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Welcome to the New Lean

Published By Jon Terry

If you’ve been to business school, or are at all familiar with business history, you’ll know that Lean was a big, big thing in the 1980s and ‘90s. Western manufacturing companies were being decimated by their Japanese rivals, especially Toyota, and they were trying everything they could to regain their competitive edge.

Many flavors of improvement methodology arose along the way, including Total Quality Management, Theory of Constraints, Just-in-Time and Six Sigma. Each of those movements is still around to some degree, but it would be fair to say that the style of management they were aiming for is now generally thought of as Lean.

While each of those “sub” disciplines adequately captured part of what the Japanese were doing better than most, Jim Womack and Dan Jones finally captured the essence of the difference. First in The Machine that Changed the World and then in Lean Thinking, they raised our level of understanding from copying specific practices to seeing the underlying principles that made the whole system work.

A Different Lean for Different Times

So, what is the underlying truth of Lean? Isn’t it about cutting? Doing more with less? Removing waste? Those are the stereotypes. And, like most misconceptions, they are based on a grain of truth.

Many of the Western manufacturers who were competing with the Japanese in that era were terribly inefficient. For them, becoming lean resulted in a lot of cutting. For those that failed to become lean, it resulted in complete shutdown. As a result, the manufacturing sector of today employs many fewer people than it did a generation ago. Today’s manufacturers are much healthier and more productive. Much leaner. But fewer and smaller, too.

That reality is the result of the economics of the era and the way Lean principles applied to that specific case. It’s certainly not a correct description of Lean as a system, and it’s not how we at Planview AgilePlace see Lean applying to the challenges of our modern world. If we were to point to one defining challenge for businesses today, it would be innovating fast enough to keep up with the blistering pace of disruptive competition.

Lean is perfectly suited for that challenge.

7 Principles for Business Fitness

The metaphor sought by Lean’s creators was fitness — building lean muscle and athletic ability over solely reducing waste.

It’s true that, if you are very overweight, becoming athletic will first require weight loss. But the journey doesn’t end there. You can’t starve your way to fitness. Becoming truly fit and lean is about the right foods, a balanced training program to build both strength and endurance, proper rest, improving flexibility, etc. It’s about understanding how your body works as a system instead of just focusing on the parts.

1. Optimize the Whole

So what are the elements of a Lean business system? What principles can you follow to make your business fit, quick, and agile? The answers depend on the context of your business. Lean works differently in manufacturing, engineering, construction, health care, software development, law, marketing, etc., etc. But, if you’re careful, you can see underlying principles that connect them all. And that’s important for you, the Lean business leader, to understand.

Depending on the size of your enterprise, you may have all of those functions working somewhere within your company. At the very least, you’ll work with vendors and partners across disciplines. Your goal should be a lean enterprise, where all of the parts work well in their own ways but are integrated into a system that’s optimized for overall results, not the efficiency of any one part.

Our understanding of generally applicable Lean principles has been hugely shaped by the work of Mary and Tom Poppendieck. We highly recommend Implementing Lean Software Development, especially if you are in the technology space.

2. Eliminate Waste

Wait a second. Didn’t we say Lean isn’t only about cutting? Yes. Absolutely. It’s not just about waste, and the best way to remove waste isn’t necessarily to cut. But a Lean leader does hate waste. Hate is a strong word, but it’s the right one.

None of us will ever eliminate all waste in our enterprise, but we should also recognize that the job is never done. Lean leaders are on a mission of continuous improvement (or kaizen, to use the Japanese term), driven by a very specific definition of waste. We view waste from the perspective of our customers, defining it as anything they wouldn’t willingly pay for if they saw it on an itemized bill.

A Simple Example

If I’m running a furniture company, my customers know that I have to pay for wood, screws, glue and stain. They expect that I will employ craftsmen to make the products, that I have to ship the product to them, and that I’m in business to make a fair profit. They will understand and willingly pay these costs.

