Wednesday, June 3, 2009

What are Lean Leaders Doing in Today’s Economic Crisis?

A recent poll by the Lean Enterprise Institute (LEI) shows that companies are giving more emphasis to Lean efforts during today’s economic pressures. Lean initiatives are increasingly being recognized as helping businesses through many challenging periods sometimes referred to as “burning platforms”.

Related to this there was an interesting survey done recently by Stiles Associates, LLC (a lean-focused search firm) on what lean and operational leaders are doing in our current economic crisis.

Here are just a few of the highlights:
*Operational improvement programs have been highly effective at helping companies respond to the recent market turmoil.
*Cost cutting is everyone’s top priority.
*Three out of four companies are increasing or maintaining their improvement project activity.
*Corporate visibility and expectations of lean initiatives has increased.
*As the recession deepens, short-term cash and working capital priorities are reducing the ROI cycle time for all projects.

While I am not surprised that lean has helped companies through this economic time, I am surprised by the top priorities of many businesses. I understand a true need exists to cut costs especially during period decreased revenue. The concern is the impact this has on the long-term competitiveness of a company. Priorities related to the customer values and new products/services are half of the cost cutting priority. One-third of the companies responded that their continuous improvement staff and improvement training activities would be less than last year.

These economic events have a way of challenging a company’s commitment to lean principles. Are these current cost saving measures really just part of a short term focus due to this special cause variation? It is really survival thinking and not “Lean Thinking.” As Jeffrey Liker characterized the first principle of TPS is about a long-term philosophy. “Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.” This means adding value for the customer. In order to generate this value to the customer we need to listen to the customer.

If you focus all your efforts on cutting costs then who is customer focused? What products and services will customers need in the future? This should be a time to of innovation, development, and investment. Leaders should be investing in developing people. The focus should be on developing the skills and knowledge need to bring operational excellence to these next generation products and services.

All products and services have some sort of life time. They won’t be viable for ever. The customer and the market place are ever changing. Many businesses have some sort of growth target related to revenue and OI but the true goal is “to make as much money now as in the future”. Cost reduction efforts will help companies make money now and stay in business to make money in the future you can’t forget the customer. Without providing the customer “value” you won’t be in business in the future either.

The survey points out that those companies that expect an increase or no change in revenue are increasing or maintaining their focus on Lean and training. Of which those companies increasing spending are focused on customer value/service and quality improvements. A company’s revenue numbers should not drive management’s decisions on the direction of the business.

Leaders probably should have more emphasis (or at least equal emphasis) on customer values, new product/services, and improvement training since these will have a higher contribution to the long term plan of businesses than the short term focus of cutting costs because the top line sales have declined.

The complete results of the survey from Stiles Associates can be found below:

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