8
Lean Management

8.1. The importance of “Lean management” concepts for performance

Lean management proposes an alternative enterprise governance based on the “extraordinary” industrial approach used by the Japanese vehicle manufacturer Toyota. But is there really a different way, also lean, to measure a business’s, performance? This chapter aims to answer that question.

8.1.1. Toyota: the birthplace of Lean management

Over a long period of time, 60 years in fact, Toyota has shown exceptional results in terms of profitability, market penetration and resilience against crises. These results, obtained by steadfast and uninterrupted internal growth, have led this initially modest firm to the global forefront of automobile construction. This leads us to believe that within this family enterprise, there is a particular manner of apprehending performance. An abundance of literature covers the subject.

The classical industrial model – mass production and its economies of scale, scientific work organization, and the well known names of Ford, Taylor, Sloan and Fayol – was theorized before it was applied. Conversely, the Toyota production system (TPS) was invented and developed within this enterprise in an empirical and pragmatic manner, whereby the only common thread was a single, very simple guideline: eliminate waste. At the end of the day, we must admit that these exceptional performances were obtained by applying practices that were completely opposite to previously acknowledged dogmas.

The basic idea of Toyota’s system is the “total elimination of waste”. At the dawn of the 21st Century, this idea sounds familiar and pleasant since it evokes a consensual path to the “holy grail” of our time: Sustainable Development. However, at the end of the 1940s in Japan, when Kiichiro Toyoda, President of Toyota Motor Company, formulated this idea and assigned to his employees the objective of “hunting for waste”, he had quite a different grail in mind: “catch up to the US in three years…”.

At first glance, the enterprise’s waste elimination objective seems laughable for the Executive Management: “if it knew about the waste, it would surely eliminate it right away!”. This humorously reveals the inefficiency of traditional tools for management control and measuring performance to meet goals such as those set by Toyota.

8.1.2. Exceptional performance through original practices

Now, at the beginning of the 21st Century, a highly performing enterprise is supposed to do good for people. Shareholders should see their savings valued, employees should be emancipated by their work efforts, customers should be thrilled with their purchases and suppliers and bankers should be happy to cooperate a collectivity full of positive externalities. If we had to establish a ranking system according to these criteria, we would be surprised to discover little known and unknown enterprises at the top of the list: a highly performing enterprise does not make headlines! Without doubt, it is among these enterprises that the Toyota plant at Onnaing in the north of France would rank.

Regardless of how we attempt to approach this ideal, there are the same problems to resolve. Only the solutions are different. They are the result of arbitrations among interests that are a priori divergent and economic contingencies that must be assumed. These solutions are also the result of the priorities that we choose. Choosing waste elimination as a priority means beginning a long-winded and meticulous approach, and abandoning hopes for attaining the objective quickly.

Mass production has also shown its efficiency by allowing industries during the 20th Century to develop like never before in the history of humanity. Yet, during World War II efforts, certain individuals (Lawrence Miles, Jerry Leftow and Harry Erlicher at G.E.) observed in the US that this model led to an overabundance that was hardly compatible with the frugality resulting from the war. The idea began to surface that mass production leads to waste.

Waste is inherent in mass production because this model draws its strength precisely from the fact that it allows costs that are not directly productive to be diluted thanks to economies of scale. Thus, it turns out to be relatively tolerant regarding practices such as getting rid of scraps, unsold stocks, outdated machinery, underuse of working capacity, etc. Everything that is precisely considered as “waste” and whose eradication is the top priority of the TPS. Therefore, TPS proceeds with a different mindset and offers another perspective on production.

8.2. Measures of Lean performance

Lean management defines waste as being the disharmony within an enterprise. Therefore, waste elimination can be seen as the strategy for an enterprise’s development and progress. However, the pathway to the objective has not been theorized, and does not need to be! There are no procedures to follow. There are simply waste elimination mechanics to be put into place. At most there are, like in operational research, protocols determining the order of things in order to avoid dead ends occurring. These protocols have been established empirically from experience. They do not offer a “solution”, but merely separate the good ideas from the bad.

