Hostile culture will kill “lean” efforts

imo-blogThe great business breakthrough of the 20th century may be Lean (and Six Sigma) — techniques that cut waste and can dramatically boost productivity. Yet many firms can’t make Lean work for them.

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The big challenge for any company is “the ability to make things stick” — to be able to agree as a group to do things a new way, and then follow through and actually do it in that new way, consistently.

According to expert Rick Pay, known by his clients as “The Sherlock Holmes of Operations and Supply Chain,” the biggest enemy of Lean is Culture — specifically, Lean will fail if you attempt to introduce it into a hostile culture that resists change.

Recent MIT studies show that up to 70% of firms that institute Lean or Six Sigma, don’t sustain the improvements. In five years, they are back where they started. Rick believes the solution is to implement three things:

Change Management
Culture Change

Vision provides the “why” that motivates action.

For change management, there must be strong vision at the top and leadership to require and remind and reinforce the new way of doing things.

In the weak firm, there are change meetings that generate brief excitement, and then people leave the meeting and go back to the real world.

Culture change can occur when senior leaders recruit middle managers to champion the change. Each middle manager needs to own their own vision. That will identify the 3 or 4 things that their workgroup needs to focus on to make the change really stick.

For example, Rick is working with a $100 million wholesale distributor where nobody owned the inventory process. The branch managers were constantly frustrated because their client projects were always ham-strung by a lack of available inventory.

So Rick worked with them to create a task force of VPs plus three branch managers, reporting to and sponsored by the senior executives (CEO, CFO, an Executive VP and the company owner), who are also on this task force — and who all show up for all the meetings. They read their vision statement out loud at the start of every meeting. This keeps them focused on the vision and their role in making it happen. That vision includes metrics that will measure the change.

These task force members then drive sub-task-forces to take on subsets of the vision. These sub-task-forces also have metrics that define their focus areas and measure their success and progress.

All meetings use best-practice disciplines:
1. meetings start on time
2. meetings end on time
3. teams use the meetings to make decisions
4. teams publish minutes from each meeting
5. in those minutes, people get clear assignments
6. people are held accountable by their peers for following through

This approach has been very powerful. Within just three months, Rick’s client has completely implemented their distribution center — a keystone to the new strategy.

It was crucial that the owner started with a clear vision for customer service, and the entire project was built around that vision.

Mistakes and Safety
In the best companies, it’s always safe to make a mistake, as long as you own the mistake and learn from it. Leadership needs to create that safety while requiring the learning — neither will happen on their own.

Metrics and Accountability
To maintain focus and accountability, Rick helped this client take the vision (which mentions four key metrics) and turn it into a dashboard. For them, the four “big dials” on the dashboard come straight out of the vision statement:
Profit Margin
Inventory Turns
Obsolete Inventory

Other important metrics are also shown as “smaller dials” — this functions in a way that is similar to a Balanced Scorecard.

Metrics tell people what they should pay attention to. People become ineffective when they aren’t sure what to focus on — the metrics clarify priorities.
And when the metrics reflect the vision, they become mutually reinforcing.

But what do you do when people prefer to blame rather than change? You can set up a metric, and people will sit there, watch the metric not change, and then blame and finger-point. Now what?

The third leg of the Culture of Action is to replace “problem solving” (which implies you screwed up, and just takes you back to your prior level) with an innovation oriented culture of “continuous improvement” (which carries no stigma and makes things permanently better).

By allowing every worker to contribute to the continuous improvement, you’re taking workers who might otherwise feel like robots, and you’re turning them into programmers — they each day run a program they helped write, and they can feel the power that comes with making permanent changes and improvements.

Rick advocates using the classic PDCA (Plan-Do-Check-Act) cycle, starting not with an assumption that the current state is “broken” but rather starting with a desired future better state.
The team then compares the future state with the current state, finding the gap between the two, and brainstorms ways to close the gap. This creates the Plan.

The team then tries to Do the plan. Then they Check to see how it worked. Finally they Act as a group to refine and revise the Plan based on what they learned when they Checked. Then they take the revised Plan and Do it again.

Ricks says, “Once you have change management with leadership and vision, and you have continuous improvement where you are creating a better future state, you really can build it into the culture — the habits and values — and create a true Culture of Action.”

Listen to my interview with Rick Pay here.

Business consultant and author Tom Cox is a contributing columnist for Oregon Business.