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The Formula for a Successful Management System: LB * OS = MS

by Jim Morgan
May 31, 2018

The Formula for a Successful Management System: LB * OS = MS

by Jim Morgan
May 31, 2018 | Comments (4)

Time and again I have seen companies that struggle to create an effective management system pay the price in their performance. Indeed, research that looked at the management practices and performance of 12,000 firms from across 34 different countries reveals that healthy management and operational excellence are a competitive advantage: “If you look at the data, it becomes clear that core management practices can’t be taken for granted… Firms with strong managerial processes perform significantly better on high-level metrics such as productivity, profitability, growth, and longevity. In addition, the differences in the quality of these processes — and in performance — persist over time, suggesting that competent management is not easy to replicate.” The authors behind the research further note, “Achieving managerial competence takes effort, and it requires sizeable investments in people and processes throughout good times and bad. These investments, we argue, represent a major barrier to imitation." 

I agree, and in our forthcoming book, Designing the Future, my co-author Jeff Liker and I share our belief that, while the term management system is used in different ways, we believe a management system is the product of two elements; leadership behaviors and an operating system (LB*OS=MS). If either multiplying factor is weak, then the resulting product is diminished. Leadership behaviors and your operating system are interdependent. There is no operating system you can possibly devise that can anticipate every possible failure mode or compensate for incompetent leadership. When companies try to do this, though often well intended, the result is a suffocating bureaucracy.  As W. Edwards Deming said, “A bad (operating) system will beat a good person every time.” A strong management system requires you to strengthen both elements. You can’t (and shouldn’t) take people and their skills and judgement out of the equation. Good leaders energize and bring life to a management system, and an effective operating system can focus and magnify leadership effectiveness just as a poor one can diminish it. If the leader is the craftsman, then the operating system are the tools they work with. There has been a great deal written about good leadership, but what is an effective operating system?

Operating System and Its Characteristics

An operating system is made up of the tools, processes, standard work, cadenced activities, and other mechanisms that enable the work to get done. If a leader is the craftsman, then the operating system is his or her collection of tools. But a good operating system is far more than the sum of its parts.

An effective operating system moves an organization toward its objectives in order to accomplish its mission. It creates a cadence of regularly occurring management activities instead of episodic management interventions. It is a single, integrated system, not a hodgepodge of departmental plans that do not hang together. It is transparent, multileveled, and cascades throughout the organization. It establishes objectives, allocates resources, and provides clear, aligned roles and responsibilities in order to deliver the plan. It provides the structure that enables (or inhibits) people to do their work. It knits together and drives critical value-creating activities, such as strategy deployment, continuous improvement, new product delivery, people development and working environment, manufacturing, and supply chain. Finally, the operating system provides its own performance feedback on how you are doing.

An effective operating system helps brings strategy to life. It synchronizes critical activities, enables the organization to respond quickly to a changing environment, and allows plans and teams to move together. And when executed with discipline and coupled with effective leadership behaviors, it provides a tremendous competitive advantage for any organization.

An operating system should accomplish six basic things:

  • Deploy your organizational strategy, align your organization, and allocate resources to insure success.
  • Drive the creation of new value through products and services that your customers truly value.
  • Support daily operations, providing support for the basic work of the organization.
  • Develop people and create a great work environment. This should be designed such that it provides a competitive advantage for years to come.
  • Provide ongoing system-performance feedback and enable continuous improvement. The system should have a built-in improvement and course-correction capability.
  • Create a framework for manager standard work. This framework should provide a disciplined cadence of management activities (daily, weekly, monthly, quarterly) that organizes leaders’ work and enhances their effectiveness.

 A System to Create Focus

Successful organizations are able to focus their energy and limited resources on delivering their plan.  Companies without good management systems are often unable to do this. This was certainly the case when Alan Mulally arrived at Ford in 2006. At the time, there was no shortage of initiatives to improve organizational performance. Improvement programs were simply layered one on another, all competing for precious time and resources. Unfortunately these chaotic initiatives served primarily to create organizational drag, squandered resources and created a sense of cynicism among people. So, what was the problem? In large part, it was a lack an effective management system to align the company.

