George Koenigsaecker

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.

Perseverance Will Pay Off

Publish date: September 2008
Superfactory
www.superfactory.com
By John M Rubio and
George Koenigsaecker
Leading the Lean Enterprise TransformationLeading the Lean Enterprise Transformation





Companies that have made a real commitment to lean have the tools and systems to survive and prosper in a down economy. Is your organization equipped to respond and take action as soon as your leading indicators start to turn?

Gasoline is over $4 per gallon in many parts of the country. Food costs are higher than they have been since 1990, with more price increases expected through the end of the year. April foreclosures jumped 65% compared to the same month in 2007, a trend that analysts expect to continue for the next several years. It’s obvious now that the United States is in a cyclical downturn that’s being exacerbated by problems in the financial systems and credit markets.

Manufacturing company leaders cannot wait for the economists to officially declare a recession, as defined by two or more consecutive quarters of negative GDP growth. With the exception of Petroleum companies in high-growth global markets and a few other industry sectors no one is going to be able to “wait out” this downturn without any trickle-down effect on their business. Now
is the time for business managers to assess the direction of their lean efforts and respond to recessionary pressures. If they wait until it is painfully obvious that they have to make changes, company performance will inevitably follow the sales line down and struggle throughout the recession.

Watlow Electric Manufacturing Company (St. Louis, www.watlow.com) did not respond quickly enough to the last recession in the beginning of the decade and company leaders learned their lesson. This time around, even though their incoming order rate is only just starting to slow, the company has already taken significant steps to reduce costs, cut lead times and lower inventory
levels. Watlow has been successful at reducing lead times which has significantly impacted their growth cycle and netted new business. Lean is clearly taking on the view as a growth strategy.

Leading Lean Indicators

Toyota’s four “true north” metrics center around
1) human development,
2) quality,
3) lead time and cycle time (delivery), and
4) cost and productivity.

As organizations progress through a lean transformation, in good economic times and more difficult times, they should strive to achieve double-digit improvements (at least 10%) in each of these four dimensions. Managers must also
identify one area for a significantly greater rate of improvement. Which one will depend on the immediate customer needs and the business situation. This breakthrough area will have the most potential to have significant impact on customers and other stakeholders in the near future.

As a word of caution, the key metrics that managers let slide are always the ones that lead to serious problems in a couple of years. Witness the quality problems that manufacturers have had recently with lead paint on toys and food contaminants. Every improvement initiative should at least have safety and quality gains as “tag along” goals, even if the primary focus is on cost and
productivity. The four true north metrics are all related, improving one supports gains in the others.

Following traditional cost-cutting methods, when sales begin to slide most executives will evaluate each line item on the budget and cut those that don’t seem to have an immediate impact on the business. Training programs and continuous improvement efforts are typically the first to go.

It’s not easy for company leaders to see the immediate impact of such cuts on the business. To help bring such factors into account we developed the Simpler Business System, which incorporates Toyota’s true north metrics as well as the pillars of the Toyota Production System (TPS). The model has evolved over the past 20 years based on experiences with successful lean implementations during times of growth and times of market contraction. This enterprise business model consists of three elements: people, process, and purpose (See Figure 1).

As indicated in the figure below, in best practice and recession-proof companies’ people are personally involved and dedicated to specific value streams. They have been properly oriented
and trained, and are continuously informed of changes in the organization and the market. Most employees want to make a personal contribution to the success of the organization. By giving them the time and resources to participate in continuous improvement activities, for example, managers are demonstrating their respect for their knowledge and giving them the tools they need to reduce waste and variability that most company leaders never see.

If they truly regard employees as their most valuable asset, then leaders must invest as much in employee development as they do in any hard assets. Such investments typically deliver a 10:1 return or better, which is far above other investments. This is as true in boom times as it is during
a recession.
The key to successfully investing in people is that such investments should always link back to the strategic purposes of the organization. Strategy and policy deployment processes can provide a clear connection for employee development activities to the company goals.

Integrate continuous improvement tools and employee development to provide a clear line of sight to the organization’s core strategy.

Quality is improved by solving many small problems that build on one another over time.

Organizations should not focus on any one quality improvement tool but on the appropriate tools for each specific problem. Too many company managers embrace popular programs, like Six Sigma, ignoring waste reduction and other variability reduction methods that can also provide huge improvements. Within a targeted area, a blended application of tools will have a much greater impact than focusing on a few select projects.

During most engagements we look for 15-25 safety and quality improvements during a week-long Kaizen or rapid improvement event. These may be relatively small improvements, but they keep everyone focused on the true north metrics while we target breakthrough gains in other areas.
Such improvements typically impact values streams vertically and horizontally, leading to financial improvements along multiple dimensions.

Unfortunately, quality gains can take a long time for customers to notice, and even longer for customers to believe that they will be sustained. In fact, it might take up to three or four years for
a company to reap the full market benefit of any quality gains. Even though managers cannot count on such improvements to pull them through a recession they still need to keep grinding them out.

The Biggest Bang for Customers

While it takes some time for customers to recognize quality improvements, they will notice reductions in lead times and delivery times very quickly. If an organization consistently cuts its
lead time relative to the competition by 75%, it has the potential to grow at three to four times the industry growth rate. That is, if the industry or sector usually grows 3% per year, the company could grow 6-12% per year if it can reduce lead times and hold them consistently.

Kolbe and Kolbe Millwork Company, Inc. (Wausau, Wis.) has achieved record sales in the midst of a construction downturn. Its high-end wood and vinyl windows and doors have found a recession-proof niche bolstered by their embrace of a lean business system.

In 2005 Kolbe and Kolbe managers began incorporating lean into its manufacturing operations, hiring Simpler North America to help them implement a companywide continuous improvement program that would remove waste and variability from their production processes, and replaces it with value-added activity. After two and a half years the company is starting to reap the benefits
of increased productivity and shorter lead times leading to their increased sales. In 2006 Kolbe and Kolbe reported record sales and is on pace to set another record this year.

In a recession, not all companies with superior lead times will increase sales like Kolbe and Kolbe, but they will have a slower sales decline than competitors. One effective strategy is to
target administrative lead times, such as quote cycles and order entry cycle times. Most
organizations can reduce lead times faster in these areas than in production, which can have a
big impact on getting and keeping customers.

Unfortunately, many organizations that manage to reduce cycle times fail to establish the
organizational practices that will allow their customers to enjoy the benefits, and thus miss out on
the potential sales benefits. To hold onto such gains managers have to change work policies.

Following the administrative example above, they may need to require that all quotes are
completed each and every day, which means that people will have to be more flexible and willing
to work overtime if there is a surge in quote requests or orders. Supervisors will also need to
understand that shorter lead times will bring in enough additional business that will more than
cover the overtime costs that may be incurred in order to maintain short lead times. Such an
approach requires a change in mindset for most organizations, but a recession creates an
excellent “burning platform” for creating a sense of urgency and instituting such changes.

In a down market, cash flow becomes very important. This is especially true in the current
recession, which is being exacerbated by credit contraction and tighter lending standards across
all areas of the economy. Inventory can lock up significant amounts of working capital. Improving
material flow and reducing lead times will free up cash by reducing inventory levels. Lower costs
will also improve cash flow by improving margins.

While many manufacturers have some opportunity to reduce scrap or other forms of waste, for
most the most significant controllable cost is labor. In a typical manufacturing firm the material
costs are set by the market and are not that different from one firm to the next. But people costs
can vary based on location as well as differences in productivity, processes and strategy. Some
industries, like health care, really only have one cost--people--all other costs are insignificant by
comparison.

The number of people that it takes to get the job done determines a host of other costs, such as
the number of office cubicles, desks, and computers, as well as the IT staff required to support
those computers. Think about how many parking spaces are required for each employee and the
cost of office space for each employee. During a recession company leaders should be thinking
about how to maximize every investment in space in terms of revenue per square foot.

Many managers talk about productivity, but few measure it, and even fewer are actually able to
improve it at a significant rate. Despite claims that it’s impossible to measure in product
development or sales, these areas are often ripe for productivity improvements. They are also
very often the source of many out-of-control costs. Focusing on such costs should not undermine
human development initiatives. Linking people to specific processes, whatever they may be, as
well as the mission, vision, and purpose of the organization, lies at the heart of the business
system.

One effective approach is to track individual productivity measures based on the total cost of
each employee. Everyone has a personal target of two times their annual employment costs as a
target for process improvements within their value stream. Such a metric forces people at all
levels and in all value streams to participate in the organization’s lean efforts and work to improve
productivity. World-class companies, which rarely layoff people, typically have 100% of
employees engaged in some form of productivity measure.

As a general precaution, it’s almost always the right thing to do for an organization to freeze any
new hiring at the first sign of a recession. If sales fall faster than the rate of attrition can absorb,
requiring some layoffs, it is better to take a large cutback early, and then use lean strategies to
handle the workload. This might mean making a reduction that initially requires some overtime
from the remaining employees, which will be reduced or eliminated in subsequent quarters as
sales decline. These are the tough decisions that most managers don’t want to make, but lean
leaders should constantly be developing appropriate response plans to changes in market
conditions.