In order to illustrate this, “One must think before one acts” is a truism! Yet, W. E. Deming’s PDCA (Plan, Do, Check, Act) cycle has been received as a revolution. It defines the “think before you act” protocol for managerial use:

  • – Plan: yes, we must think and reflect, but for the purpose of suggesting a consensual solution;
  • – Do: yes, this solution must be executed, but in a complete (albeit cheap) manner to reach a good prototype for demonstration;
  • – Check: yes, it must be implemented, but for the purpose of showing how it can be used and for testing;
  • – Act: yes, the decision to keep or modify it must be made, but sometimes the decision should be to abandon it based on observed results. If the solution is kept, its realization and implementation must be refined and “toughened up” in order to eliminate potential deviations. It is locked down;
  • – The cycle: the end of one cycle must initiate the start of another.

This protocol process is tested and its efficiency is measured by indicators that are fixed at the beginning of the cycle but evolve from cycle to cycle. These indicators simultaneously combine the evaluation of quantitative results with the evaluation of the established process’ formal compliance in order to obtain these results. Thus, any observed divergence in either direction – bad results with a compliant process as well as good results with a non-compliant process – must be handled by either questioning the process or improving it. Based on eliminating waste as closely as possible to real field observations, this protocol mechanically leads to a combined and reciprocal improvement to costs, quality and deadlines. It should be noted that, for industries and services alike, deadline reductions manifest themselves through increased productivity.

It is notable that governance is incompatible with the existence of a rigid hierarchy in which the “blue collars” must execute the “ukases” of the “white collars”, regardless of what happens. Quite the contrary, here business intelligence is at the service of the workshops. At Toyota, the engineer must “sell” his solution to the worker. Of course, this cannot be improvised.

Maturity in terms of Lean management depends on two things: it supposes firstly that the company has achieved a level of waste elimination that is good enough to clarify the problems still to be solved, and secondly, that it has mastered the protocols and necessary tools revealed by the clarification listed above. What is difficult about the Lean model is deciding where to start; it is the “egg – chicken – egg” cycle.

Attaining this maturity level means that the enterprise has reached a state of perpetual progress or development which is now part of its DNA. It cannot possibly do otherwise. Every enterprise develops its own solutions reflecting the image of the employees that developed them. Two enterprises with the same activity will follow different paths and end up with different solutions. The performance that they will achieve is the fruit of the PDCA cycles’ slow sedimentation, which structures their incessant quest to eliminate waste.

In the classical model, it is the construction of a budget that plans progress and guides development. One talks about a “pro-active” budget or a “saving” budget. The ABC (Activity Based Costing) method helps adjust the trajectory through analyses and dashboards measuring progress and results towards objectives. In the Lean model, all this is useless. There is no operating budget per se.

In a Lean enterprise, progress and development are up and running. Governance consists of directing day-to-day operations in selecting the sequence of elementary actions that bring about progress and eventually bolstering them with supplementary means. The key budget of a Lean enterprise is its investment budget, that sets the means to be allocated to run the company according to its capabilities and objectives.

The performance of Lean management and its measurement focus mainly on how the elimination of waste is going, since this is the motor for its progress, and on how rapidly the company is able to adjust for changes affecting it, since this is the motor for its development.

8.3. Lean management in the IT industry or IT departments of enterprises

8.3.1. The problems inherent in traditional computer systems

If the Lean model pursues banal objectives (profitability, development dynamics, resilience against the competition), it suggests that the enterprise achieve them through an approach that differs from the classical mode, notably in terms of organizational modalities. The consequence of this is a doctrine of information technology usage, which is also particular.

If we consider manufacturing for example, the possibilities offered by information technology have led to the very early development of applications that assist the management of this production. Under the classic model, these software, encompassed in the generic term CAM (computer-assisted manufacturing), take the form of an activity model that, without going into detail, can be easily described as follows: the data describing each available production agent (machines, staff, capacity in kind and in volumes) form a digital model that is regularly informed of quantities to be produced, in other words, customers’ orders. Thus, computer applications reproduce the best way of producing these quantities (at least in theory!) by establishing day-to-day activity planning for each production agent. Intellectually irreproachable in a supposedly determinist environment, in other words, predictable and accessible for analysis, this IT assistance runs into numerous practical obstacles:

  • – the hazards of production require the model to be informed in return;
  • – regularly observed discrepancies incite us to put the field in accordance with the model, leaving little room for individual initiatives;
  • – respect for economic, minimal production series for economic reasons requires anticipation, that will increase the stocks.