And we don’t believe lack of organizational focus to be an unusual problem. Stanford professor Jeff Pfeffer explains, “Companies have managed to convince themselves that, since what gets measured is what gets done, the more they measure, the more stuff will get done.” He shared a conversation he had with a woman who works for a large oil company who had 105 metrics for which she was responsible. How many did she actually pay attention to? Her answer was zero. It was just too overwhelming. And this behavior has led professor Pfeffer to what he calls his “Otis Redding Theory of Measurement,” which is named for Redding’s song Sitting on the Dock of the Bay. In the song Redding sings, “I can’t do what ten people tell me to do, so I guess I’ll remain the same." When faced with too much, people will inevitably do too little or nothing.

We believe that the focus created by Alan’s working together management system and the focus it created was one of the most important elements of Ford’s turnaround. With its disciplined cadence, it clarified priorities and focused initiatives, leveraging their interdependencies toward a common set of goals. And, perhaps most importantly, it enrolled everyone in the effort.

Obeya management system

The obeya management system is another great example of an effective management system. Obeya meetings act as “superchargers” to align participants, build team momentum and confidence, and continually move the program forward. The obeya system also extends leadership effectiveness and provides a forum in which to demonstrate best leadership behaviors. The obeya management system creates a disciplined cadence and a high level of transparency for the entire team, which leads to much greater inclusiveness and collaboration, improved problem solving, and faster and better decision-making. With obeya, like Mulally’s system, the combination of a disciplined cadence, transparency and inclusive leadership naturally creates a high level of focus, accountability and improved performance.


It is worth repeating: In order to reap the benefits of an effective management system it is important that the operating system and leadership behaviors be aligned and consistent. For example, the operating system elements of obeya and A3 are exceptionally effective in promoting transparency, problem solving, and collaboration. But if leaders “do not want to hear problems,” attack people who surface issues, or don’t actually use the tools or collaborate with their colleagues, you can forget it. If you install an operating system that includes annual strategy deployment and a cadenced reviewing process to promote focus, but leaders continually chase after the next shiny object, what’s the use.  In fact, this lack of fit is often behind comments like “oh we tried obeya or A3 or whatever…. and it didn’t work here.”  Tools are just tools without a skilled craftsman.  Both your operating system and leadership capability should be continually and intentionally nurtured and evolved such that they are mutually reinforcing and always improving. 


PS: Join me and Lean product engineers, designers, managers, and developers in Traverse City on June 19 and 20 for LEI’s first ever Lean Product and Process Development conference, Designing the Future.

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
Bob Emiliani May 31, 2018

The focus on leadership behaviors began about 100 years ago with books by Tead and Craig & Charters. Lillian Gilbreth wrote about coupling leadership behaviors with an operating system in the context of the scientific management system. In the intervening years, leadership behaviors singly, or coupled with an operating system, has yield little overall improvement in LB, OS, or MS. This suggests that the understanding of LB, OS, and how they interact to produce MS, is incomplete. LB has proven to be more vexing than OS. I authored a paper in 2004 that explicitly presented what amounts to the LB*OS=MS equation (https://goo.gl/NK4P4G), followed by other work that zeroed in on the beliefs that inform the behaviors which, in turn, generate the desired leadership competencies. My point is that focusing on LB is necessary but not sufficient. There is more to it than just LB.

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Jay Bitsack May 31, 2018
1 Person AGREES with this comment

Hi All,

When we - particularly as CI/OpsEx practitioners - make use of the notion of a "SYSTEM" it is all too often used contrary to the defintion of what constitutes a WHOLE/COMPLETE SYSTEM.  What am I referring to here, you might ask/wonder?  Well, when phrases such as "MANAGEMENT SYSTEM" or "OBEYA MANAGEMENT SYSTEM" are presented as being the sole focus of attention in the context of pursuing/enabling CI/OpsEx endeavors, doing so leaves out and negates taking into consideration ALL THE REST OF THE "REAL SYSTEM" in question.  And that "REAL SYSTEM" is the organization/enterprise as a WHOLE.  Ergo, given the the existence of a WHOLE SYSTEM, which is composed of combinations of different interacting and interdependent elements - some of which are  SUB-SYSTEMS by definition/function - any references to its elements as being "SYSTEMS" unto themselves is erroneous and likely to be very misleading, if not confusing to any audience.

