Lean is a growth strategy

The Best Strategy 2018 study examines the secrets of the success that Germany’s world market leaders have in common. How much of this can be attributed to lean management?

I don’t know how much the lean philosophy has contributed to the success of German global market leaders; I imagine no one can really say for sure. What I do know, though, is that every company is significantly more successful if it implements a lean strategy and applies it in its daily work. You could even say that when deployed properly, lean is almost an “unfair” competitive advantage.

In the eyes of 95% of the companies surveyed, continuing to optimize processes and organizational structures is critical to ensure that they stay successful in the future. Where are things still precarious in terms of processes and organizational structures, even among global market leaders? It does not surprise me to hear that so many companies think that making the right changes is the key to their future successes. The question is how they go about it. Most companies simply keep the same underlying organizational structures and approaches in place.

They try to lower costs by automation or pursue other traditional strategies. They do not embrace the radical transition to lean because it contradicts everything they have learned or experienced so far. The consequence is often that the nay saying “that’ll never work here” faction wins out, and the status quo remains intact.

Even though right now most companies are doing well, business-wise, many managers are uncertain and are looking for points of orientation in these times of major upheaval. What would you recommend to managers who ask for your help in this world of VUCA (volatility, uncertainty, complexity and ambiguity)?

When a company experiences major changes, the most important thing is having solid guiding principles and a management team with a sense of commitment. This takes people’s fears away. The four major lean principles of lean – paced workflow, one-piece flow, standardization and pull – are one way to create a stable framework that everyone can follow.

New times call for one thing above all else: a new style of management. What kinds of characteristics do successful managers need today? And what habits should they shed?

When it comes to shedding bad practices, they should start with the “make the month” approach. In conjunction with standard cost accounting, it forces companies to spend far too long with the previous month even though in the meantime there are new challenges to face. To affect future events, you have to look ahead, not look at the past.

How hard is it for companies to establish a new style of management? And how can they navigate this path effectively? Maybe there are times when what they really need is simply new management after all?

I don’t think you fundamentally need a new management team to experience change, even though sometimes that is the only option. It’s better to teach the existing management to see things from a different perspective and the powerful changes that are linked to it. To achieve this, people generally need outside influences such as a lean consultant or a lean CEO.

But even then, managers have to take part in multiple cycles of a continuous improvement system (CIP) until they have really internalized the necessary changes. Lean is easy to explain. But when it comes time to put it into practice, it takes a while — even with the right kind of support — for management thinking to make a sustainable difference.

In your experience, how long does it take until the corporate and management culture make sustainable changes at a company? How much patience do companies need to have?

Based on my experience, a shift in culture takes several years, even if the company’s CEO is convinced about lean and puts everything he or she has into it. Lean often feels like the opposite of everything people have learned so far. That scares them, and then the necessary changes just don’t feel right. My rule of thumb: even with a dedicated management team, it takes around four years — a period in which excellent things can happen — until the managers properly understand the options they have ahead of them. If the team wakes up after four years and says, “Oh dear, we’re still miserable,” then they’re on the right path.

In Germany, lean management has established itself in the industry, although not as much in other fields. Why is that? And how do you convince someone like an insurance agency, a trading company or a construction firm to take the plunge and embrace lean management?

The first issue here is that lean is only another term for the Toyota Production System (TPS), which is to say that the idea comes from the world of manufacturing. What is more problematic is that we still speak of lean manufacturing rather often when we mean lean. Given this turn of phrase, it is no surprise that companies outside the manufacturing industry do not feel as if the term applies to them. But the opportunities that lean presents outside the industry are even greater than the ones within. Ultimately, the point is to liberate existing processes from waste, and outside a production context, people usually have to contend with processes that are much less effective. A company is nothing more than a group of people and a number of processes which are all trying to provide something of value to a series of customers. If non-manufacturing companies saw things in this light as well, they might be much more interested in lean.

You have guided companies in the hands of private equity through a lean transformation. How exactly did you go about it? And what was the outcome?

There’s really no difference between leading a company in private equity to lean versus another company.

In this case, we started with management as well, explained what the plan was and why. We then put managers into numerous CIP teams, both in the production hall and in the office. This let them experience firsthand which improvements we were achieving. We defined a few aggressive goals and pursued them. In our portfolio there was a company whose European division had locations all over the entire continent. It was active in a field that was shrinking annually by 4%. Here we freed up over 90,000 square meters, increased the inventory turnover from a factor of three to a factor of 20, obtained over $100 million in liquid assets, lowered lead times, launched new products, increased our gross profit margin by 9% and gained enough of a market share to achieve growth of 1-2% a year despite the industry-wide annual decline. When we sold the company, we got three times the amount we invested.

One last question. Do we have the wrong impression, or is it much easier for companies in the US to successfully hold their own in a world of transition than it is for German companies?

There is no deep-seated reason why companies in the US should respond better to shifts and changes than German companies. At the end of the day, it’s simply about management, structure and the approach. A German company which is well-structured with lean management can beat out a traditionally managed American company any day.