How Businesses Apply Lean Thinking - Raphael L. Vitalo, Ph.D. and Christopher J. Bujak

Introduction

Businesses apply lean thinking to achieve two very different ends. One end seeks to adopt the lean approach to commerce and recreate the business as a lean enterprise. This full adoption of lean thinking results in a business with all the features detailed in Vitalo and Bujak’s (2023) contrast of a lean enterprise with as treaditionally run business. The other end seeks to produce near-term financial benefits for the business by implementing selected lean tools and ideas. These limited applications of lean thinking are intended to improve financial success by reducing cost, downsizing labor needs, increasing margins, elevating labor productivity, increasing throughout, or other similar actions. They are not intended to change the firm’s business model or alter the organizational strategy it uses to implement it. In fact, these limited applications of lean thinking are “non-lean” in nature, since maximizing financial results is a by-product of applying lean thinking and not its primary focus. Also, these endeavors are not rooted in an understanding of customer values nor do they include any effort to add value to the business’s offering in ways customers desire. Rather, they are rooted in a producer’s desire to eliminate a barrier to or advance the achievement of better financial performance in the service of its managers and owners.

Clearly, these two applications of lean ideas have very distinct profiles of outcomes. As a person leading a lean initiative, you must be able to distinguish between these applications and understand which it is that your initiative is expected to implement. Absent this understanding, you will fail to accomplish your purpose.

Full Adoption of the Lean Model

When a business fully adopts the lean approach to commerce it transforms itself into a lean enterprise. It alters its business model to embrace lean thinking in every detail. This new direction modifies the company from every perspective.

• Strategically, the company puts in place and practice a purpose, vision, and set of core values; methods of competition and an organizational strategy; and internal business systems (e.g., business planning, human resource management, accounting) that are consistent with the lean approach to commerce as described by Vitalo and Bujak (2023). It formulates its business’s purpose in accordance with the goal of the lean appraoch to commerce that they document (Exhibit 1).
• Operationally, it implements businesswide the activities described in the process, outputs, feedback, and interface components of the lean enterprise model as described in the The Lean Champion Resource Guide (Vitalo, Bujak, Vitalo, Bierley, and Ruffino,2023a, pp.22–34).


• Structurally, it organizes itself into separate business units with each containing all the components required to do commerce. Each business arranges itself into the business functions whose value streams provide the unique contributions that collectively produce value for customers. In this configuration, every enabling value stream aligns its functioning to support the production or service fulfillment value stream.

As a lean enterprise, business leaders manage it from a systems perspective, thus they never allow a change in any element of the enterprise to compromise the effectiveness of the enterprise as a whole. They always use information-based problem solving and decision making methods.¹ Their decisions are guided by a deep understanding of their customers’ values, enabled by valid measurements of business performance, and driven by the edict to maximize every customer’s experience of value while benefiting all other stakeholders inclusively. Management’s approach uses high levels of employee involvement, engaging employee participation in all aspects of the business and supporting their use of problem-solving methods to improve everything it does. Leaders and members drive lean thinking through every level and every activity of the business—from governance through grounds maintenance, from the back office to the store front. They rapidly align all its enabling systems to satisfy the requirements of a lean enterprise. These enabling systems include its human resource management systems; its information technology systems, including especially the information architecture underlying these systems; and the chart of accounts driving its accounting system. Human resource management systems (selection, development, appraisal, promotion, pay, awards, and incentive systems) find, get, develop, support, recognize, and promote people who are educated and aligned to the principles of the lean approach to commerce, excited by the challenges and opportunities it offers, and skilled at and committed to learning in the service of realizing the company’s purpose and to working together with fellow employees as a team. Such people place the pursuit of perfection ahead of tradition.

In the service of these people, the business’s information systems supply the performance information required to guide the conduct of business. They make information about customer and stakeholder values and supplier needs accessible and rapidly disseminate learning across the enterprise. The chart of accounts driving the accounting system is restructured so that each revenue/profit center aligns with a specific business² that the company implements and the tracking of financial activity allows accounting down through each business function to the work processes and work units within it. In essence, a full-adoption lean initiative transforms a typical business into a “lean enterprise.”

