Repairing a Faulty Lean Process

When I am asked to help a company with a lean implementation, it is often because the initiative has failed in some way to meet expectations. In many cases, I find that the problem is related to the company attempting to implement lean at an expert level rather than starting slowly and letting the process evolve and develop over time.

As a follow up to an earlier post on why lean fails, I will present here some of the most basic and easily correctable problems that I have seen with companies that have asked for help with their lean processes. It is important to note that correcting a "lean gone bad" situation is possible and not necessarily difficult. It usually requires stopping the process for reflection and making adjustments to put the initiative back on track to be successful.

Don't Try To Be Toyota

There has been a lot written about Toyota and how lean has contributed to their success over the last several decades. There are books, seminars, and conferences detailing exactly how Toyota uses lean, including the tools and steps they deploy (and even the words they use) to identify and eliminate waste.

Toyota is the master of lean. They invented it and have been using (and perfecting) it for the last 60 years. An attempt to copy how they use it without going through the process to learn and develop the system is akin to reading a book on skiing and heading for the black runs on your first trip to the slopes. It is dangerous and most likely will end in disappointment (or worse).

The Basics

When an organization asks for help to get lean back on track quickly, I often recommend the following basic actions:

1. Focus on Small Improvements Stop doing kaizen events and focus instead on small improvements. Kaizen events (covering multiple consecutive days) require a lot of focus, pre-work, and a very experienced facilitator to carry out; while small improvements can be implemented with very little training and experience.
   
   Also, a kaizen event often requires interrupting the operation for a period of time while the improvements are being implemented. There is a much higher chance of losing the support of the person responsible for the operation if a shutdown is needed.
   
   Small improvements also allow people to learn how to apply the tools as improvements are made with a much smaller risk of failure.
   
   Giving team members time on a regular basis (e.g., 30-60 minutes per week) to work on improvement activities can lead to some great results, and enable the lean process to evolve and develop effectively.
   
   
2. Use the People Closest to the Process Western business has somehow been led to believe that lean is not possible without hiring six-sigma black belts to facilitate the improvements. Although the six-sigma methodology includes some very sophisticated statistical tools, they are not necessary to make improvements early in the process. Especially at first, it is very likely that there are significant improvements are possible with the use of only a few basic tools.
   
   The best lean implementations I have witnessed have had those closest to the process heavily involved in the process. Projects are led by the team leader or a team member who has naturally grown into the facilitator position. I do not believe that the process works nearly as well when projects involve people who are not part of the team.
   
   
3. Continually Train & Develop Once the commitment is made to implement lean, people throughout the company need to be trained and developed on a continual basis, as opposed to a single, multiple-day class at the outset of the process. Workers need training in the process improvement tools; supervisors and managers need training in leadership (specifically what it means to lead in a lean environment); and executives need to be trained in the barriers to lean and what they can do to make the process successful. It is more effective when this is done over time so people can relate what they learn to the changing environment.

The above steps do not always cure all of the problems with an unsuccessful lean implementation, but I have found that they often have a positive enough impact to get the process back on track fairly quickly.

Thoughts on Job Creation

The White House held a jobs summit earlier this week to discuss ideas to lower unemployment in the U.S. Several ideas were presented and discussed during the meeting - some that made sense and others that, in my opinion, will do little more than add to the deficit.

The big problem with the bulk of the proposals is how to pay for them. The deficit is out of control and literally growing every minute. And most agree that we can't afford to continue to pump money into programs that don't provide immediate results (as we have enough of those already).

Another issue with the current situation is that, until the jobless rate drops, the government needs to continue to fund unemployment and health care benefits for those who have been out of work for an extended period of time.

It's unfortunate that this problem was not addressed two years ago when the recession began. As the financial system crumbled, it was obvious that a recession was coming that it had the potential of being very long and severe. On the macro level, the increased unemployment rate reduced the amount of taxes collected on the state and national level, as well as resulting in a decrease in consumer spending - leading to further layoffs (and even lower tax collections). The death spiral that resulted has continued and worsened to the point where we now cannot afford to do much of anything to get things moving again. Although I agree that it is necessary, unemployment benefits do nothing to increase spending or economic activity.

