Many people see Lean as another process methodology still mired down in the process thinking world of the eighties and nineties. The facts are that companies, such as Danaher, Toyota, Ingersoll Rand and Amazon have embraced Lean thinking or similar concepts and have excelled in the new millennium. What makes these companies stand out? They have created repeatable business models with an emphasis on continuous improvement and adaptability. We can create numerous names for this model, but the Lean Business Model has proven to be the most resilient and consistent producer of results and of growth. Lean is introduced as a growth strategy through the processes of SDCA, PDCA and EDCA. This three step process for using Lean is defined in this way:
- Standard Work (SDCA): Define core business and put the majority of company resources into the core until it achieves its full potential.
- Continuous Improvement (PDCA): Most big ideas are made up of a series of successful smaller ideas driven by a simple and repeatable business model.
- New Markets and Products (EDCA): Define what you cannot do and explore what you want to do?
If you are a Lean StartupTM or an Entrepreneur with a new product, you have just completed an exercise that is called Product Market fit (I will use only the word “Product” to describe both products and services). In my thinking or terms, you have gone through the EDCA (Explore-Do-Check-Act) stage and converted it to a hypothesis that is proven through PDCA (Plan-Do-Check-Act). Once proven, you standardize (SDCA) your product/service and build your first repeatable business model. If you are not sure you are ready to scale your business model, Sean Ellis’s book, Lean Marketing for Startups, offers some excellent guidance and worth a $4.95 (Kindle version) investment. If you are familiar with Sean’s Startup Pyramid, you will see the same evolution of EDCA (Product/Market Fit) and PDCA(Promise, Economics, Optimize) and SDCA (Scale). Do not scale (SDCA) till you have reached product market fit (EDCA) and a repeatable business model (PDCA).
How do repeatable models succeed? In the books Repeatability: Build Enduring Businesses for a World of Constant Change and Profit from the Core: A Return to Growth in Turbulent Times, the authors use studies from the Bain and Company to point out the three design principles (the parenthesized parts are mine) most associated with success.
- What is the essence of success? A well-differentiated core (EDCA)
- How do we make sure we keep improving and adapting? Closed-loop learning (PDCA)
- How do we align our people to focus on our key strengths? Clear nonnegotiables (SDCA)
In the book, the authors distinguish three different growth strategies based on repeatable business models.
- Individual business driving core growth (Examples of companies with a single core, simple structure: Vanguard, IKEA, Tetra Pak)
- Businesses moving into adjacencies by modifying their model (Examples of companies with a single core, complex adjacency expansion: Nike, Apple, Olam)
- Multicore business managing a portfolio (Examples of companies with a multicore, multi industry: Danaher, UTC, P & G)
The repeatable business models are very diverse. They are highly fluid but repeatable. I view SDCA or Standard Work in much the same way. When we have clear nonnegotiable standards, it allows the fringes of our businesses to operate effectively with little intervention.
Standards are what makes business models adaptable. In recent years, Alex Osterwalder and Yves Pigneur developed the Business Model Generation Canvas. It identifies nine building blocks required for the business model. It is an iterative approach to see what underlying structure is required to institute and develop change for innovation. A PDF download can be obtained here: Business Model Canvas. What this model does is provide clarity around the core value proposition. You may believe the model is too simple for larger companies. However, I believe that simplification is the point, and a simplified structure is in Lean terms, standards.
Standards are the most fundamental and misunderstood concept needed for growth. Your core values are the way you go about what you do and how you do it. It is what your customer understands and experiences. Standards create the WOW in your business. When an employee steps out of the box to do something remarkable, it is a result of having the clarification that this is what are standards (values) would encourage us to do.
Lean embellishes standards, not as a way of being restrictive. It embellishes standards as a way of clarity and focus providing agility, speed and relevance throughout not only to the organization but to the market. It makes growth more understandable for existing customers, new markets, and new products. When viewing the recent growth of Amazon, Apple or Google, most product/service successes occurred building upon their standards. When viewing the troubles, of Starbucks and Dell, it was a movement from their standards and the correction being a return to them.
Growth Principle: Standards create the WOW
Standards have to be at the core of your growth strategy.
For more information on SDCA, PDCA, EDCA, I recommend the Business901 training content located in the Lean Service Design Trilogy Training Section.
This week, April 22nd thru the 26th, we will concentrate on how to grow, or scale-up your small business. I will be scaling-up the entire week culminating in a webinar, The Lean Scale Up, which is followed by a period of Q & A on the afternoon of April 26th. Only registered participants will be invited to webinar and Q & A.