Waddya Mean by ‘Failure’

Jon Miller from Gemba Panta Rei and Karen Wilhelm from SME, a couple of very good lean thinkers and bloggers from whom I learn a lot, reacted to my ‘Pogo’ blog quickly and with their usual insight and everyone ought to read their comments.  Essentially, they both said "Waddya mean by ‘failure’?"  (Karen’s comment was really more like, "Waddya mean by failure you old geezer")  The common thread is that I was intellectually lazy in the casual use of the term ‘failure’.  The gist of Jon’s comment is that defining the success versus failure yardstick is pretty important.  Karen weighed in with the wise observation that how managers react when things don’t work out as planned has a lot to do with long range success or failure.

As Jon pointed out, kaizen is driven by a bias for action, taking ideas and running with them, breaking out of the staff driven change approach that only leads to ‘paralysis by analysis’.  Of course, not all ideas turn out to be good ones and failure is commonplace.  The key is to shake it off, to not waste a minute on blaming anyone,  and to try another idea.  This hardly qualifies as ‘failure’ in the sense that I meant it or that Clifford Ransom used it in the article in which he stated that 98%+ companies are not lean.  This sort of failure calls to mind Ross Perot’s old theory that, while selling for IBM in his early days, since only one out of a thousand customers said ‘yes’, he couldn’t wait to get out on the road selling every day to hear more ‘no’s’ because that would put him that much closer to that thousandth customer who was going to say ‘yes’.  Karen hit on this, as well.  How a company reacts when things don’t pan out has quite a bit to do with whether they are, or will ever become, very lean.  A lean company makes mistakes and learns from them.  A company doomed to reiterate past management practices often blames failure on external forces and uses it as an excuse to reject lean.

The key point that calls for differentiation, I believe, is that failure at a tactical level is not cause for concern.  In fact, it is to be expected and can serve to fuel an accelerated learning curve.  The factory and the people involved learn more about themselves, and what works versus what doesn’t, which are very valuable things to know.

Failure at a strategic level, however, is another matter all together.  Here, Jon points out that defining success or failure is key, and I could not agree with him more.  He says, "Cash flow and profit are important. Using stock price performance, which is by nature not primarily a measure of long-term company performance improvement, to arbitrate Lean success or failure (i.e. cultural shift, which fundamentally is only visible over the long-term thing) doesn’t seem right to me."  He is absolutely right.

As I wrote yesterday, profit is all that matters in the long haul.  It is the reason for the business to exist.  I do not see how a company can possibly claim lean manufacturing success unless it is more profitable than it was before it became lean.  Lean is first and foremost a machine to drive cost out of the factory at a dramatic rate.  (See Art Smalley’s article if there is any doubt on this point.)  But, while all lean companies must be profitable, it does not follow that all profitable companies are lean.

Taichi Ohno said, when asked what the Toyota Production System was all about, "All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash.  And we are reducing the time line by reducing the non-value adding wastes."  The measures of Ohno’s time line are cash flow and inventory turns.  Managing manufacturing with a cash flow and inventory turns focus – driving cycle time down relentlessly – is a fundamentally different economic view of manufacturing than seeking to optimize ROI as Pierre DuPont and Alfred Sloan defined it. (You just got a one sentence synopsis of my book.)

I am quite convinced that Ransom’s 98%+ failure figure describes the vast majority of companies that seek to become lean by deploying Toyota’s factory floor techniques in an effort to improve their profits under the old ROI economic model – and that simply does not work.  Lean companies deploy those techniques in pursuit of Ohno’s time line reduction economic model, and that works very well.  To answer Jon and Karen’s comments, when I look at a company, regardless of how profitable they may be at the moment, if cash flow and inventory turns are not significantly higher than the benchmarks in their industry, I do not believe that company is very lean, or that their profits are likely to sustain.