That said, you may be thinking about Toyota and the TPS.  In that regard, TPS is best considered a unfortunate exercise in early nomenclature. TPS - in combination with the Toyota Way - represent a enterprise-wide way of THINKING AND BEHAVING which is ubiquitous through the entire enterprise (as a representation of the REAL/TOTAL SYSTEM).  Accordingly, the sorts of THINKING AND BEHAVING that pervade and prevail within Toyota's production operations are actually the same sorts of THINKING and BEHAVING patters that pervade and prevail throughout the entire organization/enterprise.

To some CI/OpsEx practioners, what I've stated above may be claimed to be "OBVIOUS" to ALL, but the reality of how SYSTEMS-related perspectives - and the underlying mental models that enable those perspective - are being portrayed is indicative of a reality that's closer to the truth...  TRUE SYSTEMS THINKING and TRUE LEAN THINKING AND BEHAVING are rare easily distorted by claims to some higher-order level of knowledge/insight/understanding.

Bottom line:  What's missing from the equation for more wide-spread adoption and adaption of TRUE LEAN THINKING AND BEHAVING is exactly what it means in the context of how a WHOLE/TOTAL SYSTEM works and WHY it works the way it does.  As Dr. Russell Ackoff highlights in what is often considered his most likely TED Talk - if he were still alive to give one - one cannot hope to imporve the performance of the WHOLE [SYSTEM] by optimizing the performance of its PARTS [including SUB-SYSTEMS].


Here's a link to that would be TED Talk presentation:


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John Shook May 31, 2018
8 People AGREE with this comment

Thanks for this, Jim. I think this is an important contribution. It’s consistent with academic writings going back to the beginning of thinking about these things, with the past several decades of learning in organizational development, but more importantly its practical - simple enough for an organization of community to get its head around yet comprehensive enough to accomplish the job. And we have evidence of that from the way you helped Alan Mulally make it work at Ford. This is not just academic theory; it’s practice with a track record, too.

It also wraps up several threads that have been floating around out there. Those of us who have studied or learned from Toyota know the criticality of an “operating system.” And, goodness knows, EVERYONE preaches the importance of “leader behavior.” Add to those two pieces (OS and LB) the popularity of management system pieces such as daily management or hoshin kanri and you get either a confusing hodgepodge (what we find in too many companies, as you state) or put it all together in your elegant LB * OS = MS.

Okay, I, for one, will adopt this. It’s succinct  enough and comprehensive enough and close enough to the heart of the matter to run with, run some experiments, use as a “model” for management aspirational direction. To the previous commenter, yes, these are subsystems and not the full system. And, to add another truism to the pile, “all models are wrong - some are useful” (R Ackoff + George Box = lots of axioms).

It’s also open enough to have flexibility. Seems to me, for example, the Convis-Liker leadership model (the leader needs to commit to self learning, develop others, lead continuous improvement and ) works well with the LB piece. Other models could fit with it as well.

In the Lean Transformation Framework (which has five dimensions; this hits one or two of them, in the interests of addressing the broader enterprise system), we have been referring to “management system” and “leader behaviors” (the middle of the LTF “house”). Henceforth, I’ll amend that to this model: your management system is your operating system combined with leader behaviors. The right leader behaviors combined with a strong operating system make up a great management system: MS = LB + OS.

Thanks for the contribution. 

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Jim Morgan June 01, 2018
5 People AGREE with this reply

Thanks John.  Only a way to think about an important part of our work - no more.  I realize this concept may be difficult to understand for those who have not experienced it.  But don't overcomplicate it.  That actually may be part of the problem.  That said, simple does not mean easy.  And that may have something to do with it's rarity.  

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