Everything contributes to the system’s rigidity. In order to be flexible, the planning horizon would need to be shortened. Going from, for example, monthly planning to weekly planning implies multiplying the planned orders and the feedback from production hazards by four, which will increase the need for anticipation and consequently the stocks. Going in this direction can cause the IS to quickly implode.

A corollary of eliminating waste, the singular objective of the Lean model, is permanent research on flexibility in the sense that any anticipation of realization (that will necessarily increase the stocks) will eventually be the source of waste due to irreducible discrepancies between forecats and actual data. Here, CAM in its traditional form is inoperant.

Lean organizations adopt a fundamentally different use of IT which consists of monitoring at the margin a productive system that is constructed to ensure invariant production in an autonomous manner: a singular approach that strives for flexibility by constructing a rigid system! English-speaking literature has deemed this “flexible rigidity”. More simply, it follows that the Lean model adopts a servo IS system: CAM meets cybernetics. To achieve performance some common Lean practices have to be applied:

  • – searching for invariants by applying the Pareto law, which is an empirical phenomenon found in many areas: about 80% of the effects are the product of 20% of the causes;
  • – putting production means online according to its invariants;
  • – making means flexible in order to absorb the marginal.

All of this is subject to iterative reviews in order to improve, adapt and increase reliability. By definition, a servo system must be adjusted to the nature of the process that it monitors. Here, the IS must be permanently adjusted for changes appearing on the field.

8.3.2. The best practices of Lean IT

The necessary upgradeability of digital applications for the use of Lean organization has turned classical CAM software development practices upside down. A certain form of tyranny from the IT department is no longer valid. When one reviews what has to be done in order to efficiently insert the IT team into a Lean organization, one realizes that it consists of making it work according to Lean practices, since the IT team is expected to:

  • – immerse itself in day-to-day user concerns: priority given to the customer;
  • – not delay an application’s exploitation under the pretext of exhaustivity. Overall, 20% of the variety makes 80% of the volumes and if this is handled well, human initiative on the field level can take care of the rest;
  • – eradicate useless complexities, convoluted user interfaces and algorithmic logics to benefit usage logics;
  • – adopt means of development (platforms, tools, test stands) that allow programs and their functions to be quickly adapted;
  • – participate upstream with the manufacturing operators in order to determine final purposes with the methods departments to ensure consistency;
  • – participate downstream in reducing discrepancies and consolidating reliability;
  • – adopt standards that facilitate collaboration;
  • – adapt the IS architecture based on the production system’s architecture by incorporating the logic of the automated or robotized processes, the information captured by sensors, and the flow patterns.

8.4. Lean management in the service industries

Here, we are referring to service activities whose production is informational, such as banks, insurance, brokerage, distribution, etc. and also administrative functions within enterprises or the state.

While the Lean model was initially successful in manufacturing production, professionals from this model have progressively realized that informational production and administrative services, coming out of their first stage of digitalization, presented considerable amounts of waste and therefore a big source of productivity. And once again, that the Lean model and its principles were capable of overcoming this waste.

Mutatis mutandis, here is how:

  • – to identify invariants: 20% of provided services or administrative operations represent 80% of volumes;
  • – to trace and process these invariant fluctuations with simplification as the priority: assuring that all collected information is useful, eradicating duplicated entries, only keeping redundancies for security reasons;
  • – the processing chains must be conceived in harmony with capabilities in order to respect standardized deadlines (reduction of variety);
  • – the hardware and logical architecture must be modeled from the architecture of operations organization (the operator’s ability to use their tools);
  • – to reduce the use of information technology down to what is strictly necessary (return on investment calculations).

As can be seen at this stage, Lean production and Lean IT practices blend together. However, here more than anywhere else, there is a performance indicator that drives the approach: value stream mapping. It is an indicator that concerns two factors, which are the time and the space necessary to realize the work at hand. The shorter and narrower these factors are, the greater the productivity, and the less room for waste there is. It is intuitive! This does not mean that we have to rush or be all crammed together. It means that the quicker the information is processed, the less its pertinence is altered. The less it stagnates, the less useless complexities (research, verifications, updates, etc.) will appear. This also means that the less we spread over a large area, the easier communication will be. Reducing the value chain in time and space is the golden thread to a Lean approach to services.

8.5. What is a “Lean start-up”?

The term Lean start-up today refers to an alternative model or process for the creation and development of enterprises, which constitutes a rupture with regard to previous practices in this area.

