Lean Strategy

Fifteen years ago, Art Byrne suggested to me that the title of our book about The Wiremold Company’s Lean transformation should be Lean Strategy. I resisted that suggestion because I did not view Lean as a corporate strategy, despite Art’s firm belief that it is. Who was right, me or Art?

First, let’s ask an important question: What is a strategy? The Oxford dictionary defines “strategy” as:

“A plan of action designed to achieve a long-term or overall aim.”

Based on that definition, Lean seems to be a strategy (click here for other definitions). However, because the usual context for Lean pertains to corporations, we must understand what is corporate strategy (also referred to as “strategic management“). This is more complicated.

“Strategic management involves the formulation and implementation of the major goals and initiatives taken by a company’s top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes.

As you dig further, you quickly find that “strategic management” is akin to “leadership” in that they both can be defined in myriad of different ways. “Strategy” and “strategic management” can mean almost anything that a corporate leader or book author wants it to mean. Click here and here to learn more. So, Lean may seem to be a strategy, but that could merely be the result of confusing strategy (long-term) with execution (short-term).

toyota_treeDoes Toyota consider TPS and The Toyota Way their corporate strategy? You would think that being the creators of TPS and The Toyota Way that they would. But they do not. If they do not, why should anyone else consider TPS and The Toyota Way (or Lean) a corporate strategy? Click herehere (click on “Learn about the Tree”), here, and here (see pages 11-13) to read about Toyota’s strategy. TPS and The Toyota Way are how Toyota people think and do things, but it is not Toyota’s corporate strategy.

Following on Toyota’s perspective, we can conclude that Lean is something leaders can do within the context of strategic management to increase corporate value and improve financial performance. It is one way to help an organization achieve its strategy. Furthermore, it is clear from what we have witnessed over the last 30 years, that the vast majority of business leaders do not recognize Lean as a strategy, despite the fact that Lean seems to satisfy definitions and common understandings of both “strategy” and “corporate strategy.”

Many years ago, my friend Mark DeLuzio said this to me (paraphrasing):

A strategy articulates what an organization must do in order to succeed against the competition. Take a company that makes buggy whips in the automobile era. The buggy whip company leaders’ understanding and execution of Lean could be flawless, but the company will obviously fail because the strategy does not recognize the external environment in which it competes. If the corporate strategy is sound, then Lean can help an organization achieve its strategy. But Lean, itself, is not a strategy.

You can see a clear separation between strategy (the “what”) and execution (the “how”). That is how Toyota leaders have long seen it. I agreed with Mark then, and that remains my view today despite the sometimes ambiguous nature of strategy. And don’t forget, Taiichi Ohno’s book Toyota Seisan Hoshiki, translates as “Toyota Production Method,” not as “Toyota Production Strategy.” “Method,” in the industrial engineering sense of the word, is not a strategy.  

Nevertheless, there is a long history in progressive management of authors using book titles and sub-titles to gain the attention of top company leaders. They use words such as “strategy,” “wealth creation,” “sustainable growth,” “cost savings,” “higher profits,” “competitive advantage,” “innovation,” and so on, are explicit in their attempt to capture a particular audience. These words are like a siren call to CEOs. In Greek mythology, Sirens were attractive creatures who made enticing sounds that lured sailors to their demise.

More often than not, business books – the Sirens’ calls to CEOs – lead to a demise, great or small, in the following ways:

  • The book over-promises and under-delivers.
  • The path to success articulated in the book is too complicated, detailed, or nuanced for the most CEOs understand and to put into daily practice.
  • The path to success articulated in the book is incomplete and missing key details and ignores likely pitfalls; focuses on the upside while ignoring downsides.
  • Leaders (or their delegates) misunderstand the book and transform its ideas and practices into something different and therefore less useful or less impactful, often resulting in negative unintended consequences.

All four can be true when it comes to books on Lean (Note: I have always presented an honest balance in my books because nothing is all upside.)

Think about this: If you carefully follow what corporate leaders do, you find that the most common corporate strategy is to acquire businesses or lines of business, for the purposes of growth, gaining market share and, especially, pricing power (i.e. gain leverage over customers). Corporate strategy is usually devised to position the company to face less competition in order to increase profits. In other words, create sellers’ markets for your goods and services. Reducing competition, by whatever means, has the added benefit of making management’s job much easier.

So there is a tension here: TPS and The Toyota Way (or Lean) is a management practice for competitive buyers’ markets and is unnecessary for non-competitive sellers’ markets. If the corporate strategy is to gain leverage and control the marketplace, then most leaders would say they have no need for Lean. If they do decide there is a need for Lean, then it is seen simplistically as just another tool to increase profits or as one means that can be applied along with other means to achieve the strategy.

Let’s look at Art Byrne’s corporate strategy when he was the president of The Wiremold Company. Shortly after his arrival in 1991, the corporate strategy was (Better Thinking, Better Results, p. 26):

  • Strengthen existing operations
  • Profitably double the business over next five years
  • Become one of the premiere time-based competitors in the USA with world class manufacturing and product development skills

The corporate strategy does not say anything about TPS or Lean. It could be achieved using a combination of well-worn methods, none of which are associated with TPS or Lean.

Art’s corporate strategy evolved over the next two years and settled on this (Better Thinking, Better Results, p. 29):

Be the leading supplier in the industries we serve and one of the top 10 time-based competitors globally:
1. Constantly strengthening our base operations
• 100% on time customer service
• 50% reduction in defects per year
• 20% productivity gain — each year
• 20× inventory turns
• 20% profit sharing
• Visual control and the 5C’s
2. Double in size every 3–5 years
• Pursue selective acquisitions
• Use Quality Function Deployment to introduce new products every month

Lean is not specifically mentioned in Wiremold’s corporate strategy. Visual controls and 5Cs (same as 5Ss) could be applied as two tools independent of Lean, while the origins of Quality Function Deployment do not lie with TPS. The reality is that Lean is one of many methods that leaders could use to achieve Wiremold’s corporate strategy.

You and I may view Lean as a better method compared to all others, but most CEOs would not. They would use methods that they are more familiar with. And don’t lose sight of the fact that Lean is not identified with corporate strategy in either top- or bottom-tier MBA degree programs.

Let’s be honest: Of all the methods that CEOs can choose from to increase corporate value, improve financial performance, create competitive advantage, innovate, achieve sustainable growth, and so on, Lean is by far the most difficult for them to understand and correctly execute. And TPS+Toyota Way is an order of magnitude (or two) more difficult than Lean. That is an irrefutable fact.

In conclusion, should I have followed Art’s suggestion to title our book Lean Strategy? No. But if you believe Lean is a corporate strategy, as Art does, then carefully compare that to kaizen and the image above to figure out which is the better corporate strategy.

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