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Jeff Liker

Jeff Liker: Lean opens new avenues for business results, but it sometimes hard to know in advance what those benefits will be

By Jeff Liker, - Last updated: Wednesday, January 19, 2011 - Save & Share - Leave a comment

First, I want to reinforce Orry’s points that there are short-term gains and long-term gains.  The most obvious short-term gains that many companies will accept are labor reductions and then only if you send these people out the door on layoff.  That is self defeating and will kill the incredible potential for operational excellence to change the business strategy.  In reality, even in companies that reduce labor significantly in percent terms it usually happens in scattered areas of the company so for the bottom line it does not have a big impact on total cost of the company.  Unless you do something like a 20% across the board headcount reduction, which can be done without lean, you will not see a big bottom line change. As Orry mentions freeing up capital is seldom appreciated, though if the company is highly leveraged and its debt rated low so interest rates run at 15 to 25% I have seen cases where paying down the debt through reducing inventory is very highly valued.

Second, I also want to reinforce the fact that companies that view lean as a long-term transformation that will lead to a variety of strategically important business results often do not know in advance what those benefits will be.  The way I look at it as you get nimble and flexible and reduce the burden of all the extra waste you are carrying you are in a position to respond opportunistically.  That could mean having cash to buy a competitor, taking on more business without adding facilities or proportionally more people, promising to customers a level of service your competitors cannot provide, bringing products to market faster with high quality, and many more possibilities.  Unfortunately we are not certain which of those opportunities will present themselves looking out 50-10 years.   When Toyota sets a 10 year global vision like 2020 that focuses on environmentally friendly technology they have good reason to believe that fuel prices will increase and government will regulate emissions and environmental impact, but they do not know exactly what level of investment will pay off.  Based on the vision they invest in the future to put themselves in a position to capitalize on what actually happens.

Third, it is very common that in the early stages of lean (meaning the first 3-5 years) we are developing capability in different parts of the company and the results or more localized and modest until we develop a critical mass of capability.  When you have that critical mass you are prepared for hoshin kanri which allows senior management to set strategic business goals and allocate pieces of the whole to different parts of the organization knowing they will each accomplish their objectives and the numbers will add up at the enterprise level.  Like I said that takes at least 3-5 years to get capability in enough of the leaders and parts of the organization that know the conductor (senior management) can lead the orchestra (enterprise) and know they can get the sounds they want coming together as a symphony.  Few companies make the long-term investments in capability building to ever get to that point and are left with isolated one-off projects that have to pay for themselves.

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