Over a year ago, I wrote that we needed to focus on job creation and that any stimulus money should go to those companies that do not layoff workers. Unfortunately, we not only gave money to companies that implemented layoffs, it appeared that is was a prerequisite to receiving assistance. Rewarding companies that keep people working could have encouraged businesses to look for alternate ways to cut costs. This could have kept more people working - and spending - thereby reducing the effects of the slowdown.

There are a number of well-known companies that did not layoff workers during the recession. These organizations implemented a variety of actions to keep people working; including unpaid holidays, reduced workdays, focused improvement activity, and dividend cuts. Our economy would have been much better served by providing stimulus money to these companies rather than throwing it into programs that, at best, created temporary employment for a small sector of the workforce.

I would love to see congress and the administration implement an economic, rather than a political, approach to job creation. We will get through this crisis much more quickly if we work for what's best for the country than continuing to focus on what's best for the political parties or individual congressional districts.

Big Changes at GM?

With the departure of Fritz Henderson, GM's board is talking as if they are taking the opportunity to kick the changes at the company into high gear. Making changes at an organization as large and complex as GM is not going to be easy. It can be done, though, with a well-focused and aggressive plan.

In my opinion, the plan to get GM on track needs to include the following:

• Forget about being the number one producer of automobiles. This kind of focus can take the company away from its purpose of making cars that people want to buy. I believe that Toyota temporarily lost its focus in its drive to be number one and it got them into trouble. Make great cars and the numbers will take care of themselves.

• Improve the - real and perceived - quality of products offered. This is done by working on processes and products; not advertising.

• Improve relations with dealers and the UAW. The company cannot get better without everyone working together. The level of trust between management, workers, and dealers has been poor for many years, and it's up to GM management to take the responsibility to get it fixed.

• Increase innovation. The company needs to begin taking chances and develop more innovative designs and features into its cars. It's time for GM to stand out because of its products instead of its problems.

The biggest barrier the company has to address is its own culture. In general, the longer a company exists and the bigger it becomes, the more risk averse the culture becomes. It is a great time, though, for GM to refocus and reinvent itself, and I'll be watching with interest as the saga continues to unfold.

Managing What You Can't Measure

"Not everything that counts can be counted, and not everything that can be counted, counts." - Albert Einstein

One of the most common beliefs in western business is the idea that, if it can't be measured, it can't be managed. This saying has been around for years and the philosophy behind it has guided decisions in actions in many organizations ever since.

I don't know who coined the phrase, but I'm guessing it has its roots in the mid-1940s when the Whiz Kids introduced the practice of management by numbers at Ford Motor Company. Although the Whiz Kids may have saved Ford from bankruptcy by increasing focus on numbers at the company, I believe the widespread number-obsession that resulted from their success is one of the practices leading American business into decline. We have far too many managers today who spend more time with spreadsheets than the people who are on their teams.

What Cannot Be Measured

It would be great if everything that is critical to a business could be accurately measured - it would make the job of managing so much easier. Unfortunately, organizations are too complex to assume they can be effectively led by implementing a handful of metrics.

There are numerous elements of an organization that must be managed and continually improved for a company to be successful. Very few, if any, of these elements can be accurately measured. Included in this group are the costs and benefits associated with:

• Employee morale
• Poor planning
• Fear in the workplace
• Teamwork
• Employee turnover
• Customer satisfaction
  
• Poor supplier relations

As an example, most would agree that there is a relationship between employee morale and financial performance. Although a company can implement an employee satisfaction survey and develop a measure based on its results, there is no way to measure how much (or even if) a five-point increase in morale would benefit the company. Any attempt to perform a cost-benefit analysis of an idea to improve morale would include too many assumptions and estimates to be valid.

Another example relates to the level of teamwork within an organization. Improved teamwork should lead to improved results, but how much improvement is anyone's guess.