Limited Applications of Lean’s Ideas and Tools

A limited lean application selectively applies lean ideas and tools to achieve near-term improvements in financial performance. It may introduce the concepts of Total Productive Maintenance to improve machine uptime, or the concepts of flow without takt time to de-bottleneck processes and reduce inventory needs, or implement Kaizen events to eliminate waste as a means to reduce cycle time, improve throughput, and reduce cost. It may apply 6S3 to free up facility space thereby avoiding the cost of adding new facilities. In each instance, the tool application improves the financial performance of the business. What is does not do is create a lean enterprise.

Prevalence of Limited Lean Initiatives

Almost all lean initiatives are of the limited lean initiative type. This judgment is based on research, conversations with people involved in lean applications across many companies, and our own consulting experience. Our perspective is that the adoption of lean has followed the same pattern that has appeared with every business innovation—namely, that elements of the new approach are grafted onto existing business models and management methods. Any new ideas that require their modification are not implemented.

As examples of the facts underlying our judgment, consider the revelations about Delphi Corporation’s implementation of the lean model. Delphi was promoted as a leading example of lean transformation—yet, after its declaration of bankruptcy, it was revealed that lean thinking was applied in only a minority of its plants and had not penetrated into its executive and management functions (Waddell, 2005). This is consistent with the results of our benchmarking study of renowned, high-performing companies in the late 1990s. In every case, we found pockets of activity but no broad and thorough adoption of any of the methods for which each company was being praised (e.g., Total Quality Management, Lean, SixSigma™).

Also, compare business leadership’s widely claimed adoption of employee involvement with the highly limited degree to which businesses actually delegate decision-making authority downward or permit employee participation in deciding business goals and policies (Lawler, Mohrman, and Ledford, 1995; Lawler, Mohrman, and Benson, 2001). You cannot adopt the lean model without incorporating high levels of employee involvement including delegating authority downward.

Finally, consider a recent study of consistency between company scorecards used for distributing rewards and the expressed adoption of the lean approach to commerce (Searcy, 2004). It found that financial results ranked higher in importance than customer satisfaction in five of the six companies studied. This is an inversion of the priorities lean thinking maintains.

For these reasons, we conclude that most lean implementations are limited in nature. They use the language and tools of lean thinking, but their focus is to drive up productivity and drive down costs with the intent of maximizing profitability for the producer. It is this use of lean thinking that gives credibility to the acronym “L.E.A.N.,” meaning “less employees are needed.”

How Can You Use Lean’s Ideas But Not Be Lean?

Here is a fast and simple way to leverage lean ideas and tools and not adopt lean thinking. Learn the forms of waste, use lean tools to eliminate them, and retain the benefits generated for the owners of the business. The forms of waste (hazard, inspection, interruption, inventory, motion, rework, search, setup, travel/transport, unnecessary processing, and wait) all add cost and most add cycle time—the time it takes to produce a unit of output. Eliminate them and you will reduce cost and improve productivity and throughput.

Some amount of benefit might reach the customer—for example, if you attack the problem of rework, you may reduce the number of defective products reaching customers. But it is absolutely possible not to add value from the customer’s perspective and still improve a producer’s financial performance, especially if you focus heavily on reducing cost and cycle time and retain all the benefits for the producer. You can certainly accomplish these ends while continuing to provide an offering that lacks features customers desire. You can leave untouched your customers’ buying–benefiting experience and you can keep the cost reductions you reap from your operating improvements as added profit. The concept of waste is a powerful tool in uncovering improvement opportunities and lean’s waste-eliminating tools are effective. Whether they serve the producer alone or others such as customers and suppliers inclusively is wholly a function of the producer’s business model.

