A Tale of Two Business Systems
In the fall of 1990, Dan Jones, Dan Roos, and I co-authored The Machine That Changed the World, our description of lean enterprise. On page 253 we forecast that 1991 or 1992 would be the moment of crisis as the full power of lean (represented by
However, as usually happens with forecasts, we were off in our timing. The moment of truth was actually delayed 15 years. What now seems certain is that
Recently, as I’ve listened to industry executives and the media grapple with this momentous event, I’ve been struck by the manifest irrelevance of most efforts to find the root cause. The crisis is not due to misaligned currencies, subsidies from “Japan, Inc.”, or spiking energy prices (although the latter has affected the precise timing). And it is not a simple case of too many retirees for the present workforce at GM and Ford to support. (Indeed, this gets cause and effect backwards: GM and Ford have too many North American retirees for current workers to support because both companies have lost half of their North American market share over the past 25 years and have hired hardly any new workers in a quarter century.) The root cause of the crisis lies in a clash of two business systems, and the better system is winning.
As we pointed out in Machine – devoting a chapter to each point – a lean enterprise consists of five elements: a product development process, a supplier management process, a customer management process, an overarching enterprise management process, and a production process from order to fulfillment. And each of these processes is superior to the processes employed for the same tasks at a mass producer.
The lean product development process, as used at
Lean supplier management creates a small number of highly capable suppliers in long-term partnership with their customers. Suppliers work to demanding customer targets for cost, quality, delivery reliability, and new technology and achieve these targets by jointly examining the development and production process they share with their customers. The lean approach has dramatic and predictable benefits, but if GM and Ford even understand these concepts, their perceived need to save themselves by bleeding their suppliers has made implementation impossible.
A lean customer management system builds customers for life while reducing distribution costs by working backwards from the customer’s desired experience and forwards from the production system’s needs. In fact, although
Finally, a lean management system involves managers at every level posing the key problems that need to be solved and asking the teams they lead to develop and implement the answers. This practice of asking the correct questions rather than providing the correct answers (which high-level bosses can never know in any case) is perhaps the starkest contrast between lean thinking and orthodox mass production and the hardest to implement.
Putting these four elements together, it’s not surprising that lean exemplar
What must happen soon for GM and Ford to resolve this crisis?
Rewrite the social contract. As
Introduce all of the elements of lean enterprise. This includes product development, supplier management, customer management, and policy management. These practices permit
Simplify market offerings. GM and Ford do have a special problem, never faced by
What’s the prospect if lean production is uniformly embraced? After a moment of truth – involving employees, retirees, suppliers, and investors – followed by dramatic restructuring at each company, equilibrium could return to this massive industry. GM and Ford could survive as independent companies, although considerably smaller, and
But what will actually happen? That’s for the managers, employees, and investors at GM and Ford to decide and decide soon. Dan and I learned in 1990 that lean thinking provides a great way to identify the root cause of the problem but that Lean Thinkers shouldn’t put any confidence in forecasts!
President and Founder
Lean Enterprise Institute
P.S. The Machine That Changed the World is still in print and available in the LEI online Store. With every copy, we include Dan’s and my pamphlet “How the World Has Changed Since The Machine That Changed the World” (which lists the mistakes we made as well as what we got right) and I sign every copy as well. Please go to the Store tab at http://www.lean.org for details.