A Wall Street Journal article misleadingly claims With New Technology, Start-Ups Go Lean in the September 15, 2011 issue. Perhaps this is true if we accept that by “Lean” they meant “less employees are needed”, but we do not. According to the article:
New businesses are getting off the ground with nearly half as many workers as they did a decade ago, as the spread of online tools and other resources enables start-ups to do more with less.
The number of new business start-ups has remained flat, but they have created 2.3 million jobs which is 700,000 jobs fewer jobs than the annual average of jobs created by start-ups through 2008. With small businesses accounting for nearly 65% of new job creation in the USA, this suggests an ominous structural shift in the economy.
This ability to start a business with an average of 4.9 workers instead of 7.5 workers is due to technologies replacing IT, accounting and other business infrastructure services which can be outsourced, automated or performed with far fewer people via cloud computing. As a statement of fact, start-up business today are more productive thanks to these technologies. However, are they in any way Lean?
Lean is not a measure of employee count, it is a measure of the waste within the business processes. A start-up company with 5 people instead of 8 people may have less waste thanks to automation that removes delays, prevents errors or removes the need for paperwork. But in Lean thinking automation is the last step and not the first step in the continuous improvement process. Technology-enabled so-called Lean start-ups may be unwittingly locking themselves into inefficient processes in some cases by starting out with outsourced automation.
A larger concern is the respect for humanity element of Lean. With the exception of certain not-for profits and firms whose mandate job creation, start-ups do not have any social obligation to create any more jobs than absolutely necessary. However both biological persons (entrepreneurs) and legal persons (corporations) bear certain social responsibilities, the opinion of certain Chicago school economists notwithstanding. The concern is that we may develop a generation of new business leaders who take it for granted that technology, not people, somehow create value and get the job done. Left to its own devices, technology will initially disrupt the jobs, wages and working conditions of people. Similar concerns drove factory workers to sabotage powered machinery during the early days of the industrial revolution. In some instances, displaced workers sabotaged entire social and political systems.
Productivity is a funny thing. Presumably most of us who realize that the state does not owe us a living want to increase our personal productivity, if only to work fewer hours for the same pay. However there are times when raising our productivity does us no good at all. For example, when demand for a product or service is limited and our ability to convert our time into other salable products is also limited, improving productivity makes us idle, or worse, redundant. The simple way of saying this is that when you do kaizen and less employees are needed to do the same work, there had better be more work or the management will face the choice of reducing people to reduce cost or keeping people and not reducing cost. Failing to plan in advance for redeploying people respectfully and productively has been the bane of many Lean implementations. Entrepreneurs harnessing new technologies to create these new “Lean” start-ups have been stealthily and unwittingly making changes to factors that under pin job creation in our economy.
It is good to use technologies (steam power, the internet) or techniques (kaizen, telecommuting) when there is a steady and growing market and a near-inexhaustible resource that lends itself to the use of the additional labor productivity. This resource could be arable land to produce food, a product with a constant and growing demand. For example the increased productivity of U.S. farms in the early part of the 20th century due to better equipment, better yield management etc. helped farmers to manage more acreage and grow more food per labor hour. I remember “walking beans” thirty-odd years ago on my grandparents’ farm. This involves reaching down with a metal hook to root out weeds that grow by the soybean plants. We walked under the summer sun, row after row, until exhausted and/or done. Today, we kill the weeds with chemicals. Technology to the rescue.
As the use of technology accelerated, farms became less dependent on farmers and more liable to being manged by corporations harnessing sophisticated technologies. Today we have so-called factory farms with satellite-guided combines planting and harvesting. Human farmers are practically a thing of the past for anything but small-scale, boutique or organic farms. Agriculture is about 1.1% of the US GDP today. At the dawn of the internet age (1995) the farm employment was 2.8% and today it is less than half of that number.
Machines eat jobs. What else is new? Technology is neither good nor bad (or so our evil robot overlords would have us believe). Technology will take us where we direct it. We can develop and use technology in selfish and short-sighted ways and live with these long-term consequences such as environmental destruction, job destruction and resulting social ills, or we can guide the development and use of technology towards job skill development, job enrichment and job creation. With the arrival of new technologies, we seldom pause and ask ourselves “Where should we go?” but instead we too often find ourselves being led down the road of unintended consequences when the possibilities of technology meet our short-term thinking.
As a management technology, this is equally true of Lean. Like any technology, Lean must be used to create opportunities for people, not destroy them. Respect for humanity means developing greater thinking skills, job skills and life skills through teamwork and problem solving. Whether a “Lean” start-up that gets by on having 2 people instead of 5 thanks to new technologies can really outperform the less “Lean” start-up over the long haul remains to be seen.