Dear Robert,

I've had a big smile on my face for much of the last month because I've had the opportunity to visit progressive organizations on three continents to look at their efforts to create lean value streams. Walking through any process, good or bad, seems to put a smile on my face for one of two reasons. If the process is awful it's easy to see how it could be better. And, if it has already been significantly improved from its original condition, I'm both pleased by the progress and aware that the next layer of waste is now visible and ready for elimination.

However, I also found myself frowning as I walked along some value streams. This happened when I heard improvement teams complaining about the difficulty of gaining and sustaining the engagement and cooperation of everyone and every part of the organization touching the process being improved.

For example, on one walk through an information processing activity in a large service company, the team was complaining about the resistance of the company's information technology department to substantially modifying the company-standard software package in order to support the improved process. In another case, a team was bemoaning the resistance of experienced financial service workers to sharing the details of how they worked their way around the problems in the existing process. In both cases I found the teams defaulting to the most comfortable explanation for the lack of engagement: Bad people.

When this happens I try to take off my technical analysis hat and put on my human empathy hat. I ask, "How do the team's requests feel to the individuals or departments being asked to do something different?" As I do this I remember our old friend Vilfredo Pareto (1848-1923), who gave us the 80/20 rule. (Pareto's first statement of this rule was based on the discovery that throughout history 80% of the wealth in societies was controlled by 20% of the population. Joseph Juran later (1941) extended the 80/20 rule to quality problems where he found that 80% of a problem is typically caused by 20% of the possible causes. And today the 80/20 rules seems to find application in practically every activity.)

Pareto had a second insight of direct relevance to what I saw on my walks. This was his concept economic optimality which states that any event in society should be judged in a positive light when no one is worse off and some individuals and organizations are better off. Public policy analysts (of which I was one early in my career) later realized that this concept applied particularly well in evaluating policy changes by governments. Not only were "Pareto Optimal" outcomes desirable on grounds of equity. Achieving them, by transferring some of the winners' gains to compensate losers (creating Pareto Optimality if it was not otherwise present), also made such policies much more feasible politically because potential losers were much less likely to resist change.

Applying this idea to the value stream improvements I was observing, I asked if the IT department and the experienced employees would be better off with the changed process. And the answer, after a bit of discussion, was clearly "no". The IT department would seriously overrun its annual budget in responding promptly to the team’s request while falling behind on other projects. The experienced employees would very likely be replaced by younger, lower-paid employees able to operate the new process without the need for all the veterans' workarounds.

The root cause of the problem was therefore not bad people. In fact, those affected were reacting quite rationally to protect their interests because they would be hurt by the changes. Instead the problem was a lack of discussion and negotiation between the heads of IT, HR, and the improvement teams about how winners could compensate losers to make everyone whole.

What was particularly striking to me as the outside observer was that Pareto Optimality easily could be achieved in these value streams by reallocating the substantial savings gained from improving both processes. The total saving would be much more than adequate to compensate IT for the additional hours and cost incurred in modifying the software quickly. And the substantial savings from the revised financial process were ample for giving the experienced employees, most of whom were near retirement, a generous severance package or transferring them at similar compensation to other jobs opened up by the organization's high turnover. Yet the implicit, unexamined thinking of the improvement teams was that all of the savings (plus the positive customer response to the improved processes) would be captured by the departments at the end of the processes and that everyone else should just get used to this new reality.

Understanding how change affects every participant in a value stream takes an extra effort and I often find that improvement teams shudder at the prospect of negotiations with leaders of all affected parts of the organization. But my experience over many years is that making visible efforts to make everyone whole -- by striving for Pareto Optimality whenever possible -- is the best way to make and sustain big improvements in core processes. So please give this concept a try in your organization the next time you find "bad people" standing in the way of valuable improvements in your value streams.

Best regards,
Jim

James P. Womack
Founder and Chairman
Lean Enterprise Institute, Inc.

Dear Robert,

Recently I've been spending most of my gemba time walking through value-creating processes in organizations far away from manufacturing. And the further away I get -- for example, all the way to healthcare -- the more I find myself asking, "Who designed this wasteful, incapable, unavailable, inadequate, inflexible, uneven, and disconnected value stream in the first place? And who is responsible for its performance now?" The answer in most cases is that usual suspect, No One.

