Interview preceding AME International Lean Conference, Baltimore, 2010

Leading the Lean Enterprise Transformation Leading the Lean Enterprise Transformation

George Koenigsaecker is a principal investor in several Lean enterprises. He is a Board Member of the Shingo Prize, The Association of Manufacturing Excellence, The Thedacare Center for Healthcare Value, Ariens Outdoor Power Equipment, Baird Capital Partners, Simpler Consulting and Watlow Electric Corporation. From 1992-1999, he led the Lean conversion of the HON Company, a $1.5 billion office furniture manufacturer, his efforts led a tripling of volume and culminated in HON Industries being named by IndustryWeek magazine as one of the "World's Best Managed Companies". 

Prior to this, George was with the Danaher Corporation, where he was President of the Jacob's Vehicle Equipment Company (whose Lean conversion is featured in the book, Lean Thinking by Jim Womack and Dan Jones) and Group President of the Tool Group, then the largest business unit of Danaher. He also developed and implemented the "Danaher Business System", a comprehensive Lean enterprise model. He has held senior management positions in Finance, Marketing and Operations with Rockwell International and Deere & Company. He is a graduate of the Harvard Business School.

Interview preceding AME International Lean Conference, Baltimore, 2010

Q You’ve lead lean companies through a lean transformation. You’re currently advising companies. What was one of the most successful lean transformations you’re proud of?

A We established the original form of the Danaher business system, which is modelled on the Toyota business system. I think the encouraging thing is that if you look at public, stock that you could have purchased from 1987 on, when we started the original transformation at Jake Brake, it has been the highest performing public market stock per, articles in the USA Today and so on. So it has been able to take lean lessons and apply them and get financial performance from them. It’s also the expert in the transformation journey. They’ve grown from a few hundred million dollar business to 12-billion dollars and continuing to grow today. And they do it by acquiring companies and transforming them to lean.

Q What is one element at Danaher that you think was present at the beginning and continues to drive the business?

A One is that Danaher and others that have been successful at the lean journey recognize that you have to change senior leadership behaviour. To do that you’ve got to get your CEO and direct reports to think differently about how they do their work. And companies that are very successful at this, pretty much have a required executive immersion program of some sort.

Q What would you say to some of the many middle management folks who are quite committed to lean and looking to engage their leadership on the question of lean and back up the work that they’re doing to spread it throughout a company? When do leaders start to really realize the benefits of this model?

A Well, there’s probably three things to think about as a middle manager that’s trying to get this moving.
One of those is to make sure that whatever work you’re doing with lean drives results on a fairly quite basis. Toyota talks about the True North metrics, which are really four things in hierarchy of importance that you should be measuring on whatever work you’re doing. So maybe you’re in charge of a subsection of a value stream and you can start to work there. The four True North areas would be to look for double-digit, which is 10 to 30 percent sort of number, annual improvement in these four metrics. 

One is human development, which might be measured as safety or number of problems solved per person — those kinds of things. The second one is quality, which is both internal quality and external quality. The third one is flow time or lead-time, which is principally looking at all of your customer- or client-facing processes and seeing how responsive they are, as well as, then to make that become responsive, you’ve got to change your internal flows. And then the fourth one is cost or productivity. 

And those are in a hierarchy, but there is an expectation that you should improve each of them at 10 to 30 percent per year — forever is the basic vision. So you pick a spot and you’ve got some area under your responsibility, think about those kinds of metrics for your area, think about improvement events to begin to generate that kind of performance and realize that the tools, properly applied, should always generate, worst case, 120-day payback. This isn’t something that you should look back a year later and say, well, we invested this but it isn’t there yet. You should be able to look at it after a quarter and see that you’re on-path to generating enough improvement through the productivity gains and that sort of thing to pay for the process in total itself. So, have the discipline to generate results. We used to use a phrase — We would buy our freedom — and by that we meant we would generate enough results to get the freedom to continue the process.

Another aspect to think about is that groups of people, and let’s talk about if you’re a middle manager, your leadership team, they will form sort of a normal distribution curve in terms of attitude towards change. And you’re going to have one person that will probably be very willing to try it, you’ll have another person that probably never will try it in your lifetime, and then you’ll have a group of people that sort of run a range in between that. 

So as a middle manager try to identify the individual on the senior management team that is at that sort of far right of the curve. In this case, is most likely to look at something like this and see the good in it, and try to just work with them to get them involved, to get them to get some learning, get them to give you some support. And then if you get to the point where you feel like things are going fairly well there, then try to figure out, if there’s ten people in the top management group, who’s the second most change-oriented person and try to use that first person to help change the second one.

Q What’s at the heart of True North metrics that makes it successful in terms of measuring and then becoming a catalyst for change?

A One of the fundamental aspects of the power of True North metrics is that what they really measure when you take all four of them is all of the dimensions of improvement that you can measure. If you improve your people’s problem-solving capability, the human development metric. If you improve everything you do, both your work processes and your outcomes. If you improve by shortening the flow times of all of the work you do and improve your responsiveness and improve your productivity and cost, you’ll find that actually any kind of improvement you can think of is going to fall into one of those four categories. 

