Dont slam the breaks while going uphill

Can lean be a driver for knowledge and competence development whilst also leveling out the business cycle?
-using SCANIA as the good example By Anders Hugnell Too good to be true, one might wonder, can lean be the philosophical mind-set that would take care of both being a driver of competence development as well as leveling out the business cycle? It has never been tried, but if one was to move the system borders from our organizations to comprise entire nations and maybe the entire European Union, who knows? Introduction Lean is a well-known philosophy within the manufacturing industry that now also is starting to move into hospitals, municipalities and governmental agencies. The word lean itself was first introduced in the book The Machine that Changed the World [1] which was a popularization of the IMVP1[2] study. The IMVP study, launched by among others MIT, was investigating the fact that Japanese auto manufacturers, especially Toyota, used a lot less time to assemble a car than their US equivalent. This and the fact that the quality also was superior to that of other car manufactures suggested to the researcher that the epithet rice boilers no longer was a valid invective to use when referring to Japanese cars. This paper will describe a scenario where the lean mind-set is to be applied on a larger system than just an organization and its value chain. Everything is based on the authors experience while for several years transforming different sized organizations to use a lean mind-set. It is by no means scientifically proven that it is possible to transform larger entities such as nations, the purpose of this paper is merely to somewhat broaden our minds and to start the discussion of the possibilities and to describe a conceivable scenario of stable growth. The outline of this paper is thus, after giving a brief description of how SCANIA handled the last recession, to first describe the Toyota Way and then take the bits and pieces of it and apply it in a broader context. The statements found in italics are behavior and/or methods/tools that characterize a Toyota like organization. Can we learn from the last recession looking at the way SCANIA handled it? Two companies in the same country used two different strategies when faced with the last recession. SCANIA on one hand chose not to lay off any people of their permanent staff, Volvo Trucks on the other hand did. When looking at the five whys on the problem they both faced they definitely reached different conclusions, and in the end different results.

International Motor Vehicle Program, www.imvpnet.org

SCANIA decided, after a vote among all their personal, to work only four days a week with 90 % of the pay. This was to include everyone all the way up to the CEO Leif stling. It is hard to draw any real conclusions after such a short period of time after the wheels have started to turn again but one thing is standing clear, SCANIA had it a lot easier to ramp up their production ones things started compared to Volvo. SCANIA came out strengthened from the crisis after their entire personal had developed their competence further within the SOL project2. This is all in line with the lean principles described later on; in order to develop your processes you first have to develop your people and not the other way around. Here is your fridge was a popular TV-series that aired some ten years ago. In the series a well-known chef surprisingly visited a celebrity; the chef then stepped straight up to the refrigerator and cooked a three-course meal of its present content at the given moment. Using lean, we should think in the same way, we should try to use what we have wisely. We should not fill the fridge with fillet of beef, what we should do is to develop the knowledge and and competence of our personal so that we in a better and more efficient ways can make use of the machinery and raw materials that we have. What distinguishes the chef from us is precisely the knowledge of raw materials and the skills to use them in an innovative way. This was also the way SCANIA thought of their involvement in the SOL project. The relevance of the training given was also high and tightly coupled to SCANIAS business goals; the competence training was done using in house personal and train the trainer concept for maximum sustainability. The result of the project were several, among other were an increased knowledge and understanding of the SPS (Scania Production System, TPS Toyotas equivalent is described later on), increased quality and efficiency in the production process. SCANIA has never been an early adopter, and in recent years more and more really living according to the lean philosophy i.e. acting more like the tortoise than the hare and in this way contributing to stability. The key thing is to always be moving forward at a steady pace, not accelerate or hit the breaks from time to time when trying to bring home short term gains. Long term thinking should be the mindset of your entire organization from top to bottom. Stable growth is another way of putting it. The problem here is that there will always be someone or somebody that will go for the short term profits, and as long as there is such behavior it will be hard to really take advantage of the common sense genius that lies within the lean philosophy

Large Swedish ESF (European Social Fund) project http://www.esf.se/en/Projektbank/Behallare-for-projekt/Stockholm/SOL-/