To be fair to those readers in services industries, I must note that process awareness and process thinking - note that I use the terms "process" and "value stream" interchangeably -- are inherently easier in the factory. The product is there for all to see and the industrial, manufacturing, and production engineering departments and professions are all in place. In addition, almost all manufacturing businesses periodically introduce fundamentally new products, involving at least some new manufacturing methods, which offer the opportunity to rethink the entire value stream. The proof that these value streams are the easiest to transform is that process awareness declines rapidly in manufacturing companies once the factory floor with its physical transformations is lost from view. Product development, sales, purchasing, human resources, and finance are all processes -- series of actions that must be performed correctly at the right time in the proper sequence to create the value needed by their customers. Yet the design of these value streams often receives little or no attention even in firms that have become quite proficient in mapping and then redesigning their factory value streams.

And if your task is managing customer support in a bank, or claims adjusting in an insurance company, or the flow of patients through a hospital, the chances are great that you need to fundamentally rethink a value stream that was never designed in any rigorous way and for which no one has clear responsibility. Many of these processes seemingly just happened and have continued to happen for years or decades so that the deficient current state seems sanctioned in some way by history. "It's always been like this. But we are smart and work around problems every day."

What's missing here is what I call the value-stream architect. This is the person, ideally a line manager given a special assignment, who is asked to take responsibility for fundamentally re-thinking an existing value stream to create a lean value-creating process. (This may be a primary value stream directly touching the customer, such as product development or fulfillment from order to delivery, or a support stream necessary to operate some primary stream.)  The first step is to determine customer need and the type of process required to meet the need. Then the value stream can be mapped by walking along the stream with everyone touching it and the current state can be determined along with the gap in meeting customer need while permitting the organization to prosper. This analysis will suggest potential improvements and the architect then strives for agreement on the best alternative to pursue, followed by experiments using the familiar Plan-Do-Check-Act cycle to determine if the alternative works.

I like the term architect because in its conventional usage this is a person who talks with customers to determine their needs for a building and also talks with all the players involved in design and construction (at a minimum the engineer and the general contractor) to create a process that will deliver the desired value. The difference, of course, is that traditional architects are creating buildings while value-stream architects are creating coherent, lean processes.

This all sounds hard and it is. Most organizations tackle process improvement as a staff (or consultant) activity at isolated points along extended value streams and often without asking what is really important to the customer or the implications for the whole organization. In consequence, the most important processes -- the ones flowing across the organization -- often aren't tackled and, even when they are, the improved process can't be sustained because the new process isn't understood by the line managers who don't see maintaining and improving the entire value stream as their responsibility. (This points to the need to designate a value-stream manager for each process once it is transformed, to continually monitor the performance of the value stream and steadily improve it through kaizen.)

I wish we in the Lean Community could simply draw on Toyota or Honda practice in pursuing lean process architecture. But I fear we can't. I've made many enquiries but I haven't found any clarity in the way those organizations design robust, lean value streams for their value-creating activities outside the factory. And in any case, the vast majority of the world's processes operate in organizations far removed from manufacturing. So I think we are pretty much on our own as lean thinking continues to spread far beyond its original point of origin.

What we need now is experiments in many industries in ways to make value-stream architecture a core skill of line management. And I'm hoping members of the Lean Community will lead the way and share their experimental findings. Indeed, we are hoping to examine these experiments as part of our new LEI initiative on lean management and to share our conclusions about promising approaches. (If you have experiences to share I hope you will send them to Chet Marchwinski who prepares our "success stories" for our website at www.lean.org.)

To cite one example of the type of experimentation needed, my long-time co-author Dan Jones and his collaborators have been working with several healthcare organizations in the UK to create value-stream architects to transform the flow of patients all the way through the hospital. This end-to-end process is particularly challenging because the many steps involved from admission to discharge have never been treated as a connected activity and -- in the few cases where they have -- neither patient nor organizational needs have been clearly specified.

Dan has recently asked his collaborators, Marc Baker and Ian Taylor, to write up their approach in a workbook, Making Hospitals Work, and I hope members of the Lean Community in every industry will find it of interest. In reviewing their work I find it particularly important that they have embedded value-stream redesign in an A3 analysis to focus on the needs of the patient and the organization before tackling patient flow. And their discussion is truly provocative on the role of the value-stream manager (the term they use instead of architect) and his or her key contribution as the cross-departmental, horizontal force for transformation in an otherwise vertical organization.