The Purposeful Plan
If the company hasn’t done so already, it’s not too late to pull together the management team and
discuss the implications of slower sales and the areas that need to be focused on in order to
minimize any negative impact. This may mean attacking value streams that require a lot of people
because of the potential margin and productivity gains. During down cycles, we find that most
manufacturing companies focus on the delivery value stream or the conversion of raw materials
into finished goods. To drive revenue they invest time and resources to improve those value
streams that have the most potential for growth as a result shortened lead times. Even if such
operational and sales gains can be realized, if the recession is long and deep, further cost
reductions may be required.

Of course growing productivity should be at the top of the management team’s agenda well
before key market indicators signal that it’s time to act. The current recession will require
changes whether we want to make them or not. The strongest companies will make those
changes that effect all three elements of the lean business model, leading down the path of
continuous improvement.

Sustaining Lean

Publisher: Manufacturing Engineering
May 2007 Vol. 138 No. 5

Nothing can replace the direct involvement of leaders





Leading the Lean Enterprise TransformationGeorge Koenigsaeker, Leading the Lean Enterprise Transformation

Many of those on the lean journey often ask the question: "How do we sustain our lean effort? What will it take to truly continue on the path?" While there are probably a number of answers to this question, I would like to suggest a few derived from my own experiences.

First, what is the predominant culture of most firms today?  
                           


I would say that it's "firefighting." We focus on delivering today's product or service, and we rush to do so. One consequence of this emphasis today is that we do not step back to take the time to "ask why five times," as Toyota would do.                                                                                                               
So we keep working really, really hard, but our system does not get any better, because we just jump on the first solution for problems—elimination of the surface cause—as they crop up during the day. The net of all this is that we have gradually built up a system under which we run our businesses, but we do not look at improving the system on a regular basis.
And what is the culture we need to develop to survive and thrive for the long term?                                                                                                       What we need to build is a learning culture—and I maintain that the best model of that is the culture of Toyota. What's so unique about Toyota's approach to work is that they have organized themselves to be constantly reviewing all their processes (the steps by which their work is done), and improving them.

So the key to sustaining lean is building a culture that practices process improvement as part of daily life.                                                                         
How long will this take? Would it be reasonable to assume that it might take a generation of management to establish a totally different culture? After all, changing from a fire-fighting culture to a process-improvement culture requires embracing an "opposite" approach, and "opposites" are very hard for adults to learn. 
While I can't really know which practices have been most important in establishing this learning culture, the thing I am most proud of is that, over 20 years, I led 11 corporations, as either President or Group President, on the lean journey. And today all 11 of them continue to practice lean-process improvement. They have managed to do this through several generations of leadership change.

A few thoughts about what has helped these firms sustain a lean culture: Toyota believes that you drive improvement of every line item in an income statement and balance sheet by simultaneously improving the four True North dimensions of improvement—at annual rates of 10–30%. The True North metrics include: 

Member Development (processes are improved by people who learn how to study and improve their work);
Quality;
Lead Time; and
Cost/Productivity

If you want to advance these four dimensions of improvement, you will need to study your work—your processes—throughout the enterprise. That means studying both office/transactional/administrative processes and manufacturing processes—at a pace that will generate the desired pace of improvement.

After all, you would expect the pace of improvement to be proportional to the number of processes that you improve. And the double-digit results that a company like Toyota would expect each year require a lot more process improvement activity than most persons would imagine. A firm of 10,000 people might require week-long kaizen events devoted to studying the work of the firm, at a pace of 1000 team-weeks per year.

Don't panic just yet. You see the point; driving fundamental improvement is a lot of work. Firms that have achieved this level of process improvement have built up to this pace over a period of 3–4 years. They have come to realize that a significant pace of improvement is driven by a significant pace of process study—so they see this work as a productive, valuable investment. The good news is that well-run process improvement typically has a payback on all the costs involved of 90–120 days from the productivity gains alone, not counting inventory cash, improved customer quality and lead times, and other metrics.

It turns out that you drive most lean results from organized kaizen events that are driven by an enterprise value stream analysis and improvement plan. It also turns out that lean is learned from personal participation in these hands-on improvement events. You don't really learn much about lean from books. It's the struggle of applying new tools, new principles, and new practices to a "chunk" of your existing work—expecting major improvements to be implemented within a week—that drives individual learning curves and begins to build a new culture.  

So these kaizen events really do three things at the same time. They actually redesign processes and delivery results, but they also are the key way anyone learns to understand the practice of lean, and they accumulate into building a new culture—a learning culture.

Let's think about leadership a bit here. When an organization starts the lean journey, the odds are that almost no one will have deep knowledge of the way ahead, and almost certainly senior leadership will not know what is involved. In some respects, the first step is for leaders to learn how to see waste in their organizations. Toyota believes that the principal form of motivation for improvement is derived from learning to appreciate how much waste exists around you in all the work you and your organization do every day. A lean core-concept is the idea that only a few steps in each process truly transform material (or information, in the case of administrative work). These are the few value adding steps.                     




Our processes are full of other steps—other work—that does not transform the material or information. In lean terms, that work is categorized as non-value-added.

Most of us are surrounded by the work we and others in our organizations do—but we see it all equally; it is all just work. One of the key outcomes of participation in kaizen events, especially for leaders, is to begin to see how much non-value-added work exists in our processes, and also to understand that we can remove a large portion of it—within a week.

A Wisconsin healthcare group, Thedacare, has studied member survey data very carefully, and correlated scores with the number of event experiences that each person has accumulated. What the data show is that it takes two weeks of kaizen-event experience before the needle moves in terms of positive member survey scores—and that it keeps moving right through about eight events per person. This result is a good measure of the culture change that takes place. So it appears that an ideal approach would be to eventually get all leadership (and the whole organization) to gain eight weeks of kaizen-event participation. In practical terms, it takes years to get to this level, even if you are on a fast pace of improvement. But you need to get on the path.

A pair of examples may help you appreciate what's involved. Led by its CEO Stan Askren, HNI Corp. (Muscatine, IA), the big office furniture group, requires any new manager in the firm to get four full week-long kaizen event experiences in their first year of employment, generally in the first few months. And for every year after that, they must get two more week-long improvement experiences. One lesson learned was that most leaders know how to talk-the-talk and sound like they are "doing lean," but real results are only achieved by those executives who get real experience.
Danaher Corp. (Washington, DC), which is led by CEO Larry Culp, has a Lean Immersion course, where senior leaders spend 90 days doing nothing but lean-improvement work. 
Danaher grows by about 20% per year from organic growth, but also benefits from a steady flow of new acquisitions paid for by the cash flow generated by lean efforts at the current organization. In fact, since the beginning of their lean work at Jacobs Vehicle Systems Inc. (Jake Brake) in 1987, the financial performance of Danaher exceeds that of Berkshire Hathaway, the organization run by the famous investor, Warren Buffet. In North America, Toyota conducted a hansei—a deep reflection—on the depth of understanding of the Toyota Way at the company. They concluded that the organization also needed to require leaders to get regular kaizen-event (jishukin in Toyota talk) experience on an ongoing basis.

You've probably realized that a very big part of sustaining lean is establishing a practice of leadership participation on kaizen events on a regular basis—forever. Every time a leader is on a team, it reinforces for that person the reality that there is still a lot of waste in the work being done, and also reinforces the fact that you can remove a lot of this waste in as little as a week. The motivation to improve that this awareness gives to leaders is essential to sustaining lean.

There's a direct link between achieving double-digit annual rates of improvement on the True North metrics (which will in turn drive all line items of the income statement and balance sheet in the right direction), and a strong pace of studying and improving processes. One of the issues for leadership is that it is hard—perhaps impossible—to really define what the organization will look like after another year of lean transformation. Frankly, you've never been there. One lesson learned, for me, has been that tasking yourself to hit your True North metric performance, year after year after year, is a significant part of finding your way on the transformation path. If you start to fall behind in one of the True North metrics areas, it's time for a "hansei" that can lead to corrective action.

This action, in turn, is usually some combination of increased kaizen-event activity directed at that performance dimension, and some addition of lean tools—or increased use of lean tools—across the full organization. So the focus on gaining True North performance each year also pulls the improvement activity needed to get there.

A rule of thumb that I use is that you will be substantially lean when you have studied every process from beginning to end, at least five times. Typically, you can remove about half of the waste in a process every time you study it, but it is impossible to see all the waste in the process at any given point in time. If you think about going through every process in your firm at least five times, you begin to understand several things: that this will perhaps take a decade to do; that you will get better at every step along the way; and that you will need to organize to support this effort over a long period of time.

The real reason to consider five passes through every process is that, as an organization, after you have done this work, you will realize that there is, in fact, no end to improvement. And you'll know that you want to continue this journey forever. It seems to me that we really do not understand the phrase "continuous improvement." We think "improvement," and we imagine it to be a one-time step. But the idea that continuous improvement could actually be continuous is not something we truly believe. After five or so passes through every process, however, you will have built a new culture that believes in continuous improvement. And once you've established this new culture, sustaining lean will be second nature.