It would be justified to think, considering the terminology, that a Lean start-up is simply the application of Lean principles that would reinvent the manner of introducing an activity on the market. In fact, the Lean start-up draws from several familiar Lean enterprise practices concerning the rules to be followed in terms of offer creation and new product launches.

However, in order to understand where the concept of Lean startup stands, some preliminary observations are necessary.

While enterprise creation has always existed, a “barrier to entry” conscience very often limited them to the exploration of new activities apart from those of mature and capitalistic industries. But when an attempt to compete against these industries surfaced, in order to mobilize necessary financial means, it became essential to outline the route in the long term, in a highly documented “business plan”.

However, in the 1980s, well before Lean’s influence, studies conducted in the USA showed that the majority of “success stories” had to do with creations in which the enterprise knew how to escape from its strict initial project in order to adapt to opportunities encountered along the way, thanks to their own potential. Flexibility took precedence over the rigid and blind “business plan”, even if a priori well laid out.

Since the end of the century, the proliferation of technology that is more and more permeated by digital intelligence – sometimes combined with the ardent obligation of finally finding solutions to problems concerning global warming – has disrupted the established situations.

Nowadays, start-ups post their innovations without complexity in domains that were previously thought to be reserved for major industries: medication, biotechnology, automobile, aeronautical, electricity production, telephone, printing, etc.

This momentum reveals entrepreneurship that breaches the “barriers to entry” by adopting new practices from Lean that allow for the chance for success to be optimized at the lowest cost possible.

8.5.1. The motivation for performance in a Lean start-up

It would be in vain to go into detail about the various practices that a Lean start-up can use. There are many of them and they are usually specific to the start-up. Remember that Lean was initially defined as a mindset – reducing waste in order to attain the objective at minimal cost – and a set of guiding principles.

One of them becomes particularly important in a Lean start-up’s development: the sanction of the market is put at the center of its approach.

Starting from an investment that is initially modest in a general sense, the Lean entrepreneur will focus on quickly materializing their product so that they present the most innovative characteristics from the outset.

It must be said that for this presentation, they will benefit from a particularly favorable cyclical environment. Over the last few years, an accumulation of “success stories” has created an audience of investors as well as users in search of initiatives of the like.

The start-up’s development and activity are carried out in an iterative way, with successive approaches from investors and users as the offer is consolidated. This is the beginning of the incubation phase.

Contrary to a “business plan” constructed out of sight so that it is protected from potential competitors, and its initial execution realized under the control of a restricted circle of initiates according to a well-established procedure, the Lean start-up quickly becomes public and enriched by the numerous interactions that are made possible by this publicity. This process is very flexible, enriched by experience and open to new, sometimes unexpected evolutions, similar to how a surfer rides a wave.

We could easily think that there is a conflict between seriousness and adventurism, professionalism and amateurism but, this is not the case. The Lean start-up, in its completed version, adopts tried and tested Lean practices:

  • – through the iterative Kaizen approach of continuous improvement based on concrete, simple and inexpensive actions. This is a gradual and gentle approach, which is opposed to the more Western concept of brutal reform of the “throw out the whole thing and start anew” type of innovation, which is often the result of a reengineering process. But Kaizen is first and foremost a mindset that requires the involvement of all actors, who it encourages to reflect on their workplace and to propose improvements:
  • – through constant enslavement of prices, quality and offer accessibility to the sanction of the market;
  • – through the combined work of design, realization and commercialization teams and through co-engineering-based evaluation, which is the only means of making sense of the two preceding practices.

There are other more specific practices, but the essentials are there. This approach’s performance comes from its Lean mindset:

  • – avoiding dead ends;
  • – getting rid of useless complexities;
  • – avoiding the constraints resulting from (necessarily) risky forecasting activity;
  • – satisfying at the lowest cost;
  • – mobilizing a variety of talents.

Surely the explosion of technology and, first and foremost, digitalization is the catalyst for the current multiplication of start-ups. Surely the barriers to entry have withered because of the necessity of finding new forms of development. However, Lean start-ups cannot be summarized by an elegantly improvised exploration of new opportunities.

The Lean start-up is founded on an old experience that is codified by Lean practices today. These practices are rigorous and require a certain professionalism for success.

