THE THREE RULES OF BUSINESS SUCCESS (According to Michael Raynor and Mumtz Ahmed, HBR April 2013)

HBR coverA casual reading of the Harvard Business Review article by Michael Raynor & Mumtaz Ahmed might lead you to think that this is another ephemeral piece by a couple of Deloitte consultants, and published by one of the premier East Coast business schools that has brought us CEO’s focused on Wall Street, GM-style mass production, top-down command & control management, and radically irresponsible (at best) financial and banking executives.

A more careful reading however reveals some interesting observations. The three rules they espouse are;

Rule 1: Better Before Cheaper
Rule 2: Revenue Before Cost
Rule 3: There are no other rules

According to the article, these “rules” came from studying more that 20,000 successful companies over a period of more than 40 years. They identified that in 8 out of the 9 industries studied the premier companies followed these three rules. The focus of the study was to use a large number of companies over a long period so as to identify the true “signals from the noise”. To obtain statistically valid information. They also took time in the article to politely slag down other researchers like Tom Peters & Robert Waterman (In Search of Excellence) and Jim Collins (Good to Great) by suggesting they have no way to understand why their exemplar companies obtained better results.

As I mulled over the article and the implications of it’s finding, I kept coming back to the Five Lean Principles (5 Lean Principles) and the economics of lean thinking (Economics of Lean). When working with value stream managers we always bring their job description down to a few (overly simple) phrases:

A. Create more value for the customers
B. Eliminate waste from every process
C. Use the freed-up capacity to make & sell more stuff
D. And make tons of money. (VS Manager Role)

It seems to me that point A is directly addressing Raynor & Ahmed’s first rule of “Better Before Cheaper”. If a value stream manager truly understands the needs of his/her customers and increases the value provided, then he/she is putting “Better Before Cheaper”.

Similarly if every process in the value stream is radically improved over time, including everything from sales to planning to engineering to purchasing, production, shipping, cash collection, and payables; then the value stream will create greatly improved value for the customer, and free up huge amounts of capacity to create even more value. Now, I recognize that many western companies adopt lean methods to achieve “cost cutting”. But we know that this is not lean thinking at all. It is what Bob Emiliani calls “fake lean” (Real Lean).

The third issue – point C – is focused on Revenue Before Cost. Instead of using spurious calculations of “savings”, the value stream manager will utilize the newly available capacity to grow the top line revenue without any additional costs other than direct materials.

If Points A, B, and C are occurring systematically, then Point D – making tons of money – will come naturally from the value stream. This will more than satisfy the ROA objectives of the Raynor and Ahmed study.

Perhaps companies on an authentic lean journey are following the thesis of “Better Before Cheaper”, “Revenue Before Cost”, and “There Are No Other Rules” – before they were identified by our learned friends from Deloitte. I would (as the Irish say) be deloitted if this is truly the case. Let me know what you think.

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Posted on May 18, 2013 by BMaskell | Leave a comment

Planes, Lanes, and Value Stream Flow.

Posted on May 12, 2013 by BMaskell

What’s the Point of “Point Kaizen”?

It’s a common problem for companies to do “point kaizen”. This is where an improvement project is done with regard to just one step in the larger process or value stream. They are trying to improve just one point rather than the whole system.

When you travel too much – as I do – you can skip photo 1the immigration and customs process when you come into the airport. I have had a “Global Entry” card for some time now. Instead of standing in those long ziggy-zaggy lanes and waiting ages for the next friendly & helpful US Customs & Border Control officer to inspect you passport  – you go to the Global Entry machine, put in you passport, have an unflattering photo taken, and your fingerprints done. It only takes a minute or two and you are through to baggage claim.

Does this greatly improve the flow in the “Get Back Home” value stream? No, not at all. You don’t get home quicker because after the swift immigration check you wait in baggage claim for ages. All that has been achieved is to move the waste of waiting from one place to another. If you do not address the entire flow of the value stream, you will find that much of what looks like improvement is just transferring the waste somewhere else.

How can you avoid this very common misunderstanding.

  • First, use a Value Stream map when deciding which improvements you plan to make. This enables your team to see the big picture.
  • Second, use a Box Score to calculate the operational and financial benefits coming from the improvements. The Box Score always addresses the entire value stream, not just the individual steps.
  • And, you then use the box score to check that the planned improvements have actually been achieved and sustained.

To learn more about the Box Score for making decisions: http://bit.ly/YoQhWf

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Posted in Lean Culture, Lean Management System, Lean Manufacturing | Tagged , , , , , | 3 Comments

Is Your Company’s P&L Report “Un-Lean”?

Posted on May 4, 2013 by BMaskell

 Find out now. Take this quick quiz:

First Table.I made an off-the-cuff remark a while back when I said the traditional P&L reports (or “Income Statements”) that are used by most companies in the US and around the world are “Un-Lean.” I was thoroughly taken to task on this. How can a report be Un-Lean or Anti-Lean?

Maybe the context will make a difference? Or is it really only a matter of “It’s not what you say, but how you say it?”

There is perhaps some truth in that, nevertheless it set off my internal LEAN alarm bells. At the time I just found myself coming up with a bunch of reasons from the top of my head. These were all written as tweets. I have since given this more thought, summarized my ideas turned them into real English. Read them in the table below.

I have concluded it is really important “what you say.”

Because you have a choice:  you can make the way you measure your company financially easy to understand, useful for your Lean teams, and supportive of your company’s Lean strategy. Or ……… you can keep on measuring the wrong things, wasting time explaining  financial information, motivating non-lean behaviors, and undermining your Lean strategy.

What was your score to my little quiz? I’ll leave it up to you to interpret for your own company. What I will say is this:  if you found yourself strongly on the Lean side of the fence, I think you are moving in the right direction. If you are still trying straddle the fence, you have some thinking and planning to do to get your financial reports in line with your Lean strategy.  If you find yourself still on the traditional side, and your company is “going lean,” you have work to do to get on board.

See if you don’t agree.  Tell me your thoughts about this. Am I right? Where am I wrong? Is there a better way to look at this? Let me know.

Second Table*  See more about the GM & Chrysler bankruptcy  GM Bankruptcy Blog

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Posted in Lean Accounting, Lean Culture, Lean Management System | Tagged , , , , , , , , , , | Leave a comment