In my experience, setting stretch goals is key to succeeding in a lean turnaround. And yet almost all traditional managers oppose them. The most common argument I hear from frightened leaders is that if they set the goal too high, then people will become frustrated and just give up. They worry that they will lose people and nothing will happen.
I can certainly understand this concern. If you have always operated in a traditional batch environment and don’t understand what is possible with a different approach such as lean, you will find it almost impossible to consider setting goals you can’t even conceive of achieving. Assuming that you will continue to operate in the same manner that you always have naturally means that you can’t expect more than small incremental gains. So why put goals out there that nobody believes are possible? It is much more comfortable for the traditional manager to set goals that everyone thinks could be reached if you just work a little harder or smarter. For example, if inventory turns have been in the 3.0x to 3.3x range for the past five years, then setting a goal of 4.0 might seem like a worthy but difficult goal.
If, on the other hand, you understand lean and the type of gains that are possible from a continuous effort to remove the waste from your processes, then you would never consider setting such small incremental goals. Even if you didn’t know much about lean but were exposed to the type of gains other lean companies have achieved you might at least consider changing your approach.
The lean company is constantly trying to eliminate waste so that it can compete on its operational excellence. The lean people have learned that the traditional “make-the-month” culture is always looking backwards at what already happened—at events that you can no longer do anything about. Big end-of-month reviews to analyze last month’s results tie up a lot of resources (i.e. waste) and don’t help your future results. Your emphasis should be on what you can do to improve future results.
To do this you should start by defining a set of operational excellence targets, that when achieved, will dramatically improve your future results. At first these goals will probably seem ridiculous to most of your people. In fact, if they don’t then you probably set the bar too low. Remember you are trying to change the conversation dramatically. You want targets that can’t be reached if you continue to work the same way—going just a little faster or a little better.
Consider this example. The traditional manager will set a goal of going from 3X inventory turns to 4X; the lean leader will set a goal of going from 3X turns to 20X, knowing that no one will think they can continue doing what they are doing and hit this crazy goal. Everything will have to change.
When I first became CEO of The Wiremold Company, I set our operational excellence goals as follows:
- 100% on time customer service
- 20X inventory turns
- 20% productivity gain (each year)
- 50% reduction in defects (each year)
- Visual control and the 5s’s everywhere
These were generic targets by design, as they can be used by any manufacturing company. They defined our operational excellence targets. They were aspirational, not something that was going into next year’s budget. We knew it would take time to get there but we needed a vision of where we were going and this was it. Achieving these goals was our strategy and our focus. Lean is the greatest strategic weapon you will ever see; but only if you set stretch targets and then use all the lean tools and lots of kaizen activity to achieve them.
By the way, we were at 3.4X inventory turns when I introduced these goals. I didn’t expect everyone to just say, “Oh sure Art, 20X inventory turns, no problem.” In fact they were horrified. But we started major kaizen activities right away. Setup reduction times plummeted. Machines that we changed over three times per week were now changing over 20 to 30 times a day. Inventory turns exceeded 10x after 3 years, and we freed up almost half our floor space and enough cash to do our first five small acquisitions (we wound up doing 21 over about 9 years).
Twenty percent productivity gains each year? Are you nuts? Well in my prior role as Group Executive of The Danaher Company, one of my group companies, Jake Brake, achieved a 29% productivity gain each year for the first five years with a workforce that belonged to the U.A.W. So 20% seemed ok to me. I think we wound up averaging 14%.
The goals may have seemed a little far out there to everyone at first but we didn’t lose anyone. In fact the opposite happened. We changed the conversation. The gains we were getting from every kaizen were so big that in no time people got used to having ambitious stretch goals. We reorganized into value streams and had the value stream managers present how they were doing on the five goals every week. Hitting these goals became part of the culture. Instead of being turned off by them our associates were energized by the challenge.
One of the key Toyota principles is the concept of respect for people. To me setting stretch goals shows great respect for your people. In effect, you are saying to them that you believe that they can accomplish great things—way beyond what they can imagine. You have to show them the way and run lots of kaizens but your people will always surprise you. To me the greatest reward was always to set a goal for a team that no one thought they could achieve; and then watch how proud they were and how good they felt after they beat it. That was so rewarding. Keep in mind that this creates an obligation for the leader. You can’t just say, ok, here is the target and just walk away. You have to lead them to the target by participating, coaching and encouraging them along the way. For example if you were at 3X inventory turns and I gave you the goal of 20.0x then when you got there we could celebrate briefly. If however, I didn’t then set a new goal of 30.0x then you would be disappointed in me and think I quit on you. “Hey, what happened to him, doesn’t he want us to go further?”
Let’s take a quick example of “Mr. I don’t want to set stretch goals and a lean leader”. Let’s use quality. Mr. I don’t want to set stretch goals is only willing to set an annual goal of 5% reduction in defects. The lean leader on the other hand sets a target of 50%. At the end of the year the “I don’t want to set stretch goals” team beats their target by 50% and gets a 7.5% reduction. The lean team is not so lucky. They miss their target by 20% and only get a 40% reduction in defects. If this continues for several years what do think will happen? Who will win?
The moral of the story is don’t be afraid. Take the lean leap and set stretch goals. Show respect for your people. Use the lean tools and kaizen to get to the point where you can compete on your operational excellence targets. You have to lead the way but you won’t be disappointed.