Every industry and organization is different and we will need a lot of experiments in the years ahead if we are going to make everything work. Indeed, I believe that systematic experimentation to discover the best way for lean managers to create lean value streams for every process in every industry is the most important task before the Lean Community.

Best regards,
Jim

James P. Womack
Founder and Chairman
Lean Enterprise Institute, Inc.

Levél James P. Womack-tõl a jelenleg kialakult helyzetrõl:

Dear Robert,

When General Motors filed for bankruptcy yesterday it marked the end of an era. The first truly modern, manage-by-the-numbers corporation, created by Alfred Sloan in the 1920s, was laid to rest as a viable concept. But what comes next?
This is not just a question for GM or large enterprises more generally. Yesterday also marked an end of the lean narrative that has been unfolding for thirty years, ever since GM first began to decline in the recession of 1979. David (in fact a team of Davids) finally felled Goliath just as Goliath was finally paying attention to the lean message. So we need to consider what happens next for the Lean Community as well.
What's Next For GM?
At the beginning of 2009, GM had three major weaknesses. It had too much legacy debt – bondholders and retirees. It had compensation costs for current employees that were too high to compete with transplant operations in North America. And the money it received for its products in most segments of the market was far below average, partly as a legacy of decades of defective products and partly due to losing the pulse of the public on what the company and its products should mean for customers.
Ironically, GM also had considerable strengths. It had competitive factories in terms of productivity and quality and a competitive product development process when it could focus its energies. (E.g., the new Chevy Malibu.) After failing for 15 years to learn lessons from NUMMI (its California joint venture with Toyota), GM had in recent years developed a competitive and consistent global manufacturing system and rationalized its global product development organization. It had even taken impressive steps to lean its internal business processes. But -- as in the case of its cast-off parts supplier Delphi -- lean came too late.
The bankruptcy re-sets the trip odometer. The legacy debt has been written down to a manageable level and compensation costs for current employees will now be much more competitive. In addition, the company is dramatically retrenching toward a reasonable portfolio of brands with production capacity appropriate to its realistic share of likely market volumes.
So what is the problem? Simply that GM has now explained what it is not. It is not Saturn or Saab or Pontiac or Hummer. (Or Opel or Vauxhall either, although surely the new Opel will be a supplier of fully-engineered cars for GM for a long time to come.) And GM is not a significant manufacturer in the U.S. outside of the Midwest. And GM is not, from a profitability standpoint, mainly a finance company. And GM will not have a dealer net blanketing every area of every city across the continent.
But what a company is not is of no interest to consumers. If General Motors is no longer "your father's GM" (to paraphrase its advertising line in the last years of Oldsmobile) or "the company that let you down" (as CEO Fritz Henderson phrased it at yesterday's news conference), then what is it? Why should any new customers care to shop GM products, much less pay the top-of-the-segment prices GM needs to flourish? And who can define what the new, appealing GM is?
Sloan's great genius in re-creating General Motors in the 1920s (after its second trip through reorganization – yesterday marked the third in 100 years) was to provide a compelling explanation of how GM fit into every American's life. He presented a complete range of vehicles from a used Chevrolet as a first car for the low income buyer to a fully-equipped Cadillac for those who had succeeded financially. And GM products were carefully arrayed in a status hierarchy with brilliant attention to the look and feel of each product in relation to American tastes. Indeed, as it gained massive size, GM was often the arbiter of American tastes.
So far the only message about what GM is is the Volt, its extended-range hybrid. Perhaps this is a start, although with enormous risks given the flux in technologies and in political and public perceptions about climate change and energy dependency. But even if it is a start, it is a very small start. Who can comprehensively define "your son's GM", "the GM that never lets you down"? And what freedom will they have to do so?
It is easy to blame GM's recent management for its troubles. But the senior GM managers I have known – almost all of whom had strong finance backgrounds --were remarkably competent at running the company in the financially oriented, manage-by-results way that had produced success for generations. So the problem is not the individual competence of mangers but GM's irrelevant conception of what management needs to do. In simplest terms, where is the new Sloan, the leader able to rethink GM's management and purpose and make it relevant to Americans again?
And supposing the new Sloan (or Sloans) can be found. What freedom will this person or team have to run the company in a way that restores its former glory? This is truly a central question because the U.S. government, as the new owner, is sure to be enormously conflicted:
Should the company be immediately and completely "right-sized" for its new place in the world? (This would be the best way to boost share prices so the government can sell the stock to recoup its massive investment. And it would be the best way to help Ford and Chrysler as well, by eliminating excess capacity.) Or should GM stimulate employment in a deep recession and placate the union by minimizing cutbacks? It can't do both.
Should GM focus in the next few years on the big pick-ups and SUVs that account for all of its profits? (This would be another excellent way to boost share prices so the government can recoup its investment.) Or should GM take a dramatic turn toward highly fuel-efficient products, which won't sell and certainly not at high margins unless energy pricing is also dramatically adjusted upward toward world levels? (e.g., $5 versus $2 per gallon.) It can't do both.
Clearly the hard part comes now, after bankruptcy, and we will all watch what happens. But let me make an exception for those readers – and there are many – who work at GM and who can take an active role in making it happen. I truly wish you the best.
What's Next for Lean?
For 30 years now the Lean Community has benefited from a strong trailing wind. GM steadily declined as Toyota steadily advanced. All we needed to do was standby and cheer! But this narrative is over.
GM and almost all large manufacturers have now accepted lean as a management theory, although the actual practice is always a struggle. As I noted above, GM was becoming a vastly leaner enterprise just as it collapsed and I have confidence that it will continue to embrace lean principles and methods in the years immediately ahead.
At the same time Toyota has turned out to have flaws of its own in the current financial crisis. It barged ahead with capacity expansion across the world that outran its ability to create lean managers and defied reasonable expectations for long-term market demand. (As I have mentioned in previous e-letters, in the mid-1990s Toyota redefined its purpose from being the best organization at solving customer problems to being the largest, an objective of no interest to any customer.) This has been a real setback for the lean movement.
We in the Lean Community therefore find ourselves in the odd position of winning a battle of ideas without actually getting most believers to fully practice their new convictions. And we have as our ideal organization a company that is experiencing significant management and revenue challenges despite "winning" the great contest between modern management and lean management.
Even as this drama plays out within manufacturing, lean ideas are spreading rapidly to new fields, from the beleaguered financial industry to healthcare to government services. Yet we have not fully defined what lean means in these areas, much less how to implement and sustain it. So the dramatic events of recent weeks are not a time for self-congratulation. Instead, they are a time for modesty and self-reflection – hansei, if you will – as we all struggle with the economic crisis while trying to re-define our own purpose as a Lean Community for the new era ahead.
With best regards,
Jim
James P. Womack
Founder and Chairman
Lean Enterprise Institute, Inc.