Strategy Deployment: Linking Lean to Business Strategy

Leading the Lean Enterprise Transformation  George Koenigsaecker, Leading the Lean Enterprise Transformation

 Published in Manufacturing Engineering    March 2006 Vol. 136 No. 3

The first in a series of six articles on Lean Tools examines the relationship between Strategy Deployment and Lean Manufacturing 

George Koenigsaecker


Strategy Deployment is a process that ties senior leadership into enterprise-wide business-improvement practices. Strategy Deployment originated with “Hoshin Kanri” which was a core part of the leadership-control practices of TQM (Total Quality Management). The name Hoshin Kanri is variously translated as Hoshin Planning/Policy Deployment/Management-by-Policy. At its core it is an annual planning process that develops enterprise-improvement plans, and then includes a monthly review process.
 
In the late 1980s, when I first learned about Hoshin Kanri, I thought it should be broadened from just planning and controlling the quality improvement process, to focusing on doing that for all dimensions of improvement—what Toyota refers to as their “True North” metrics.

Over the ensuing years, Hoshin Kanri has evolved further to become the most important linkage between improvement philosophies/practices and the enterprise business strategy. 

There is a great deal of discussion of what to measure/how to measure (we all know our accounting systems are not very helpful—and even misleading—when it comes to cost management, for instance). Some of this effort has led to the balanced scorecard approach. During my career, I was often working in a corporate system that seemed to measure so many things that it tended to ensure you did not go backwards. But it also tended to make it difficult to go forwards. These complex measurement approaches consumed a tremendous amount of management time and focus (preparing for monthly operations reviews/conducting reviews, etc.), but resulted in a kind of measurement gridlock, where you were concerned that focusing on one measurement would lead to the deterioration of some other measurement. This consumed lots of time but resulted in little to no actual improvement.

Toyota has demonstrated an exceptional ability to differentiate between the forest and the trees, and the company’s approach to measurement is typical and innovative. Other than measures relating to totally new products or services, Toyota’s True North metrics cover all aspects of improvement—and impact all the key lines on income statements and balance sheets—while focusing on only four key metric areas.
The four key areas are: Human Development, Quality, Cycle Time, and Cost/Productivity.                                                                                                         
Human Development (HD) is encompassed in the Toyota phrase “we build people, before we build cars.”
The foundation for success is the skill and motivation of the human resources of any organization. In a manufacturing operation, the HD measurements might include safety performance. For any organization on a lean path, HD measurements would include measuring the breadth and depth of week-long Jishukin improvement events (also called kaizen events).                                                                                                                       
The Quality metric is driven by customer-based measures—customer quality issues and customer-loyalty measures.                                                  
                                               
The Cycle-Time metric is built around how long it takes to provide enterprise-wide capability to customers—end-to-end cycle-time improvement.                                      

And the Cost metric is primarily focused on Productivity improvement. The assumption about cost is that the organization should first be focused on improving its own value-added cost (total cost less outside purchased material), over 90% of which is driven by how many people it takes to deliver value to customers.

Within the four True North metric areas, Toyota typically has a hierarchy—HD is first, Quality next, Delivery/Cycle Times after that, and Cost/Productivity, last. On any given decision, a manager knows that he will give up his cost performance to sustain HD, Quality, and Delivery performance. If he still is unable to meet his metric goals, he would sacrifice Cost and Delivery to sustain HD and Quality. On the other hand, Toyota would expect countermeasures to be taken so that, over a year’s time, all four metric areas would show double-digit improvement rates (typically 10–30% every year).

A lean firm generates a different set of capital costs than a firm that is not lean. 

Now consider the income-statement impact of a lean transformation. The top line of the income statement—sales growth—is driven upward by improvement in quality and responsiveness (including new-product development times). Studies by George Stalk and Thomas Hout (Competing Against Time, published by the Free Press) have shown that for most businesses, if you can consistently reduce your customer lead time by ¾ (75%), you will grow at 2–4× your industry growth rate. This is a blind spot for most management teams. I assume that it’s due to the belief that they cannot fundamentally improve their responsiveness. But the net outcome is that management focuses on the inventory reductions that result from flow, while missing the really big impact that comes from growing at 2–4 times your normal growth rate.

During the 1990s, the HON Company (Muscatine, IA) grew its office furniture business at an average 15% per year rate—2–4 times the industry’s annual growth rates—almost entirely by shortening its lead times to 1/5 the industry norm. The PIMS database (Buzzell and Gale, The PIMS Principles, published by the Free Press) demonstrates that, regardless of market share levels, any firm that has sustained higher relative quality levels (quality compared to competition as reported by customers) has higher ROI performance.

For high-market-share firms, with quality performance in the top third of their market, ROI is 80% higher than that of firms in the lower third of quality performance. In lower-market-share firms the contrast is even more dramatic—the top third firms exhibit an ROI three times that of firms in the lower third of quality performance. Quality is a second area where management often really does not seem to understand the financial driver that they can build from a consistent focus on product and service quality (speaking of blind spots, what is your assessment of airline service quality performance?)

Moving down the income statement, you see gains in cost of goods sold due to productivity gains. You also see gains in S, G, and A (selling, general, and administrative) costs due to productivity gains. Another management blind spot is the fact that 90% of S, G, and A costs are driven by the number of people that it takes to deliver the corporate value streams—and that enterprise lean transformations also drive waste reduction in the S, G and A levels.

As you move further down the income statement, you get to costs to finance a business. A lean firm generates a different set of capital costs than a firm that has not undergone a lean transformation. Lean typically reduces inventory levels dramatically. This reduction frees up cash to pay down debt, which reduces the financing cost on the income statement. Also, lean typically gets more output from the fixed investment base—it frees up lots of floor space, and also gets more out of the company’s investment in equipment. Thus it allows rapid growth from improvements in quality and delivery performance to happen without the traditional level of incremental capital per dollar of new sales—again reducing financing costs.

What all this yields is the potential, through focus on the four True North metrics, to drive a major shift in the financial structure and performance of a business. Toyota is a good example—it has over $30 billion in cash, it is growing market share every year, and its market capitalization (total value of the firm based on stock price, etc.) is greater than that of the next seven largest car companies combined!

The best way to start a lean transformation journey is to conduct an Enterprise Value Stream Assessment (EVSA) with senior leadership. This is the 50,000-foot-level of value stream analysis. It looks at the total enterprise from a customer view, and begins to focus on improvement opportunities. In the course of the analysis, the True North metrics are identified in the total enterprise value stream, and issues that involve human development, quality performance, lead times/response times, and costs are identified.

At this level, the linkage between the lean transformation effort and corporate strategy begins to form. A rule of thumb with lean transformation is that the first complete improvement pass of a value stream will reduce total lead times by about one-half. And future complete improvement passes through the value stream will reduce the remaining lead time by half. Thus two thoroughly done, complete lean-improvement efforts will hit the 75% reduction that typically builds competitive advantage. At this point, the math of what the lean transformation can do for increased sales, reduced obsolescence, and reduced facility footprint will begin to show the strategic impact that such improvement will have.

Another rule of experience with the True North metrics is that you get the most gains by improving them simultaneously. And alternatively, if you do not include one or more of them, this omission will come back to cause you significant issues in a year or two. So a lean transformation should include improvement targets for HD (say a 20% reduction in accident rates), Quality (say a 20% reduction in customer complaint rates), Delivery (if this is the breakthrough target for the firm, an annual 50% reduction target), and Cost/Productivity (say a 10% enterprise productivity gain). This is the point where Strategy Deployment comes into play.

The Strategy Deployment process is led by senior leadership and has two basic components. The first is an annual planning process. The annual planning process would outline what value streams would need to be improved during the next 12 months, what pace of improvement effort would be required to get the work done, and what human-resources support would be appropriate to achieve this objective. This is what the originators called a “catch ball” process, where the goals are “deployed down” from corporate strategy, and the actual work plans to achieve them are developed at the level of the value-adding work. Then there is some adjusting to ensure that the plan is achievable with the resources committed. The annual plan would also include evaluation of the lean maturity of the organization, and evaluation of the tasks that must be completed to take this stage of maturation to the next level as part of the longer-term transformation process.

The second component is a monthly Strategy Deployment meeting. In most firms, we spend a lot of time at monthly review meetings that, when you step away from them, are really meetings focused mostly on ensuring that we do not lose ground, and that we maintain business performance at current levels. The Strategy Deployment meeting is intended to have its focus on improvement. Meeting time is spent reviewing progress against the overall improvement plans.

Did we achieve the monthly increment of improvement on each of the True North metrics, if not, what is our corrective action? If we did achieve our goal, what did we learn that we can share with the rest of the organization to accelerate the learning curve on lean improvement? Then the second task is to look at the current month. Based upon the improvement efforts on-going this month, do we expect to achieve each of our improvement targets? If not, what must we do to do so? Although this does not sound like breakthrough stuff—it actually is. The meeting brings all leadership together to focus on improvement, pulling time away from “maintenance” and putting that leadership time into “improvement” and “learning” that will build the firm’s future.

There is a tremendous discipline that comes from setting improvement targets on the four True North metrics, and striving to meet them every month. The knowledge that improvement is expected pushes everyone to seek ways to increase focus on improvement tasks, increase use of new lean tools to get to the next level of performance, and share learning about what is working and what is not. One of the most difficult aspects of a lean transformation for leadership is that, at any point in time, it is impossible to paint an accurate picture of what the organization will look like in a year with another year of lean learning and lean improvement under its belt. (After all, no one in the organization has been “there” before—you must create your own future state). 