What is lean? If one was to ask executives at Toyota if they would consider themselves lean, they wouldnt even understand the question. The same question asked to GM or Ford executives would probably render the answer: Yes of course, we are lean. The first thing to state is that you can never become lean, it is an endless journey on strive for perfection. When you meet people or organizations that say that they are lean, they havent understood anything. Lean to me is more a philosophical mind-set for organizational development than it is a set of tools or yet another way to motivate lay-offs. Interpreted in the right way it can be used as SCANIA did in the last recession (described above) The roots of lean, so to speak, came out of the conditions that prevailed in Japan after the Second World War. Back then the Japanese didnt have any money, they didnt have any knowledge about building cars, they didnt have any skilled labor, and they didnt even have any factory space. What Toyota had was people and a clear vision to become a world leading manufacturer. What they did for starters were a couple of visits to Europe and US where they tried to gather as much knowledge as possible about building cars without judging whether it was applicable or not. They met and were inspired by among others, Henry Ford, Edwards Deming, The Wright Brothers and Frederick W. Taylor. Back in Japan they tried to apply their knowledge but first adapting it to local conditions. First of all, since no one knew anything, they had to optimize their company (system) for knowledge sharing and not for giving orders as was the case at The Ford Motor Company. This is something that characterizes Toyota even today.

Fig 1. Taiichi Ohno

Secondly as they didnt have they any money they had to focus very much on lead-times. In order to afford to pay their sub-suppliers they first had to get paid from their customers. The focus on lead-times is also something that is very much alive even today. Thirdly, also derived from the lack of money, they needed to know exactly what the customer wanted since they couldnt afford to do something extra or wasteful. A strong customer focus is also something that still is a trademark of Toyota. Small factories lead them to keep everything neat, tidy and everything in its place to avoid chaos; this was the basis for what we now call 5S3. In summary what they did was to try to use the right resources (no more, no less) to produce the right products/services at the right time with the right quality. Something we all would like to do but not always is able to, and again they didnt have the financial muscles to do anything else. The big three Ford, GM, Chrysler made tons of money at the time and didnt have the sense of urgency to reduce drive waste out of their processes, nor did they focus on developing towering competences in their employees.

A method for creating functional workplaces

Toyota was all people centered from the beginning: first develop your people and then develop your processes, there was no other way! In these times we now live in its a more common approach to do the other way around i.e. start with your processes. Another fundamental thing they did right from the beginning was to adapt their organization to fit customer needs, not the other way around i.e look inside out and ask themselves; with these machines and these people what can we do with that. The latter might work if there is a greater demand than supply on the market, which was the case for most products until the mid-80s. Toyota was, surprisingly not, well prepared for this as described above and started their climb towards becoming the worlds leading car manufacturer in the 80s as well. The climb that some years later led some American researchers to Japan [2] At about the same time as Toyota started to adapt their business using input from Ford and Deming they also discovered TWI4 which they brought with them to Japan together with among other things the Deming wheel. TWI can be interpreted as one of forefathers of lean and gave Toyota the basis for accelerated learning and standardized work. Taichi Ohno5 then gave us the TPS (Toyota Production System) and the rest is history, a history that we in the west had to learn the hard way seeing our car-industry almost collapse during this last recession. Ford After The Machine That Changed the World [1] came several books on the subject where Womack and Jones [3] described lean using the 5 principles:

1. Specify value from the standpoint of the end customer by product family. 2. Identify all the steps in the value stream for each product family, eliminating whenever possible those steps that do not create value. 3. Make the value-creating steps occur in tight sequence so the product will flow smoothly toward the customer. 4. As flow is introduced, let customers pull value from the next upstream activity. 5. As value is specified, value streams are identified, wasted steps are removed, and flow and pull are introduced, begin the process again and continue it until a state of perfection is reached in which perfect value is created with no waste. We will refer back to these principles later on in this paper.