James P. Womack , Chairman and Founder, Lean Enterprise Institute

Management expert James P. Womack, Ph.D., is the founder and chairman of the Lean Enterprise Institute, a nonprofit education, publishing, conference, and research organization chartered in August, 1997, to advance a set of ideas known as lean production and lean thinking, based on Toyota's business system.

The intellectual basis for the Cambridge, MA-based Institute is described in a series of books and articles co-authored by Dr. Womack and Daniel Jones over the past 20 years. The most widely known books are: The Machine That Changed the World (Macmillan/Rawson Associates, 1990), Lean Thinking (Simon & Schuster, 1996), Seeing The Whole: mapping the extended value stream (Lean Enterprise Institute, 2001), Lean Solutions (Simon & Schuster, 2005). Articles include: "From Lean Production to the Lean Enterprise" (Harvard Business Review, March-April, 1994), "Beyond Toyota: How to Root Out Waste and Pursue Perfection" (Harvard Business Review, September-October, 1996), “Lean Consumption” (Harvard Business Review, March-April, 2005).

The Institute conducts research activities in a wide range of industries to create a tool kit of methods for implementing lean thinking and the necessary leadership behaviors. The Institute also sponsors educational meetings, workshops, senior management seminars, and conferences through the year and helps people to apply lean thinking in manufacturing and entirely new applications such as healthcare, retail, air travel, and distribution.

Dr. Womack received a B.A. in political science from the University of Chicago in 1970, a master's degree in transportation systems from Harvard in 1975, and a Ph.D. in political science from MIT in 1982 (for a dissertation on comparative industrial policy in the U.S., Germany, and Japan). During the period 1975-1991, Dr. Womack was a full-time research scientist at MIT directing a series of comparative studies of world manufacturing practices. As research director of MIT's International Motor Vehicle Program, Dr. Womack led the research team that coined the term "lean production".