One of the things that helps leadership achieve the future state is the push provided by the challenge of meeting the annual improvement goals.
If all of this sounds like a lot of work—it is! But it will also typically drive a firm to the top of its industry in a few years. The payback is well worth the work.



Leadership and the Lean Transformation

Published in Manufacturing Engineering
November 2005 Vol. 135 No. 5

It's the most important job facing today's managers

 Leading the Lean Enterprise TransformationGeorge Koenigsaecker, Leading the Lean Enterprise Transformation

As most of you know, there's a lot of "lean talk" out there, but you may get the feeling that there's a lot more talk than action. Well, some time ago the Association for Manufacturing Excellence (AME; Arlington Heights, IL) surveyed senior leaders in North American manufacturing companies. Their results tend to reinforce the impression that many manufacturing managers are all hat and no cattle when it comes to lean.

Of the respondents, 41% said they did not really know what lean was--not too surprising. The second largest category, at 34%, indicated that they were familiar with the idea of lean, but did not know how to go about achieving it. The third category, 22% of respondents, indicated that their firm was on the lean path--but that they were not getting the results expected, and were unsure if they were doing the things necessary to succeed. And the last category, 3% of the group, indicated that they were on the lean enterprise transformation journey, and were achieving great results.

I've been on the Board of the Shingo Prize for Excellence in Manufacturing since its founding. This position allows me to review applications and do site visits to firms that believe they may be "best in class." Twenty years of such visits, and a good deal of lean benchmarking, have convinced me that the AME survey is roughly correct. Very few companies have figured out how to achieve a lean transformation.
The Toyota Group Companies in North America recently conducted a "hansei" (deep reflection) that looked at their own TPS (Toyota Production System; lean) level, and also at what was being achieved in organizations outside the Toyota Group. The conclusion reached about their own organizations was that they were not at the level of TPS culture they thought appropriate--after 20 years of effort in North America! Their conclusions also noted that the most common roadblock to application of TPS in North America--inside Toyota Group Companies and outside--was lack of senior-leadership involvement.

One of the common failures of leadership in the lean transformation is a lack of understanding of what's really achievable with lean.                                                      
When I first did benchmarking in TPS organizations in Japan in the late 1970s and early 1980s, I found that our expectations of how much we could improve were usually off by an order of magnitude! We thought a transformation could generate enterprise productivity gains of, say, 40%. But we found firms that had lower unit volume than ours--in similar products--that were running at 400 - 500% of the output per person at benchmark US operations. More important, these productivity gaps existed on a total enterprise level. They showed up in purchasing, finance, customer service, distribution, production control, and sales and marketing.

It's much easier to believe that big productivity/quality/lead-time gains can come if you start with a personal picture of how much waste exists in your work processes. Thus a first step for senior leadership is to participate in a Value Stream Analysis (VSA), an effort that usually requires a multiday commitment. When you build a value stream map and analyze the data, you always find that the time when nothing is happening to the product (or, in the case of administrative processes, to the data) is in the high 90% range. Often the value-adding time is less than 1% of the time the material or data/information spends in your organization.

This is often the first time senior leaders realize how much waste is built into the way work is organized today. In addition to productivity gains, typical gains achieved in the 3% of firms with successful lean transformations noted in the survey above would include:
  • A reduction in lead times of 95%,
  • A reduction in accident rates of 95%,
  • A reduction in customer complaint/reject rates of 95%, and
  • A reduction in floor space of 80+%.
It's true that you will begin to see improvements quickly when you initiate the lean transformation (typically there's a 90-day payback on your full investment in transformation efforts), but the real power of lean emerges from the decade-long effort needed to build a true lean-learning culture.

On the balance sheet, a lean company has much higher inventory turnover, often lower receivables, and better fixed-capital efficiency. Capital efficiency rises because early lean work tends to double output per capital dollar by using equipment better, and advanced lean work redesigns processes so that they fit lean requirements. All of which begs the question: Why are there not more lean successes?

There are a couple of ways to answer this question. The first deals with the fact that key principles of lean are very simple to understand, but very difficult to integrate into daily managerial behavior. My Toyota sensei used to tell me: "I can show you how to do this--but you can't do it." He was saying that I could get the idea intellectually, but to actually do it I would have to do a number of key things opposite to the way I had done them for years. My instinct, my "gut feel," would make it very hard for me to do the lean thing.

For instance, the idea of one-piece flow sounds straightforward. But do you have any administrative processes that actually operate in a one-piece-flow fashion? It's easy to say "continuous improvement," but we think of making a step improvement--we don't actually believe that improvement can be continuous. We don't actually believe that the whole point of a lean transformation should be to build a lean-learning culture, where continuous improvement is what we expect every day--forever.

A second reason for the relative lack of true lean successes is that there are very few real sensei (master teachers) out there. I was fortunate to have a retired Toyota sensei who had been part of Taiichi Ohno's Autonomous Study Group (the folks who designed the TPS/lean system), as my sensei for 15 years. But most of my leadership lessons came from attempting to start lean transformations as a company president or a group president for 11 different corporations during those 15 years.

Here's one of those leadership lessons: Lean tools take a long time to learn at a fundamental level. We think of going to class to learn; Toyota thinks of organized experiments in the workplace as how one learns. The basic learning element for TPS is the week-long Jishukin or Voluntary Study event--what we usually call a kaizen event or rapid continuous improvement (RCI) event. (Of course, the "voluntary" part often is a misnomer.) It's only from participation in these week-long improvement teams that a manager or manufacturing engineer can learn how to apply lean tools and concepts. And it's only from a great deal of this kind of experience that you actually come to believe the core principles of TPS.

Based upon personal experience, I don't expect someone to be a good sensei at the tools-level of knowledge without at least 100 of these experiences under his/her belt--ideally with many of them in administrative or product-development processes, as well as production processes. As students of lean, we always want to short-cut this experience, and doing so never works. Because, at any point on the journey, "we don't know what we don't know." We won't come to learn something--to believe something--until we get there through personal experience.

As part of the North American Toyota Group Companies' hansei noted above, organizations like the GM-Toyota joint venture NUMMI (see "Lean at NUMMI," Manufacturing Engineering, September 2005) reinstated the requirement for all managers to get personal experience each year as members of week-long improvement teams. Some very deep thinking and observation went into the format of what Toyota old-timers call the "5 Days and 1 Night" kaizen/RCI event format. This approach is still the primary lean learning method. If your real goal is to build a long-term learning culture, you should keep in mind the learning value of every Jishukin/RCI event for the members of your organization. It's the growing hidden asset on your balance sheet.

A third way to answer the question of "why is there not more lean success?" comes down to leadership. In business schools and other places we are really trained to manage, rather than to lead. We are taught, for instance, that delegation is a skill you must use as a successful manager. And this statement is true in many ways--you can't do everything and expect to manage a large organization.

But it can be false in the lean setting--if you are undertaking something that involves new levels of learning, and no one in your organization has ever been there before.
 
As a senior leader, you need to get some "learning," or you won't have the minimal knowledge necessary to manage the lean transformation. In addition, something that is transformational by definition involves a lot of change management. You cannot delegate change management to someone who has not been there before, is lower in the hierarchy, and has less of the clout needed to manage the politics of change. Given the magnitude of change, the team wants to know that the leader is also going there.

A true lean enterprise transformation has learning and change taking place in four different areas--somewhat overlapping, but also somewhat chronological.

The 1st  step in lean is usually Jishukin/RCI activity in your own workplace, starting to learn some of the basic lean tools and struggling to apply new lean principles at the same time, under the tutelage of a sensei.

A 2nd  level of lean learning is to learn leadership or management practices that support the process. These include learning how to handle new management tasks such as: organizing significant internal member redeployment as your productivity grows, how to get disciplined followup to Jishukin events so that the results stick, and a host of other issues that come up with the process. This is where a sensei who has actually led a brownfield lean transformation as a business unit general manager becomes an important addition to your team.

A 3rd  level of learning, which typically takes about a half-dozen years of personal experience with implementation, is to actually come to believe the key principles of lean. Because these principles are deceptively easy to understand--but are also just the opposite of what we usually do--it takes a lot of personal experience to create the new gut feel that says these principles are the only way to organize work.

The 4th  level of lean learning--the one that takes the longest, is hardest to do, and is most essential to building a true lean-learning organization--involves key changes in leadership behavior. Again, they are deceptively simple to talk about, but extremely difficult to adopt, because they are the opposite of what we all believe is the right way to manage.

Let me try to give a couple of examples:  




Many of us know of Taiichi Ohno's mantra to "ask why five times." It's deceptively simple. If you go to the work team, take any problem that has occurred, and diligently ask why five times--to seek out the root cause--two things happen:
  • The solution tends to be obvious, once the real root cause is discovered, and

  • The solution will resolve that problem so that it's a permanent improvement, and you will not have to address it again--tomorrow, next week, next month.
I have tried to get large organizations to use this lean tool as the first step when any problem occurs. The very best level of conformity I ever achieved was probably only 10%. It's the most efficient problem-solving tool that exists. But to use it we must build a new culture that values root-cause solutions, and that builds new behaviors through repetition.

