Innovation: Without it, You're Not Doing Lean

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There seems to be a common misconception that lean thinking and innovation somehow conflict with one another.  Many companies approach innovation as something completely separate from lean in order to prevent concepts like standardization and stability from stifling creativity.

This is unfortunate because innovation not only fits but is actually a significant part of a lean system.  Failure to integrate innovation into a lean journey will lead to missing out on many of the big gains that are possible with the strategy and hurting the organization’s long-term competitiveness.

THE CONCEPT OF IMPROVEMENT

At its most basic level, improvement consists of two elements: problem-solving and breakthroughs.  Problem-solving involves addressing a drop in performance with the objective of returning to the way things were before the problem occurred.  This is critically important for maintaining performance by increasing the stability of processes and systems.  Most organizations, however, stop their lean efforts there and fail to significantly improve because of a lack of attention to improving performance and raising the standard.  As important as stability is to performance, raising the standards to new levels are just as important to long-term competitiveness.

Breakthrough or kaizen thinking deals with this to continually drive the organization’s performance to new levels.  The successful application of kaizen into an organization requires the type of innovative thinking and creativity that many organizations are missing, have stifled in team members, or address completely separate from lean.

MANAGEMENT PROBLEM-SOLVING

Breakthrough can come from two sources: the vision and ideas from team members to make products better and work easier.  An effective vision provides direction regarding how the company wants to perform in the future to be successful.  It must be grounded in reality to some extent but also provide enough of a stretch to energize people to apply the creativity to make it happen.  From this perspective, a comparison of how the company currently performs and how it is expected to perform 5 or 10 years in the future should provide a gap that needs to be addressed through creative problem-solving, or breakthrough.  As a general rule, this should consume about 20% of the organization’s resources, and the closer to the customer or the company’s main business activities (i.e., the factory floor, service counter, wellhead, etc.), the more the focus on the other 80%, or operating and maintaining processes to meet performance targets, and conducting problem-solving when targets are missed.  It should be noted, though, that the needs of every organization are different and the split must be adjusted to fit individual situations.

Driving breakthroughs to close the gap to the vision is basically management problem-solving and is where leaders need to spend a significant portion of their time.  This is one of the many reasons why micromanagement of team members is damaging to an organization.  Besides the negative effects on motivation, micromanagement shows that a leader is not developing those on his or her team to handle day-to-day problem-solving in to free up the leader to focus improving the system.

CHANGING THINKING

Problem-solving and breakthrough both usually reprogramming in the way most people think.  The typical reaction to problem-solving is to immediately jump to the countermeasure.  This is often due to an overloaded schedule, the need to look smart, arrogance, or many other factors that are influenced by geographic and company culture.  The problem with this is that, without understanding the problem clearly, or determining the most likely root cause, the countermeasure can be incorrect and worsen the situation, or even if it does happen to work, the team misses a valuable opportunity to learn more about the product or process involved.

Reprogramming thinking to improving problem-solving requires developing the analytical skills to clarify the problem, break it down to determine when, where, and how often it happens, and using a structured way to discern the most likely root cause.  Basically, people need to learn to become detectives to determine what changed since the process was meeting the standard.

Breakthrough thinking requires developing innovative or creative thinking.  This involves developing the ability to clarify the need as the difference between current performance and what it needs to be to meet the new target (similar to problem-solving).  It also requires learning how to reflect and observe to see what is keeping performance from improving beyond its current level and teaching people to challenge their own assumptions to better understand whether they are real or perceived, and if they are blocking new ideas from being devekioed.  Breaking down the walls that protect one’s beliefs about the work is a key to increasing the flow of ideas and creativity.

Although improvements will occur throughout the journey, patience and a good deal of effort is required to develop problem-solving and breakthrough thinking because it involves reprogramming the way a person has likely thought and approached work for decades.

LEAN THINKING INVOLVES BOTH

As an organization is undergoing a transformation toward lean thinking, it is critical to think about the whole system, which includes closing gaps to the standard as well as raising the standard.  Considering problem-solving only and keeping innovation separate from the effort tells people to that their ideas are not valued and to only focus on getting processes to operate to current standards. 

Integrating the creativity of breakthrough thinking with the stability of standardized work and problem-solving, however, can enable the organization to tap into the big gains that most companies fail to achieve.  Like most of lean thinking, however, it is a simple concept that requires patience, vision, and effective leadership to make happen.

Innovation for the Sake of Innovation

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“Our whole company is founded on the principle that there is something very different that happens with one person, one computer.” – Steve Jobs

The May issue of Fortune Magazine included an article called, “Startups . . . Inside Giant Companies,” which presented the latest approach companies are using to drive innovation.  The article included examples of how companies like Coca-Cola, GE, and Tyco have implemented programs to drive innovation back into the organization.  As I read the article, I couldn’t help thinking here we go again – another management fad destined for the six-sigma scrap heap.

The author highlighted the systems companies are using to make their cultures more innovative by setting up internal startups to bring new ideas to market and rewarding people for new product ideas.  The approaches used by the companies include idea pitch parties, internal venture capital groups, and growth boards that award funding to the best ideas.  It was noted, for example, that GE now has 3,500 of its 300,000 employees now involved in the process and expects to increase that number to 35,000 by year-end.

