How Culture can fuel Process Innovation - The Case study of Lean!

Book Summary: The Machine that changed the World by Womack J., Jones D. & Roos D.

Most of us working in a corporate firm have heard the word “lean process” as part of some or the other business initiative. The first company which comes to our mind is “Toyota” whose terrific rise on the global front can solely be attributed to introduction of what was named as “lean manufacturing” by the Americans. (This name was actually first introduced by the writers of this book). This book was written as part of an MIT research project in 1980s, aimed at understanding the Japan’s lean manufacturing revolution and more importantly disseminate this knowledge among American firms which were struggling to catch up with the Japanese automotive firms at that point in time. It is a must read book for anyone who wants to understand the revolutionary phase in process improvement and optimization which changed the business world the most in 20th century after the mass production system of early 1900s.

In my previous post, I had summarized the book on business history by Alfred Chandler, which talks about the journey of business growth from 1800s to early 1900s; till the time of mass production. The pattern which I had deciphered through my reading of the book was that the biggest engine which kept accelerating the business growth throughout those ~100 years was the “innovation at the process level”. The phase of lean manufacturing again pretty much fits in the same pattern; given that it was also the result of innovation in the assembly line processes which reduced cycle time & improved product quality for the Japanese manufacturers; making them improve even further beyond the mass production system.

While “lean” was just another innovation done at the process level, still it was very different from all other innovations which had happened before it came into picture. Until mid of 20th century, most of the disruptive improvements in processes and hence overall production were brought about by mostly technological improvements in the field of transportation (railways), communication (telegraph, telephone) & sources of energy (steam, electricity). However, as my reading of this book suggests, lean was different in the sense that it was more of a “cultural innovation” than any other technological change in the existing methods of production.

I say cultural innovation because lean changed the way the people behaved and interacted with each other while working on any task. There were certain central principles or philosophies which were the foundation stone of this new cultural change. First and foremost, the guiding principle of decentralization of power was adopted. What had happened with the Henry Ford’s division of labor was that the employees working on the shop floor were just mere robots who were trained to perform a certain manual repetitive action on the product and pass it on to the next person in the assembly line. While the labor was not allowed to put in any mind or thought, all the power of running the assembly line or managing the production process was centralized to the assembly line managers. This led to over-centralization of powers much like the government systems in many countries where too many powers reside with the Central Government. Lean changed this by giving more powers to the assembly line workers who actually worked on different process steps. All the workers were now given the power to stop the assembly line at any time and at any step wherever they observed a defect in the product. Earlier, the workers were not allowed to raise any alarm about the defects and all the defects were accumulated and only repaired at the end of the assembly line once the product was finished. This led to a lot of resource and time wastage. With lean system, workers pointed out the in-efficiencies and the defects of the process. Moreover, quality circles were introduced where the labor force groups came together and brainstormed on potential improvements which can be done in the process effectiveness and efficiency. This intervention had two fold benefits – one was the workers now felt more ownership of the process and felt they had more say in the organization which meant that the attrition rates dropped in the company; secondly the processes improved and a lot of waste was removed as the people who worked on this process day in and out were able to identify huge potential of improvement opportunities at each step. So, a cultural system of giving more power to people at the bottom of the pyramid was followed, much similar to today’s policy initiatives where government prescribes certain policies as top to bottom but also takes views of the people working on ground as a bottom to approach for designing a robust policy.

Second big cultural change promulgated by Toyota, was the importance of building long term collaboration and trust while dealing with multiple teams and customers. Until then, the suppliers which provided different raw materials and parts to the Henry Ford’s production system were external vendors who fought competitively for the bids to win RFPs from the company. These external vendors were changed from time to time just basis the price they charged. It was a very transactional kind of relationship with no incentive for suppliers to do any improvements in their work. Lean completely changed this as the focus was shifted to building long term relationship and collaboration with these external vendors. Suppliers were involved in the end to end designing of the new models, were shared profits with in case of any lean ideas which they introduced in their processes, and were also provided with financial help by Toyota in case of a need when the market was weak. This paid off in the long term as these suppliers became trusted partners for the company which adjusted and coordinated their scheduling as per the final demand of the end customers. Thus, building good relationships helped Toyota to become more flexible in meeting end customer demand. This principle of collaboration was extended throughout the value chain of the manufacturing system of Toyota as well as in distribution and sales departments. Henry Ford would force his distributors/franchisees to buy cars from him even in the time of poor market demand by threatening them to cancel their dealership if they did not do so; this helped him maintain his cash flow. Contrastingly, Toyota gave financial loans to distributors to help them expand as well as asked their feedback on changing customer demands while building new car models. Even, the sales teams at Lean focused on building long term customer relationships, rather than putting all their effort into one time selling to the customer as in the mass production system. The sales teams at Toyota would go down to the customer’s house, would try to understand the customer’s view and needs, his/her finance requirements and would continuously keep following up on the repair and maintenance even after selling the car. This in turn helped the company to do a lot of re-sales as customer would go back to Toyota for any subsequent car purchases. In short, this end to end collaboration across the value chain helped build trust throughout and in turn the trust among different stakeholders led to faster flow of products/information and cash across the end to end process leading to reduced cycle times and better quality products. In fact it was only the result of such good collaboration that a pull system of production became a reality and could work so well.

Very interestingly, the model of collaboration was even extended between the investors and the management of the company. The financing of Japanese firms was done as part of group financing where a certain number of companies from each industry made a peer financing group and then led to each other within the group. Most importantly, the investors looked at long term growth and stability of the company as a better measure of performance than the short sighted profits. Hence they were willing to invest in long term potential turnarounds of the companies and also in the global expansion of the Japanese firms.

Third principle which permeates across most of the lean tools and methodologies is the principle of nipping the problem in the bud. As soon as any worker would raise an alarm regarding a potential product defect across any assembly line process, a team of quality people were assigned to identify the root cause of the problem (using 5 Why methodology) and eliminate it completely. As a result, though initially the assembly line was stopped very often by workers, but never would it ever stop twice for the same problem. And slowly over time, as problems got eliminated one by one, the assembly line did not stop at all, thereby reducing the defects and also reducing cycle times significantly. In fact, this system got perfected so well, that the lean manufacturing did not have any extra area at the end of the assembly line for doing quality checks or rework unlike the mass production system which had to do a lot of re-work on manufactured cars before rolling out in the market. This attitude towards problem solving led the system to continuously improve over time across every dimension and across all parts of the value chain.

Lastly, the culture of transparency and openness was something which was promoted. Best example of this is the openness about pricing which Toyota followed with its suppliers. The suppliers were walked through the total costs involved at each step and how much profit the company was earning and how much was being given to suppliers. And also how could suppliers increase their profits by running process improvements. This transparency helped the suppliers feel a part of the Toyota family itself and thus they supported the company through troughs and crests delivering better products by each day. All the metrics of performance as well as financial metrics were clearly communicated to all the stakeholders involved in the manufacturing process. These values were followed with all the partnerships and alliances done by the company whether with external or internal customers of the company.

In conclusion, while mass production had reached the extreme of competitive capitalism, lean brought the idea of competing while collaborating. It picked up elements from both the extreme ends of right & left cultures and built a new culture which transformed the processes of production and drove improvements across every company they got introduced in. At the end of the day, processes are run by people and hence the way people behave and interact always does impact the efficiency and effectiveness of the processes. This is a learning which one can internalize from the lean revolution and can apply to whatever organization one is a part of.

- Nitish