Lean is Dead on Arrival. Do this instead.

Lean was doomed from the day it was named. Despite its good intentions to create the ultimate production system, Lean and its misapplication has led many companies toward a path more akin to organizational anorexia than operational excellence.

In a phone call just earlier this week, I asked the executive leader of a mid-sized Consumer Goods manufacturer how they approached Strategy Deployment and Execution. I couldn’t help but cringe when he started his statement with… ”well, we run with a very Lean staffing model…”. Unfortunately, I hear this expression used way too often. It basically means that they have cut their staffing so low that it doesn’t allow them to do anything beyond survive from day to day. Its not uncommon for companies to create Lean Departments with the primary intent to cut costs and generate savings. Conversely, we can look at the Toyota Motor Company, which is widely regarded as the benchmark for the Lean movement, and see that they never created a LEAN DEPARTMENT. Why do you think that is? Its because creating a Lead Department is like putting the solution before the problem. Its creating a supply for something that has no demand. The company may need to improve – but improvement should be pulled from the market – through leaders and management – and then from the frontlines. Lean tools apply once this pull is strong enough to justify their use. Toyota simply deploys and executes its strategy, or hoshin kanri to drive frequent, targeted improvements. Their approach is to align all employees to the same strategic drum beat and turn their production systems and direction far more quickly than their competition based on market inputs.

Lean-ness is often understood as having less people on the company payroll. Sometimes this extends to other fixed costs as well. The true intent of the founders of the “Lean” movement is probably better described as “Fit” or Organizational Fitness – as in – having an organization that is fit to continuously maximize value to the customer with minimal process waste.

As we will show later, Lean-ness can lead to going out of business. Whereas Fit-ness and strategy execution allows you to not only keep and grow your market share but also tackle new markets. More importantly, it helps to get and stay ahead of competition. This is a very powerful position to be in.

Just Like in Sports, Unfit Companies get Beat

A misguided approach to Lean has led businesses to cut costs at all costs. Too often, companies approach Continuous Improvement with a tools-first mindset; like a hammer that sees everything as a nail, with cost savings being the ultimate measure of Lean success. It just so happens that one of the fastest ways to reduce operating costs is to reduce the size of your workforce. However, leading companies such as Toyota and P&G focus on the ability to execute strategy, change direction based on market inputs, and close off any opportunity to be edged out by competitors. It’s a customer and revenue-first mindset. In other words, Continuous Improvement for leading companies is synonymous with the continuous execution of company strategy. This is not because they’re leading – this is why they’re leading.

Organizational Fit-ness is more about being capable of adapting to any changes in your current market space and gain advantage in new markets. These are the seeds that lead to health and growth for any company. A great demonstration of over-focus on Lean tools and not strategic execution is Florida Power & Light (FP&L). They were the first winners of the Malcolm Baldrige Award (U.S.’s highest honor for companies practicing Continuous Improvement and Lean). FP&L won the award in 1989 and soon after lost a lot of money, cancelled their award winning quality programs, and went back to another “flavor of the day”. Strategic execution focuses on the long-term with consideration for both the present and the future. Being overly short-sighted keeps you in crisis mode as decisions are often made without consideration of long-term consequences. This keeps the company trapped in a cycle of chasing “the urgent” and never investing in “the important.”

Lean, as Widely Practiced, is a Race to an Early Grave

When leaders focus on Lean-ness by cutting people, processes, and technology to the bone, they are doing 2 things: 1) Accepting that they will not grow and 2) Hoping that the market won’t change much. Either way, it’s a race to the bottom of the market – and perhaps getting out of the market altogether. It usually leads to taking value away from customers or quickly getting out of sync, in which case, customers may not expressly say it but trust me, they feel it. According to the highly esteemed researcher Esteban Kolsky, 91% of customers who are unhappy with a supplier will just leave without complaining.

This move toward resource scarcity is often done out of desperation and caused by poor past decisions and misalignment with the market to begin with. The recent pandemic has revealed how many companies were not able to adapt to changing conditions. The most fit companies not only maintained but GREW sales while many of their competitors struggled or went out business.

