Lean as your Business Model
Art Byrne has been implementing Lean strategy in various U.S.-based manufacturing and service companies, such as Danaher Corporation, for more than 30 years, including The Wiremold Company, which he ran for 11 years. He now serves as Operating Partner at the private equity firm J. W. Childs Associates L.P.
Art recently wrote the book, The Lean Turnaround: How Business Leaders Use Lean Principles to Create Value and Transform Their Company that is said to be the c-level guide to succeeding with Lean. I believe that is an injustice to the book. I believe that anyone that is serious about implementing Lean in any part of the organization can benefit from this book. It is about Lean as a business process or what fuels the fire of a Lean implementation. Below is an excerpt from the podcast, Lean as your Business Model that will post next week.
Joe: The one big overall thought I had from the book, is that you practically view Lean from just about an appreciative inquiry point of view. What you do well. What are the value adding activities. That’s like heresy sometimes, what many consider Lean thinking. I think the first thing when someone thinks about Lean, they think about waste reduction. But, you talk about value adding.
Art: That’s correct. There’s a simple definition of, what is a business in the first place, not just a manufacturing business, but any business? It’s really a very simplistic thing. It’s a collection of people, and a bunch of processes all working to try and deliver value to customers. That’s true for any business. It doesn’t have to be just manufacturing. Unfortunately, the traditional approach that we’ve evolved to when we run these businesses, we started out with strategy, and more often than not the strategy is to create shareholder value, which I think starts out by having it all backwards because shareholder value, to me, is a result, not a strategy. It’s a result of what you do and the value that you deliver to customers over long periods of time is what’s going to improve your shareholder value.
You can’t just say, “I’m going to do shareholder value.” That’s backwards. The other thing that occurs in almost all traditional approaches to a business is we take the value adding part of the business as a given. For example, if you’re running a company and you have a six-week lead time, and you’ve always had a six-week lead time, then that’s taken as a given, “OK we’ve got a six-week lead time. How do we do our strategy around that?”
What we try is to get our customers to conform to what we do, to the fact that we have a six-month lead time. Then, of course, we focus very, very heavily on making the month. The traditional management approach is focus on the numbers, and make the month, make the quarter, that kind of thing.
Unfortunately, when you’re focused on make the month; you’re focusing on something that already happened. You can’t do anything about that anymore, it already occurred. That happened last month.
In fact, for most companies, by the time they get the results of last month, they’re three weeks into this month. Effectively, we’re always trying to drive the car through the rear view mirror when you look at it that way. The reality, however, is the opposite of that.
The value is created by a couple of things, one, by improving your own value adding activities. Two, by delivering more value to your customer than your competitors can. Three, by conforming what you do to your customers to satisfy them and make you stand out verses your competition. It’s really this opposite…value is created by the opposite of the traditional approach, if you will.
I always like to use the example of a simple thing that productivity equals wealth. Productively, this is true for countries, for companies, for anything. Productivity always equals wealth. If you think of the industrial revolution in England, if you think about why the United States has become so powerful, it’s all really because of productivity.
A Lean strategy allows you to get big improvements in your value adding activities, which is basically productivity. It’s a way to get productivity by focusing on your value adding activities. As you get these, this creates the opportunity for you to grow and to gain to gain market share, which is particularly important in times like this when the economy is really flat and slow and people are struggling to get any kind of sales growth.
The Lean approach gives you the opportunity to do that by focusing on your value adding. I look at Lean really as the greatest wealth creator that was ever invented. But most people just look at it as a bunch of tools, as I said before. It’s a whole bunch of tools in a tool kit.
We can roll then out when we want to use them. If we don’t feel like using them…if you look at most manufacturing companies, they say they’re going to do Lean, and most of them will start where they’re trying to do Kanban, just because they can understand Kanban a little bit better than some of the other stuff. They won’t do setup reduction.
They won’t do some of the other fundamental things. They’ll try and do Kanban, without doing all the other things first, you don’t get much cane out of doing Kanban. But, that’s the approach that a lot of people take.
I think you really have to understand Lean as strategic to really understand what’s possible here. I can give you a really simple example of that, which is, if I just gave you an example that said, we got Company A and Company B; they buy the same equipment from the same manufacturer, so they run at the same speed. Everything is equal. They don’t have anything different…as Company B can change the equipment over in one minute, and Company A takes an hour.
If each of them can only afford an hour a day to change that equipment over, then if I asked you who has the lowest cost, and who has the best customer service, A or B, it becomes pretty clear to most people that the guy with the one minute setup is going to have lower cost. He’s going to have tremendously better customer service because of his ability to respond quickly.
He decides to leverage that by offering a two-day lead time, when Company A and the rest of the industry has a sixweek lead time. He’s going to start to gain market share. Company A’s first reaction is probably going to be to build more inventory so that he can offer a short lead time. That’s just going to drive his cost up. Or, if that doesn’t work, he’s going to start to cut the price which also hurts his cost structure and his profitability.
Something that most people would look at clearly as a manufacturing thing, setup reduction, turns out that it’s going to give me lower cost and better customer service, two very strategic things. That might give you a little insight into why, Lean at its core, is a very, very strategic thing. That’s part of the point that we’re trying to make with the book here is that applying the Lean tools and doing this…there’s some tremendous results that you can get from this.