But if I run an inefficient enterprise that poorly balances supply and demand and has to keep a lot of excess inventory to handle fluctuations — plus, pay for warehousing — that’s my problem, not my customer’s. If I haven’t organized my administrative processes so I have to employ lots of people to process excess paperwork, why should my customer suffer? If my craftsmen are unskilled and make a lot of mistakes, generating scrap and rework, should my customer pay?

The simple answer is no. Customers shouldn’t, and often, they won’t. A poorly run business that wastes effort and resources on things that don’t directly benefit the customer will be beaten by leaner competitors. Some might argue that a business has many stakeholders: investors, employees, the community, the environment, etc. And it absolutely does. But a Lean leader understands that a business fundamentally exists to serve its customers. If it does that well, it will thrive. If not, the business will fail.

3. Deliver Fast by Managing Flow

Completed work in the hands of our customers is valuable. Until then, it isn’t. That flies in the face of accounting rules that assign a dollar value to inventory. But from a customer perspective, it’s true. From their viewpoint, you need to be making just enough product at any given time to ensure that they get what they want when they want it. You can only do that if you can deliver fast.

Not only is extra work in progress (WIP) not valuable, it’s slowing you down. Your organization is a value stream that takes in raw materials of some sort, processes them through a series of steps, and delivers goods or services as an end result. You may not own a physical factory but you at least have a virtual one.

Somewhere along the line of that value stream is at least one bottleneck. That’s not a criticism; it’s just a fact. Some step in your process has a maximum capacity that’s lower than other stages before and after. That constraint is the limiting factor for the delivery capability of your entire system. The goal of the Lean leader is to balance the work in the system to the capacity of that constraint.

Let’s skip the full math lesson for today, but you should read The Principles of Product Development Flow, an excellent work from Don Reinertsen. The executive summary: If you work your system to anything near maximum capacity, you will get little to nothing done.

That doesn’t mean you want lots of people idle. But it does mean you face a trade-off of resource efficiency and delivery speed. The optimal balance will depend on your context, but achieving much higher speed doesn’t require lots of excess capacity. Simply reducing WIP from 90% of your theoretical maximum capacity to 89% will make you 28% faster. Limiting WIP to 85% capacity will make you 54% faster.

By doing just a bit less at a time, you can produce much, much more output, much faster. And time is money in innovation.

4. Build Quality Into the System

Our goal as Lean leaders is to create a system that is incapable of routine errors. In Japanese, this is described through two overlapping concepts: poke yoke and autonomation: Poke yoke is error proofing as you do new things. Autonomation is the automatic identification of errors in your operations so that humans can then intervene to solve problems (vs. having to manually monitor for problems).

How you build quality into your system depends on your industry. In construction or low-volume manufacturing, it may involve 4-D (time) and 5-D (cost) BIM modeling so you can virtually walk through your construction and materials — providing ways to identify problems that a simple 2-D or even 3-D design wouldn’t catch.

In physical production, quality almost always means 5S, so all the right parts and tools are on hand, when needed, to avoid error. Prefabrication and modular production are powerful tools for ensuring consistency.

In software, quality includes tools like continuous integration of code, automated unit and UI testing, rigorous monitoring and alerting, and several others. Huge momentum for these tools now exists in the IT world, largely propelled by the DevOps movement.

In any context where the routine can’t be automated via technology, we must develop standard processes. The Lean way to do this isn’t a procedure manual that collects dust on the shelf. The visible, physical environment around our employees should guide them in the right way to do things.

One of our favorite mechanisms for visual management here at Planview AgilePlace is Kanban. Our Kanban Learning Center includes resources for learning, adopting and practicing the methodology. We also recommend Kanban by David J. Anderson.

5. Create Knowledge

A Lean leader tries hard to continuously absorb knowledge about their field from the outside world. But knowledge as it applies to innovation in your specific context can’t be learned. It has to be created. You and your organization gain knowledge best by doing.

Much of what you learn will be tacit. You can and should invest in tools for documenting knowledge. But ultimately, your tools will function as a backstop for the experience of your employees. Much of that experience will be spread across members of a team, so policies that retain high-quality employees and favor team stability are important tools for preserving the knowledge created through your innovation efforts.

