The Lean Formula

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As I've said many times, lean is simple but not easy.  The concepts are fairly easy to understand, but making it happen requires such a deep level of reprogramming of the way people think and act that few are able to carry it through.

There are many ways to begin a lean journey and one is not necessarily more correct than another.  I adjust my approach depending on a variety of organizational factors, but I generally like to start with a basic formula that keeps people focused on the results the organization is trying to achieve, the results they are actually getting, and how to close the gap between the two.

The basic formula to follow a targets-results-gap approach is: 

CLEAR BUSINESS PLAN  x  VISUAL DASHBOARDS  x  EFFECTIVE MEETING RHYTHM  x  CONTINUAL IMPROVEMENT

This basis of this formula is that all elements must be present in order to achieve success.  For example, having a business plan that clearly identifies the organization's desired performance levels and a plan to get there won't do much without dashboards that provide a consistent and discernible picture of results.  Although more common than one might think, this type of situation makes managing the business extremely difficult by leaving too much to chance.

The components of the formula are as follows:

CLEAR BUSINESS PLAN:  There must be a plan that provides very clear direction and targets for the organization.  The plan should break the company's long-term strategy into specific results to be achieved in the coming 1-2 years.  Included in the plan is information or results that drive daily work (i.e., help people understand the level of performance that must be maintained to meet objectives) and breakthroughs, or the big steps that must be taken to move the organization forward (i.e., the areas where business as usual is not acceptable).

VISUAL DASHBOARDS:  The dashboards is the scoreboard to identify the gaps between current performance and the targets or objectives listed in the business plan.  At the highest level, this is the actual safety, quality, production, and cost targets.  As you move deeper into the organization, though, the measures on the dashboard will become more focused on the processes in a particular area.  Also, the information on dashboards must be clear, easy to understand, and include leading, as well as lagging indicators.

EFFECTIVE MEETING RHYTHM: The organization must implement a meeting cadence that is focused on actual performance versus targets.  The meetings should be short and focused on hotspots - i.e., the problems that are, or have the potential of, interfering with performance.  These meetings are not a forum for people to tell everyone how much work they did since the last meeting - the dashboards will do this.  The meetings should used to highlight the problems and ask for help.  The meeting schedule should be set at as closely as possible to the pace of work so the problems can be identified and addressed quickly.

CONTINUAL IMPROVEMENT:  Knowing the gaps between targets and current performance is futile if people do not know how to address problems.  Having an effective kaizen or continual improvement process will enable the organization to close the gaps and react quickly to existing and potential problems.

Although the basic formula appears simple, there are a lot of elements necessary to make it effective.  Without effective leadership or a culture that supports, rather than hinders, teamwork and the ability to question the status quo, success will be elusive.  Using the formula as a starting point for a lean transformation, though, will tend to make the organization's weaknesses visible, which is the first step in making the change.

Demotivating Employees One Performance Review At A Time

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After all that's been written about the destructive effects of the traditional performance review, it's amazing how many business still do it. It's been proven in study after study that grading or assigning a number to a person's performance - especially when forced into a "normal" distribution - results in far greater demotivation than improvement. Companies that continue the practice, though, tend to feel that they're the exception rather than the rule.

Let's say, for example, that you have the best employees in your industry. After all, this is a goal of the hiring, leadership, and employee development processes, right? If we have a performance rating system that forces a normal distribution of ratings, we would have to find ways to separate the "top" performers from the "average" and "low" performers. By doing this, will we actually motivate the "lower" performers to improve by assigning them lower grades? Unfortunately, in most cases, the motivation this type system creates is to energize the worker to stop caring about the company or to find a job with another company.

Okay, in reality, you probably don't have the best employees in your industry. You probably have team members who do not perform as well as you would like. But is this the fault of the employee? Can we force the type of change we desire by rating and normally distributing people? Or should we study the situation to understand and correct the causes that interfere with everyone from performing well. These causes can usually be traced to one or more critical company systems, including:

• The hiring process
• The employee development process
• The system and style of leadership
• The rating system itself

WHY NORMALLY DISTRIBUTE?

It is interesting that some businesses feel that their systems for hiring and developing people are consistent and predictable enough to justify a normal distribution of ratings. Besides the fact that this is often driven more by gut feel than data, it assumes that the company has no effect on employee performance beyond assigning a rating to motivate the person to improve on his or her own.

A normal distribution doesn't just happen.  It results from consistency and tight control over a process and, in the case of performance reviews, normally distributing the ratings and tying to raises and bonuses is tampering, which is destructive and interferes with the system's ability to remain normal.