Innovation Doesn’t Guarantee Success

The success of companies like Apple, Google, and Amazon has created an infatuation with innovation to the point of being distracting and detrimental to running the business.  Innovation is absolutely critical to the success of an organization, but it must be focused on improving customer service and addressing problems that interfere with achieving the vision.  Uncontrolled innovation leads to very creative ideas that distract people and result in square-peg results. 

The six-sigma thoughts that kept popping into my head while reading the article were related to the black-belt who grabs the glory for “solving” a problem while those who participated in the effort – and did much of the work – get little or no recognition.  Those dealing with the problems on a daily basis are also shown by management that they are not respected enough to be taught how to solve problems on their own and that it takes a special person to stay focused and find solutions.

I can’t help but think that the same thing will occur within many of the companies listed in the article.  As the people with the ideas are applauded and rewarded by leaders, those left running the business – and dealing with numerous problems on a daily basis – are largely ignored and shown that what they do is not important. 

Another potential distraction caused by the heavy focus the referenced companies place on innovation projects is that, by touting the number of innovation projects, people and teams will start putting forth weak and unclear ideas just to raise the numbers.  If company executives focus on the numbers, team leaders will start padding the numbers to make themselves look better.

Aligned Innovation

What truly innovative companies understand is that innovation must be ultimately focused on serving the customer.  On the production line, Toyota removes the doors after painting because it allows team members to move in and out of the car quickly and easily and keep up with takt time.  This is an innovation that addressed a problem of keeping up with increased demand.

When it comes to new product development, Apple seems to understand this concept better than pretty much anyone.  Following the purpose of one person, one computer, Apple seeks to understand its customers at a fundamental level rather than merely a product level.  Customers generally do not know what is possible, so merely asking them what they want will lead to information about the products and services they are currently receiving.  If asked what they wanted with personal computing, though, customers would have probably responded in terms of their laptops.  Focusing on the one person, one computer purpose, though, Apple dug deeper to understand problems people have every day that could be addressed by having a computer with them everywhere they go.

Whether process or product innovations, the key is to understand how they address problems for the internal or external customer.  Cool ideas mean nothing unless they help the address problems.  When the effort is controlled by focusing it on the company’s purpose, the creativity of people can be released in the right direction resulting in far greater success with new products, processes, and services.

Hire Trustworthy People . . . Then Trust Them

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"Every knowledge worker in a modern organization is an 'executive' if, by virtue of his position or knowledge, he is responsible for a contribution that materially affects the capacity of the organization to perform and to obtain results." - Peter Drucker

What would happen if you offered your employees an unlimited number of vacation days?  Could you trust that people would not take advantage of your generosity?  Would work still get done?  As crazy as it may seem to some, DVD and movie rental company Netflix did just that and, by every indication, it's working just fine.

According the a story in the August 14 edition of the Telegraph [LINK], Netflix stopped counting vacation days for its salaried employees back in 2004.  Reasons given for the decision include the fact that employees regularly spend personal time (e.g., nights and weekends) handling company-related issues and responding to email.  Also, since hours worked per day were not tracked, leaders decided it didn't make sense to track vacation time either.  These are logical reasons, but I believe it comes down to something much simpler:  Netflix hires trustworthy people and trusts them to do their jobs.

It's About Company Objectives, Isn't It?

Many managers forget that it's more about quality of work than quantity of hours that determines the value of an employee.  If an individual is getting his or her job done, and is successfully contributing to the company's objectives, it doesn't matter how many hours or days is spent in the office.  For some reason, though, we tend to think that if people are not putting in 40+ hours per week, they are not valuable to the company.


If a company is effective in recruiting talented and trustworthy team members who fit into the culture, it does not need tight policies and controls.  In fact, the tighter the controls, the less effective creative and energetic people tend to be.  When expectations are clear and barriers to success are removed, people regularly surpass objectives.

The Importance of Culture

Netflix developed a presentation to describe their culture that is widely available on the internet.  As I read through the presentation - all 128 pages of it - it became clear that Netflix leaders understand the type of company they want to be and work tirelessly to develop - and protect - their culture.  The presentation, titled Reference Guide on our Freedom & Responsibility Culture, is worthwhile reading for anyone in business.

It's the Overall Approach - Not the Perks

Applying the Netflix formula for success does not mean copying what is in the presentation.  Unlimited vacation days only works because it is a component of the company's total approach to business.  It means taking care of the things that give direction and inspire people to act.  These include:

1. Understand the Purpose:  Clearly understand why the company exists - i.e., who the customers are and what value customers get from doing business with the company.  Make sure that decisions and actions support the purpose;
2. Set Direction:  Establish a vision for the future that inspires and excites people to make the company successful;
3. Develop the Culture:  Don't let the culture happen by accident.  Create an environment that will make people, customers, and suppliers proud to be associated with the company and want to make it successful.  Once the culture is established, vehemently protect it from the internal and external forces that can change its characteristics;
4. Hire Correctly:  Recruit the type of person who will thrive in the company.  Put more focus on finding someone with the right cultural fit than the correct technical qualifications and consider every hire from the perspective of bringing in someone who will be personally successful while contributing to the long-term success of the company;
5. Develop Individuals & Teams:  Improve the ability of individuals and teams to be successful.  Provide learning opportunities for everyone to assure that organization continually develops.  When possible, develop future leaders from inside the company rather than hiring from the outside;
6. Get Out of the Way:  Stay visible, but let people do their jobs.  Get involved when situations call for coaching and development and remain focused on leading, rather than managing, people.

