Lean Lites – Lean Leadership vs. Conventional Management

If you want to become a true Lean Enterprise, you’ll eventually have to change the way you manage. Here’s why.

Conventional management is based on outdated theory about the organization of human effort and the management thereof. At the root of this is the thinking that the basic unit of performance is the individual. Associated with this is the flawed assumption that every individual needs to controlled by an “external manager” in order to be efficient. Controlled means having goals set, having resources assigned, having performance managed, providing advice and counsel, having conflict managed, providing consequences, enforcing rules and procedures, making sure people charge their time correctly, etc. This assumption is what starts to create a hierarchy of management above the individual.

It gets compounded when there are two or more individuals at the same level of hierarchy. Conventional thinking here says that anytime you have two or more individuals, they need a supervisor (to establish and maintain the necessary control). Of course, when there are two or more supervisors, the same thinking escalates. They need a department manager. Two or more department managers need a division manager, two or more division managers need a plant manager or a general manager, two or more plant/general managers need a vice president. Two or more VPs need a Group President. Two or more GPs need a Chief Executive Officer. The CEO needs a Board of Directors.

The main problem with all of it is that it adds all of this indirect burden cost to the product bill without adding value….the classic definition of waste, and it makes people feel subordinate and act in subordinate ways (robs them of human dignity).

Building organizations up like this leads to the department structure. The managerial assumption then becomes one of making each department as efficient as possible. How? By managing each department (using budgets and variance reporting), and each individual within those departments (using performance evaluation and consequence management), separately. This is the “silo approach to management”.

The main problem here is that almost no one even questions it. This form of organization and management is taken for granted. Universities still teach this form to engineering and management students. Companies still make this the generally accepted form, and work hard to reinforce it and all of its vestiges. And where is the Customer in all of this? A very good question!

What, then, is Lean Leadership? The Lean way of running a Value Stream starts with a different assumption. First, people are fully capable of managing themselves. In fact, they are the only ones fully present with “themselves” 100% of the time. Extending this basic assumption throughout the enterprise (Value Stream) results in a very flat organization structure, due to the fact that extra levels of supervision and management are not needed. And because you’re not managing individuals, not as many managers are needed in the first place. A great deal of indirect cost is avoided in this manner.

Lean also results in a different organization structure. Silos are replaced by “pipeline” flows. At the end of the pipeline is the Customer, who is completely visible to all within the flow. Because people are self-managing and work in one-piece flow cells across the value streams, they make real-time decisions about how to serve the customer better and better. Human dignity is maintained and enhanced. A great deal of the indirect costs are avoided, and the product bill is very competitive.

Everyone wins!

So….why doesn’t every company organize itself by Value Stream and manage for a Lean Enterprise? Most companies (99.997% of them) are still trying to achieve world class results by running via this outdated model. Why? Here are some of the reasons:

1. Organizing and leading by VS would require far fewer managers and supervisors. This is a source of significant resistance. It seems okay for managers to cut direct labor via layoffs and curtailments while sending production overseas, but mention the need to cut their jobs, and the resistance is fierce! But it does work. One company we’ve worked in, over a period of years, transformed itself from 85 supervisors and managers to 8…..a remarkable 90% reduction, along with a corresponding reduction in indirect staff. This unit was able to compete (and win) against lower cost overseas (including China) production by taking this much indirect cost out of their products.

1. Universities still teach the outdated, obsolete and tremendously inefficient old form of management and engineering. Just take a look at any university curriculum in their School of Management, School of Engineering, or School of Business. You’ll undoubtedly see coursework in macroeconomics, microeconomics, cost accounting, managerial accounting, production management, organization & management, industrial psychology, etc. More modern curriculum might include courses in design-to-cost, quality management, supply chain strategy, etc. But it’s the rare university that offers coursework regarding Lean Enterprise.

1. There aren’t many publicized benchmarks. There are some brilliant fires burning out there in some companies, but they’re little points of light in a vast sea of darkness, still. So people who want to change their companies have few options when it comes to learning from others who’ve pioneered changes in organization and management.

1. The Human Resource (HR) systems and practices are heavily reinforcing the old forms of organization and management. HR, although it is supposed to be the voice of the employee, mostly works as the servant of management. Just check it out in your own company and see if this isn’t true. Ask some employees and see what they say.

1. Compensation systems and practices are solidly entrenched in reinforcing the old forms, especially of management. Executive compensation packages are clearly misaligned with Value Streams and Lean Enterprise performance. Executives who don’t even perform are routinely provided with management bonuses, even when employees are being let go and business is being diverted overseas….as if they’re doing a good job! Even if these managers and executives are an embarrassment to their companies, the compensation package enables them to depart (sometimes unceremoniously) with their own “golden parachute”. What sense does all of this make? Ask “Comp” and they’ll say they don’t see the problem. The problem is, they’re right….they don’t see it!

1. And where are Boards of Directors in all of this? What is they’re responsibility? Apparently only to the stockholders of the corporation. The BODs also reinforce the old form of organization and management. Most, if not all, BOD members are part of it…kind of like a fish in water doesn’t know it’s in the water because it can’t see from any other vantage point.

So this whole thing, the old, archaic, out-dated, obsolete, dysfunctional, low-performing, high cost way of organizing and managing is self-perpetuating! What a sad commentary on our business enterprises!

Jim Myers

President, JCM Work Designs

November 1, 2006