Understanding that there is no logical basis for normally distributing performance ratings will be a major step toward improving performance. Let's say, for example, that in your efforts to build the best workforce in the industry, you decide to rid the company of its below average performers. So you rank everyone, figure out through some means those who fall into the bottom half, and fire them. So you now only have above average workers, right? Not exactly.

You could actually continue this practice with the remaining workers because you will now have a new average and a new set of workers who are "below average." You could even keep ranking until you have two remaining workers and guess what? One of the two will perform below average. Even with only one worker, you would find that he or she will perform below average roughly half the time.

WHAT TO DO

The fist step to improve employee morale and performance is to figure out whether or not the performance review system is actually achieving the results for which it's intended. Is performance actually improving or is there no discernible difference? If the system is not resulting in improvement (like most), stop doing it. It does not matter if you don't have a process with which to replace it. Like anything you do in a company, if it's causing harm or costing money and time with no return, you need to change it or stop doing it altogether.

Secondly, figure out what the real problem is and what's causing it to occur. If employees aren't performing, is it due to a poor hiring process, ineffective leadership, lack of attention to development, or some other cause? Is failure to consistently meet objectives due to poor planning, too many priorities, lack of teamwork? Whatever the cause (and its probably a combination of many), this is where efforts can result in real improvement. You can continue to spend time judging performance and ranking people, but without effective leadership, planning, and a host of other elements, frustration and employee turnover will occur, but improvement will not.

FEEDBACK, YES . . . RANKING, NO

Effective leaders talk to those on their teams. They coach and develop on a continual basis, rather than wait for the once or twice per year performance review. Of course, leaders need to know how to coach and mentor, but those who resist the process and fail to make it happen are ignoring one of the most important responsibilities of leadership and should be in other jobs.

Everyone, regardless of position can benefit from coaching, and effective coaching requires continual feedback. It takes time and a lot of effort to be successful, but the process can lead to increased employee motivation, much better teamwork, and improved overall performance.

Improvement Requires More Reflection; Less Justification

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Using an A3 for business planning is one of those practices that, like many aspects of lean thinking, is simple but not necessarily easy.  Although the basic process tends to make sense to people, success requires those involved to exhibit certain behaviors that are so different from the norm that most plans produced by the process result in nothing more than business as usual.

Making Problems Visible

There are few people who will argue with the concept of making an organization's problems visible.  Understanding the role that KPIs or the boards and lights associated with an Andon signal play in problem-solving efforts is not difficult.  What does tend to be difficult, though, is applying the same type of thinking to the company's higher-level planning processes.  An organization has little chance of improving performance if its leaders can't agree on the problems they need to address.

In The Birth of Lean, Taiichi Ohno is quoted as saying that kaizen continuously requires people to, "assume that things are a mess."  Since business planning is fundamentally kaizen at the organizational level, we've got to create the idea that things are always a mess.  To do this requires that targets are clearly visible and people feel free to openly and honestly reflect on performance against the targets.

During business reviews, it is not uncommon for teams to spend significant effort justifying the performance gaps rather then accepting them and reflecting to understand the reasons that drive the gaps.  This is not surprising given the way many organizations to recognize and reward people.  When rewards are based on meeting targets rather than addressing problems, people will fight to justify results.  The crazy thing about this type of behavior is that most people recognize it - we just don't tend to do anything about it.

Moving the culture away from justification and toward reflection requires recognizing that the company's systems and practices may be driving the wrong behaviors.  There is always a mess, and it's got to be okay to recognize and openly admit it in order to free  people up to drive improvement.

It's difficult to say that any single component of business planning is more important than another but without adequate reflection, the organization will fail to recognize its biggest problems and will never move beyond mediocrity.  Time and energy spent justifying results is waste, and the sooner we replace it with open and honest introspection the sooner we can bring the big gains into reach.

Maslow: Still Relevant 70 Years Later

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Being an effective leader is not easy. With all of the external factors that can affect performance seemingly coming at an ever-increasing pace, keeping an organization operating at a high level can be a difficult job. With the continual changes in technology, markets, and regulations, however, the most difficult aspect of leadership continues to be the same as is has for the last 100 or more years: people.

Organizations have gotten thinner in recent years forcing managers to increasingly become doers. Because of this, the importance and complexities of helping team members be satisfied and productive in their jobs has unfortunately become more of an afterthought than a priority. Although we talk about the importance of developing and motivating people, our actions say otherwise.

A HYPOTHESIS FOR IMPROVED LEADERSHIP

In 1943, Psychological Review published A Theory of Human Motivation by Abraham Maslow. In the paper Maslow presented the results of a study of highly successful people, including Albert Einstein, Frederick Douglass, and Eleanor Roosevelt focused on understanding what motivates people to become high performers. As a result of the study, Maslow proposed that the stages of growth of human beings tends to follow a pattern which he characterized as a hierarchy of needs, or stages of development that drive motivation.

