Lean as your Business Model

Art Byrne has been implementing Lean strategy in various U.S.-based manufacturing and service companies, such as Danaher Corporation, for more than 30 years, including The Wiremold Company, which he ran for 11 years. He now serves as Operating Partner at the private equity firm J. W. Childs Associates L.P.

Art recently wrote the book, The Lean Turnaround: How Business Leaders Use Lean Principles to Create Value and Transform Their Company that is said to be the c-level guide to succeeding with Lean. I believe that is an injustice to the book. I believe that anyone that is serious about implementing Lean in any part of the organization can benefit from this book. It is about Lean as a business process or what fuels the fire of a Lean implementation. Below is an excerpt from the podcast, Lean as your Business Model that will post next week.

Joe:  The one big overall thought I had from the book, is that you practically view Lean from just about an appreciative inquiry point of view, what you do well, what are the value adding activities? That's like heresy sometimes, what many consider Lean thinking. I think the first thing when someone thinks about Lean, they think about waste reduction. But, you talk about value adding.

Art:  That's correct. There's a simple definition of, what is a business in the first place, not just a manufacturing business, but any business? It's really a very simplistic thing. It's a collection of people, and a bunch of processes all working to try and deliver value to customers. That's true for any business. It doesn't have to be just manufacturing. Unfortunately, the traditional approach that we've evolved to when we run these businesses, we started out with strategy, and more often than not the strategy is to create shareholder value, which I think starts out by having it all backwards because shareholder value, to me, is a result, not a strategy. It's a result of what you do and the value that you deliver to customers over long periods of time is what's going to improve your shareholder value.

You can't just say, "I'm going to do shareholder value." That's backwards. The other thing that occurs in almost all traditional approaches to a business is we take the value adding part of the business as a given. For example, if you're running a company and you have a six-week lead time, and you've always had a six-week lead time, then that's taken as a given, "OK we've got a six-week lead time. How do we do our strategy around that?"

What we try and do instead is we try and get our customers to conform to what we do, to the fact that we have a sixmonth lead time. Then, of course, we focus very, very heavily on making the month. The traditional management approach is focus on the numbers, and make the month, make the quarter, that kind of thing.

Unfortunately, when you're focused on make the month; you're focusing on something that already happened. You can't do anything about that anymore, it already occurred. That happened last month.
In fact, for most companies, by the time they get the results of last month, they're three weeks into this month. Effectively, we're always trying to drive the car through the rear view mirror when you look at it that way. The reality, however, is the opposite of that.

The value is created by a couple of things, one, by improving your own value adding activities. Two, by delivering more value to your customer than your competitors can. Three, by conforming what you do to your customers to satisfy them and make you stand out verses your competition. It's really this opposite...value is created by the opposite of the traditional approach, if you will.

I always like to use the example of a simple thing that productivity equals wealth. Productively, this is true for countries, for companies, for anything. Productivity always equals wealth. If you think of the industrial revolution in England, if you think about why the United States has become so powerful, it's all really because of productivity.

A Lean strategy allows you to get big improvements in your value adding activities, which is basically productivity. It's a way to get productivity by focusing on your value adding activities. As you get these, this creates the opportunity for you to grow and to gain to gain market share, which is particularly important in times like this when the economy is really flat and slow and people are struggling to get any kind of sales growth.

The Lean approach gives you the opportunity to do that by focusing on your value adding. I look at Lean really as the greatest wealth creator that was ever invented. But most people just look at it as a bunch of tools, as I said before. It's a whole bunch of tools in a tool kit.

We can roll then out when we want to use them. If we don't feel like using them...if you look at most manufacturing companies, they say they're going to do Lean, and most of them will start where they're trying to do Kanban, just because they can understand Kanban a little bit better than some of the other stuff. They won't do setup reduction.

They won't do some of the other fundamental things. They'll try and do Kanban, without doing all the other things first, you don't get much cane out of doing Kanban. But, that's the approach that a lot of people take.

I think you really have to understand Lean as strategic to really understand what's possible here. I can give you a really simple example of that, which is, if I just gave you an example that said, we got Company A and Company B; they buy the same equipment from the same manufacturer, so they run at the same speed. Everything is equal. They don't have anything different...as Company B can change the equipment over in one minute, and Company A takes an hour.

If each of them can only afford an hour a day to change that equipment over, then if I asked you who has the lowest cost, and who has the best customer service, A or B, it becomes pretty clear to most people that the guy with the one minute setup is going to have lower cost. He's going to have tremendously better customer service because of his ability to respond quickly.