4 5

For further reading see http://www.trainingwithinindustry.net/ The father of the TPS Toyota Production System

Later the above was described by Jeffrey Liker in The Toyota Way [4] where the arrows (figure 1) indicate the order of usage6. Develop people to systematically solve the problems you have in your processes, whilst thinking long term gains for your organization. Within the four P:s (Problem solving, People, Process, Philosphy in figure 2) 14 principles are hidden that more in detail describes the way that Liker described the Toyota Way after studying the company for a Figure 2. Lean According to Liker couple of years. When later confronting Toyota employees with the 14 principles they philosophically answered The words are ok. Knowledge as driver for organizational development Toyota rarely document there philosophy and/or knowledge in the manner Liker documented his findings. There is a collection of anecdotes and stories that somehow describes Toyota from the inside. The booklet describing the company s unique culture and methods for more than 70 years is called The Toyota Way 2001 and is known inside the company as the Green Book, it includes stories from the companys founder Sakichi Toyoda, who first built the Toyoda Automatic Loom Works, and his son Kiichiro. It is about the only known document that describes the inner secrets of the company and is very well kept within the company. Then how does Toyota secure their competence and knowledge? They teach and learn it by simply talking to each other; Sensei7 style. Using sensei technique they also make sure that knowledge and competence is handed down from older employees to the newly employed. Just to give an example; to become a team-leader (leader for 5 to 8 persons) at Toyota takes somewhere from 18-36 months depending on your talent and ability to learn. During this period you will have had 6-12 Senseis since they rotate every three months. A sensei here is usually a retired person that held a similar position while at work. It is voluntary to become a sensei but almost everyone wants to give back to the company and make sure that both their knowledge and values are passed on to the next generation in the company and that no knowledge is lost. Knowledge holders are shown the utmost respect in a company like Toyota and knowledge is a far more respect giving thing than a high position. Knowledge can be defined in numerous ways depending on your previous background; it must be justified, true, and believed is an often-used definition that dates back to Plato. There is even a branch of philosophy called Epistemology that deals with the theory of knowledge. The knowledge we refer to in this paragraph is less philosophical and refers more to the knowledge needed in order to develop a product or service and later your organization and/or country all according to customer/citizen demands. This
6 7

Authors remark that will be used later on in this paper Sensei means master or sometimes teacher in Japanese

latter knowledge consists both of implicit and explicit knowledge. Once the knowledge needed is defined it is necessary to find out what part of the knowledge we have and what parts we dont have in order to start planning for the execution of our project. If there are large knowledge gaps we need to put great effort into filling these gaps before the start of the project. Many organizations do not recognize this gap early enough and therefore struggle to get projects within given time and cost limits. We have to change our mindset from making the decisions early based on guesses to delaying our decisions and basing them more on facts. By firstly recognize and secondly identify and breakdown the knowledge gaps into smaller pieces one can greatly improve efficiency both in terms of time and cost. Toyota did this quite naturally from the beginning since they in their early days didnt have any knowledge about building cars as discussed earlier. As their knowledge increased they still use the same approach although the knowledge gaps these days are much smaller. The implicit knowledge is caught, as also mentioned earlier, using the sensei (teacher) gakusei (pupil) and they put great emphasis on learning in the true sense of the words meaning i.e. both the theoretical part and the practical part. Learning by doing is another way of putting it. The Wright Brothers are said to have had great influence on the way Toyota go about developing their products and services. Orville and Wilbur were when they started in more than one in way in a comparable position to Toyota when they decided to expand their business from looms to cars; they on their hand went from bicycles to airplanes both using the techniques of closing the knowledge gaps. Waste reduction in the right order create more value and evens out the curves Waste8, comes in three forms and should be fought in that order. The first one Mura, if not fought will lead to much agony in our organizations, the more stable our processes are the easier it will be to plan and deliver value to our customers. Just to give an example, lets say we tell our customer/citizens to come for service in two weeks without giving them a precise weekday. What the likely outcome is that most of them will show up on Monday and if we do this all the time we will also hire people to take care of this unstable process. The rest of the week we will not have customers enough to fill our schedule. The solution here is quite obvious and that is to be more specific in our booking of customers. I have seen the behavior described above in many organizations both private and public. This type of activities will lead to unstable processes and will create a whole lot of waste. In the same manner the ups and downs in economy also create waste. Waste that can be reduced using lean thinking as follows: Lean firms have a much lower inventories of raw materials, work in process, and finished goods in relation to their sales which would suggest a damping effect on recession (economist often claim that half the depth of a recession comes from companies working of their large inventories instead of buying from suppliers) since they cant work of their large inventories. The second form of waste Muri is overburden, i.e. overuse of people and/or machines, Muri is often caused by Mura and that is one reason why one should start with the reduction/elimination of Mura.

i.e things we do that one way or another hinder us from creating value for our customers and/or that our customers do not want to pay for.
8

