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How is lean strategic?

1/21/2013
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Dear Gemba Coach,

I’ve been told by my senior management that there is no strategic vision in lean and they don’t see how to integrate the lean initiative to the strategic plan. I’ve not found any reference to lean and strategy in the literature. Any advice?

Lean is a business strategy would argue Art Byrne, the CEO of Wiremold (a company that was valued at $30 million and was sold ten years later for $770 million) in his great book The Lean Turnaround.

But, yes, you’re right, there’s not much “strategy” in the markets/technologies/footprint sense of the term in lean, although much of lean thinking is strategic – but in a different way. Strategy is traditionally about defining where you want to be, devising a way to go from here to there, and then planning how to execute the change. I’d argue the same elements appear in lean thinking, but in a different way: lean strategy is a learning strategy, rather than one based on defining future states upfront. Strategy in lean is expressed as “challenges” we have to overcome.

Our current form of capitalism is based on creative destruction: owners invest in a venture, mostly in terms of equipment and structures, and keep doing so as long as the financial returns are worth it. Typically, marginal returns on investment will diminish and then the question is whether to re-invest or to move on to a new venture. Hollywood is a past master of this: when one film is a hit, movie execs will immediately invest in a sequel, and then a third installment as long as box office numbers are good. They’re going to reinvest as long as they can milk the idea. The same thinking applies in any industry, where most strategic decision-making is about cutting losses (which is counterintuitive and painful), when ROI is no longer what it should be, and moving to juicier schemes.

Where Strategy Starts

In the early days of lean, Japanese gurus such as Masaaki Imai argued right from the start that kaizen was a different strategy. The fundamental idea is to fix problems now to (1) keep ROI from existing investment and (2) learn to better define the next generation of investment. This approach is in fact strategic and takes you to very different market positions. But it’s strange, and it starts at the gemba.

How can strategy start at the gemba? I’ll illustrate with a company I know, where the CEO of a small manufacturer of machine tools for a large industry started lean some months ago and almost never got off the ground, because he stumbled on the very first step: protecting customers. On the gemba, looking at a machine that was being prepped for a large mainstream customer, he started asking whether the problems of the installed base for this machine at the customer would be solved with the new equipment. This opened a Pandora ’s Box of issues. It turned out that this customer, a major corporation, had been complaining so much about the installed equipment that the technicians in the company had started dismissing it as bad-tempered noise (they’re still buying our machines, aren’t they?). The engineers felt that the machines conformed with the contract—so what was the client making such a fuss about? Intrigued, the CEO did his genchi genbutsu at the company, and witnessed firsthand all the usage problems the customer was complaining about.

Two main kinds of concerns appeared: (1) a fundamental issue of rework from one of the high-tech elements of the machine and (2) general issues of user-friendliness to the operators using the machine every day. They still purchased the machines because they felt competitors were worse, but were very frustrated by the total lack of interest they got from any of their machine suppliers.

Over the following months, the CEO tackled three difficult changes in his own company. First, he asked his engineering teams to fundamentally change their attitudes to customer complaints, take them all seriously (by doing full A3s on each) and start thanking customers for their complaints. Second, he started a project with his key designers to rethink the integration of their machines in the flow of the customer’s operation; in doing so they started rethinking radically the direction taken by the new designs for the next generation machines. Thirdly, he realized that on the key high-tech component they had been so busy fighting fires (as well as starting a venture in India) that innovation had almost disappeared from the company’s scope. In our latest conversation, he was wondering whether his current company could actually do both and was considering creating a high-tech start-up company to focus on this key component and return to pure play innovation, which would later be plugged in to his existing products.

Now, I don’t have a crystal ball and have no idea whether he’ll succeed with any of this, but these issues are clearly strategic. Rightly or wrongly, he decided his products would be standards at large customers, which means increasing the installed based within existing corporate clients rather than selling more to smaller unknown customers: this is positioning the company on its markets. Secondly, he started formulating a new vision of future products, which has to be strategic as well. Thirdly, he refocused his thinking on key technologies and the kind of investment necessary to sustain innovation: strategy again. Finally, he’s hoping that margin gains from kaizen will generate the necessary cash to be able to implement his new strategic ideas. Early signs are promising on this front.

