It’s a Lousy Time to Implement Lean

Author, teacher and our friend Bob Emiliani from the Center for Lean Business Management pointed pointed out an inaccuracy in my post from Sunday on how the Big 3 automotive companies should follow Toyota’s path through bankruptcy to world class. The article implied that Toyota went bankrupt in 1950. In fact…

“Toyota did not go bankrupt… they faced a liquidity crisis in 1949-1950 and ALMOST went bankrupt. Additional financing from a consortium of 24 banks required Toyota to spin off the sales organization, etc. Reorganzation was not driven by the union or bad management… there were multiple factors converging on them (cut-off of reconstruction loans, recession, etc.). See Toyota: A History of The First 50 Years, pp. 104-110.”

Thanks Bob, right you are and historical accuracy is important. To clarify, my point wasn’t so much whether Toyota filed for the equivalent of Chapter 11 in Japan but the fact that they were in effect bankrupt and needed to be bailed out, with a fresh approach to management, labor relations and a market-in strategy much like the Big 3 need today.

Bob Emiliani made another observation which made me ponder. He wrote, “It is my view that bad economic conditions are a lousy time to try and implement Lean, for the following reasons” citing his book REAL LEAN Vol. 4, Chapter 2 and detailing his points as follows:

1) Senior managers don’t learn well under pressure, especially the nuances and interconnections that are so important for practicing Lean correctly. In most cases, pressure compels managers to cram to just “pass the test” (i.e. meet one’s metrics) and not to learn.

2) Managers will surely focus on Lean tools to achieve quick hits to the bottom line. Focusing only on Lean tool does not constitute learning Lean. Tools may help one survive, but they will not have much lasting effect when good times return. Backslide, as you know, will be the most likely outcome.

3) The “Respect for People” principle is ignored by managers in good times, so it will be triply ignored by most managers in their rush to cut costs via Lean (surely in tandem with other methods) in bad times. And workers will continue to associate Lean with layoffs, which will extend Lean’s bad name (layoffs and being mean) into the next business cycle.

4) Most executives will strengthen their commitment to zero-sum management practices to ensure their own company’s survival at the expense of others (e.g. Detroit 3 vs. their suppliers). Most won’t think to collaborate with their stakeholders to engage in efforts to solve the shared problems that difficult economic times bring to all stakeholders.

5) The mindset of management becomes even more supply-side driven in tough economic times (partly due to standard cost accounting system), the opposite of where Lean is trying to take them (demand-driven).

Well stated, and no arguments there. The point about companies becoming supply-side driven in tough economic times rings especially true with the Detroit automotive firms brilliant plan for round two of the ask for $25 billion federal bailout money, as reported on November 24, 2008 in the Wall Street Journal:

As executives from the Big Three auto makers prepare to make a second pitch for a federal bailout, concern is rising in Detroit that it will be difficult to show lawmakers how they can return to profitability with sales at their current depressed level.

Their solution: Get Washington to help them sell more cars.

General Motors Corp., Ford Motor Co. and Chrysler LLC may go back to Washington and urge Congress to take measures to spur consumer demand, in addition to providing the $25 billion in loans the auto companies seek.

“There is no way any car company can make money at the current demand level,” said a key executive at a Big Three auto maker. “The government has to get credit flowing so that the market goes back to at least 14 million to 15 million [vehicles]…. We can figure out how to survive at that level.”

Incentives to sell vehicles the market does not want and overproduction to justify obsolete cost structures all to yield weak profit margins long enough to prop up failing business models for a short time amount to a desperate plan. I hope our leaders in Washington deliver tough love and pull the purse strings tighter until Detroit comes up with a plan rooted in reality.
Returning to Bob’s point, if lean times are a lousy time to implement lean, what about good times? In my experience organizations struggle equally in good times to march down the lean path for similar but opposite reasons, namely:

1) There is a lack of pressure or sense of urgency when times are good to make significant changes. Lean is more than creating flow lines, cleaning up the workplace or installing systems to manage quality, maintenance or other aspects of the business. Lean is a whole system that needs to be deeply rooted in the culture, fully embraced by the people as something positive. Often it requires changes in the how people are aligned, motivated and rewarded in an organization – another area of potential friction especially when times are good.

2) In good times organizations can afford to work with “tool lean” that ignores the people development, organizational behavior and leadership aspects. When times are good and lean is being done not because it is urgently essential to survival but merely because it is the right thing to do from a technical point of view, people can take the apparent short path – focused on the tools and surface of lean without building competency for the long-term.

3) If times are good – meaning business is good and there is a lot of work to be done – the natural tendency is to focus on getting the work done with less emphasis on taking time for training and development. This is especially true in small or rapidly growing companies whose focus is on serving today’s customer rather than looking ahead to the unspoken or emerging needs of the market, and the skill base needed to serve them.

4) The spirit of partnership comes from the recognition of a mutual need. If either party in such a relationship feels they have less to gain, or that they are doing just fine in such good economic times, there may be less incentive collaborate. A traditional partnership requires giving as well as getting, a mutually beneficial transaction, while a learn partnership requires looking at the customer-supplier relationship in a fundamentally new way. For reasons stated in 1, 2 and 3 organizations are reluctant to take these steps in good times unless they are already on the lean path and fully convinced.

5) In my experience there is a risk for companies to become supply-side driven when times are good, believing that they are understanding and responding adequately to customer needs. Often it is just luck, perhaps being well-positioned during a bubble or the right side of a macroeconomic trend. When whatever you are doing is working and products seem to fly off of the shelf, it is harder for companies to practice lean and truly let the customer pull their requirements through the concept to delivery value stream.

Good times, bad times, it doesn’t seem to matter. It’s always a lousy time to implement lean. You hurry, you wait. You pay now or you pay later. The only thing more true is that it’s never too early to implement lean. It takes vision and courage for leaders to recognize and act on this. Pick your moment; it’s either a lousy time or a worse time to implement lean.

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