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FEATURE - To successfully transform, we must change our "theory of success." The authors discuss the obstacles managers face along the way.
Words from: Michael Ballé, Eivind Reke and Caroline Sauvegrain
"All my colleagues drive Toyotas now too," said the cab driver during a recent ride, "because the quality of every other brand is fucked up." Indeed, every cab in town seems to be a Toyota or a Lexus. And indeed, in 2023, Toyota remains the world's top automaker for the fourth consecutive year, with stable revenues and sales. A chart of global sales figures of Toyota versus GM over the past two decades looks something like this:
You would think this would raise a few eyebrows, but most leaders to whom we show this just shrug it off. After all, everyone knows that Toyota has a broader offering than GM and continues to make cars for every market segment with a strong focus on quality. And that GM is led by financial managers who focus on the most profitable segments and decide each quarter what needs to be done to hit the numbers is also old news. When we invite leaders to look at their own numbers and their leadership attitudes and behaviors and ask them if they are "a GM or a Toyota," we get an embarrassed silence.
After gathering some courage, they often say things like, "But it's not the same for us. We have to run the business on budget. We don't make cars. And anyway, enough about Toyota - look at Tesla. Toyota is falling behind in the all-electric race - they will disappear soon."
Why aren't senior leaders more eager to adopt a lean-style Toyota-style strategy and instead stick to their losing GM strategy year after year? This is a conundrum that has been with us for a long time. No amount of evidence or experience seems to be able to put a dent in corporate thinking: traditional leaders believe they have to start from financial goals to satisfy the board, the stock market, the owners, etc. (strangely never the customers) and then break those goals down into budgets, with clear goals for each department, incentivize managers to achieve those goals and then they just have to see what happens. Halfway through the year, when things don't go as hoped, they tell managers to do whatever it takes to get back on track.
In this financial worldview, sales are magic: they grow annually because customers keep buying. No one understands why or how, but it is a basic assumption. Companies also measure, analyze and control operating costs to be more profitable. Then, of course, nothing runs as planned, but that's okay: they can explain it all away as exceptional costs (how could we know that a poorly maintained oil rig would suddenly catch fire and spill oil all over the coast?) and in any case, the real cash is in financial profits and losses - the company itself is the product. The bottom line is only important to put a price tag on the company as a whole.
In the 'lean' world, revenue is determined by customers' perception of value: what do they get for the money they pay? Revenue is built day after day by providing value to one customer after another. The bottom line is the result of somehow being compelling to customers while keeping overall costs under control. Budgets are tools, not guidelines. What really matters is value.
When Jim Womack and Dan Jones wrote Lean Thinking, they hit the nail on the head: it's a thinking problem. How you think about your company - or refuse to - makes all the difference to how your management teams run the company day after day. So when senior leaders don't step into the lean-space (despite both evidence and experience telling them they should), we need to better understand what's holding them back.
You can't think lean if you don't think about branch time. Instead of starting with how much revenue you generate each month, ask yourself what deliverable you need to deliver and at what rate. Most people stop there. They think that takt time doesn't apply to their service-oriented, made-to-order business. But branch time always applies: it's a calculation - open time divided by customer demand. But what does it mean in your context? For example, suppose you coach business leaders: how can takt time apply? Well, your deliverable is gemba walks. You can decide how much time you have, say 10 days a month. If you agree that you need about 10 gemba walks a year to be effective (that's the value proposition), with a demand of four leaders, that's about a gemba walk every two calendar days.
It is clearly not "branch time" as you would calculate on a production line, but it is a clear rhythm. This is very different from thinking, "I need to sell two five-day workshops to each company to meet my goal of 40 billable days per year.
Thinking in branch time leads you to ask very different questions, such as:
By thinking in terms of deliverables by branch time, which you can visualize as kanban cards, you start asking yourself a fundamental question: why should the next customer buy one too? The plan is to build every so many minutes, hours, days, etc. But the second part of the plan is to build one only after one has been sold. This way, the gap in the plan appears immediately.
Why would the next customer buy one? We're not talking about market segments and sales forecasts here. We're talking about value: how can we differentiate an OK product from a non-OK product? This is the second obstacle that makes most senior managers shy away from lean. How can they know? For every product in the range? For every customer? This is where founders differ from professional managers because at some point in their lives, to survive, they have had to discover the difference between a good sale and a bad one. But even founders begin to run the business and lose touch with these basic questions. Look at your deliverable and ask yourself the following. In today's context, for each customer:
Next, you can look at your delivery process and ask yourself:
This leads to looking ahead:
Quality thinking is radical because it leads to concrete decision-making. Distinguishing between OK and not OK is the key to knowing what decisions to make and what action to take as a result:
Toyota remains one of the few organizations that recognizes that quality is the ultimate source of cost control: first, customers will not buy poor-quality products twice; second, quality achieved through rework is expensive and requires more capital than necessary; and third, accepting low-quality work instead of immediately stopping and correcting it leads to poor overall decision-making.
Being obsessive about quality causes you to make two decisions daily: how do I distinguish OK from not OK in every product and in every process? Do I make quality decisions today (continue or stop)? How much am I investing in the right people and conditions to ensure that quality decisions are at the forefront of everyone's mind?
For each kanban card of a product, at each takt, is the person doing the work fully engaged in performing it to the best of her ability? Is she in a high or low mood? Does she believe in what she is doing? In the usefulness of her work, in the sociability of her teammates, in the legitimacy of her company and the competence and honesty of the managers? Company managers are usually willing to take satisfaction surveys of their employees, and most of them (though by no means all) realize that morale matters for performance, somewhere along the line. But they firmly believe that morale is a matter of incentives and systems.