Two Levels of PDCA

Solving problems now, in this case, doesn’t mean fixing the issues and moving on, but rigorously applying two levels of PDCA. Firstly, PDCA at the machine issue level, in which the CEO gets personally involved in the “check” by confirming technical solutions that his engineers have put in place. Secondly, a strategic level of PDCA as the CEO is now exploring unchartered territory, he tries to formulate clear hypotheses and looking for confirmation or contradiction on the market. He is familiarizing himself with his key challenges and exploring possible solution at the gemba.

Lean strategy is a learning strategy: solve problems now to define investments for tomorrow. This is the opposite of what is usually thought of as strategy: figure out tomorrow’s future state and abandon what you do now to invest in getting there. These are two radically different ways of thinking strategically. The latter is vision driven, the former is gemba driven. And these two ways of strategic thinking do lead to very different kinds of solutions.

I realize this doesn’t quite answer your question and won’t help you much with your senior management, but thank you for asking this question, as I feel the underlying debate is a deep one we should probably have within the lean community. Strategic vision in lean is driven by gemba (at customers as well as our own shop floor) and kaizen. Maintenance and innovation kaizen are the key to explore the great challenges that confront us. It also offers the hope of a more flexible, less destructive form of capitalism where ROI is sustained by kaizen and where new investments better fit the facts of the market.

6 Comments | Post a Comment
Jason Rekker January 21, 2013
Perhaps not so much of a paradox. Someone once said "Plans are worthless; planning is everything," with the implication being that strategy drives you forward, but what you learn as you go determines the ultimate destination. Perhaps the relationship is more complementary and intertwined.
Jorge Wong January 21, 2013

Jason makes a great point. The point is that traditional strategy making primarily focus on "end results" or the PLAN, which can be useless after enough changes in the actual situation. And that often "the means" (PLANNING) to achieve the end is an aftertought.  Conversely, A3 thinking emphasizes the action and thinking  PLANNING, which deserves as much as half- the A3 thinking, time and effort or paper space.
  
There is a very interesting book* that shows how an organic and systemic view and practice of the Toyota Production System or Lean is truly strategic because it understands the true natural cause- effect relationships in a complex living system, such as an organization, including feedback loops, delays and system archetypes.  And how "management by results" when is only a quantitative approach to strategy making is often counterproducive.  Note that in addition to results (goals are real and ambitious in Lean), TPS emphasis on an organic system of Managing by Means - that is managing to learn and to develop PEOPLE CREATIVE AND PROBLEM SOLVING CAPABILITIES- both as individuals and teams- to achieve said results. 

Two STRATEGIC principles of Managing by Means: Respect for People (challenge and support you people to never stop improving through relentelss problem prevention/solving) and Kaizen (continual harmonious, balanced improvement). Results follow naturally....as experienced by Art Byrne's.

*"Profit beyond measure" by Johnson and Broms.  

Charles Kenney January 22, 2013
Isn't the relentless effort to identify and eliminate waste strategic? I've observed the tranfsormation of Virginia Mason Medical Center in recent years. The managgement method there relies upon TPS principles. The Virginia Mason team has demonstrated that eliminating waste has not only improved safety, quality and efficiency, but it has also provided much greater value for customers. Lots more at www.virginiamasonblog.org.
Vitezslav Pilmaier January 23, 2013

In the old school days we have been taught, that there are actually only 2 ways of development - extensive and intensive, and it is a strategical decision which way to go (plus from long term perspective it seems the intensive is the only possibe sustainable way). And lean actually fits perfectly to intensive strategies pool, so it is a strategical decision to go towards lean.

Jose Stevaux January 23, 2013
I see Hoshin Kanri as the lean tool for policy/strategy deployment. It blends MBO (Management by Objectives) and PDCA and is a powerful tool to align company goals, plans and resources. I am reading "Hoshin Kanri For The Lean Enterprise" (Thomas L. Jackson).
Michael Ballé January 23, 2013
Hi guys, thanks for your comments. There's a point I probably haven't stressed enough. I was yesterday ont he gemba with a CEO who suprised me by saying that his strategy was not a matter of finding the right market opportunities, but developing people autonomous enough to have the leadership to pursue them profitably. What this CEO does on the gemba is 1) try to understand instances of customer value (or non value) and 2) waste - look at cases of overcosts created by the method of organization. The problem then is to find people who can understand and exploit these opportunities. Beware of too structured 'deployment" approaches, they tend to hide the fundamental problem of growing the right person for the right time, right place.
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