6. Defer Commitment

Since Lean teams are creating knowledge through the process of incremental innovation, and one of our primary goals is to retain decision-making flexibility to take advantage of that learning, Lean leaders need to encourage teams to defer irrevocable decisions to the last responsible moment and provide the infrastructure that allows them to do so.

In domains that allow for incremental production, like software, this is handled through good modular design, standardized but flexible infrastructure (the cloud is a huge factor here), and the iterative development processes like Kanban, Scrum, and XP, which are now commonplace.

In construction, manufacturing, and engineering disciplines related to more physical outcomes, the problem is more typically solved through approaches like set-based design (see above about virtual design tools) or concurrent engineering of multiple candidate solutions.

To give a tangible example of concurrent engineering, let’s say I’m aiming to deliver a new model of car 18 months from now. I have an engine design that I’m quite sure we can deliver but isn’t exactly cutting edge. I have one or more other designs that I would really like to be able to achieve but probably not by my hard-stop delivery timeline.

I would set multiple teams to building prototypes, aiming to implement my favorite solution if possible, and only gradually winnowing down my options as I get closer to technical realization and go-or-no-go milestones.

One caveat about deferring commitments is cost. It isn’t necessarily a cheap approach in the short term; but, in the long term, it significantly balances technical risk and market timing realities.

7. Respect People

One of the misconceptions of Lean is that it is mechanistic and impersonal. The painful realities of having to reduce waste through massive cost cutting at the dawn of Lean in manufacturing doesn’t help with this misunderstanding.

But at its root, the waste that Lean truly aims at removing are the layers of overhead between the customer and the people who are directly making the product for that customer. Lean leaders recognize that the vast majority of the value generated in their organizations is by the people with their hands on the product.

They know that most of the knowledge that their organizations have created is in the heads of those employees. The best ideas for improving their organizational processes can only come from those employees. And leaders can only tap into that knowledge by getting out of their offices and, to use another Japanese term, going to the gemba — the place where things are really happening.

As Lean leaders, it’s our job to unlock all of that knowledge in our employees by aiming to give them — in Dan Pink’s words — autonomy, mastery, and purpose. We highly recommend his book Drive: The Surprising Truth about What Motivates Us.

We will get our best organizational results if we give our employees the autonomy to do their work their way. We can do that safely if we invest in their skills so they have the mastery to do the work well. And we will get the right outcomes, and recruit and retain the right people, if we provide clear and consistent information about our organizational purpose — not the dry ”what” but the inspirational ”why.”

Being a Lean leader is about shifting your mindset from being a supervisor, who tells people what to do and monitors compliance, to being a teacher and coach, who shows people how to do things well and why we should all care.

Your Charge as a Lean Leader

Depending on your industry, it may be that your IT teams are already practicing Scrum or Kanban. Your construction teams may already be applying the Last Planner method on the job site. Or your engineers may already be using BIM and set-based design.

Whether that started at the grassroots or you actively encouraged it, you’re off to a great start. But Lean isn’t something that stays at the team level. It’s not only about them. They can’t do it on their own. Like any initiative, for Lean to be truly effective, it needs a leader.

“A bad system will beat a good person every time,” said Lean thinking guru W. Edwards Deming.

You, as a Lean leader, own the system.

Recommended Reading

In addition to the resources mentioned throughout this post, here are a few more that address applying Lean to business functions:

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Written by Jon Terry Chief Evangelist, Lean-Agile Strategy

Jon Terry is Chief Evangelist, Lean-Agile Strategy for Planview, a market leading provider of portfolio management, agile management, collaboration, and ideation software. Before that Jon was co-CEO and co-founder of LeanKit, which pioneered the application of Kanban in knowledge work. Prior to that, Jon held a number of senior IT positions with hospital-giant HCA and its logistics subsidiary, HealthTrust Purchasing Group. He was among those responsible for launching HCA’s adoption of Lean-Agile methods.