How about redeployment? When you grow productivity very rapidly, you move individuals to new work to use the time you've freed up. We have all been trained to believe that if we have kaizened our work, and our six-person team can do the work with five people, we will now improve our team-by getting rid of the lowest performer. We've all done it, and thought we were doing the right thing.

Toyota would have you do just the opposite. Whenever you improve processes so that you can free up a person, you always free up the best, most flexible person to the rest of the organization. There are many reasons why this is better: the low performer is going to go through a nightmare on a personal level when redeployed. Their fellow team members, who knew the person dismissed was a low performer but who worked with him/her for the last 10 years, will be depressed about what will happen to that person. And if you build a pool of low performers, what are you going to do with them?

Or, you can always redeploy the best person. This person is much more likely to see redeployment as a chance to try something new and get some variety in their work. This person will be pulled by managers from other areas who want him/her on their team. That seems straightforward. But how long will it take before every supervisor and manager--always--gives up their best person to the rest of the firm anytime they can free up a team member?
You can begin to understand why leadership behavior development takes consistent focus and time.

What should senior leadership do to create lean success?
  • Push up your personal learning curve. Invest time in visiting a benchmark organization, read a few key books, and then start to get your own kaizen event experiences.

  • Do the normal change management stuff. The model developed by Harvard's John Kotter, including building the rationale for the need to change, dramatically increasing the amount of communication, etc., is a good one.

  • Find a master teacher who has the necessary decade or more of personal experience with the tools, practices, principles, and leadership behaviours that can guide you and your team.

  • Develop a strategy-deployment plan. This is a lean tool that organizes your efforts, and gives leadership a venue and format for regular reviews of the continuous-improvement process.

  • Start the process. Be on the first VSA team. This VSA will give you a guide for the initial lean work to be done in your first chosen value stream (typically a product family). More important, it will be your first experience of walking the value stream. You will develop a personal understanding of how much waste exists, and an idea of how much you might remove on the first improvement pass.
Shortly thereafter, go on a full-time, week-long kaizen event. This kaizen will show you--at a smaller, more micro level--specific waste in a process. You will be amazed at what you learn, and amazed at how much waste can be removed in a single week

You will discover how excited your team members are when they can improve their own workplace and, probably shortly thereafter, at how much new work is needed to make the gains stay in place and avoid drifting back to the old methods. This last step is not optional. There are no successful instances of true, sustained, enterprise transformation where the CEO-level did not get personal experience on teams. None! It is that important. You cannot skip this step. It's perhaps the core leadership practice that determines success or failure in the lean transformation.

Finally, you must address resistance. There are always late adopters who will resist anything new. They cannot be left alone. If you leave them alone, they will become a cancer and, like any cancer, they will metastasize throughout the organization unless they are eradicated. Dealing with them can be tough stuff, and if the process of addressing resistance is not understood and led from the top, it won't get done. And neither will the lean transformation.

For those of you who are not CEOs, and are now thoroughly depressed about your organizations' lean prospects, there are a couple of things worth focusing on. Toyota has always taught the idea of building a "model line" as the first step to any transformation. The model line is an area where you put lean ideas to work and show that lean can be successful. It can be your own area. And if you take a "first pass" through the area with lean tools, don't stop. Take a second pass through every process and work step, and then a third pass, etc. The goal is to create an area that performs to such a high standard that it creates pull from other areas that wish to apply the process. 
Also, for each Jishukin that you organize, try to persuade a senior leader who seems interested in lean to join the team. That leader's personal experiences will eventually convert him/her to the lean way of thinking. Meanwhile, your personal lean learning curve will be growing continually.

Seeking the LEAN MACHINE

Leading the Lean Enterprise Transformation 
Leading the Lean Enterprise Transformation
By Koenigsaecker, George
Publication: Manufacturing Engineering
Monday, March 1 2004
 
Intimate knowledge of your process is critical; don't be a "catalog engineer"
Early in the lean journey at Jacobs Vehicle Equipment Company (Jake Brake), cells were configured in this manner.

During the mid-1970s, I was working for Deere & Co., and spending a lot of time with a Japanese firm, Yanmar Diesel. After visiting dealers around Japan, touring factories and other facilities for several weeks, we had a meeting with senior management. 

During this meeting they reviewed their improvement gains for the prior three years.
They had increased their product range by four-fold to grow out of the "oil crisis." This type of growth usually messes up productivity, but they actually doubled enterprise productivity during the same period, and reduced average unit cost by 26%. I was astounded. As it turns out, for the prior three years they had weekend lean-conversion support from three members of Taiichi Ohno's Autonomous Study Group-the folks who "invented lean," which could be more accurately described as The Toyota Business System (TBS). From this time on, I read every book I could find on "Just In Time"-as we called it then-went to every seminar, and visited every plant where managers and workers looked as if they knew what they were doing.

During the early '80s I was with Rockwell International's Automotive Operations, and each quarter-for three years-I led teams to benchmark best manufacturing-enterprise practices worldwide. We quickly began focusing on Japanese firms, and also quickly found that the companies implementing the TBS were truly different. We benchmarked 144 firms-about 20% were part of the Toyota family-and they achieved, on average, four times the enterprise output per person as Japanese and US operations not based upon TBS. They also could make every product every day, had 90% fewer customer complaints, etc. We initiated some early experiments in applying these ideas within Rockwell, but we were just beginners.

In the mid-'80s I became President of Jacobs Vehicle Equipment Company (Jake Brake). Jake was in trouble, and after a decade of benchmarking and book learning, I was ready to try to implement the TBS. The real break came a few months after we started the "journey," when I found out that the guys who had led the conversion at Yanmar Diesel were retiring from Toyota. After a lot of effort, I convinced them to become my sensei and teach Jake how to apply lean. I was the student of these men for the next 15 years. From Jake Brake, I was moved to the role of Group President at the Automotive Group of Jake's parent, Danaher Corp. And very shortly thereafter, I became Group President of the Tool Group, the largest business unit of Danaher. Needless to say the lean enterprise conversion effort followed me around.
In the early '90s, I moved back to the small Iowa town where I grew up, and became president of the HON Company. In 2000, after eight years of getting lean institutionalized at HON, I formed Lean Investments LLC.

Conversion of the operations side of a business typically proceeds in three waves.
The first "wave" occurs when you take the lean tools most folks have heard about, and apply them to a business that was designed around the concepts of craft/batch or mass production-but not around the concepts of lean. The vast majority of folks working to apply lean only know of this "wave," and it really amounts to the use of the tools and concepts of lean to improve a system that was designed around the "wrong" principles. This is usually the foundation step that allows an organization to move to other dimensions of lean.

The second wave is when the organization has achieved enough success in operations to apply the same tools and concepts to improve the administrative processes that were, of course, also built around the concepts inherent in craft/batch or mass. A few lean leaders are seriously into this wave, but just a few. And a few more are "testing the waters."

The third wave of operational lean is when you begin to reconfigure your production technology to be consistent with lean concepts and principles. To do so, you typically need several years of lean implementation experience so that these concepts, which are normally "opposite" the way we usually do things, begin to "feel OK." It's hard to invent a new production base until you actually believe in the concepts and principles of lean. In round numbers, there are really only a handful of North American firms that have made it to this stage.

The next stage is building a strong organization. One of the things that make this stage difficult is that you have to do it yourself. My sensei would deride us for buying equipment-"catalog engineer" was one of the worst things they could say about you. But you find that to do this on your own you need to build up a group of skilled associates who can design and build machines-and more importantly, conceive of different approaches to designing such machines. This means that you may need to add skilled trades personnel, and some key engineering/design folks. These people look like "overhead" in traditional manufacturing thinking, and are usually the first persons fired when business slows.

The first steps to lean machine design come from modifying existing machines. Some of this work is done to incorporate setup reduction changes, some of it to add in poke yoke devices to ensure quality. One step that very few firms consider is to add "hanedashi" devices-simple auto-unload mechanisms-to each machine in the cells they build. Toyota found out long ago that it is hard to automate "load," but very easy and cheap to automate "unload." Therefore, after you build a cell with your inherited equipment, you should modify each machine so that at the end of the cycle it unloads the completed part into some sort of tray at the front of the machine. In "Toyota-Speak" this arrangement is called a chaku-chaku or load-load cell. It seems so simple that most folks don't do it

Ohno's calculations indicated that this feature alone increases the productivity of a cell by 140% -i.e. output per person is 2.4 times that of the basic cell! If you think about the steps an operator takes to unload parts, the calculation makes sense. But we usually don't slow down enough to think of this waste. Not only does modification for setup reduction, poka yoke and hanedashi build quality and productivity, it also increases the skills of your future machine-design-and-build group. After a few years of improving your cells and building your skill base, you may be ready to take on the serious lean-machine effort.

In your inherited capital base, most of your equipment will not be "right-sized." And you will possess a number of monuments. These are the really big machines designed to be able to handle all the plant's volume. Now, no machine is inherently lean. It's the machine in its application-the cell structure, the volume of parts, etc.-that determines whether the machine is the lowest-cost way to provide flow. But design and construction of monuments is what machine builders do. The monument machine is their paradigm. Monuments are often paint systems, heat-treat systems, cleaning systems, or plating systems.