He decides to leverage that by offering a two-day lead time, when Company A and the rest of the industry has a sixweek lead time. He's going to start to gain market share. Company A's first reaction is probably going to be to build more inventory so that he can offer a short lead time. That's just going to drive his cost up. Or, if that doesn't work, he's going to start to cut the price which also hurts his cost structure and his profitability.

Something that most people would look at clearly as a manufacturing thing, setup reduction, turns out that it's going to give me lower cost and better customer service, two very strategic things. That might give you a little insight into why, Lean at its core, is a very, very strategic thing. That's part of the point that we're trying to make with the book here is that applying the Lean tools and doing this...there's some tremendous results that you can get from this.

Sales Process Engineering is not Lean Sales and Marketing

Joseph Juran observed, "There should be no reason our familiar principles of quality and process engineering would not work in the sales process." In Management of a Sales Force, a sales process is presented as consisting of eight steps. These are:

1. Prospecting/Initial contact
2. Pre-approach planning the sale
3. Approach
4. Need assessment
5. Presentation
6. Meeting objections
7. Gaining commitment
8. Follow-up

This is your typical marketing funnel or a sales process describing an approach to selling a product or service. We may even choose to call it sales process engineering. Along comes a Lean consultant or a Six Sigma Black Belt saying that we can apply Lean or Six Sigma to the sales process. What they are really saying is that they can show you how to engineer the process. If they are somewhat current, they will throw in discussions about agile, iterations, uncertainty and flexibility. But they are still trying to engineer the process. I know this all too well; I have done the same.

I started out creating product/markets or value streams. The next step of the process is to map the customer journey and then start defining the individual reaction or internal processes to it. The rational for having a well thought-out sales process is that you can standardize customer interaction. From a consultant's (internal or external) view , it offers the opportunity to use design and improvement tools from other disciplines such as product development (Agile) and manufacturing (Quality). It is a good learning exercise and helps you understand your process and may even be a starting point to help you understand your customers. However, it is a mistake to create a sales and marketing process around this thinking. As you may know from my previous writings, Kill the Sales and Marketing Funnel, I believe linear planning will increase the risk for a customer to engage in an inappropriate course of action. I encourage you to read that post before continuing.

In today’s world, you may not know or be able to identify the decision makers anymore. Decisions are being made in committee and every one of those committee members are influenced by many others. It is becoming a very collaborative process. There are still people that carry more influence than others though it is not the perceived hierarchy that an organizational chart depicts. Rather, it is through a network of tangible and intangible deliverables, a network of value.

The conversation is at the heart of the Sales and Marketing process. Through the above mapping exercise, you should not be attempting to find a step by step process rather you should be identifying the conversation and interactions and prioritizing the moments of truths that take place. Just as Lean in the 3P process development process has moved away from stage gate reviews to an event, see blog post, Eliminate your Stage Gates in favor of Events, we need to make a similar move in sales and marketing. I prefer not to call it an event rather a conversation as I described in blog post, Sales and Service Planning with PDCA. A conversation of wiling participants who have demonstrated a willingness to address a job that needs to be done. This conversation has several paths one of discovery through CAPD and another through continuous improvement of PDCA. It is not restricted to a funnel that will limit participants and the sharing of knowledge.

You may ask, how does that deliver sales? What is the ROI of the Lean Sales and Marketing? Dave Gray, discusses this type of hierarchy and sales structure in his new book, The Connected Company. He calls this structure a POD. In the book, he mentions a few companies like Amazon and 3M that operate in this manner. He also mentions Semco, a Brazilian conglomerate that has grown from $4 to $200 million or Rational who was acquired by IBM for 2.1 billion and others. Whether you call them Pods or Value Stream Teams it makes little difference. They are built through a clearly defined vision and supporting processes that empower them in the conversation they have with customers.

Enabling the Lean Service Design Trilogy

This is the introduction page to the Trilogy Module of the Lean Service Design Trilogy Course. There is a special offer located on the page. 

First, I would like to emphasis the importance of knowing, understanding how a customer/prospect views and uses your Service Products. In the Service/Train module, I introduced the pyramid of the Progressions of Economic Value and Valuable Intelligence from the book, The Experience Economy. Each level of economic value corresponds to a level of valuable intelligence (commodities to noise, goods to data, etc.).

From the book:

While the economic offering becomes more and more intangible with each step up the next echelon, the value of the offering becomes more and more tangible. Economists often talk about the line of intangibility between goods and services to which we add the line of memorability before experiences and the line of sustainability before transformations. Goods and services remain outside of the individual, while experiences actually reach inside of the individual to the value of the offering.