8.6. Conclusion

As we can see, Lean offers a vast set of practices differentiated by activities and their scope of application. Furthermore, this set conserves the total coherence given by the simplicity of its fundamental principles.

These fundamental principles, insofar as they question the traditional performance approach based on economies of scale, have, of course, found their scope of application in manufacturing activities, starting with the automobile industry. These industries will remain the chosen field for the development and application of Lean practices and their didactic reference.

Elsewhere, in process industries, in activities from the primary to the tertiary sector as well as in start-up enterprises, the first and foremost principle of removing waste takes its meaning through the practices of Lean manufacturing.

There is no doubt that there are still technical advances to be discovered, management reflexes to be acquired and rearguard battles to be won over the weight of conservatism. However, the current is flowing, with efficiency as its source of power.

8.7. Case study: assessing the maturity of Lean management practices

The Air France company agreed to test the questionnaire and evaluate its maturity in terms of sustainable development. The following rubric concerning “Lean management” was provided to illustrate the method.

The test was conducted by the authors in the form of discussions with representatives from the company, whom we thank sincerely. The maturity evaluations obtained in this way correspond to perceptions, which would, of course, need to be confirmed by precise audits.

At Air France, a major global player in its three core businesses which are passenger air traffic, air freight (cargo) and aircraft maintenance, the Lean approach drew from the quality approach with, notably, the ISO 9001 and ISO 14001 certifications.

An integrated management system (IMS) was implemented in parallel as of 2005, progressively instilling within the entire company the concern of establishing an approach for continuous improvement. All sectors of business are concerned, operational as well as field operations, maintenance, air service, freight, human resources and other support services.

The Lean approach incites us to organize analyses in order to better evaluate the efficiency of processes, detect sources of waste and complexity, and identify pertinent improvement actions with operational actors.

These analyses assume support from managers; they must all be mobilized and allured by continuous search for improvements.

Table 8.1. Air France: overview of the maturity of the Lean management focus. Summary of results of the detailed evaluation grid from the guide “Performance durable de l’entreprise : quels indicateurs pour une évaluation globale?”1

Air France Overview of the Lean management focus Non-existent Discovering Deploying Under control Optimized Comments
×
The enterprise has integrated Lean management into its culture and partnerships. × The Lean approach supports the quality approach, in particular the 9001, 14001 and OHSAS 18001 standards.
The enterprise respects the PDCA cycle of improvement (Plan, Do, Check, Act), assuring flexibility and versatility. × Continuous improvement objectives have been set with a method that complies with the PDCA cycle in all management missions.
“The hunt for waste”: processes are under control, failures have been identified and corrected, work positions are sorted, flows are determined by demand, and stocks are not justified solely by demand. × Simplification is present throughout, with the concern of conserving the necessary while respecting requirements related to air transport.
A “customer first” attitude is at the heart of the enterprise’s concerns (satisfaction, complaints, prices and service) and this level of attention is continuously and methodically monitored. × Every employee must be listened to and will certainly have aspects to bring up concerning their field. Armed with information and results, executives can correctly mobilize the right resources at the right place
The enterprise measures results relative to objectives, assesses its dysfunctions, and displays changes in performance. × Workshops combining specialists in charge of various risks and professions that intervene in order to follow decisive actions and rely on digital and documentary means to assure rapid experience feedback.
All actors are empowered, starting with actors in the field; improvements are initiated at the level of the work position. × All services are involved, both operational (ground operations, engine maintenance, passenger support, etc.) as well as organizational (human resources, etc.). An innovation program has been implemented throughout the enterprise.
The enterprise practices target-costing (a conception based on the objective cost corresponding to the market) particularly by reducing the variety of components. × Simplification is currently a major feature, all while preserving the concern of satisfying different types of clientele.

We must listen to every person, who will certainly have aspects to report from the field. Armed with information and results, the executive can exercise his role which is to mobilize the right resources at the right place. This change is conducted using tools and methods from Lean, 5S2 and the agile approach in order to obtain sustainable results.

Managers are in the position of decision-makers with regard to all elements collected and proposed by their teams, ensuring cohesion among the best practices which serve as support for the approach.

The company is reaching a new stage, beyond resource management, favoring follow-up tests with feedback which allow them to go even further in participative innovation. The Executive Management is involved in this approach by continuously emphasizing its progress.

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