As presented in the diagram, the stages generally go from lower-level basic survival needs to higher-level increasingly sophisticated needs focused on fulfilling one's potential.*

The hierarchy proposed by Maslow has been taught in business schools for years as a component of effective leadership. Leaders need to understand where team members are in the pyramid as a basis for motivation and development. Also, it's important to understand that a person can move up and down the hierarchy depending on his or her individual circumstances, including things like personal relationships, impending layoffs, health, or a variety of other factors.

Effective leaders appreciate the importance of building relationships with those on his or her team to understand how to best help them develop and grow and be successful. When the leader is too busy doing things other than coaching and developing team members, there will be a tendency to treat everyone the same and focus only on group motivation techniques, often resulting in dissatisfied team members, poor performance, and high turnover.

To improve the situation, leaders need to be taught how to apply the hierarchy in everyday situations.  They need to be given the ability to work closely with those they lead, and held accountable for the development, motivation, and retention of team members.

Leadership is a serious responsibility and there is no magic formula to assure success. Maslow gave us a model 70 years ago that, although not necessarily making the job any easier, can make it much more effective. The hierarchy presents a hypothesis that spending time with people and treating them as individuals can lead to increased success for the person, the leader, and the organization. And when you get down to it, anyone who doesn't think it's important to spend time with team members really has no business being in a leadership position.
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* NOTE: Maslow never actually presented the hierarchy in terms of a pyramid.  The pyramid was developed much later as a simple way to graphically depict the theory.

Escaping Mediocrity

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“Wisdom is born from the ideas of novices. The veterans will spout off about what's possible and what's not possible on the basis of their experience and a tiny bit of knowledge . . . So kaizen can't even get started.” -- Taiichi Ohno (as told by Michikazu Tanaka)*


Why do so many companies seem to be happy with mediocre performance? People generally consider the idea of having it all – perfect safety, high quality, short cycle times, low costs – as an unattainable fantasy. As a result, the bar is set low and everyone feels good when mediocrity is achieved.


So often, it is our experience that interferes with moving to the next level of performance. We don't set aggressive targets because we know they are impossible to achieve and, in the end, we don't want to be disappointed or suffer the consequences of missing a target. As a result, we trudge along with average results and view problems as inevitable or out of our control. If we're lucky, our competitors operate in the same mode. If not, we remain in the middle of the pack and the gap between us and one or more key competitors widens.


Energy Can Be Created
A group wide vision of problems as inevitable is what causes people to lose their energy and inspiration. When one views significant improvement as impossible, intrinsic motivation wanes and extrinsic motivation – e.g., compensation – dominates. And the longer this type of “it happens” mentality continues within a company and the more deeply engrained it becomes in the culture, the more difficult it becomes to change course.


Leaders can stop or prevent operational by first realizing that their own behaviors and the systems they created may at the root of the problem. It's not necessarily easy to do, but letting go of some traditional beliefs and methods of management can begin to drive the type of change that can energize improvement efforts and give people the confidence that they can have it all.


To do this first requires that leaders believe that problems are not inevitable and that the company has the ultimate control over its own future. In short, they must deeply believe that they can “have it all.”


Stretching Without Breaking
Leaders have to trust that the people in the organization possess the ability to successfully tackle the difficult problems facing the company. Developing this ability, though, often requires stretching people by encouraging them to accept challenging projects and targets, and supporting their efforts to succeed. They won't always be successful in achieving the target (if they are, they're probably not being stretched enough), but they will grow and develop with each project.


A stretch target refers to a target that is difficult, but not impossible to achieve and, although you can't stretch people all the time, you've got to make sure there is enough tension within the organization to keep people developing and the company's performance improving.


Getting people to accept stretch objectives assumes that they will not be penalized for missing a target. Reward systems need to support development and participation in stretching the organization, rather than merely meeting a target. If you encourage people to stretch but continue with a reward system based on meeting targets, nothing will change. People will continue to pursue safe targets and push back on any attempt to stretch. In other words, mediocrity will reign.


Organizations tend to cause their own problems. The effects of problems caused outside of the organization tend to pale in comparison to those created on the inside. Understanding and accepting this, however, often requires a shift in thinking toward the idea that mediocrity is unacceptable and that the organization can, in fact, have it all.


*From The Birth of Lean (Lean Enterprise Institute, 2009)

Unilever: Transformation & The Environment

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I love reading about organizations that exhibit lean behaviors without actually labeling them “lean.”  Although using a term like lean helps provide a common way to describe an organization’s approach and practices, and connects them to a wider community for learning and development, there is something to be said for companies that tailor the system to make it their own.  Such is the case with Unilever.