Don’t Let “Followed The Status Quo” Be on Your Organization’s Tombstone

Just like animal species, companies that don’t adapt to their environment will eventually go extinct. I once worked for a company that took pride in being a “fast follower”. I suppose this is better than being completely unresponsive to the market, but their business strategy is akin to the vulture, looking to pick what’s left off of the carcass after the real hunter has enjoyed all the most tender and delicious parts.

As stated earlier, Fit-ness means you engage all of the company’s resources to increase customer value and gain advantage over competition. The customer may not always be right but if they are buying your product or service over your competition’s, you will make money. When you focus on increasing customer value (perceived benefit over cost) you will thrive.

You need to create a business system that is founded on strategic execution which enlists the hearts, minds, and actions of everyone in your company. As the adage goes, your people are your greatest asset. As such, the savvy leader gets everyone on the team pulling the rope in the same direction while other leaders fail to engage others, trying to do it all themselves. Engaging all resources is a business imperative based on the rate of change in the world today. Think of all the companies that have come and gone in the last two decades because they did not adapt, they rested on their laurels and paid dearly for it.

Here is a list of only a few:

• Blockbuster
• Polaroid
• Toys R Us
• Borders
• Tower Records
• Compaq
• GM (sort of)
• Kodak
• Nokia
• Xerox
• Segway
• Sears
• Blackberry
• RadioShack
• Motorola
• Hostess
• TiVo
• and many more

At one time, they were looked at as innovators in their market space. Each was also the market leader at one (or many) points in their history. There are many reasons for their demise. However, there’s one thing they all had in common: they were aware of the changes in technology, demographics, delivery systems, supply chain, and so on in their market and they FAILED TO ADAPT.

One founding principle of Fit-ness in an organization is its ability to adapt to reality. One of the main ways to do this is through strategic alignment vertically from C-Suite to the frontlines and horizontally from suppliers, through conversion, and onto customers.

Strategy Execution is the Fountain of Business Youth

Did you know that one of the most successful investors of our time, Warren Buffett, uses observation of customer behavior toward and acceptance of a product or service as a primary factor in what he advises his company and clients to invest in?

What is it that your customers value most? What is it that the next whale of a customer wants you to do better in order to earn their business? What kind of company will the best employees want to work for? How will your business be impacted by the next pandemic? Government regulations? The list goes on.

Fitness is founded on clarity of strategic direction, alignment, execution, and rewards and recognition.

1. Clarity of Strategic Direction in that the direction and speed at which the company needs to move is concisely defined. We are going from X to Y by Z. It’s as simple as that.
2. Alignment in that additional to their base work, everyone also has commitments to do their part to deliver against the strategic direction. Each individual person should be able to articulate “from X to Y by Z” tailored to their specific area of responsibility – aligned with their boss’ goal.
3. Execution in that everyone drives frequent, at least weekly, even better if daily, action and improvement against the company’s strategic priorities. This not only includes “stroke of the pen” improvements, but also those that require behavior changes. Here is also where a vast majority of tools in the Lean toolbox should apply.
4. Rewards and Recognition in that people are rewarded immediately for their contributions to the business strategy. If the company is not effectively rewarding good behavior, it is essentially rewarding the bad. If the only way to get their leaders’ attention is to behave badly, people get really good at behaving badly.

There is a domino effect to how these categories work. Without clarity, you can’t have alignment; without alignment, you can’t have execution; without execution, you can’t have rewards; and so on…

The Bottom Line: Fit-ness over Lean-ness

Given the speed of change in today’s world, it is a given that your market is constantly changing. Companies should adopt an everybody everyday mindset of Continuous Improvement. Even taking the infrequent “kaizen event” approach to improvement leaves gaps in the company’s alignment with the market and its ability to adapt. These gaps are openings for competitors to swoop in take away your income.  Infrequent kaizen events reinforce a culture of “waiting to make improvements”. Nothing good is happening while your company is waiting to do its next kaizen event. It’s like spending months binging and then expecting a diet pill to fix everything – then going right back to binging afterward.

Fit-ness, founded on making strategy-driven daily improvements, keeps your company in lock step with the market so that competitors have no advantage and cannot move in on your customers.  In fact, you will probably be able to take away some of theirs.