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Wednesday, June 17, 2009

Is it the End of an Era or Just another Lesson?

With the recent bankruptcy of General Motors, Jim Womack wrote a letter on The End of an Era. Womack is considered one of the originators of Lean Thinking in the US from studying Toyota in the 1980’s. His first book the Machine that Changed the World is the first books I ever read on Lean. I thought it would be worth reviewing a couple of points in Jim’s letter.

Many in the lean community have compared the traditional US company model like those of GM to that of the Lean Japanese company model of Toyota. Jim makes the case that GM’s bankruptcy marks the end of this narrative.

For 30 years now the Lean Community has benefited from a strong trailing wind. GM steadily declined as Toyota steadily advanced. All we needed to do was standby and cheer! But this narrative is over.

He takes the time to pause and reflect on what this means. Reflection is one of the most powerful learning opportunities we have. I wonder if this is really the end of an era or just another rest stop along the lean journey. If you don’t know where you have been, how do you know where you are? So what does the GM story teach us?

It is too convenient to say that the Lean model at Toyota has been proven to be successful while the Non-Lean model at GM has not. GM has practiced Lean management for a very long time and Toyota’s struggles are far from over as seen with its own financial crisis. Jim characterizes GM’s problems as:

At the beginning of 2009, GM had three major weaknesses. It had too much legacy debt – bondholders and retirees. It had compensation costs for current employees that were too high to compete with transplant operations in North America. And the money it received for its products in most segments of the market was far below average, partly as a legacy of decades of defective products and partly due to losing the pulse of the public on what the company and its products should mean for customers.

GM’s problems are not necessarily new problems. The legacy costs and high compensation has been well discussed and symbolic of greed within our society. Remembering, Goldratt’s Goal is “to make money now as well as in the future.” You can’t afford the bottom line items of benefits and compensation if the top line items like revenue are not there. Jim under-emphasizes GM’s lack customer focus. For decades, GM has lost market share in the car industry to other foreign competition like Toyota. This resulted in lower profitability for the car manufacturer. GM’s employees and management had a lack of long term thinking. They managed by the situation, contract, current negotiation, and short term measures. This contributed to this growing burden on the company that was not sustainable in the long run.

Lean is about eliminating waste by flowing product at the pull of the customer. It is a value proposition of the right things, right place, right time, right quantity, and right cost. Value as defined in the customer’s eyes. Simply GM stopped making product (cars) that the customer wanted. As Jim noted, GM has spent a lot of effort recently talking about what they are not but they need to get back to the voice of the customer. This will be even harder with a third party (the government) involved where they will likely try to regulate what products consumers want.

Toyota also lost its way in recent years. Their focus turned from customer orientated company to a company driven to be #1 in the automotive market place. This short term vision and the financial strain from expansion to be #1 has put them in an awkward financial position. They lost touch with the basics of slow organic growth, long term decisions, development of people, and voice of the customer. This was recognized earlier this year with Toyota’s new president:

Toyota Motor Corp.'s incoming president, Akio Toyoda, has a sobering message for the giant company founded by his grandfather: It has gotten too fancy for its own good.

Upon reflection the lesson that can be learned here is the important of adding value in terms of the customer’s voice combined with a long term vision. While GM and Toyota both suffered from a lack of practicing this, their results are different. One has set a new course for the future and the other is trying to do so now with help (bankruptcy process).

Jim also points out that this is a turning point for lean. I believe he is right but differ slightly on why. Jim states:

GM and almost all large manufacturers have now accepted lean as a management theory, although the actual practice is always a struggle.

While he does clarify this statement with "large companies", the statistic is closer to 35% of all companies are practicing Lean. Of which only 5% of those companies are truly sustaining the gains. Lean has started to be applied in lots of new industries and service organizations. The reason this can be done is from its basic elements of adding value to the customer through waste elimination by developing people to solve problems. Lean has a much larger arena than we really know. The real purpose of Lean practitioners is to teach others to “see” this ideal so they can start their own new era.

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