If you improve in all the dimensions that you can improve, every line item on your income statement and your balance sheet, everything you can measure financially or operationally will move in a good direction. If you have higher quality, you do it with shorter lead-times, you do it with lower costs, you do it with a more involved workforce. In a sense, you keep that moving, no one will ever be able to capture you. And if you go through an income statement, you’ll have higher revenue because you’ll have higher quality and shorter lead-time and faster product development. You’ll have lower cost at production because of productivity gains. So higher revenue, lower costs works good on an income statement. 

You get to the balance sheet and if you’re a manufacturing company, you’ll have lower inventory levels because of flow. You’ll have lower capital equipment because of better utilization through things like TPM and SMIT, and eventually redesigning capital equipment to fit with a lean environment. So on your balance sheet side, you’ll have less of the working capital, you’ll have less of the fixed capital, and often, as you generate more money, you’ll end up with less debt, so you may have less debt on your balance sheet.

Q What do you think is the future for companies as the challenges in the global marketplace increase? Do we have a choice but to follow True North or lean or the fundamental philosophies that underlie these new management processes?

A Basically, my experience is the first company in an industry that adopts these successfully, which is a small group because most people are unsuccessful, but the first organization that successfully adopted improves fast enough that no one can catch them and eventually becomes the dominant player in their industry.
And so I think if you take a long perspective that’s the likely evolution — that you’ll have to do it because the pressure from someone else that does it, in terms of their competitiveness, will eventually push you to do it. Having said that, there are relatively few organizations that have been focused enough at the senior leadership level to really get it built into the culture so that they keep it moving.

Q It has become certainly easier to make the case for lean. One of my recent interviewees said it’s not a question anymore. What’s next for lean thinking as we look to sustain companies for years on the lean journey and in the face of changing economic circumstances?
A I think the "what’s next?" is always kind of interesting because when I first started this, it was thought to be something that came out of automotive and probably only worked in automotive.
And then we applied it to a much lower unit volume company at Jake Brake, and people thought it wouldn’t work there because the unit volumes were so much less. And then it got applied to things like Pratt & Whitney, which was in the neighbourhood of Jake Brake, applying it to very low unit volume stuff.
Then we started applying it to administrative work and were able to show that, Gee, it works the same on administrative processes as it does on production processes. And then we began to branch out from applying it to manufacturing organizations to applying it to non-manufacturing organizations, for instance healthcare. What we have been able to demonstrate over the last 30 years is that lean is something that works on any kind of work. And it doesn’t matter what your work is, whether it’s education or healthcare or manufacturing or operating an aircraft carrier, lean will work there. You may have to struggle if you’re the first one to ever apply it, to figure out how you actually take these tools and principles and apply them to your work, but it will, in fact, work there. 

So I think at one level, we’ve demonstrated the universal applicability of lean tools and principles to improving any kind of work. So that may be the accomplishment in the last 30 years.
The failure has been that its actual spread at a deep level has been very limited and that we still have to get much more serious, in my view, about senior leadership education and then building cultures that sustain it through generations. 

So, I think the big picture for the future is getting much more definitive about what does it take to build a successful lean culture that can live through, for instance, multiple CEO transitions and continue on the journey. And to get back to the beginning, that is the part that I feel good about. I don’t feel like we had a perfect model of doing this but of the 12 companies and the two manufacturing companies on whose boards I’ve been on, all 14 of those organizations continue on the journey, some as long as 23 years ago. But in the future of lean that is the key — figuring out how to build sustainable cultures so that the improvement pace continues through generations.

Q Do you think that lean in healthcare, lean in manufacturing, lean elsewhere is going to start to be the dividing line between those who survive and those who don’t?

A Ultimately, I think it absolutely will. I think we’re still in the phase where leaders that think they want to go on the path haven’t really been given a very good description of what are the key things that have to be done to be successful on the path. 

So, too often it has been treated like a program and hasn’t led to ultimate success. It is a system that takes a lot of hard work because you have to restudy every process, let’s say five times over a ten-year period as you begin to use that as a way to generate results and build the culture. It’s something that requires senior leaders to have the humility to admit they don’t already know everything about this subject and go back and do some personal learning. 

It’s a system that doesn’t allow them to hire someone and delegate it to them because in the end they still won’t know what they’re doing and whether they’re doing the right thing. If you’re going to do something that is fundamentally a significant culture change, that’s going to have to be led by the chief executive officer or it isn’t going to happen. It can’t be led by someone lower level that you delegate it to. So there’s a lot of ground to cover yet, in terms of making this a broad base success.

Q Are you looking forward to coming to the AME conference?

A Yes, I always do. It’s always been a place that brings together a lot of people who are thinking about and working hard on improvements. And it’s always the case that you need to separate the wheat from the chaff as they say in agricultural areas. But you always find that there are individuals and organizations that have done very good things and that you can take away true nuggets of improvement ideas. 

And a rule of thumb, you can go to a conference and come away with a couple of things that you can actually apply and make improvements, than you’ve done well at the conference. If it’s more than a couple, then it’s really impressive. The key question is, Are you going to go back and have the discipline to think about, I’ve got this and how am I really going to apply it and make something happen with it? How am I going to change the results of our organization for the better with what I learned at the conference? But the conference always brings enough lean leaders together that there’s plenty to learn and more than enough that you can take home and can apply it between one year and the next.