The key difference between traditional and lean management is how leadership executes and achieves its strategic goals. Even when they are pursuing essentially the same strategy, lean’s superior approach ensures that it will always outperform a competitor with a traditional managerial approach.
I define a business as a group of people and several processes that deliver value to a set of customers. Let’s examine how lean differs from traditional management in each of these elements.
Traditional Management Sees Employees as Costs
Most traditionally managed companies pay lip service to “how important their people are” while thinking and acting contrary to this maxim. They treat their hourly employees as a cost to be reduced and pay according to finely defined descriptions of their jobs. This narrow view of employees as limited resources becomes even more pronounced when unions are involved.
A limited focus on cutting costs causes leadership to accept the way people work and seek incremental improvements. Traditional companies generally take their processes for granted, looking for minor tweaks. They will accept that it takes two to three hours to change over their equipment and rarely think twice about six- to eight-week lead times. They could engage the workers to find radically new ways to slash these times. Instead, they fall back on a fixed mindset that either overinvests in automation or outsources work to countries with a lower labor cost.
And this tin ear for people extends to how they treat customers. Traditional companies say “we are customer-driven” while pursuing “make the month” policies that are inherently hostile to customers’ needs. So, they ask their most important partners, their suppliers, to endure end-of-the-month stupid sales tricks and two-month lead times when they could far more effectively meet demand?
Lean Management Actually Respects People
The lean company has managers who respect its people, listen to them, and solicit their input on removing waste. Lean managers know that their people are the only asset that can eliminate waste and that, over time, their value will appreciate. That’s why the hourly workforce (union or nonunion) is prominent on all kaizen teams. They are not a cost to cut but an asset to be grown.
This investment in frontline workers ties to a lean company’s focus on processes rather than results. Only the people doing the work can find dramatically new ways to deliver value. This trust supports the people who reduce setup times from two to three hours to two to three minutes and lead times from six to eight weeks to one to two days without significant capital spending. Lean leaders understand that being more responsive to customers positions the lean company to compete on time, which provides an unfair competitive advantage.
Lean companies relentlessly focus on delivering more value to their customers than competitors. Growing their people and taking the waste out of every process every day is done for the customer’s benefit. Indeed, this outlook will eventually cause the lean company to help its customers make improvements so they, too, can deliver even more value to them. The focus on the customer and treatment of their workforce are night and day differences compared to how the traditional company thinks of its customers.
Lean Leaders Organize and Operate by Value
Most traditionally run companies are organized in functional departments, whether by type of equipment or, for service companies, by specialty or skill. Think of all the little, narrowly defined fiefdoms in a hospital. This structure inevitably leads to long lead times, poor quality, high costs, and lots of infighting. And, worse, it is challenging to change. Lean companies, by contrast, are organized by value stream so that value can flow quickly to the customer at low cost and with excellent quality.
Lean Production Flows via a Pull System
Because of its functional organization, the traditional company produces things in batches that move from one department to the next. This work is controlled primarily by Material Requirements Planning (MRP) systems that push material through the various processes. This approach’s complexity and extra cost force the traditional company to remove the customer from the shop floor and produce to meet a forecast. Of course, with lead times of six to eight weeks, the forecast is always wrong, which causes additional problems.
The value stream structure of the lean organization creates flow, which allows the lean company to calibrate production to the demand of the customer and pull the right amount of materials and products through the various processes. Moreover, by using kanban cards to reflect this demand, everyone on the shop floor works directly to this demand — they can see and feel it. These practices enable the lean company to approach the lean ideal of “sell one make one” (which is impossible in a functional batch structure where it is much more likely to “sell one, make 10,000.”)
Lean Processes Reduce Inventory to What is Necessary
The traditional batch approach requires maintaining high inventory levels, which hides the long lead times and forecast errors unwittingly built into this approach. The conventional manager accepts this and rationalizes why carrying so much inventory is smart and not expensive. On the other hand, the lean manager sees inventory as the root of all evil, unnecessary clutter that is expensive and hides the waste in the processes. Furthermore, the lean manager realizes that continually driving down inventory will reveal defects that prompt everyone in the company to remove this waste.