A third, immense obstacle to Lean Thinking is getting team leaders to run a value stream. As the late Toyota veteran Takehiko Harada told us, the position of team leader stemmed from Taiichi Ohno's determination to push kaizen. Ohno strove to "escape from the logic" of each cell - he pushed operators and supervisors to think differently and find other ways to do things. Team members who were most active in kaizen became the first team leaders: one per five- to six-member team to keep the team improving. To be fair, even the mighty Toyota struggles with keeping the kaizen idea alive. At the last Toyota plant one of us visited in Asia, team leaders were doing more line work than expected due to recruitment problems, and so kaizen was weak.
Mission-oriented companies, from Toyota to the U.S. Marines, recognize that team members need three things to keep their spirits high: individual progress through obstacles, safety and support from their team, and recognition from their organization.
Team leaders are key to providing both engagement and motivation by recognizing the cells' true potential - their best-performing day applied to the rest of the year - and encouraging and supporting the team to do their best every day, by being aware of problems, solving them, and continually training and updating to master change and new technology. The key tool for doing this is kaizen: recognizing initiatives in small steps to solve problems or come up with improvement ideas.
Senior leaders are usually comfortable with the system - making sure people learn and follow standardized work and other procedures. They are much less comfortable with the chaos (limited chaos to be sure) around kaizen, improvements in small steps that nonetheless require constant change.
"Lean" tools and techniques are essentially visualizations of these core ideas to orient and support each team to keep striving for greater quality and maintain a culture of success (success is important, failure is unacceptable), as opposed to the culture of failure created by financial management (nothing is important except the stock price, failure is inevitable and can always be explained). Success is achieved through relentless efforts to progress by learning, the only way adults know:
The Toyota Production System we call "lean" is a collection of standard techniques for step 2, from kanban to andon to standardized worksheet analysis to MIFA to A3 to ringi, and so on.
Applying these visualization tools without understanding the underlying worldview twists their interpretation into reinforcing the traditional view of doing things for cost savings rather than for building value for customers and, not surprisingly, ends in further failure. Clearly, success is harder than failure and the Toyota path relies on an individual awareness of problems and efforts to overcome them, which is called human capital. A human capital development process is a one-to-one effort, not the one-to-many effort that mainstream management usually follows.
Human capital development usually happens on the gemba in the form of Genchi Genbutsu, the leadership practice of going into the process yourself to validate what is presented in reports, meetings, emails, team chats and the endless array of new communication tools available. It is a skill that must be trained, honed and maintained. However, the ability to understand when a process is not working as it should is fundamental to breaking through the logic of excuses and explanations usually used when things fail. Going to gemba is about distinguishing facts from data - and getting people to agree on the problem before debating solutions. Without a deep, hands-on, concrete understanding of the problems and seeing what local countermeasures people are looking for, all solutions miss the mark.
In financial management, leadership looks at a handful of strategic scenarios and picks the most trivial (the fad of the moment and usually what every competitor is doing) and defines "strategic" medium-term goals with associated changes that, taken as a whole, become a "transformation." Each of these changes comes with an action plan and all this is to better format the company to convince analysts and support the stock price - no one cares much this is like driving a car while looking in the rearview mirror. Meanwhile, any crisis in the market is the opportunity to reduce the company's ability for future sales - persuading future customers to buy the product or service. Management is absolutely certain that they are doing everything right (or that they have no choice) while weakening their business because they react to every event by correcting ratios - without worrying about customers, people or suppliers. Even innovation no longer means solving new customer problems (or solving old problems better) with new technology; instead, it has become "we have to invest in this because the market expects it of us."
The gateway to Lean Thinking and Toyota's continued success (until the tide turns and Toyota starts promoting MBAs as well) is overcoming four cognitive hurdles: Calculate the branch time for your business; understand what constitutes a good, average and bad product in your market, and a good, average and bad technical process to deliver it; make sure you have engaged your people with high morale by developing a robust population of team leaders (and create the organization necessary to do so); and, last but not least, see your suppliers as a value network to be developed for your future success rather than a supply chain to be milked for next quarter's profits.
We may believe what we see, but we also see what we believe. Our theory of success has a disproportionate impact on how we proceed and react to events. Toyota's theory of success is clear and explicit: make customers happy one by one by offering them the next car they want (with a broad, non-cannibalizing lineup), offer them quality products, and develop human capital by not allowing non-quality or stagnation to accumulate in your process, allowing everyone to focus on value: improving quality while lowering costs. The financial theory of success is equally clear: treat the company as a financial product, strive to get key ratios the way you want them, express this in "must win" battles with goals and action plans, and make sure people stick to them with budget control, endless indicators and standardization of processes. Unless you are sitting on a gushing oil well and customers are desperate to get their hands on your product, we know that this second theory does not lead to success, but to plateauing and then cutting back as you are hit by external crises until you are refinanced or sold.
This is all well known. However, our theories of success are not ours alone. They are passed on by our seniors and supported by our peers. True transformation is a personal transformation when we have the foresight and courage to change our own theory of success and then build awareness around us, which unfortunately is a one-on-one task: one person at a time. By more clearly visualizing the obstacles that keep a senior manager from entering the lean space, we believe we can help them be more rational about their strategic choices and dedicate themselves to exploring, experimenting and experiencing the lean strategy in order to find lean success and build a better society together without waste.
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