There is a serious debate within the lean community as to whether lean is a strategy or an operational tactic. I believe that the roots of this debate go back to when those of us in the U.S. were first exposed to Toyota and the concepts, principles, and practices that enabled the company to emerge from an almost-bankrupt post World War II company to a serious (and eventually leading) competitor in the automotive industry.
Some of the early materials that we saw were translations of Japanese books published by Productivity Press. In addition, there was an NBC “white paper” entitled “If Japan Can Why Can’t We.” In those early days “lean” had not been coined as an umbrella word to encompass all aspects of those concepts, principles and practices. In addition, the NBC white paper erroneously implied that this way of working was unique to the Japanese culture and was widely practiced there.
Since these ideas were so very different from the traditional business model that was being taught in our business schools and widely practiced in the western world, we had trouble identifying with them. So when we heard about “just-in-time” the question was “JIT what?” Thus, it became Just-In-Time Inventory Management. Kanban was also categorized as an inventory management system. And when we eventually tried to talk about the Toyota System, we inserted the word “production”… thus TPS: Toyota Production System. I believe that because our understanding of Toyota was so superficial at that point, these labels contributed to the widespread belief that what Toyota was doing was different in merely an operational sense, and as a result, it could be easily copied. And copy we tried. At least we tried to copy the “tools” because those were easy to observe.
How wrong we were. Around the mid-1980’s, a few people began to understand that Toyota was using a different business strategy to succeed in the automotive industry. These people understood the value of quality as perceived by the customer. They understood the value of flexibility in dealing with changing customer demand. They understood the value of developing the capabilities of their people in solving problems as they occurred. This way of thinking was radically different than the other American and European automotive companies that operated under a strategy based on price, batch production, and “expert” problem solvers.
Changing Our Industry
I observed these different interpretations first-hand through taking part in one of the best-known stories of lean transformation. Although The Wiremold Company story has been told many times, the lessons that we learned more than 25 years ago are still relevant. In the 1980’s Art Byrne was one of the few business leaders in the U.S. who understood that what Toyota was doing was strategically different. It was different than what he learned in the process of getting an MBA. It was different than all of his previous work experience. Despite no real experience to anchor his mindset, he also saw that it was a better strategy. Exposure to this new way of working changed his mind as to how to run a business.
When he became Wiremold’s CEO in 1991 he came to a company where all of the executives had traditional business educations and traditional work experience. This included me (I had joined in 1978 as VP of finance, and eventually became CFO. For some inexplicable reason, when Art taught us about the power of Toyota’s strategy (not called “lean” yet) we all “got it.” Some of us easier than others, but in a relatively short time, we all were able to “change our minds” from everything that we had previously been taught and experienced to something that was literally foreign. And in doing so, we changed the name of the game in our industry.
The electrical equipment industry historically grows at about the same rate as the GDP. By implementing a lean strategy that included, among other things, focusing on quality, flexibility, and developing our workforce’s problem-solving capabilities, in less than 10 years we were able to:
- Improve quality exponentially.
- Reduce lead time from weeks to days.
- Boost on-time deliveries from less than 50% to 98% while improving inventory turns from 3.4 times to 18.0 times.
- Increase revenue from $100 million to more than $400 million.
- Improve gross profit from 38% to 51%.
- Improve EBITDA from 6.2% to 20.8%.
- Grow our enterprise value by 2,467%.
In the eyes of our distributor partners, we went from being a pain in their side to a preferred supplier. They understood that we were employing a radically different strategy, especially when we taught them how to increase sales of our products while reducing the amount of inventory of those products that they needed to carry. This enabled them to improve the gross margin return on investment (GMROI, a distribution “golden” metric) on our products from less than average to outstanding.
The argument being made today against lean being a powerful strategy is that if it were one, then many more companies would be doing it. I see it the other way around. Many more enterprises are not doing it because their leaders don’t have the desire (ability?) to change their mind. Are they that risk averse that they prefer to stay within their comfort zone? Do they still believe that the success stories told in many lean publications are “one-offs”? Are they so sensitive to today’s politically correct environment that changing one’s mind makes you a “flip-flopper”?
I’ll say it again. By being able to change our collective minds instead of following the “this is the way we have always done it” path, Wiremold’s people were able to change from a traditional strategy to a lean strategy and achieve spectacular results for our customers, our suppliers, our people, and our shareholders. Isn’t that what we should be striving for?