waste, they were not speaking euphemistically, or in some Zen riddle. It is a simple, straightforward statement of fact. Accounting systems based on the fundamental principle that inventory is an asset are a polar opposite to this basic premise. Take inventory off of the balance sheet and all of the manufacturing management practices that have made Ford what it is today come unraveled. Unless and until Alan Mulally opens up that can of worms and takes on the accounting enclave that has dominated Ford’s ride to ruin, he cannot possibly succeed.

Alan Mulally has been making a great deal of the disjointed organizational structure at Ford. Their Byzantine set up of geographic fiefdoms is clearly problematic. While Mulally has correctly identified the problem, he has missed the solution in his recommendations that the company be restructured under separate, global product development and manufacturing ‘czars’.

There is only one effective organizational structure for Ford – or anyone else seeking to become lean – and that is one built around Value Streams. What Ford needs is a czar for each product or product family, with complete responsibility for the product(s) within the value stream from cradle to grave. Putting the company under functional leaders is nothing more than the same old management structure that has led to failure for virtually every manufacturer.

The goal is not to have Ford be the world’s best product developer, or the world’s best manufacturer. Customers could care less about those things in isolation. The objective is a world class, seamless process of taking a product concept to customer delivery. Putting global engineering under one silo with a strong leader, and manufacturing in another silo under equally strong leadership isn’t going to get Ford to those seamless delivery processes.

The notion that waste occurs at the functional interfaces is not new. Thinking that Ford can become lean by simply replacing the old geographic barriers to flow (whether it is the flow of ideas, parts, people or production) with barriers between functional groups is nonsense. The value stream is the core structure of lean manufacturing. It is the set of tasks to be optimized and synchronized. Performance metrics are only useful at the value stream level, and the only organizational structure that can bring all of the best thinking and best efforts in the organization to bear on sustainable, bottom line improvements is one based on value streams.

Taiichi Ohno once said that the heart of the Toyota Production System is “management’s commitment to invest in its people to promote a culture of continuous improvement”. Lean and TPS are powerful – but waves of downsizing, employer demands, job disenchantment and technologies that keep employees plugged into their jobs both day and night have taken their toll.

If recent surveys are any indication, more than half the workforce is fed up. Pollster Gallup has found that 40 percent of American workers feel disconnected from their employers, with 19 percent being “actively disengaged” from their workplaces. Disenchanted workers pull down productivity, increase churn and darken the morale of the people around them. The annual economic costs are huge: as much as $350 billion in the United States alone.

How can management reduce the losses caused by an anxious and demoralized workforce?

Emerging research suggests that workplace toxicity and anxiety are the major impediments to employee morale and performance. The top reason people leave comes down to their relationship with their boss and not having a clear understanding of what’s expected of them. Indeed, less than one-third of managers are perceived as strong leaders.

So, rather than implementing a technology-based solution or installing new equipment to improve performance, first look at your own management team. Examine the effectiveness of the people who are tasked with leading your employees:

· How often do they communicate with their direct reports?

· What is the quality of their interaction?

· Do they have a process to convey your business objectives to their team in an effective, meaningful way?

· Do they understand how to connect with their people and lead?

· Are their conversations transforming – or merely transactional?

· Do people leave meetings with their superiors feeling energized – or sapped?

Our recommendation: Be sure that on-going management development and coaching are an integral part of your company’s lean transformation. Have resources available for managers to learn and get help. Consider on-demand 1-to-1 management coaching that’s provided on a confidential basis. Offer your supervisors assistance with facilitating their team meetings to demonstrate a positive approach for team learning.

All of these elements are a bit on the soft-side, but they’re often the missing pieces when we learn why a lean transformation has failed.

The new CEO at Ford, Alan Mulally who came over from Boeing a month or so back, has made a lot of noise in Detroit with his first public statements regarding the work needed to turn Ford around. He has been hailed as a lean expert on the strength of his Boeing work, and the speculation is running rampant over the possibility of his doing similar things for Ford.
Mulally is clearly a lean champion and a strong proponent of the Toyota Production System, as he understands it. Take a few moments to read what he has had to say about making Ford leaner here, here, here and here. On the surface, he seems to be saying all the right things, but when you read a little deeper, there is more than a little cause to be pessimistic about his chances for success. Like far too many people, Mulally doesn’t seem to understand that Toyota is out-managing Ford and the rest – not out-manufacturing them. His description of the Toyota System as the best “in the world for designing and manufacturing products” misses the fundamental point. It’s worth taking a few minutes to examine his basic misperceptions of Toyota – they are pretty common and maybe some can learn from his mistakes before he makes them.
First, the notion that Mulally turned Boeing into a lean manufacturer should be dispelled. Boeing has been quite successful and they are certainly doing some very lean things. However, much of Boeing’s recent success has come from wholesale outsourcing and downsizing, while enjoying the self-destruction of their biggest commercial competitor – Airbus. Internally, Boeing can be best described as schizophrenic lean. On the one hand, they are providing leadership to the outstanding Lean Certification Program sponsored by AME, SME and the Shingo Prize folks. At the same time, they are pushing their suppliers into the pathetically weak SEAS program. They have become quite lean in a few of their pants, but have been very late to the Lean Accounting party. In short, they have had no clear, unifying vision of what lean manufacturing really is, and they seem to approach lean much as Mulally recently described in the Detroit newspapers – as a factory system, rather than a fundamentally different management system.
That approach will not work at Ford, or anywhere else for that matter. Poor management processes got Ford into competitive trouble, and they have to be fixed to get them out of trouble. Product development and factory operating improvements will be the easy part of the Ford turnaround; and it is unlikely that Toyota will go into management freefall like Airbus did to make the task easier for Mulally.
In the next few installments, we can look at the specific areas of a lean transformation that Mulally seems to have missed, and see how, without them, no manufacturing concern can possibly succeed.

Below is part 5 of an excerpt from an email (with names and company specifics removed) in reply to an inquiry by the president of a Fortune 500 company. She was newly appointed as the executive sponsor for her division’s “Lean Enterprise Transformation”, and asked us: “What’s critical for the success of our transformation?”

5. Quickly achieve your first internal success story. A common trap we see is spending too much time “boiling the ocean” by organizing, meeting, training, and planning by management. Instead, engage your people by sponsoring a series of rapid “starbursts” (the Japanese use the term “Kaikaku”) to achieve breakthrough results within the first weeks. This creates an atmosphere of high energy, enthusiasm and confidence amongst your team. Starbursts also provide a “learn, do, succeed” platform for training your people. For production workers especially, immediately reinforcing training with “doing” and “succeeding” improves sustainability. As a bonus, your starbursts fund your lean transformation with tangible results. (A plug for us: this is an area where we can really help.)