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Ask Art: Does lean compromise innovation?

by Art Byrne
June 14, 2017

Ask Art: Does lean compromise innovation?

by Art Byrne
June 14, 2017 | Comments (4)

There is no either/or choice between lean and innovation. In my experience lean and innovation are and have always been completely compatible; lean in fact helps drive innovation. By removing the waste from all your processes lean accelerates the pace of innovation and makes innovative ideas easier and less costly to implement. As you remove the waste from your processes the time and cost it takes to do everything you do are reduced. This frees your your organization to create opportunities for innovation that you never had before. Let me illustrate with a couple of examples.

The simplest one I suppose has to do with lead time. Most traditional batch manufacturers have 6-8 week lead times due to their batch organizational structure, (organized by functional departments—the same type of equipment—and having long set up times). As you move to lean and cut set up time from hours to less than 10 minutes (sometimes as low as a single minute) while reorganizing into value streams and one piece flow, then lead times can fall to 1-2 days. If your competitors are still stuck at 6-8 week lead times this gives you plenty of innovative selling opportunities which can also lead to new product or service offerings.

At The Wiremold Company, where I was CEO from 1991-2002,when we started our lean implementation in late 1991 we understood that this work would free up a lot of people through big productivity gains. We were committed not to lay anyone off so our only alternative was to add a significant growth target to our strategy. In fact, our goal was to double in size every 3-5 years. To have any chance of achieving this we needed significant new product growth. As a result, at about the same time that we introduced lean we introduced Quality Function Deployment (QFD) as our new product development approach. Lean and QFD were the two pillars, if you will, of the Wiremold Production System.

QFD is a visual, systematic lean approach to new product development that gets all the key players and functions involved early in the process. This includes the voice of the customer who is the most critical link in any new product development. We used to say, “We designed it with our ears” to describe just how much we listened to the customer during the design process. The “house of quality” chart from this source illustrates this visually.

To fully implement this approach we needed many more new product development engineers. We decided however that we could not hire people from traditional batch manufacturing companies because it would take too long for them to “un-learn” their batch habits. Instead we added all of our new engineers right out of school. We told them we needed them for new product design, but before we let them do that they had to spend two years on the shop floor learning lean and getting to understand our capabilities so that they would not design something that we could not make. This worked very well. Our new product development time was cut by 75 percent. We doubled in size in four years; and then doubled in size again four years after that.

Along the way our lean progress created numerous opportunities for new products by drastically cutting lead times and increasing our flexibility. As an example, we sold raceway and fittings to help wire commercial buildings. While these were popular, they also created problems: the contractor would need to have electricians in the field wire up this raceway and make the connections. This took a long time and was very expensive. Our lean efforts allowed us the flexibility and short lead times to offer the contractor pre-wired raceway to his specifications and deliver it floor by floor, room by room to his job site. This saved him a ton of money, even after paying more for this new product.

Another example along these lines is Sturm, Ruger & Company. John Cosentino was my co-group executive at The Danaher Corporation, and served on the Wiremold board of directors. After Wiremold was sold he joined the Sturm, Ruger board. He started them down the lean path and, just like at Wiremold, kicked off a QFD effort at the same time. In fact he recruited Steve Maynard who had implemented QFD at Wiremold to do the same thing for Ruger. The company results tell the story best:

                                    STURM, RUGER & COMPANY

                                                                   2006            2013       Increase

Revenues                                                  $168M        $688M         4.1x

GM %                                                            17%           38%          2.2x

EBITDA                                                         $6M         $196M       33.0x

# Engineers                                                  80            90%

New Product % of Revenue                         <5%           65%          n.a.

Enterprise Value                                       <$200M     >$1.4B           7x

 

There are many impressive numbers here, but the most relevant to this article are the percentage of new products introduced within the past five years: the company went from less than 5 percent to over 65 percent and from 80. This should certainly help prove my point that lean and innovation are not incompatible. In fact, I hope you can take away the idea that driving both at the same time can maximize your competitive advantage and your enterprise value.

So, don’t let anyone try and convince you that lean and innovation are somehow mutually exclusive. They are not. Sure, you can be innovative without becoming lean, but the leverage you get from doing both at the same time will multiply your enterprise value many times over.

By the way, if you enjoy the monthly “Ask Art” posts on the Lean Post please feel free to send in any questions that you would like me to address. My email is abyrne@jwchilds.com and I would be happy to respond to your requests, Regards, Art.

The views expressed in this post do not necessarily represent the views or policies of The Lean Enterprise Institute.
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4 Comments | Post a Comment
Steve Ruqus June 19, 2017
1 Person AGREES with this comment

I agree, learning to listen for what cutomers value while eliminating what they don't creates more profit to invest in innovation and liberates resources that you can allocate to activities with higher potential.  That said, I believe leaders need to look at sustaining, incremental improvements and innovation differently.  The operating system that it takes to develop new products and services is different than what it takes to sustain a business.  You can have both and lean applies to both, but they need to be managed differently. Thoughts?



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art byrne June 23, 2017

Steve, thanks for your comments. I think you should be careful with your line of thinking however as it is a slippery slope to try and seperate the new product development process from the rest of the business. Sure there are differences in developing a new product and making an existing one but to me you get the most gain when everything is integrated not seperated. Start with Hoshin planning which will include new products. Next the QFD process integrates manufacturing, marketing and product engineering ito a single team upfront along with the input of the customer. After all you need to develop the manufacturing process along with the new product. At Wiremold we had all this integrated and the new product teams presented every week along with the value stream managers on their progress to myself and my staff. Regards, Art.



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Claire Everett June 19, 2017

Hi Art

 

Great article, thanks for sharing your thoughts.

 

I believe that this misconception that Lean inhibits or prevents innovation comes from Lean being incorrectly explained or executed.  If the term Lean is used when it's really just an excuse to cut costs and jobs then the result is less innivation.  Since Lean is often incorrectly used to label these sorts of efforts it's not surprising that this misconception has arrisen.  Countering this idea however is unlikely to be easy, those who will listen probably already agree and understand, and those who don't understand already are unlikely to be open to listening.

 

Best wishes

Claire



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art byrne June 23, 2017

Claire, thanks for your comments. Unfortunately I think you are correct in your obsevations. Thinking of lean as a cost reduction program and not a strategy makes it easy to put every thing in nice little buckets that have nothing to do with each other. And, like you say those who don't understand lean are not very open to listening to a new way of thinking. Art.



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