Virtually every company wants an innovative and energetic workforce but very few know how to make it happen.  It comes down to taking care of the basics (above) and trusting the people you've hired to do their jobs.  You can hire highly talented and qualified people but micromanagement and tight controls shows a lack of trust and leads to a group of people who are uninspired and indifferent about the company's success.

Back in 1997, very few would have thought that a tiny startup from Los Gatos, California had a chance to supplant the mighty Blockbuster in the movie rental business.  As the people at Netflix have proven once again, though, the ability to unleash the talents of people is the most significant competitive weapon a company can have.

The Smarter Company

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When discussing the most innovative and successful companies over the last decade, people will most likely mention names like Apple, Facebook, Google, or RIM.  These companies are known for utilizing innovation in products, processes, services, and technology to give them a distinct advantage over their competitors.

But how do these companies maintain their edge?  Are the people who work at Apple or Google really any smarter than those who work at other organizations?  It's no secret that these companies have their pick when it comes to recruiting, but is that what keeps them more innovative and profitable than other companies around the world?  In my opinion, yes . . . and no.

It Takes More Than Talent

I will never downplay the importance the talents of people to a company's success.  Companies like Google and RIM are staffed with very smart and talented people which has undoubtedly helped them to introduce highly successful products year after year.  But without the leadership, culture, and systems that encourage and support innovation, there would be no way to consistently turn the ideas of these people into commercially viable products.

I have worked with a number of companies throughout my career and met many highly talented people who, for a variety of reasons, were unable to utilize their talents effectively.  In contrast to companies like Apple, the cultures and systems in many of the companies for which these people worked interfered with their ability to use their creativity.  The really sad part of the story is, the longer this went on, the less the people were willing and able to be innovative.  It's as if the ability to innovate atrophies when not used or developed over time.

It's the Company that's Smarter

The difference between the average company and a company like Apple, for instance, is that the leaders at Apple understand that innovation is a key to their success and they've created an environment that encourages creativity.  They have remained focused on creating a culture that fosters the use and continual development of team member creativity, and aligned systems to quickly turn their ideas into products.  In my opinion, this makes Apple a smarter company than most.

It is strange to think that a company would hire someone because of their talents and allow barriers to exist that prevent the person from utilizing these talents, but it happens fairly often.  It's not intentional, but for a variety of reasons, the environment in many companies encourages behaviors that interferes with success.  Mismatches in purpose, strategies, and values lead to confusion, frustration, and de-motivation of employees, interfering with sustained levels of success for the company.

Becoming Smarter

So how do leaders make their companies smarter?  How do they create the type of environment that enables people to utilize and develop their talents in a way that leads to success?  It obviously depends on a company's particular circumstances, but involves addressing one or more of the following areas:

• Purpose:  Be clear and consistent on the company's fundamental purpose.  Why it exists, what need it fulfills for its customers, and why it is different than other companies that serve the same markets;
   
• Strategies:  Determine, clearly communicate, and implement the best way for the company to compete in order to be successful (i.e., achieve its purpose).  Will it compete on the basis of innovative products and services?  Low costs?  High quality?  Assure that the company's culture and systems are aligned with the chosen strategies;
   
• Values:  Identify the company's personality.  Be very clear on the DNA of the type of employee who will make the company successful in the achievement of its purpose;
   
• Hiring:  Take time to hire the right people with heavy emphasis on a person's fit within the organization's culture.  Make sure that, once hired, they are able to utilize their talents effectively;
   
• Train/Develop People:  Continually develop the collective skills of the company's team in support of its business strategies;
   
• Foster Teamwork:  Identify and remove the barriers to teamwork on a continual basis in order to get the organization acting as one and focusing on common objectives;
   
• Value & Respect People:  Assure that people feel respected and valued for their contributions to the company's success.  Create systems and develop leaders that will encourage participation in the achievement of objectives:
   
• Continually Refine Environment:  Develop and refine the company's culture to assure it is aligned with business strategies.  Assure that the environment encourages, rather than hinders, implementation of the strategies.

I don't believe that a company needs to be innovative in order to succeed.  It is much more important for a company's offering to be "right" than "fast."  With that said, however, the faster a company can offer a new product or service that is right, the more successful it will be.  Determining the strategies and assuring that all internal systems and values support the implementation of the strategies will make the company smarter.

So to answer to the question:  I don't believe that the people at Apple or Facebook are any smarter than those at other companies, but I do believe that Apple and Facebook are smarter than other companies.

Big Changes at GM?

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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.