What the Leader of a Lean Initiative Must Know

The implication for you as a person leading a lean initiative is that you must understand the degree to which your business’s leadership is willing to adopt the lean approach to commerce as opposed to simply incorporating lean tools and methods for the purpose of improving its near-term financial performance. Yes, you can use lean’s tools to successfully accomplish a limited lean application. However, to do so, you need to clearly grasp what about lean thinking, if anything, your business is adopting and what it wants to leave out. Otherwise, you will mislead yourself and others. You will set goals that you cannot achieve, use language and introduce concepts that do not apply, create expectations you will not satisfy, and eventually, you will undermine whatever it is you are actually trying to accomplish.
Also, you need to evaluate carefully whether a proposed limited lean initiative can succeed before you undertake it. Limited applications of lean ideas and tools require careful evaluation because what your company’s leaders seek to leave out from its adoption of lean thinking may make it impossible to accomplish the ends they seek. The chapter Task 1 Focus the Lean Initiative in The Lean Champion Resource Guide (Vitalo, Bujak, Vitalo, Bierley, et al., 2023) provides detailed guidance to assist you in understanding what type of initiative you have been asked to accomplish and whether it is feasible as defined. For now, Exhibit 2 offers some additional guidance for detecting when the purpose being pursued is a limited application of lean thinking. The presence of any of these features indicates such a purpose.⁴

References

Lawler, E. E., III, Mohrman, S. A., & Benson, G. (2001). Organizing for high performance. New York, NY: John Wiley & Sons, Inc.

Lawler, E. E., III, Mohrman, S. A., & Ledford, G. E., Jr. (1995). Creating high performance organizations. San Francisco: Jossey-Bass.

Roll, D. (2005). An introduction to 6S. Retrieved January 15, 2008, from http://www.vitalentusa.com/learn/6s_article.php

Searcy, D.L. (2004). Aligning the balanced scorecard and a firm’s strategy using the Analytic Hierarchy Process. Management Accounting Quarterly, 5(4), 1–10.

Vitalo, R.L. & Bujak, C.J. (2023). Our understanding of the lean approach to commerce. Vital Enteprises. Retrieved April 20, 2023, from

Vitalo, R.L., Bujak, C.J., Vitalo, J.P., Bierley, P.V. & Ruffino, B.J. (2023a). The Lean Champion Resource Guide. Austin: TX, Lowrey Press.

Waddell, B. (2005). Delphi’s sobering message to us all. Retrieved December 19, 2007, from https://web.archive.org/web/20060625210041/http://www.superfactory.com/articles/waddell_delphi.htm

Footnotes

¹Information-based methods analyze and interpret facts to make a decision. They maximize the options a person considers and operationalize the values that the “best choice” must satisfy. They systematically evaluate each option with respect to its likely success in achieving the person’s goal and satisfying the decision maker’s values. Knowledge-based methods apply a set of knowledge to logically deduce from relevant facts which choice to elect or how to correct a problem. See chapters Task 6 Solve Problems and Task 7 Make Decisions in The Lean Champion Resource Guide for a full description of these methods.

²A business is defined as a set of operating components that conceive, develop, resource, produce, market, sell, distribute, and support a product or service offering targeted to satisfy the needs of some customer. Many commercial organizations that imagine themselves as a single business are actually composed of many distinct businesses. See Rationalizing Your Company’s Organizational Structure in The Lean Champion Resource Guide (Vitalo, Bujak, Vitalo, Bielery, et al., 2023a) for a full discussion of this issue and its importance for implementing a full-adoption lean initiative.

³6S is an updated version of the traditional 5S method. It add “Safety” as the sixth facet in improving the utility of workplaces (Roll, 2005).

⁴This distinction between how companies apply lean thinking has significant implications for research into the effectiveness of the lean approach to commerce. If, as we conclude, most companies using the label “lean” have implemented limited lean initiatives, they are not proper subjects for evaluating the model’s efficacy. How one qualifies lean adopters, therefore, becomes a critical element in designing a study that will generate useful findings. Exhibit 5, pages 37–50, in The Lean Champion Resource Guide (Vitalo, Bujak, Vitalo, Bierley et al., 2023a) offers a set of defining features that researchers could use for this purpose. We caution, however, that the judgment of whether these features are present cannot be made by the self-report of company leadership as the studies cited earlier (Searcy, 2004, Waddell, 2005) show the serious gaps that can exist between such reports and the facts on the ground.

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©2023 Vital Enterprises - Austin, Texas 78729 - Published April 20, 2023

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