LEAN deployment: It's the process, stupid!

in #lean10 months ago

LEAN has been receiving a lot of attention from quality professionals, management and the press in the last 30 years. What started out in manufacturing has now migrated to non-shop floor activities. Business support functions like sales, customer service, accounting, HR, engineering, procurement financial institutions, governments and hospitals are now implementing LEAN.

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A short history

Most of the LEAN concepts are not new. Many of them being practiced at Ford Motor company during the 1920's and are familiar to most industrial engineers.

A few years after the WW2, Eiji Toyoda of Japan's Toyota Motor Company visited the American car manufacturers to learn from them and to transplant the US production practices to Toyota plants. With the eventual assistance of Taiichi Ohno and Shigeo Shingo, the Toyota Motor Company introduced and continuously refined a system of manufacturing whose goal was the reduction or elimination of non-value-added tasks (activities for which the customer was not willing to pay). Toyota learned as well from US Military practices, good old industrial engineering and operations research techniques, supermarket delivery and inventory control systems, German aircraft manufacturing methods and refined these as well as added a few Toyota-grown improvements to come up with it's successful TPS. The concepts and techniques that go into this system are now known as Toyota Production System and were popularized by James Womack's group later on in US under the umbrella of Lean Manufacturing. LEAN though based on the Toyota Production System (TPS) uses tried and proven, mostly common sense tools.

Different aspects of LEAN are useful everywhere. While TPS as a whole is highly beneficial for Toyota and other automotive manufacturers, imposing all of the same techniques blindly will not be the answer for others. A company usually have some internal questions to answer: Make-to-stock or make-to-order? Do we do mostly fabrication or assembly? How about our customer's expectation (cost, quality, delivery) and our internal lead times? Are suppliers prepared for LEAN and just-in-time? Are we (senior management, shop floor employees) ready? Is the company culture ready to support the transition from traditional manufacturing to LEAN?

Nowadays LEAN champions, Six Sigma black belts, production and quality leaders are becoming one Continuous Improvement function, all using the appropriate tool the correct way either singly or mixed for problem-solving and continuous improvement. The best combination of Plan-Do-Check-Act (PDCA) and Define-Measure-Analyse-Improve-Control (DMAIC) is used whenever possible to identify the waste or defects/correction, address velocity (time or speed), look for stability in the process by attacking variation.

The hard benefits of applying LEAN are generally tangible things for the business side:

Reducing processing cost; Increasing revenue; Improving cash flow; Eliminating the need for capital expenditure; Faster quote to cash; Reduce the need to hire additional employees; Reducing overtime hours; Reducing operating costs; Reducing machine operating time; Reduce the need for extra inventory; Reducing cycle time to deliver the service or creating the product

But what about the people ?

If the first round of LEAN/ process improvement projects results in a reduction in headcount, the effort is, effectively, dead. Employees are not going to volunteer to participate and invest time and energy in streamlining processes when they know that it will cost them their jobs! How many employees will sign up for round two? My guess? Zero.

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The Good: Employees are adding value

There is no turning back once you start the lean journey (unless you want to continue the flavour-of-the-month syndrome) LEAN tools and techniques are simple and rely on common sense but implementation and sustaining require discipline, motivation, incentives, good change management and strong long-term leadership.

From my experience and the many books i read on the topic, the successful transitions to LEAN have a few things in common:

  • Management commitment

  • A well-thought-out masterplan, including plans for cultural change, communication, lean training, standardisation at the improved level and rewards/recognition

  • Alignment of company goals with individual and/or team goals (including addressing the fear of downsizing due to lean improvements.)

The human side of LEAN transformation is most critical: the various technical lean tools can easily be taught, but changing the culture, team building, sustainable motivation, alignment of goals and potential resistance are issues that need to be carefully considered before embarking on the LEAN journey

Of course it is important that all employees have training in at least it's basic concepts. It cannot be overemphasized enough that in the LEAN environment it is essential to focus on all employees contribution through their creativity, problem solving skills, knowledge of the process and team brainstorming. "Do not check your brains at the door! It's not just management who has all the answers." and " Think! Think! Think!" are some of the sayings that have flowed down from Taiichi Ohno, the father of TPS.

