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Management has a bad case of investment loss aversion. What can I do?

Michael Ballé
4/18/2012
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Dear Gemba Coach

I’m in something of a situation and wondered whether you would have some advice. After turning around a facility with lean techniques (essentially creating small autonomous cells by using old equipment), I’ve been asked by the company to take over the corporate lean program. The company’s investment plan favors large high-speed equipment, which I’ve come to see as “monuments.” And yet I’ve been told in no uncertain terms by senior management that I can’t denigrate past investment commitments or cast doubts on those which are currently planned. I personally believe that large centralized machines are one of our biggest roadblocks to leaner processes. Yet I don’t know how to respond to my superiors. What do you suggest?

Tricky, and I’d rather not add to your troubles but you might be in a worse spot than you think. My top-of-the-head advice would be to toe the party line and live to fight another battle. This issue is not the one to make into a “cause célèbre,” it’s not worth becoming a lean martyr over. I have seen this type of battle many times, and, actually, such stories are common in Toyota’s own history of developing lean. Taiichi Ohno didn’t have a particularly easy time of getting his ideas across and he was challenged consistently. TPS evolved due to his perseverance AND Eiji Toyoda’s backing when it came to a crunch. But let’s examine the problem in more depth.

The unfortunate fact is that large companies, and to some extent societies, get stuck with the irrational choices of their leaders that keep committed to a course of action even when it’s long been proved to be a losing option. Wars are fought to the bitter end even when the outcome is certain. Companies go into bankruptcy without ever challenging their strategy. People keep making the same choices out of habit and consistency, seemingly indifferent to the outcomes (they’re not, actually, it stresses the hell out of them), and it usually takes a new team without the same commitments to change tacks. Companies are not democracies, and as long as the same management team is in place, management will place a premium on its consistency.

You Lose
From senior management’s point of view, this is like a Siberian dilemma: imagine you fall in the water in well-below freezing weather. You’ve got the choice of staying in and dying slowly of exposure, or getting out and freezing to death on the spot. For a management team it actually makes (kinda) sense to drive the company into the ground by sticking to their guns: they’ll get fired later when the results are not there, rather than get fired right away if they admit to having made a monumental misjudgment.

And so, in practical terms, I don’t have much advice to give other than not push this head-on. Try to be a wiser man than yours truly and don’t argue about solutions. The trick is in trying to attack the underlying logic of these choices, rather than the forgone conclusion. If it comes to a fight, you’re likely to lose out because the other, more powerful side simply can’t afford to let you win. This is how so many lean officers end up isolated (everyone else naturally aligns with the top dog, even if they understand the underdog’s case), bitter, and cranky. So, not much in the way of advice, but I might have a couple of Gemba suggestions.

4 Suggestions
First, accept that the issue you’re facing is part of lean, not something extraneous. The first chapters of Taiichi Ohno’s seminal book on Workplace Management are: (I) “The Wise Mend Their Ways” (as in: “the wise should not hesitate to correct themselves”) (II) “If Your Are Wrong, Admit It,” (III) “Misconceptions Reduce Efficiency,” (IV) “Confirm Failures With Your Own Eyes,” (V) Misconceptions Hidden within Common Sense, (VI) The Blind Spot in Mathematical Calculations, and so on … you catch his drift. I have an old Toyota document retracing the evolution of kaizen at the Takaoka plant that states explicitly REFORM OF MANAGERS MIND as the goal of the kaizen process. So, rather than prove the rightness of your ideas, you could reframe your role as “reforming managers’ minds,” which opens a different box of questions: what does it mean? How do we do that? How do we know we’re progressing? etc.

Second, be better at the lean officer job. Again, Ohno is an excellent guide. If you follow his advice in the introduction of The Toyota Production System: “all we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing nonvalue-added waste.” And so, define your lean program as a lead-time reduction program, and things will look different. For instance, a monument may not appear as much of a problem if you’re not careful with lead-time on a VSM. But if you focus on lead-time analysis you can visualize that the lead-time for a part is the production time of that batch PLUS all the non-production time when all other batches are being produced. In this sense, a fast machine that makes all the references might be a plus in terms of production time, but the fact that all parts have to go through it also means that the non-production time for A (the time it takes to make B, C.. etc.) can be huge. So, define lead time as the time it takes to make the last A part of the batch to the first A part of the next batch. By framing the problem in this way systematically, you will eventually make your colleagues start seeing the problem with monuments, and so let them get to grips with the issue themselves. You can lead the horse to water, but you can’t make it drink. Rethink your job in terms of making them SEE the lead-time (and hence cash drain) cost of monuments.

Testing Investments
Thirdly, focus on the problem at hand. Other than their purchasing and maintenance expense, the main industrial problem posed by monuments is their inflexibility, which leads to (1) large lot size – and hence, stocks and cash drain; (2) low utilization, as small lots can’t be fitted in and since the equipment and change-over is typically difficult and takes time (3) and the larger and more complicated the machine is, the harder it is to maintain and keep running. There are no two ways around this: you need a vigorous, old-fashioned SMED program. This is also your best bet to get people to change their mind by being regularly confronted with the difficulties caused by the equipment. The trick is not to think in terms of one SMED exercise or two, but in terms of program: we’ll study one film per week. In one company I know, they have a monthly rhythm of flow-and-layout workshops, and the manufacturing engineering director always sends one or two of his engineers to participate. It’s amazing to see how quickly machine designs are changing in practice. People change what they do before they change their minds.

Fourthly, out of the previous work, formulate a test method for further investments. This is perfectly legitimate. Many investments are done on the basis of some ROI calculations and the fact that someone WANTS the machine. From the way current equipment operates, you can start formulating a one page checklist of what the next solution should fulfill to satisfy the people who use them: the plant managers. This is a neat lean trick which tends to considerably slow down irrational spending by getting people to think a bit further about what they intend doing without challenging the shape of their technical solutions – you’re not arguing against them, you’re helping them make the correct decision.

No debate that, from a lean point of view, you are absolutely correct; sometimes, doing things long enough we forget the early, basic lessons and yes, one of the keys to lean is to move from specialty shops to multi-process cells, as you’ve done. But I’m willing to bet you didn’t reach this conclusion right away. So rather than discuss conclusions, ask yourself how you can take others through the same learning. Most of my research work has been predicated on the idea of reproducing Toyota’s learning curve rather than trying to apply its current solutions. So, take it on the chin and face it: your job is precisely to change manager’s minds. Once we’ve stated it that way, we’re back in the lean world: what is the plan? How are you going to do it? How will you check? What actions will you draw from it to change your mind?

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