At Danaher we had gone down the path I describe above with our sensei. At HON, after about three years we started to build up our capability. By the eighth year of lean, we had five machine-design-and-build groups organized within the firm. But that's jumping ahead. Having been on the lean journey before, I was able to start our first machine-design-and-build group with a list of 13 key design practices for a "lean machine." They included things like:

*Design to takt time. A machine was not to be able to make a part in less than 1/2 of takt time. Like many of the easy-to-understand aspects of lean, this one is hard because it is 180 away from normal practice, which is to design a bigger, more capable, and faster machine than we need-"just in case."

*Design-in foolproofing mechanisms on all key characteristics. Pretty easy to understand.

*Design-in low to no setup time. The goal is a "one touch" setup-i.e., it takes one movement by the operator to change from one part to the next. It may take you half a dozen attempts to get to this point-but you need to realize that you can get there, if you keep trying.


This one-piece-flow Japanese machining cell employs relatively small equipment arranged in a U shape. Each machine has a relatively small footprint (for CNC machining), and simple material handling moves the work piece between each machine.

*Design your machines to be no wider than a man's shoulders or no wider than 1 times the width of the basic part-holding tooling. This approach reduces walk time.

*Design machines with controls and start buttons on the left side of the machine, because a good lean cell runs "counterclockwise." You want to press the start button just as you leave the machine and head to the next one in the cell.

*Design machines so that all services are at the rear. You do not want to disrupt operator flow with machine servicing. And you certainly don't want chip conveyors dropping chips to the front and at the side-this extends walking distance AND causes flow disruption.

*Design machines so that you can see over the top of them. This requirement is part of visual control. Sometimes it's not possible, but it can almost always be done, if you focus on it.

*Design machines at the simplest and least-expensive level that will get THIS job done.

*And, of course, design each machine with hanedashi.

One of the things that is unusual about lean is that every time you reapply the tools and concepts to a given work area you will identify new levels of waste and make new improvements. You will not be substantially "lean" until you have restudied every process-both production and administrative-about six to eight times. At HON, even with someone who knew where we should be going and had a guideline for machine design, we were not able to "go directly there." It took several years of hard lean-conversion experience before folks thought that the stuff might really make sense. At that point, we started to do machine-modification work in addition to the setup reduction that we did early on. Our largest business involved a lot of sheet metal work, and we had lots and lots of press brakes. So one of our first efforts sought to right-size a press brake.

Most of our brakes were 12 to 16 footers. Our earliest efforts at lean involved putting multiple sets of tooling in really long brakes as a kind of setup reduction. Of course, really long brakes are great barriers to flow. So we tasked ourselves to get "right-sized" press brakes.

Year One: We bought a commercially available six-foot press brake-an appropriate first step.

Year Two: Our newly formed machine-design-and-build group designed a three-foot press brake. A good step. And we were working to incorporate setup reduction concepts (robust design) and hanedashi. But we realized that we made many parts that did not require a machine of this size.

Year Three: We designed a two-foot-long press brake, and began serial production of them. Interesting. But as we looked at it, we realized we had employed expensive, more-complex variable-pressure hydraulics "just in case."

Year Four: We obtained simple hydraulics that only had enough power to make a part in 1/2 takt time, at the fastest.

Year Five: We finally "got it." On reflection, I realized that my guidance had been wrong. I told my design-and-build team that we no longer wanted to design right-sized press brakes. After four years of trying to do so, folks wondered where this effort was going. The new direction was to design self-actuating tooling that met the key design criteria. At that point our creativity exploded, and we found many ways to make tooling work-from air bladders, to hand-cranked presses for really small parts, etc.

Basically it took us eight years to understand the lean-machine concept well enough to consistently produce such equipment. So far it has not been possible to get machine builders to head down this path. Probably because it goes against several fundamental machine concept paradigms that they hold dear.

We traveled the same path on getting to right-sized paint systems. We started with very large systems, usually one per plant. We had several iterations that saw us develop smaller systems, before we really could "get it" and design a paint system to the needs of an individual cell. I have had operations that went from one monument washing system to small units in each cell, and from one monument heat-treat system to small units in each cell. With effort, we have been able to eliminate the need for every monument system that we encountered. I stress: with EFFORT.

Basically, any place you have to put a kanban system in place is a problem. In Toyota's world, kanban systems are a form of waste. They may be necessary waste today due to a monument system, but the goal should be to run without monuments.

Once you get to this point, there is a brainstorming tool that can lead you to breakthrough machine concepts. It's called 3P (for Production, Preparation, Process). Confusion can be caused by the fact that there are two versions of 3P. 

One is simply a checklist for pre-production planning.         The almost-unknown one is a breakthrough approach to developing new machine-design concepts. By year eight, we were using 3P to come up with some breakthrough concepts for processes as well as just "right-sizing" existing concepts.

We were running 15 breakthrough machine-design projects each quarter. Our sensei had been trying to teach this approach at Boeing, but he found that they were not far enough along on the lean journey to accept the lessons. They would not complete a design effort. So he asked HON to invite a Boeing engineer to join each of our 15 machine design projects each quarter. Once they were teamed with six to eight HON folks who had traveled further along the lean journey, and were going to complete the project, the Boeing engineers would stick with it. And once they really tried it, they "got it" and went back to Boeing to form "moonshine" teams there.

It has taken Toyota more than 50 years of hard study to attain their present level of understanding of lean. It probably should not surprise anyone that it took us 10 years to learn these lessons! And from what I've seen, I suspect there are a lot more lessons that we can learn-if we stay on the journey long enough to do so!

Conversion of the operations side of a business to lean proceeds in three waves.

A chaku-chaku (load-load) cell can increase cell productivity by 140%.

No machine is inherently lean.
Every time you apply lean tools and concepts to a work area you identify new levels of waste.

A Manager's Guide to Implementing Lean

Leading the Lean Enterprise Transformation George Koenigsaecker, Leading the Lean Enterprise Transformation

From Manufacturing & Technology News
May 16, 2001 Volume 8, No. 9



One of the earliest American converts to the lean production system that originated in Japan was George Koenigsaecker, who eventually deployed the technique at Jake Brake in the 1980s. At the time, the concept was not known as lean, but as just-in-time production, developed by Taiichi Ohno and a small team of zealots at Toyota. Koenigsaecker's work at Jake Brake formed the foundation of what became the Danaher Business System, one of the most successful lean implementations in the world.
In the 1990s, Koenigsaecker deployed lean at office furniture maker HON Industries, also with great success.

Koenigsaecker is now in charge of business development with Simpler, a lean consulting firm based in Ottumwa, Iowa. He is also chairman of the Shingo Prize for Excellence in Manufacturing, which is awarded every year to companies adopting lean production techniques. It is named in honor of Shigeo Shingo, one of the Japanese developers of lean principles.

Thousands of U.S. manufacturers are considering implementing lean as a business and production management system. It likely will be essential for survival in a brutally competitive world that is moving quickly to a build-to-order environment. But it won't be easy.
Lean pioneer Koenigsaecker spoke with Manufacturing News editor Richard McCormack about the process of implementing a lean business system. Here is what he had to say.


Question: Why is it taking so long for lean production to take root in the United States?

Koenigsaecker: When I was first president of Jake Brake in Connecticut in 1989, lean was pretty much unheard of and we were lucky to have met some guys after we got started who were part of the group at Toyota that developed most of the principles.
There were a few greenfield operations that were brought over from Japan that were already lean, but the people that brought them here hired new employees who didn't have "brownfield" attitudes.
They purposefully hired people who were intelligent and team oriented but who did not have any prior manufacturing experience.

The hard part of implementing lean isn't so much that it's intellectually difficult; it's that there are a bunch of key principles that are fundamentally opposite of the way you do things in mass or batch production. The more experience you have in manufacturing, the harder it is to do lean.

When we started in the late 1980s, it was very experimental. Even today, leaving out the organizations like Toyota and some of its suppliers that brought the system with them, there are very few organizations that have stuck to it long enough really to show the potential of what is properly called a lean enterprise, where they have applied it throughout production and the administrative sides of the business.

Q: Why have so few companies adopted lean?

Koenigsaecker: Part of it is the program-of-the-year phenomenon. There is also the problem that whenever there is a new CEO or a division president, they feel they have to put their mark on things, which is typically a two- or three-year phenomenon. A lean enterprise conversion is something that takes about a decade. The good news is that every year you make significant progress in cost, quality and delivery. But to become really lean is a very long journey.

Q: What are some companies that you classify as being lean?

Koenigsaecker: There are very, very few. There are a few approaching lean. I'd put Jake Brake today as approaching lean. They are making 4.8 times as many engine brakes per hour than they were a decade ago -- a 480 percent output increase. That is the kind of metric that is possible with a full-scale lean conversion.

Q: What are some of the difficulties in starting a conversion away from batch and queue to flow manufacturing?