3 key concepts of LEAN are :

  • Creativity before capital (tapping into the experience innovation and knowledge of people working in the process before spending capital on improvements)

  • An improvement that is not so perfect done today is better than the perfect solution that is late (there is always room and the need for continuous improvement)

  • Inventory is not an asset but a cost (or waste)

Employees are not a waste, but often their time is spent on wasteful activities. The term “employee engagement” sums up all 10 words in the picture above. Certainly, your company’s staff can identify with some of these attributes. But how many of you out there can attest that your employees feel all 10? How many of us believe that some of the steps in our current processes are laborious, complex or unnecessary? How often do we find ourselves asking “Is this task really necessary?” or “Isn’t there a better way?”

A great example of LEAN application and removing waste is in the healthcare industry. Nurses can walk up to 8 miles a day on their jobs. Healthcare has made significant strides in reducing the amount of movement required of nurses, and “Motion” is one of the 8 Wastes of Lean. Several medical facilities have participated in studies to identify where and how excess motion takes place, with the goal of minimizing or eliminating it. The idea is that if they can relieve nurses from searching for supplies, equipment or approvals, then they can spend more time in a value-adding capacity: caring for patients. That is the primary focus of Lean; to get rid of the waste in the process!

The healthcare industry example can be successfully replicated to the office environment How often do people in your organization feel like they’re wasting valuable time sorting, moving, or approving things unnecessarily? Do they ever complete unnecessary forms, gather superfluous information or enter data multiple times into different systems? There is a lot of waste in our processes. That is the primary focus of Lean; to get rid of the waste! Just as it has for nurses, efforts to reduce the waste in organizations allows employees to spend more time on the things that deliver value to the customer.

The Bad : Lean is Not About Headcount Reduction

In the 1980s, large-scale redundancy programs were in vogue with many large-sized companies, who saw these programs as solutions to their problems. Prominent companies who made deep employee cuts included AT&T, British Telecom, General Electric, General Motors, and IBM. Such programs and the ensuing mass layoffs of employees earned large corporations a reputation for meanness, a reputation shaped by individuals’ perceptions of the necessity and fairness of reduction in (work)force (also called RIFs) being carried out. Redundancies, mass layoffs and collective dismissals, led to the fundamental breach of the employment relationship, the old psychological contract .

Beginning in the 1990s, US and Western-oriented corporations began to adopt lean manufacturing, total quality management (TQM), just-in-time (JIT). Such management tactics, it was claimed, made it feasible for companies to increase the production of goods and services with fewer resources. The underlying philosophy was that for companies to be able to survive and become globally competitive, they needed to be efficient, productive, and profitable. As a result, headcount as a ratio to output/production was used as the primary metric of performance, in order to fulfill the “more with less” maxim. As an inevitable consequence, payroll, which is often the largest cost for a company, moved into the limelight. While there have been a lot of success stories associated with the LEAN company, the concept has drawn considerable criticism, particularly with regard to the treatment of HR-related issues.

Thereafter, the across-the-board layoff, emerged. These “grenade-type” layoff strategies were adopted for every organizational entity within the company by a defined percentage cut, such as 5 percent or 10 percent, irrespective of the entity’s individual performance. While most companies achieved immediate cost and headcount savings in the short term, firms were forced to contend with questionable medium- and long-term financial effects, as well as the painful human consequences of layoffs. The latter included decreased levels of employee motivation, morale, commitment, and loyalty, and increased levels of employee burnout, stress, and distrust. It was during this phase that high-profile executives, such as Albert J. Dunlap, former CEO of Sunbeam and popularly known as “Chainsaw Al”, and Jack Welch, former CEO of General Electric, rose to negative backlash in the media. Both Dunlap and Welch adopted uncompromising restructuring tactics that radically transformed their companies, producing large wealth for shareholders, and stigmatizing their company for being Lean and mean.

Assessing and focusing on core competencies was a strategy aggressively pursued by many companies in the early 2000s. At its most basic, a company is seen as a series of processes that are either core or non-core. The objective is to concentrate on core processes, or core competencies that could potentially give the company a competitive advantage. As a result, the non-core processes (non-core competencies) can be outsourced to third-party suppliers or more recently Global Business Service hubs who can provide the same processes and outputs at costs savings or improved quality. The outsourcing of functions inevitably leads to reductions in employee headcount which, in turn, generates higher levels of employee efficiency and productivity. The effectiveness of this strategy has been hotly debated. While proponents claim that outsourcing provides cost savings, others argue that the firm once again loses its most valuable assets, talented people with marketable skills.