They go on to say:

Nothing is more important, more abiding, or more wealth-creating than the wisdom required transforming customers. And nothing will command as high a price.

In the book Idealized Design, the authors used a similar hierarchy for the key terms involved in describing organizational learning. They are as follows:

• Data consist of symbols that represent the properties of objects and events. They have little value until they have been processed into information Data are to information as iron ore is to iron. Little can be done with iron ore until it is processed into iron.
• Information consists of data that has been processed to be useful. It is contained in descriptions, answers to question beginning with such words as what, who, when, when, and how many.
• Knowledge is contained in instructions, answers to how-to questions.
• Understanding is contained in explanations, answers to the why questions.
• Wisdom is concerned with the value of outcomes, effectiveness, whereas the other four types of mental content are concerned with efficiency. Efficiency is concerned with doing things right; effectiveness is concerned with doing the right thing.

These key terms can help you in developing user stories and understanding how a customer may view your service offering. Do not underestimate the value of understanding current state. It serves as a guideline to communicate the opportunities so they may be prioritized and then acted upon. It helps build a shared and consistent understanding of the customer’s experience of your process and of your business as a whole. Understanding where your service product fits into the hierarchy above is one of the first steps in creating and effective Service Product.

Secondly, you should pay particular attention to identify critical control points (moments of truth) or interfaces with the customer. These critical points deserve special consideration as they typically will be the deciding factor for your customers. You may ask what they will look like. I typically find two obvious areas are the cause of most concern. First is the area of flow. If your service process does not flow well in its delivery to the customer, it seldom flows well for the customer. Your service must be in sync with the customer’s ability to react to the moment. A crystal ball would be great but if your typical customer takes three months to make a decision about your service, trying to accelerate or stretch that process out will seldom prove successful.

Thirdly, a clear-cut understanding of how that service meets your customer’s needs is imperative. A strong value proposition is the first step in building a successful service product. Many organizations struggle with this concept and do not utilize the tools available to understand their service product from the customers’ viewpoint. They are in love with what they do. Understanding how your customer perceives your position in the marketplace relative to your competition may be the single most important issue you face.

Many organizations try to build their first service product journeys into a simple stream. I encourage breaking it down and allow for exceptions but don’t spend the energy scrutinizing each and every one. Seldom will your organization’s service products be so clear-cut that have one customer journey. Many of the answers to these exceptions will be found as you take the deeper dive into the primary journey. One of the powers of mapping the customer journey is that it enables the team to see the entire picture. This coincides with the fundamental Lean thinking of optimizing the entire process versus the individual stages.

P.S. Many times exceptions are a result of limited resources. If this is a new service product, I would start by suggesting that you have unlimited resources then ask what the structure would look like.

Fourthly, respect your people. Trust your team knows how to improve their process more than anyone else. They can tell you if the paperwork, request for proposals, and specifications are flowing. They know the degree of misunderstandings that are occurring internally and with customers. And always remember, the customer experience will mimic the employee experience.

The fundamental goal should be one of discovery, learning and adaptability with a shared responsibility for a successful outcome. That implies that it is all about engaging both organizations into effective problem-solving and learning. In applying this, think of the customer journey in terms of a series of iterative loops of problem solving and knowledge creation. Taking this approach, each iterative cycle should be built around (adapted from the “Manifesto for Agile Software Development”):

• Individuals and interactions over processes and tools
• Content-rich material over-elaborate promotion
• Customer collaboration over contract negotiation
• Response to changing customer needs over following a plan

In ‘The no-nonsense guide to standardized work’, Robert Thompson explains;

Employees, not ‘outsiders’, study the jobs they know intimately in order to uncover best practices and create methodologies for continuous process improvement. Thus they become responsible for solving problems and own the standards that result.

In a Dennis Stevens post, Does Process Discipline Really Reduce Creativity?, he says:

Something I find interesting is the push back. I hear from Agile developers that process discipline will inhibit their creativity. They say, “Software development is a creative activity. If you put process rigor around it you will inhibit our creativity.” I have heard others complain about applying Lean concepts to software development. “This isn’t manufacturing,” they say, “There is no place for standard work in what we do.

These are the same arguments that I hear time and time again in developing standards for sales and marketing and service processes. The importance of standard work is that it is the starting point to create efficient and effective ways to communicate with your potential customers. Standard work begins with understanding the customer. We determine customer requirements and make sure we can deliver on those requirements. Delivering on these requirements consistently means that we need to be in control of our processes.  And simply stated, we are only in control of our processes when we have documented procedures.