A leader who believes in the if-it-can't be measured-it-can't-be-improved philosophy would have a tendency to ignore the above elements, although doing so would pretty much guarantee that he or she would not have to worry about leading the company for very long.

Numbers Have Their Place

I am not advocating the elimination of all key metrics for a company, because they do have their place. Besides the need to comply with legal obligations, numbers provide feedback on how the business is operating in terms of financial performance, budgeting, and cash flow. They are also very important in studying and improving the costs, quality, and cycle times of processes. It is critical, though, to understand how to gain knowledge from numbers and to realize that the numbers rarely, if ever, tell the whole story.

Organizations are highly complex, and believing that the most important aspects can be accurately measured oversimplifies and underestimates the role of a leader. If leadership consisted only of making decisions based on accurate measures, it would not be a very difficult to run a company.

Sales Goals Revisited

A few weeks ago, I posted a column about the problems with goal-setting for individuals. Although I received comments from several people who agreed that the Western system of goal-setting and rewarding employees were destructive, I also received many responses from people who vehemently disagreed and felt that the process not only worked, but was necessary for success.

I'd like to revisit the subject and limit the discussion to goal-setting and reward systems for salespeople. The Stanford Graduate School of Business recently reported on a study conducted about the effectiveness of using sales quotas to motivate and reward salespeople (http://gsb.stanford.edu/news/research/Nair_sales.html). Based on an experiment at one Fortune 500 company, the researchers concluded that removing the sales quotas resulted in a 9% increase in overall revenues.

I'll agree that conducting an experiment at one company does not necessarily prove my point that setting goals is often destructive, but since the study involved salespeople - the largest group affected by goal-setting - the results merit further discussion.

When I posted the blog, I received several confidential comments from sales professionals who wrote that they disliked the system of quotas for a variety of reasons. They stated that quotas forced them to play games with the timing of orders in order to meet a target in a given period. They knew this was not in the best interests of the organization as a whole, but felt it was necessary to keep their jobs and/or achieve their bonuses.

I've never understood why we feel it is necessary to use money to motivate salespeople but don't use the same approach with accountants, receptionists, network engineers, and other positions within the company. Are salespeople lazy? Are they untrustworthy? Do we really feel that if we don't offer them carrots that they won't produce?

Gallery Furniture

Jim McIngvale is the founder of Gallery Furniture store in Houston, Texas. Many years ago, he called on W. Edwards Deming to help him improve his business. McIngvale often tells the story about Deming telling him to change his salespeople from commission-based pay to salary. After failing to convince Deming that it wouldn't work in the retail industry, he gave in and changed his pay practices and put his salespeople on salary. In The New Economics, Deming wrote about the results of the change. " . . . steady increase in sales. Older salesmen now help beginners. Salesmen no longer try to steal business from other salesmen. they now help each other . . . sales go up month by month. Moreover, profit per square foot of floor space advances even faster." McIngvale agrees.

Like so many elements in business, it goes back to effective leadership and hiring practices.

Unfortunately, I'm betting that the Stanford study will not lead to a wholesale change in Western business practices because if people don't feel there is a problem, they won't be looking for a solution or feel there is a need for change. My hope, however, is that more studies will be conducted on the subject and more examples of companies changing their practices will be publicized and, little by little, transformation will begin to occur.

The True Cost of a Layoff

The world of business has become increasingly dependent on layoffs as a response to a downturn in business. There are layoff announcements virtually every day by companies, along with statements about the expected benefits of a reduced headcount.

Does a layoff really result in the savings to an organization that we think it does?

There are hidden costs that are often not considered (or are ignored) when making the decision to institute a reduction in force. These costs are difficult, if not impossible, to measure, but exist whether they are recognized or not.

Besides the severance and social charges associated with a layoff, the hidden costs show up in areas like productivity, customer service, and absenteeism. Since they are not measurable, however, they are easy to debate and not considered relevant in the number-obsessed world of business.