A recent issue of Fortune Magazine included an interesting article about Unilever CEO Paul Polman and the success he’s having in transforming the organization toward a more environmentally sustainable business model.  The company issued a Sustainable Living Plan, which outlines its principles and approach for its model, including aggressive targets to be achieved by 2020.

Making the Transformation

Through the Sustainable Living Plan and Polman’s drive for change, Unilever appears to have done the right things to begin a transformation that, by all indications, appears to be on track to achieving some pretty aggressive objectives.  Although the transformation process never ends, getting to the point where it truly begins to take hold requires some fundamental elements that, without which, make a vision nothing more than a hope or prayer in the future.

Not in any particular order, these elements, that fall within the responsibilities of the organization’s leaders, include:

Clarifying the Vision  Creating a clever term or buzzwords to describe the vision are not enough.  People need clarity in order to connect their activities and efforts to a transformation.  Clarity also provides a lens with which to understand whether current systems and processes support or conflict with the future direction.

Deeply Believing in the Direction  The leader must fundamentally believe in the direction and need for change, and be obsessed with making it happen.  Without this level of belief and engagement, the message will lack the energy and confidence that people need to accept and buy into the effort.

Establishing a Worthwhile Cause  In spite of what many leaders believe, the vision must go beyond profits and share price.  Getting people to buy into a vision requires connecting it to something deeper than financial gain.  This can be done through a clear connection to the fundamental need the company serves through its mission, or through an ancillary aim like Unilever’s sustainability plan.

Stretching Targets  Lean thinking requires the desire and confidence that you can have it all.  Shifting thinking toward the idea that absolute perfection is the only objective helps drive creativity in ideas for improvement.  Polman’s belief that Unilever can double its sales while cutting its carbon footprint in half is an example of stretching the organization to unleash innovation.

Removing Barriers  Talking about achieving the impossible while continuing to operate in the same way will lead to frustration and a loss of trust in leadership.  Successful transformation requires breaking down barriers and questioning the company’s systems, processes, policies, and culture to discover what is interfering with the future.  The responsibility for doing this lies entirely with the organization’s leadership team.

Having Patience . . . but Not Too Much  Transformation takes time and, the further the organization currently is from where it wants to be, the longer the process will take.  Leaders must have the patience to let people internalize the new direction, and the impatience to know when the effort has stalled and requires direct action.

Two years into the plan, Unilever has begin to show remarkable results.  In 2012, revenues increased by 10.5% and the company’s stock price, up 75% since 2009, has reached an all-time high.  On the sustainability front, the company has significantly reduced packaging in some of its largest selling products, and 10 of it U.S. factories have completely eliminated the waste to landfills.

I used to live in Rotterdam and drove by the Unilever building every day on my way to work.  Other than thinking that it was interesting how the building hangs out over the river, I never thought about the important role the company was to play in global environmental and economical sustainability.  I sincerely hope that Polman is able to keep the transformation going and prevent the natural forces from pulling the company back to traditional thinking.

Accidental Success Is No Reason To Celebrate

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Lean Rule #18: If you can’t explain it, you can’t take credit for it.

It is not unusual to expect people to be able to explain the causes of a decline in performance.  Those leading an area experiencing a decline are expected to know their processes well enough to explain what happened, as well any countermeasures planned to get the process back on track.

For a variety of reasons, though, we don’t expect the same level of understanding for an unexplained improvement in performance.  The improvement is often gladly accepted with the hope it will continue, or it is credited to something subjective like increased focus.  In some cases, the improvement is celebrated even though there is no indication that result was anything other than random.

As with a decline, an improvement in performance results from one or more causes. The inability to explain the reasons for a sudden improvement shows a lack of understanding of the process.  And without an understanding of the causes of the an improvement, it will be impossible to standardize them and assure that the improvement can be sustained.

One of the objectives of standardized work is to control a process to the point where absolutely nothing is left to chance.  Although in reality, it’s not possible to ever get to this point, it is important to keep trying.  This means continually studying the process to understand why it performs as it does.

When work is approached as an ongoing experiment, results will continually drive learning which in turn, will feed improvements in standard work.  Changes in performance - good and bad - will be easier to analyze because people will always be looking for situations where their hypothesis has failed - i.e, standard work did not result in perfect quality.

Although more commonly used than people would like to admit, hope is not an effective way to run a business.  For many organizations, transformation in thinking will be needed to create the type of environment where people become obsessed with achieving perfection – and getting there requires never stopping even after a change in behavior becomes evident.  You will know the transformation is beginning to happen when the desire and energy to study the causes of accidental success is approached with the same urgency as a sudden decline in performance.