“Show me the money” is really a question more than anything, and when it comes to Lean, it’s reasonable one.
The lean management model is fairly straightforward:
- Align each job with customer value (just-in-time techniques)
- Make sure every employee knows whether they’re doing OK or non-OK work (jidoka techniques)
- Engage every employee in their own development by giving them space to think through basic skills training (standardized work techniques) and encouraging their participation in individual or team improvement efforts (kaizen techniques)
Lean in short is this: customer satisfaction derives from employee satisfaction, or, to be more specific, satisfying customers (in their varied preferences) requires personal job fulfillment and continuous learning. In this day and age, few people would dispute any of this, although they may balk at the weird Japanese terms of the “how.”
Still, “show me the money!”, right? Let’s look at the alternative model to Lean. It usually looks like this. A strong leader makes gutsy calls in terms of high-return investments, picks “go-to” people to implement his strategy and makes sure the necessary systems are in place to deliver results. Enough of this “develop people and pray” stuff! Good, direct leadership is easy enough to understand. And if each part of the company is profitable—and this profitability is leveraged by specific return-on-investment projects—profitability will mathematically increase.
In the lean movement, we tell ourselves that this traditional management style is akin to playing roulette at the casino the odds favor the bank. First, great gambles usually lead to great losses. Second, treating people like cogs in a machine leads to disaffection and disengagement, which ends up in infecting customers who vote with their feet and so revenue falls. Unless you’re incredibly lucky, this “CEO as wizard of OZ model” (the great decision-maker running a well-oiled (lean?) mean fighting machine image), usually leads to disappointing outcomes. Sometimes disastrous ones! Again, many people may say they agree, particularly in the aftermath of the Lehman Brothers debacle. But still, show me the money… We can’t escape the money question, nor should we.
How then do you make money with this “to develop products you must first develop people” approach to business and management? Here’s how:
P/K = P/R x R/K
Profitability is in some form or other a Profit on Capital: how much you get over how much you’ve invested. P/K can be thought of as Profit from Revenue (gross margin) multiplied by Revenue from Capital (how much Sales revenue do you generate with the money you’ve put into the business). No surprises.
Except that in real life, Profit is really P – ? (a profit shortfall), Revenue is R – ? (a sales shortfall), and Capital is really K + ? (more capital than expected to run the business). Real-life profitability rests essentially with reducing the ? component – in lean terms, eliminating waste.
What do we know about these ??
Perceived quality → Revenue ?
Waste elimination → Profit ?
Flexibility → Capital ?
Perceived quality, waste elimination, and flexible use of equipment and processes cannot be forced—these things can’t be prescribed. They can only be obtained through employees’ fully engagement, attention, and initiative. Lean leadership and management means continuously developing people’s deep knowledge of their own jobs and encouraging people to work together.
Lean management is uncomfortable because managers must swap a direct action (manager tells employee what to do) with an indirect one (manager coaches employee, encouraging their self-development and listening to their suggestions).
This shift is profoundly uncomfortable, as it’s much easier to solve problems in one’s mind and tell others what to do than to consider one’s own actions first, identify areas for development, and support people through their interest-discomfort-satisfaction learning cycle!
If we don’t get better at showing explicitly where the gains of lean thinking and practice lay, why should managers listen? They’d have to trade a clear, well-known problem for a messy, uncomfortable one. Unless they see a clear path to financial success, they’re unlikely to take the leap of faith.
As lean enthusiasts, how good are we at showing the money?