A lean transformation cannot be just one of 10 elements of your strategy, according to former Wiremold Company CEO Art Byrne, who has led more than 30 transformations. It must be the foundational core of everything you are trying to do; that is how it becomes your culture. In this excerpt from his book The Lean Turnaround, he offers insights into how to make it the core strategy.
Lean is the most strategic thing you can do to transform your company. Perhaps a simple example will help. Let’s assume that Company A and Company B are competitors. They buy the same equipment from the same vendors and use it to compete against each other. The only difference is that Company A takes one hour to change over its machines, whereas Company B (without big capital spending) has figured out how to do it in one minute. If the two companies can each afford to dedicate only one hour a day to setup, then which will have the lower costs and which will have the better customer service?
Company B, of course, on both counts, but the real question is – is this strategic, or is it just some “manufacturing thing”? How can Company B build on this advantage? If the industry lead time is six weeks, but Company B can use its rapid setups to offer a two-day lead time, it will certainly gain market share. And how will Company A then respond? Most likely it will either build more inventory (worsening its cost disadvantage) or cut prices, which will further erode profits. Company B, however, can use its greater speed and responsiveness to continue to gain market share without cutting the price.
Does it sound more strategic now? All we did was cut setup time—something that most people see as a “manufacturing thing”—and we realized a huge strategic advantage (i.e., lower costs and better customer service). And that’s just one crucial way to illustrate that improving the way value is added in your company is the most strategic thing you can do. It is the enabler for any other strategic moves you may want to make.
I realize that this is a hard concept for most people to grasp. Throughout your career, strategy has meant big-picture ideas or dramatic moves to gain advantage in the marketplace. No one ever thinks of improving value-added as part of strategy. But using lean to improve all your processes (for example, to achieve lower costs, better quality, shorter lead times, and better customer service, plus freeing up lots of space and cash to reinvest for future growth) will profoundly boost your ability to execute on what you now consider to be “strategic” initiatives. And you will create a wealth of new strategic options (such as offering a two-day lead time while the rest of your competitors are still at six weeks) that you would not have even seen as possible before changing your value-adding approach.
For those who came up in a make-the-month world, as I did at General Electric, the idea of focusing on process instead of results may be hard to swallow. Everyone wants to improve his company’s results. I have found, however, that the best way to reliably improve your results is to fix your processes. Spending a lot of time analyzing what happened last month—as happens in a traditional company—is a waste. Last month already happened. You can’t do anything about it now. Companies that focus on the past usually try to offset bad results from operations with some wizardry in accounting (think Enron, Health South, or WorldCom), but they are rarely successful for long.
What you can affect is the present and the future, and improving your processes now means that you will have better results next month, and the month after that. Better results come from delivering better value to customers. This is the essence of what any company’s strategy should be: delivering value to customers. People get confused here and talk about strategies such as “enhancing shareholder value.” This is looking at strategy backwards. Shareholder value will increase only if the company can deliver superior value to customers on a consistent basis over a long period of time. So, shareholder value is a result, not a strategy.
Switching to a lean strategy, by the way, doesn’t mean that you have to give up doing all the things you have historically thought of as strategy. You can still try to develop new products, enter new markets, and improve your quality and your customers’ experience. The difference is that switching to lean will allow you to execute these actions much faster and more economically. You will be able to do things that your competitors can’t do. You will have the strategic advantage.
Think of lean as a time-based growth strategy. The steps you take to improve your value-adding processes will automatically reduce the amount of time it takes you to do everything. Companies that compete on speed will naturally gain market share against slower competitors.
More important, history has proved that people will pay for speed. Think of FedEx taking business away from the U.S. Postal Service. The post office still charges less than a dollar to reliably deliver a letter anywhere in the country, as long as you do not mind waiting. FedEx collects an enormous price differential (more than 2,000 percent) based on the promise of getting it there fast.
Never lose sight of your main objective in making the lean transformation: delivering value to the customer. Do not begin a lean transformation in order to cut costs or reduce inventory or achieve some other internal goal (which, unfortunately, is the most common approach). Lean cannot be just one of 10 elements of your strategy. It must be the foundational core of everything you are trying to do; that is how it becomes your culture.
Don’t just do lean; be lean.
(Adapted from The Lean Turnaround, by Art Byrne, McGraw-Hill. Reprinted with permission.)
Keep learning from Art Byrne with these resources …
Lean Case Study: Find out how The Wiremold Company under Art Byrne transformed tool maintenance, design, and fabrication processes to create a widespread and long-running lean conversion.