Koenigsaecker: We have a mindset that if you apply a tool, you've done it and you're done. So we go in and build cells, apply standard work and typically get on each pass a 40 percent productivity gain. But to get the 400 percent gain you have to pass it at least 10 different times. You must restudy the process over and over.
That is a counter-intuitive thing. People say the words continuous improvement, but we just don't believe in continuous improvement. The idea that you can take a series of tools and apply them again and again to the same area and every time you apply them you find new levels of waste and new ways to improve doesn't feel right. If you take 10 firms that started on lean, eight of them quit after the first pass because they got a significant improvement of 40 percent. They thought that was the end of the journey. It's a small number that have actually learned the lesson that if you keep applying the tools the gains keep coming.

Q: What compelled you to adopt a lean system of production in the late 1980s at Jake Brake when it was a concept that was hardly known in the United States?

Koenigsaecker: In the mid 70s, I was in Japan working for Deere & Co. and one of the things we were doing was setting up a business relationship with Yanmar Diesel, which made farm tractors used in Japan. I was one of the people in charge of setting up this relationship. It was an important deal to Yanmar because they were just coming off the early 70s oil crisis that hit Japan really hard.
In one of the management review meetings with the whole senior staff of the company, they went through the improvement they made on a firm-wide basis in three years and they described a doubling of output per person and a reduction in average unit costs of 28 percent.

At the same time, they were producing four times as many product models because they were trying to grow their way out of the recession with proliferation. So their job got four times as hard but they got twice as productive and reduced their unit costs by 28 percent. That was just mind-boggling to me as a manufacturing guy. It caught my attention. I thought, "Wow, if they could do that we can be in big trouble."

I found that they were a loose cousin with the Toyota group of companies and Taiichi Ohno, who had developed the Toyota Production System, had been visiting them every once in a while saying, "You ought to try this new production system we're developing."

They would say, "That sounds interesting but we're happy. See you later."

When the oil crisis just about sunk them, they decided to try it. What I had seen while I was there was three years of weekend work by Ohno and a couple of guys from the Autonomous Study Group, which was a group of internal Toyota and Toyota subsidiary people that Ohno selected to help him develop the system.
Later in the 1980s, I moved to Rockwell International's Automotive Group in Detroit and was able to lead a multiyear benchmarking effort. I was still very intrigued by what I had seen a Yanmar and was trying to understand how it worked and I figured the automotive industry would be closer to it than anybody else. We benchmarked 144 manufacturing firms in Japan and what we found was that 25 percent of them operated on a totally different planetary system from what we were used to.

Rockwell Automotive was a producer of heavy truck components and was usually number one or number two in North American market share in every product we made. We thought we were a pretty good benchmark. We found firms making identical products that were running at 400 percent of our productivity level and 10 times our inventory turns and one-tenth our defect rates. There were huge, order-of-magnitude differences.

One of the shocks for us was that they weren't just four times as productive in the factory. As we double checked, we found that they were on average four times more productive in all the staff departments when you measured in terms of company sales per person in the finance department. That really reaffirmed the magnitude of what I had seen at Yanmar, which wasn't even lean yet.

I began to realize that the nugget of a lean enterprise was the Toyota Production System and its evolution into being a business system that affected the administrative areas and product development and those kinds of functions.
By the time I got to be president of Jake in the late 80s, I was absolutely convinced it was the thing to do from 15 years of studying it from afar. We started doing it at Jake Brake and six months in I ran into three guys who had just retired from Toyota who had all been on this Autonomous Study Group. They became my sensei, or master teachers and so now for the past 15 years, I've been their student on the techniques.

Q: What are some of the key lessons you learned from them?

Koenigsaecker: I've learned that learning the techniques take a long time but is only about half the battle. The management of the process has some really unique characteristics that most of the people at Toyota don't realize any more because Ohno fought through those battles 30 years ago. They've forgotten that they had to battle in order to get it in place. There are some key managerial lessons about implementing this that are still not very well known and still cause almost everyone who embarks on it to run into the same issues because they are inherent with the difference in the process.

Q: What are some of the common problems?


Koenigsaecker: Little things like one-piece flow. What you find is people will build a cell and then you'll find batches at each machine within the cell. There are little piles of inventory. The operators feel comfortable with that because that is how they grew up. The supervisors know they've always had inventory between the machines. And everybody is afraid to take it out.

I have to admit that after having been a student of this it still took me two years of running and improving cells before I made the leap and actually went to a true one-piece flow.

That then leads to another Toyota philosophy called making the waste visible. It sounds mundane, but it means that the system is designed so that if you implement it but you don't follow up on it, you shut your factory down.
One-piece flow forces the cell to stop functioning until you solve a lot of quality, set up and tool change problems.
It feels so painful, you say this can't be right and yet that's what it is intended to do. The whole idea is to make it so painful to leave all of those problems unresolved that it pushes you to solve those problems.

Q: You're taking two steps backwards to go one step forward. It must be disconcerting.


Koenigsaecker: Fundamentally, it just feels wrong both to the production workforce and the management team because they have all been trained in a different system. You go through the whole conversion process and there are a whole bunch of things like that.

Q: What are some others?

Koenigsaecker: As a rule of thumb, you should go back to each area at least every other year or once a year if you're on a faster pace and apply all of the tools again and make another round of improvement. This leads you to rethink what sort of organization you need to have if you're going to maintain that sort of improvement pace.

Q: What is the most difficult aspect of managing a conversion?

Koenigsaecker: Ohno talked about an organization being like the human body and that a human body is designed to be self protective. There are antibodies inside the body. When a foreign substance enters the body -- an infection -- the antibodies not only get more active they also multiply. Ohno says an organization operates the same way.

The antibodies create a company's culture. The stronger the culture, the stronger the antibodies because they define what a company will do and also what it won't do.

When you start a conversion like this, you're redefining your company culture in terms of what you will and won't do. The people who are the most loyal members who you know love the company will be some of the biggest resisters of the process because they are trying to protect the company as it has been as opposed to how the company will be. You need to actively address that group or their efforts to protect the corporate culture will defeat any effort to change the culture in a way that will allow you to become a lean enterprise.

Q: It takes strong leadership to overcome such resistance to change.

Koenigsaecker: And leadership always is in short supply. There is little reward for it and a lot of risk.

Q: Yet you still see many case studies of companies that have adopted lean and experienced dramatic improvements in every measure.

Koenigsaecker: If I look at firms that are lean, it's about 3 percent of manufacturing employers in North America and two points of that are transplants like Toyota and its subsidiaries. So it's perhaps 1 percent -- and that might even be a stretch. But HON Industries doubled its productivity and tripled its volume in the 90s with the process. Danaher has put it in place in most of its groups and it's pretty well stuck there.

Q: What's the reason behind Danaher's success?

Koenigsaecker: Maybe part of it is that they had two young guys who were primary shareholders who were able to latch onto it and consistently support it. This is an interesting phenomenon because they came out of real estate and it probably helped because they didn't know you couldn't do this stuff. When we started doing it, they said it seems logical what you're saying and they didn't know that it was "illogical."

Q: Not even the people at Toyota feel like they have even come close to achieving their goals, and they've been at it for 50 years.

Koenigsaecker: The key to doing this is having an attitude that you can always be better tomorrow than you are today. They have these tools and every time they apply them they improve their operation. They are already way out in front because of the attitude that they have a long way to go.

Q: If they're in front now and have been for so long, what happens to GM?

Koenigsaecker: It takes a long time for a huge company to erode. I was told about a year ago that Toyota has more cash in the bank than the market capitalization of General Motors. That tells a story. There is a lot of hubris around the old-line former leaders. It's part of the company culture that prevents them from accepting lean because it wasn't something that Sloan developed and it wasn't something that was part of the GM way. There is no one willing to say, "We need to become a new GM." There isn't even the recognition that they need to change. It's absolutely mind-boggling.

Q: What advice do you have for a company that is considering implementing a lean system?

Koenigsaecker: You first need to point out to the organization that it needs to change and that staying as it is is a recipe for long-term disaster. The second is to find a good master teacher or sensei to keep you away from the big roadblocks. Then get a good value-stream based map and plan. The fourth is to build a supportive organizational structure.

We have some rules of thumb that say 3 to 5 percent of the employees at a site should be committed full time to improvement. From our experience it takes about that level of commitment to review every process every two years.  We recommend one person at a site be committed and then for every five people you free up reinvest one in the process until you get to that 3 to 5 percent level. Those are the folks you leave to focus on this set of tools until they become your internal sensei.
You need to stick with it for five years and over time, they will touch every part of the organization.

The one thing you see missing from most companies trying to do this is they don't build a structure to sustain it. When you think about it, we are all fighting fires. That is how we manage. We don't do anything that addresses the root cause because that would take time.

You have to take resources and say, "You are not allowed to fight fires, you're only allowed to work full time on root cause improvement projects."  If you don't do that, then all of your improvement resources get sucked back into today's fire fighting and you end up not making any fundamental root-cause improvement.

Q: That seems to be the greatest difficulty for any organization. They're all faced with a time crunch, running on a treadmill going 1,000 miles per hour, faster by the day.

Koenigsaecker: It's a huge discipline, because when you start, you're all working 12-hour days and you know that if you work a 14-hour day then tomorrow you'll still have the same pile of problems. We're not really driving them out structurally, changing our processes.