In the early-1990s, strategists Hammer and Champy introduced the concept of re-engineering, a tactic also known as business process re-engineering (BPR).They defined BPR as:

“The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed”.

Davenport, a BPR theorist, stated that the main difference between BPR and established approaches to organization development, including continuous improvement and TQM, is the following:

“Today firms must not seek fractional, but multiplicative levels of improvement – 10x rather than 10%”.

Therefore, BPR seeks radical change rather than continuous improvement. While BPR has provided positive returns for many Fortune 500 companies (e.g., P&G, Dell, GM, etc.), it was strongly criticized for its strict focus on efficiency and technology and disregard of people. Both Hammer and Davenport later admitted that using BPR for cost reductions alone was not a sensible goal and that layoffs should not be the focal point. Hammer stated:

“I wasn’t smart enough about that. I was reflecting my engineering background and was insufficiently appreciative of the human dimension. I’ve learned and that’s critical”.

In response to the widely published harsh criticisms, the BPR fervor in the U.S. began to wane, giving rise to the emergence of the holistic notion of Business Process Management (BPM). While BPR has produced considerable workforce reductions, BPM has yet to make a mark in the corporate landscape.

The Ugly: Off With Their Heads!

When you tell your workforce that you’re looking into a Lean initiative, their first thoughts may be on headcount reductions or budget restrictions. Lean could be interpreted as meaning “no fat” or “trimmed”. In theory, Lean means “no more than you need to have / an ideal amount.”

I have found myself thinking of that expression by the Queen of Hearts character in Alice in Wonderland. For the past several years I had studied the Continuous Improvement "movement" and discussed it very often with colleagues, friends, acquaintances and random people on the internet.

One day I had a lunch planned with a good friend. Her organization has been implementing Lean for approximately one year. During that time the organization had increased throughput and revenue by 10%, and was about to make another step increase as it absorbs a recent acquisition into the existing facility. In spite of these facts, the acting CFO's came with a rather bizarre question (in her perception as a LEAN practitioner) while discussing progress on the LEAN deployment: "Why haven't we seen a reduction in headcount since we have been implementing Lean? We have the same number of employees as we did a year ago." At that point, the CFO developed the belief that there would be an absolute reduction in staffing with the implementation of Lean.

I have heard similar comments over the years, too many to count actually. More than once I have heard the comment that Lean is an acronym for Less Employees Are Needed. Fortunately, such statements had been occurring less frequently over the years as more and more leaders have come to realize what Lean is really about - maximizing value creation while minimizing waste, and creating a culture for continuous improvement. Certainly a 10% increase in revenue (with no increase in selling price) with basically the same staffing should qualify as a success by most reasonable standards. However, our acting CFO is not alone.

I have heard similar beliefs from several people, which demonstrate that we still have a long way to go in the journey of lean and continuous improvement. Interestingly, in each recent case the person voicing the misunderstanding was a finance or accounting professional. To be fair, in the past I have heard similar sentiments from operations managers who may have misunderstood Lean or chose to misuse it for some short term gain.

Finance and accounting professionals have for years been the keepers of key business metrics, through which attempts are made to improve performance. The old expression 'measurements drive behaviour' is as true as ever. Questionable metrics abound in many organizations in all industries, which often drive dysfunctional behaviour and decision making (think 'off-shoring' which more and more manufacturers are beginning to reconsider, and a few have already 're-shored'). Of course, there is an abundance of labour and headcount related metrics. As a result organizations tend to focus its cost control efforts on labour. This continues to be true even as labour as a percentage of selling price continues to decline, reaching single digits in some manufacturing industries. Labour cost is considered something that is easier to control. Overhead expenses and material cost tend to be more difficult to quickly affect the overall picture of continuous improvement. In the pursuit of increased profitability, companies will sometimes reduce staffing even at the expense of sales and customer service.

One acquaintance of mine was once very nervous about preparing the results of a business pilot that was performed in an department of an industrial printing company that consisted of multiple pieces of equipment and several operators. The organization had reduced staffing to the point where several machines could not be run, this in spite of the fact that there was a backlog of demand. The pilot results and analysis showed that a modest increase in staffing could result in a substantial increase in throughput (and revenue), a reduction of inventory, and improved service levels to customers. These results run counter to the aforementioned belief regarding headcount.