The traditional manager who believes that surplus inventory has no downside will purchase raw materials in large quantities to obtain the lowest unit cost. Unfortunately, they don’t understand that they give back any gains from smaller unit costs by the extra costs of moving, storing, damage, and the eventual obsolescence of some of this inventory. In contrast, the lean manager asks vendors to make daily deliveries (or as close to that as possible), enabling response to the customer’s order while lowering overall costs. Going from 3x inventory turns to 12x inventory turns, for example, will typically free up 50% of your floor space.
Lean Thinking Improves Quality by Clarifying — and Addressing — Problems’ Root Causes
Lean managers know that you can’t resolve problems if you cannot frame them in a solvable way. And if you produce in large batches, with lead times of six to eight weeks, then your quality problems are hard to isolate, let alone solve. When, over these six weeks, did the problem occur? What department caused the problem? How can you determine whether you have a machine or an operator problem in a department with 12 similar machines and 24 operators working two shifts? How, when you buy steel from three different vendors, can you tell whose steel caused this problem when you are digging into it six weeks after occurrence (if this was indeed the root cause at all)?
The traditional manager has little choice but to add an expensive quality inspection process to avoid such a muddy stew of issues that might be the primary cause of the problem. By comparison, the lean manager, who works in one-piece-flow cells with cycle times of only a few minutes from raw material to in the box, knows all the parameters instantly: whose steel, which machines, what operator. In my experience, moving from batch to one-piece-flow creates a 10x quality improvement.
Lean Management Reduces Systemic Costs
The traditional manager who focuses on results (such as make-the-month targets) will always look for savings in isolated “point optimizations.” In contrast, the lean manager seeks systemic improvements by focusing on the processes. For example, the traditional manager’s functional structure starts with 25% to 40% too many people and 40% to 50% too much space. They can’t see this and will deny that any waste exists. However, the lean company that starts from this same place will significantly benefit by removing waste from every process. That’s what we did at Jake Brake (part of The Danaher Corporation), where we increased brakes produced per person-hour from three to 35 and EBITDA from 4% to 30+%. Likewise, at Wiremold, we gained 13 points of gross margin and increased EBITDA from 6% to 21%.
Lean Managers Lead Hands-On and Out Front
The traditional manager manages the company from their office while the lean manager leads from the gemba, in an out-front, hands-on way. This behavior must be modeled and cannot be overlooked, for it leads to the type of results you get, and more importantly, the culture you create. Unlike the traditional manager who hates bad news and punishes mistakes, the lean manager wants to hear about problems — and even encourages failure — because they help expose and eliminate waste.
Focusing on delivering value and removing waste naturally destroys unnecessary corporate practices. Unlike traditional companies with too many layers and fiefdoms and are slow to make decisions, lean companies have few layers and push decision-making down so that it can be quick and every employee can participate. While traditional companies have complex systems like MRP for production and standard cost accounting to keep track of everything, lean companies simplify this with kanban pull systems and lean accounting. Traditional companies suffer turf battles between functions, like sales vs. manufacturing, while the leadership team in a lean company is all on the same page and works as one unit.The key to sustaining these behaviors is that the lean manager can “see” waste that a traditional manager cannot. And, beyond having the vision to see waste, the lean manager constantly works to eliminate it. And they reflect on what this means for the company’s ability to compete. All that sets the lean company apart from the traditional company. Finally, as part of respecting their people, the lean manager engages everyone to help remove the waste. In contrast, the traditional manager can’t see the waste, accepts their processes and long lead times, and uses only a small number of salaried workers to analyze and solve problems. Which type of company would you rather compete against?
Managing to Learn
An Introduction to A3 Leadership and Problem-Solving.