When you start off and say you are required as a site manager to assign your best person in the organization to this role of lean development office, that is something that just feels wrong. It's another one of those feel-wrong things. Then when you say for every five people who come out of the events that are freed up, that the lean development office gets to add one more until they become 3 to 5 percent it is just hard to believe. Once you get the people in there, the temptation for most managers is to say, "We have to ship this product today, let's put them on the line today." It takes a rare discipline to get out of the batch production, fire-fighting mode.


I know a $50 million company that is growing and has a great business and it can't ship its products fast enough. If they applied lean it would create capacity that they just can't believe. But they can't get over the hurdle of we're too busy to think about adopting lean. The CEO doesn't have any basis on which to believe that it would be worth the effort to double their capacity in two years by applying lean. Intellectually, you can't convince him while he is sitting there, which is true with all of manufacturing: you have to show people.

Q: How important are outside consultants in the process?


Koenigsaecker: There are so many mistakes you can make both on the management, learning and application of the tools themselves that if you don't have a good coach beside you, you're more likely to get shot down than you are to reach the end of the road.

You have to start at a single plant site and pick a product family and use value-stream mapping to look at where the time is wasted and where the value-added and non-value-added steps are in the process. That can give you a map of where to begin in terms of getting results.

When you look at the value-stream map you can see where the non-value adding steps or the time consumption steps are big. With this operational map, you start applying the tools to the subsets within the value stream. You can decide to use Shingo's setup reduction tools to reduce the set up time because that is why things are being held up, or you can put kanban in to link operations. The idea is to get it flowing.

Then the right thing to do is to restudy that value stream again and again so that the organization gets the lesson that, "We made huge improvements but when we went back, it got even better and when we went back again it got even better." You need to sink that logic in early on.

A common format of using these tools that came out of Toyota is to study a small sub segment of one area for a week and make a big improvement. If everyone knows that the goal is to have it be different at the end of one week, it creates a different environment as opposed to, "We're going to analyze it for several months and then do something."

If you count those weeklong periods of applying lean tools to any administrative or production process as a learning experience, it takes 50 or 60 of those before you actually begin to believe in most of the principles. If you can do one of those a month, which is a pretty good pace from following up on the last one and getting ready for the next, you're talking about five or six years before you believe in the basic principles and another three or four years before you are competent at using most of the tools.

Even though you know how to use them, you still may not be willing to put one-piece flow in place. This is why they use the idea of the sensei, which is a marshal arts concept. You must have a master teacher and you learn by doing. You don't go to classrooms. You go out and practice the exercise. 


Lean is learned the same way. You go out in an environment where your processes are and you apply the tools. It is out of that process that you come to believe the process works.


Q: With the manufacturing sector in a downturn, do you think companies are running out of time to start the process?

Koenigsaecker: The good news about the downturn is that more people are willing to seriously look at undertaking a lean journey.

Q: Wall Street richly rewards the companies that undertake lean without realizing it. Why isn't there much pressure from Wall Street to adopt lean?

Koenigsaecker: If they went back to Danaher 10 years ago and looked at them as they were then, they would say that is just another dog shit industrial company. But each quarter along the way they look at the cumulative record and they get impressed by the numbers.
I always tell people who are considering the journey that they should just remember that their board of directors is a surrogate for Wall Street and will only judge the process by the financial numbers.
You need to drive cost, quality, delivery and you need to make sure it shows up on the income statement and the balance sheet.

Q: Isn't that hard to do, especially early in the process?

Koenigsaecker: When you start the process it takes a lot of energy and most of the organization will give you some level of support for improving quality and delivery. But in the end, productivity growth is the one that drives margin improvement and increases wealth, and you find out that nobody wants to do that. There are all kinds of dynamics you have to deal with. Those on the administrative side don't even think productivity is a relevant measure for them, and they don't want anything to do with it.
You have to push pretty hard on the results and at the same time you have to make sure that people are putting the infrastructure in and are using the tools. It can be uncomfortable, and most people will just pass on that discomfort unless there is some form of pressure. I use the results as pressure.

Q: Is that what you did while leading the effort at The HON Company?

Koenigsaecker: At HON, we deployed an objective for every unit including administrative to improve output per person by 15 percent every year and to cut quality defects by 20 percent. When we got our lead time down to daily production it was harder to measure. Most of the people thought we were insane when we started with those goals. Nobody liked them. To the extent that it doesn't spread is a management issue and that is where we as an industry need the most help.

Q: Do you need hard-ass managers to make it happen?


Koenigsaecker: When you start in a new organization, one way or another, you have to make sure that everyone in the organization and especially the antibodies know that their choice is to join up with this new way or find a different organization. Most managers are very much afraid of making that decision. There are not many people willing to do that. Joe Day, CEO of Freudenberg-NOK is one of those who did a standout job of that.

One of the group guys from Danaher [Art Byrne] went to Wiremold. Joe Day was on the board of Wiremold and saw the process happening there. But when Joe launched it, he led it. He's like the perfect CEO from the change management perspective. But unfortunately, there are a lot of imperfect ones.

Q: Do you think it is inevitable that manufacturing will evolve to a lean system?


Koenigsaecker: If you look at the history of mass production, it took about a generation after the idea started for it to be accepted. After Ford, it was about a generation -- 25 to 30 years -- before GM and the others were on the same page and then it was another generation -- post World War II -- before the European auto manufacturers really adopted mass production.


If you're in an industry and one firm in the industry adopts lean, they'll end up dominating the industry and other people will either have to do it or fall out of the industry.


Q: If U.S. manufacturers start adopting lean, do you think it will lead to a revival of U.S. manufacturing?

Koenigsaecker: With lean, you end up with an extremely flexible and responsive company so that you can do things with delivery performance that were not possible at a long distance from your customers. That becomes a marketing advantage.
Using lean, you can get to daily production like they do at Danaher and HON where they make every product every day by going through reducing set up times, a la Shingo's methodology. At Jake Brake, for instance, Caterpillar or Cummins can call up a UAW operator in the cell and order product for the next day and it will be shipped the next evening.
When you start, it seems impossible but when you finish you realize it's pretty straightforward.

Topics from George Koenigsaecker Articles

CEO's, executives and leaders - the following articles will help you understand continuous improvement and its bottom line impacts.  They are written by George Koenigsaecker, a principal investor in several lean enterprises, and is President of Lean Investments, LLC, a Private Equity organization with an emphasis on manufacturing.  Koenigsaecker is a Board Member of the Shingo Prize, the international award for "lean enterprises," and is a board member of The Association of Manufacturing Excellence, Ariens Outdoor Power Equipment, R W Baird Capital Partners Advisory Board, Simpler Consulting, Watlow Electric Corp., and Xaloy Inc.

From 1992 until 1999, he led the lean conversion of the HON Company, a $1.5-billion office furniture manufacturer. During this period, his efforts resulted in a tripling of volume, and culminated in HON Industries being named by

Industry Week

magazine as one of the "World's Best Managed Manufacturing Companies."

Prior to joining HON, Koenigsaecker was with Danaher Corp., where he was President of the Jacobs Vehicle Equipment Co. (whose lean conversion is featured in the book

Lean Thinking

by Jim Womack and Dan Jones), and Group President of the Tool Group, the largest business unit of Danaher. In addition to leading the lean conversion of these operations, Koenigsaecker developed and implemented the "Danaher Business System," a comprehensive lean-enterprise model.

In addition, Koenigsaecker has held senior management positions in Finance, Marketing, and Operations with Rockwell International and Deere & Co. He is a graduate of the Harvard Business School.

Start with:

Leadership 2005

Manager’s Guide 2001

- hired ppl with no prior experience

- restudy the process over & over

- How he found out about lean, some examples

- Make problems visible so they must be solved

- Discipline

- Build the lean office

- Too busy to apply lean

- Learn by doing

Seeking the Lean Machine 2004

- 3 phases

- Reconfigure production tech.

- Right sized Machine design & build

- Auto unload

- Sheet metal & press brakes

Leadership 2005

- stats, 3% success

- due to lack of senior leadership involvement

- productivity gains 400%, understanding how much waste exists

- typical results & payback time

- financial effects

- required kaizens

- 4 levels of learning

- Free up the best person

- No successful instances where CEO did not have hands on

Strategy Deployment 2006

- 4 key areas

- ROI, income statement

- Improvement efforts expected results each pass

- 2 parts to strategy deployment

- Not knowing what org will look like

Sustaining Lean 2007

- firefighting, today’s predominant culture

- leadership change

- process improvement payback 90 – 120 days

- learn through personal application

- 1st step for leaders

- Required kaizens for managers

- Necessity for leadership participation regularly

- Continuous improvement is never ending

Perseverance Pay Off 2008

- 10:1 payoff investing in employees

- Organizations should not focus on any one quality improvement tool but on the appropriate tools for each specific problem.

- Reducing lead times to grow 3-4 x industry rate

- Strategies for a recession

- Freeing up working capital

- Cost of labour, revenue per square foot

- Rarely lay off people, engaging in productivity measure

- Freeze hiring during recession

- Dealing with slower sales

Interview AME 2010

- Danaher

- Change senior leadership behaviour**

- Measurement & payback

- Financial effects

- Works anywhere

Leading the Lean Enterprise Transformation

Author of Leading the Lean Enterprise Transformation