As Published In May 2006

Five Steps to the Lean Enterprise
By William H. Baker, Jr.

Creating a sustainable competitive advantage

A glance at the shelves of the business section at the local bookstore will tell you that there are lots of people thinking about ways to achieve business excellence. Tom Peters, Peter Drucker, Jack Welch, and James Womack are just some of the writers who have tackled the topic. For a business manager with limited time and resources, it is all too tempting to go with the time-tested business classics, but they may not necessarily address the specific challenges present in every business and industry. It's far too easy to think tactically and make short-term fixes, rather than think long-term and create a sustainable competitive advantage. Too often the focus is on the month's or quarter's results, in order to survive, when we should be thinking about thriving.

In my industry experience, which ranges from building commercial and government electronics to conducting Apollo scientific research on the moon, serving on university staff, and participating in seismic oil exploration, I have learned a few basic principles for achieving sustainable superior results in a Lean enterprise.

Reduce Waste

This is the prime tenet of the Lean Enterprise movement, which is derived from the Toyota Production System. Waste permeates every business process, from the manufacturing shop floor to the design studio to the barbershop and the grocery store. Just think how much time, space, and effort are being wasted when you go into a store and see clerks overwhelmed in one department and standing around idle in another department. The company isn't doing a good job balancing the workload by cross-training the clerks to promote a smoother flow of work across all departments.

If managers look for waste and encourage employees to look for and eliminate waste, they can get a jump-start on cost reduction and meeting customer expectations. Many companies train Lean facilitators to systematically identify and eliminate waste, but the best approach is for all employees to be trained in basic skills, have visible management support, and have the tools to share their successes. The best approach I have found is to look at all business efforts as "value streams" that provide value to our customers. By plotting all the supporting actions that comprise the company effort to deliver a service or product, a detailed analysis can be done. This analysis can yield insight into which of those steps adds value and which do not from the customers' point of view. A good question to ask is: "Would the customer pay for this?" By eliminating steps that are wasteful, we can make our business more responsive to our customers.

Get Close to the Customer

The old business model of "Invent the better mousetrap, and they will come" is dead. With the speed of business today, decisions are being made rapidly and with whatever knowledge the decision-making person has at that time. You may have the better mousetrap, but if your customers don't know it, they will buy the one they think is best. The way to fix this is to network with your customers and help them decide what they need on a continuing basis. Leading companies are using their suppliers on their design teams to fully capture the latest thinking and approaches to meet their customers' needs. Some of this is anticipating the customers' needs and being there to make it easy for them. This also meets the Lean goal of eliminating waste by reducing the cycle time and errors made in the design process. At Raytheon, we assigned executives to be executive customer contacts to solve two key problems. One, the customer executive has an executive "friend" to call, not just the purchasing or contracts manager; and two, the Raytheon executive can call the customer to stay in touch with the business climate and volunteer solutions to current dilemmas.

Learn by Taking Action

While planning is a good thing, paralysis by analysis is not. Plans, however good, cannot encompass all the variables encountered when the execution phase is implemented, so the plan always has to be adjusted and fine-tuned to achieve the desired results. A key element to successful leadership is that management must allow limited risk-taking and reward those who take risks, even—or particularly—those who fail.

Change Is Good

How can you improve your market share if you don't change something? How can you improve your product if you don't change something? Change is good, if it is based on facts and is focused on the customer. The entire organization needs to be energized toward promoting and supporting change.

Change can mean that a person's staff may be reduced, his office may be moved, or she may find herself working for someone that she once supervised. This can be very difficult emotionally, especially if the outward appearance is that the person is taking a step back along the career path. The hardest thing for this person to do is to accept these circumstances with a good attitude and continue to put forth his or her best efforts. Things continually change, however, and there usually is another change around the corner, so it's important to continue to be viewed with respect in the job that you are currently doing.

When a change is introduced, I have found that there are about 10 to 30 percent of employees who embrace the change as early adopters, about 50 to 60 percent who are fence-sitters and will go with the flow, and about 10 to 20 percent who will drag their feet and actually work to sabotage the change. Spend your time energizing the early adopters and reassuring the fence-sitters. Be aware of the saboteurs, but realize that you will not win them over.

Share Knowledge

In today's world, the only sustainable competitive advantage we have is the knowledge that exists within the organization. This covers not only all the documented explicit knowledge but also the tacit knowledge that we carry around in our brains, which can be described as know-how and technique. Most explicit knowledge is captured in our processes, procedures, documents, patents, and copyrights. But many experts recognize that about 80 percent of an organization's knowledge exists in the tacit know-how that is not documented.

There need to be organized internal activities that promote knowledge sharing and reuse, so that the intellectual assets of the organization can be leveraged to achieve better products and services. Many companies do not know what they know and have no plan to fix the problem. A key step that can be taken is for leadership to set knowledge transfer as a priority and identify someone who is responsible for seeing that knowledge is shared and reused across the organization. This person would be responsible for designing a system to integrate knowledge transfer into the daily jobs of employees. One such step is to set up knowledge-sharing symposiums that not only share knowledge, successes, and lessons learned but also recognize individuals and teams for their efforts.

Getting Started

Where should you begin? My answer would be all of the above. What we are really talking about here is cultural change. In the future, winning organizations must be more flexible, more responsive, more innovative, more cost-effective, and more fun. Why fun? To attract and retain the new generation X, Y, and Z employees that are becoming the workforce. You can take baby steps in each of the five elements, but remember: They must all be woven together in this web we call organizational culture to meet ever-changing customer needs. We are not talking about the flavor of the month but real change. Good luck.