I observed a similar pilot in an office environment several years ago, with the support of a friend working at a real-estate company that showed a 25% productivity improvement, along with a 50% reduction in response time to the customer. The location manager at the time refused to accept the results, even making the argument that they were 'anti-Lean'. He insisted on another round of layoffs to provide short term financial benefit, and that there is still room for improvement. Needles to say that I will never be a customer at that company and my friend resigned from working there out of principle.

The focus on headcount reduction will make it impossible to create a culture for continuous improvement. Team members will not want to be involved in improvement efforts that may result in them losing their jobs. 'Lean is mean' will be the prevailing belief. It is crucial for all leaders to educate themselves on the true meaning of Lean. Then they will learn that it is not about headcount reduction, but using your resources more efficiently in order to create more value.

For Lean to work at the strategic level, everyone needs to think and act in a new way. So you cannot implement Lean and think about laying people off after every kaizen or small improvement. The best improvement ideas will always come from the people doing the work (despite what your senior managers might think). If people see others getting laid off as a result of their or others' suggestions for how to improve the work, the suggestions will stop. If people are cynical about what is being asked of them, they will stop contributing their ideas and energy.

That said, some companies have cost structures based on legacy practices that require a reduction in force to become lean. When this is the case, I think it is best to do this before you begin your lean turnaround. Incentivizing early retirement or other such voluntary reductions is the least harmful way to do this. Remember there will be some benefits to this painful necessity: being suddenly forced to produce the same amount with less people will require many kaizens and process improvements early on. This might seem a little scary, but it really does help to focus your attention.

Then the upsides will become clearer. As you free up more and more people through continuous improvement of processes and flow, you will be able to actually avoid layoffs by finding new ways to use people more wisely. You can build on gains by cutting overtime, eliminating all temporary workers, and assigning your best people who have been freed up to participate in LEAN programs. These employees can then work on the next improvement, perhaps the work that you may have outsourced in the past.

Conclusion

The biggest obstacle to bringing Lean into an organization is fear. If employees are fearful of job loss, the organization must address the subject early in the initiative. What can a leader do to reduce fear? Here are 3 strategies to help reduce employees’ fear about job loss when implementing Lean.

1. Start With Why

Talk about the purpose and inspiration behind implementing a process improvement initiative. Some of the questions many employees may have are:

  • Why is the organization doing this?

  • Why now?

  • (If applicable) What is the burning platform?

  • What is the organization trying to accomplish by implementing Lean?

  • What is the vision of the future?

2. Communicate Early and Often

Tell employees over and over that the goal is not to eliminate people. Lean is about eliminating waste and activities that are wasteful. People are not a waste.

A leader needs to commit to saying that nobody will lose their jobs as a result of process improvement. Some employees might end up doing different jobs or different tasks. People may be re-assigned, cross-trained, or re-deployed, but what a leader should promise is that Lean efforts will not result in headcount reduction. Employees may then wonder, “How will the organization absorb efficiencies made through process improvement?”

A very successful strategy is to use attrition to offset productivity gains: Every organization has natural attrition. Employees leave because they move, take another job, retire, etc.. When an employee voluntarily leaves, leaders can decide if it makes sense to hire a new employee or cross-train an existing employee and re-deploy them within the organization. It might mean that there’s no need to backfill a position. Ultimately organizations are increasing their capacity to do more, especially in government. There is plenty of work to do and plenty of waste to eliminate!

3. Do What You Say You Will Do

If a leader says that nobody will lose their job as a result of Lean, they need to walk that talk. Stick to your word! Cite examples, communicate and show that you are following through on your promise. If leadership cannot support this, then the organization isn’t ready for Lean.

My question to you is: where are you on your Continuous Improvement journey?

List of references
  • Atkinson, J. (1984) Manpower strategies for flexible organizations, Personnel Management, 16 (8), 28-31.

  • Cameron, K.S. (1994) Strategies for successful organizational downsizing, Human Resource Management, 33 (2), 189-211.

  • Cascio, W.F. (2003) Responsible restructuring: seeing employees as assets, not costs, Ivey Business Journal Online,

  • Champy, J. (1997) Quit cutting – start growing, Sales & Marketing Management, March 1997, 20-22.

  • Cravotta, R., & Kleiner, B.H. (2001) New developments concerning reductions in force, Management Research News, 24 (3/4), 90-93.

  • Crosman, P. (2006) Stealth layoffs and reputation monitoring, Intelligent Enterprise, November 10, 2006.

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