The hidden costs of layoffs include the following:

Increased Fear: Nothing can increase the level of fear within an organization like a layoff. Fear leads to a host of problems including reduced creativity, safe goal-setting, increased health problems/absenteeism, and a lack of willingness to take risks.

Loss of Teamwork: A layoff forces a person to worry more about his or her own situations than that of a co-worker. The atmosphere becomes more competitive as people do as much as possible to demonstrate their personal value to the company.

Loss of Customer Focus: When a layoff occurs, people turn their focus toward pleasing the boss instead of the customer. After all, it is the boss, not the customer, who makes the decisions regarding who will be released.

Drop in Morale: Layoffs make people feel expendable which, along with the loss of friends and coworkers in the organization, leads to a drop in morale. As a result, dedication is lost, and people will be less likely to contribute ideas for improvement or go the extra mile to help the company succeed.

Increased Employee Turnover: Because remaining employees will begin to worry about their own jobs, those who can find other work elsewhere will do so.

Loss of Trained/Experienced Employees: Losing employees means the loss of trained and experienced people to handle the increase in work when business returns. New employees lack experience with the process, systems and customers, and result in increased hiring and training costs (in addition to a higher incidence of quality problems).

What to Do Instead of Layoffs

Many business leaders have come to the conclusion that layoffs are necessary during a downturn in business. There are steps that companies can take to reduce the need for layoffs - even during a recession as deep as the one we've experienced over the last two years. These actions, which equate to cost management as compared to cost cutting, include the following:

1. Shorten the workweek and adjust pay accordingly;
2. Offer unpaid vacations/holidays;
3. Eliminate overtime;
4. Freeze all hiring;
5. Eliminate all bonuses and associated accruals;
6. Cut dividends;
   
7. Focus continual improvement activities on cost reductions.

In addition to the potential savings from the above actions, imagine the loyalty and dedication a company would earn from its employees if it manages to survive the recession without reducing headcount.

Sprinting Into a Death Spiral: Sprint Nextel Announces Layoffs

Last week, Sprint Nextel announced plans to cut up to 2,500 jobs in an effort to - once again - reduce costs. This is the third round of layoffs since early-2008, when the company announced job cuts of 4,000 (they also eliminated 8,000 jobs in January, 2009). Employees who manage to survive this latest round of layoffs are probably thinking that it's only a matter of time before the next one occurs.

In 2008, Sprint lost 4.6 million subscribers. During the same period, AT&T and Verizon added 7 million and 5.8 million, respectively. Sprint also reported a $4.2 billion loss for the year. I'm thinking that addressing the problems at the company are going to require much more than cost cutting to resolve.

Remember that this is the company that, in 2007, made the much publicized decision to drop customers who make too many calls to customer service for help. Whether or not this decision made sense from a financial perspective, it did a lot of damage to the company's reputation for customer service.

According to their website, Sprint's mission statement is: To be No. 1 in providing a simple, instant, enriching and productive customer experience. Judging by the number of subscribers lost last year, I'm guessing that their customers do not think they are achieving their purpose.

The company needs to get back to the basics and focus on the customer instead of just costs. This means reflecting on its purpose and openly and honestly debating what it means to the company. Do they truly believe in it? Does the leadership team in place feel they can achieve it? If not, there is little chance of getting anyone else to believe in it either. Many companies, especially during the recession, have acted as if their purpose is to cut costs instead of provide value for their customers.

Once it is clear that the leadership team absolutely believes in the purpose and feels confident that it can be achieved, they need to identify the barriers that are preventing the company from being number one and start aggressively attacking them. This will require creating initiatives in critical areas like product & service offering, market development, process improvement, or people development. Chances are, there will be some pretty daunting barriers to overcome, but they need to be addressed for the company to become competitive again.

Ignoring the barriers is not an option - neither is continuing to focus on cost cutting. The company shrinks in size and the culture is damaged with each round of cuts and eventually there will be nothing left to cut without completely shutting down the company . . . which is definitely not the way to become number one.