Finally the third form of waste Muda comprises of seven + one different types of activities that do not or hold back the creation customer value. The seven + one different types are: 1. Overproduction (produce more or earlier than customer demand) 2. Unnecessary transportation (self -explanatory) 3. Inventory (i.e. too much inventory, some inventory is always needed to cope with variations in customer deman ds. Could also be resources if talking about service organizations) 4. Motion (motions that will create overburden of man/machine) 5. Defects (needs to be redone and creates extra cost) 6. Over-processing (doing more than the customer has need for) 7. Waiting (waiting for material, information etc) + one Latent skill (unused creativity within your staff) Stakeholder management and how balance can help you even out your curves Another way of stabilizing the economy is to find a balance in the value creation process. Looking at a lean management system (figure 3) this means that at any given moment there should be a balance between the efforts put in to satisfy the needs of your organizations stakeholders. The stakeholders can vary from organization to organization; the important thing is to find your balance, a balance where no stakeholder is given any greater attention than the other. It may sound easy but may be hard to accomplish when things in the economy are changing and there is suddenly very hard to hire the right type of people. When looking at organizations that have survived for a longer period of time [5] without any, or at least any major crisis, they have a lot of things in common one being the ability to maintain a balance in their value creation. Long term thinking (read more on this in the upcoming paragraphs) is also needed in order to maintain stability. Changing focus from stakeholder to stakeholder all the time will also create instability. Yesterdays thinking still characterize the behavior of most organizations Way back, when there werent enough products to serve the markets it was easy to calculate the sales price as follows: Cost + Margin = Sales price (1); you just had to decide how much money you wanted to make by setting your margin and that was it, almost as easy as being in a monopoly situation. A bit further into the 20th century the conditions changed somewhat and the formula became more like: Sales price Cost = Margin (2); in the end it didnt make much of a difference since the sales price could almost be set as before to produce the desired profit. The mindset although changed a bit and the cost part was not seen as fixed as before. It was quite obvious that by lowering the cost the margin would become even greater. Today the formula looks more like:

Market price Margin = Cost (3); meaning that there is a market price that someone is willing to pay for your product/service at any given moment. Given this price and your needed margin you need to have your cost at the right level in order to stay in black. Many companies and organizations still use formula (1) although they should use formula (3). This behavior will most certainly lead to a very negative spiral and probably the organization will go out of business if they continue on this path.

The bursting bubble economy vs long term thinking With the memory of a goldfish the market creates one bubble after another and the bubble is almost never due to a fundamental change in consumer desires. Looking back at this last burst, it was not so that people in the US suddenly wanted to buy more expensive houses it was just that the financial market decided to lower the cost of money. This led to an unstable process and a lot of Mura (as described above). Short term thinking on behalf of the financial institute was one of the root causes to the bubble. With a more long term thinking the bubble could have been avoided all together. Once the ball is rolling there is no turning back and its every man for himself. The last thing to consider is the one thing many managers seem to embrace without any particular hesitation: cost cutting. This means leaving out steps and features that actually create value from the perspective of the customer/citizen and removing employees who are actually needed to get the job done. The hope, usually incorrect, is that the customer won't notice. Using this technique it is easy to lose your customers trust and in the end lose them as customer further down the road. This behavior will also create instability.

Conclusions Lean can be, if rightly used, a contributing part in flattening out business cycles as well as driving competence development as shown in this paper. A prerequisite is that long term thinking will prevail in more companies than today and that more companies really understand the philosophy of lean and its underlying principles. The second phase, that already has started, is to spread the thinking to the public sector and to governmental agencies. It will not be easy and it will take many years, what we all have to agree upon is that true north is long term thinking and that we all a can contribute to a more balanced future. [1] The machine that changed the world, Womack, J. P., Jones D. T., Roos, D. , 1990, New York, Rawson Associates [2] International Motor Vehicle Program, www.imvpnet.org [3] Lean Thinking: Banish waste and create wealth in your corporation, Womack, J. P., Jones D. T., 1996, London, Free Press Business. [4] The Toyota Way, 14 management principles from the worlds greatest manufacturer, Liker, J.K., 2004, Mc Graw-Hill. [5] Built to Last: Successful Habits of Visionary Companies, James C. Collins and Jerry I. Porras, 2002, Harper Business