Life On This Side Of The Rubicon

by BILL WADDELL

A fact that the lean community has known for a long time is beginning to dawn on the rest of the world … that there are two kinds of companies in this world. 

There are those that are driven by simple ideas – value for customers, respect for people, common sense accounting, keeping things moving through straightforward processes without wasting time or money. 

They operate by a simple model like the one to the right: create more value in the product and the customer will pay you higher prices; Spend less money on things that do not contribute to that value and your costs will go down.  These are companies like Toyota, Danaher, Gardner Denver, my old cronies at Wahl Clipper, and the rest of the lean paragons.

Then there are those that picture business as some grand, complicated financial scheme propelled by increasingly sophisticated marketing theories.  The exclusive business schools crank out masters at these pursuits.  Such companies reduce making things and servicing customers to tasks best performed in the cheapest parts of the world; and they believe that everything in business can be boiled down to very precise numbers and all of it can be controlled with a big enough computer. 

They try to improve the top line with ideas like putting Chevrolet drive trains into sheet metal with a little different shape and Pontiac, Buick or Oldsmobile nameplate and charge more by creating the illusion of higher value.  They are companies like  Spectrum Brands and Furniture Brands which have bought out companies with hard earned reputations for quality products and farmed them out to China, and are now trying to make money by deceiving people into thinking that the weak Chinese imitation is somehow worth the same as the original.

For all of their cleverness, they have oversimplified the heart of the business proposition.  They seek to increase the price by any means, and to cut the cost by any means, without sufficient knowledge of the product or the customer to know how they are affecting value.

Those companies believe that growth is a vital necessity for a very good reason.  They are steadily eroding the value of the original product, creating an ever -widening value gap between the prices they charge and the worth of the goods they deliver.  Everything they touch is eventually destroyed, so they must keep acquiring more and more to stave off death.  There is no law of economics, physics or nature that dictates this grow or die principle – that is purely the survival mechanism of businesses with internal value gaps.  They don't know the product or the customer well enough to identify and solve the problem.

The lean, value driven companies will not only survive the economic downturn, they will flourish.  With common sense, cash based accounting, they are more self-sufficient and not dependent on the credit and capital markets which are in such disarray.  In tougher times, when customers are more value conscience than ever, they are well placed to give people their money's worth.  The cost escalation going on in China and erratic currency exchange rates wreaking havoc elsewhere are of little consequence to them.

For those companies led by men and women who worked to understand the inherent logic of lean, who came to see it as a comprehensive, tough, but right way to run the company, your reward is at hand. 

For those led by people who saw lean as a factory gimmick to tout in the annual report in order to dupe Wall Street into funding your next growth strategy, but no more than a distraction to the real work of financial manipulation and 'globalization' in pursuit of cheap labor, your day of reckoning is at hand.