Rotman Management Magazine - - FRONT PAGE - By Daniel Markovitz

lead­ers around the world have been FOR MORE THAN 20 YEARS, fas­ci­nated by the Toy­ota Pro­duc­tion Sys­tem. The sys­tem — known as ‘lean’ — has made the au­tomaker one of the most suc­cess­ful and ad­mired com­pa­nies in the world, and as a re­sult, the ben­e­fits of ap­ply­ing lean man­u­fac­tur­ing prin­ci­ples to any kind of or­ga­ni­za­tion are now well known greater prof­itabil­ity, higher qual­ity, lower costs, and im­proved em­ployee en­gage­ment — to name a few.

Un­for­tu­nately, while many have tried, few or­ga­ni­za­tions have ac­tu­ally achieved a lean trans­for­ma­tion. The rea­sons for this are var­ied: some lead­ers can’t make the in­tel­lec­tual leap re­quired to trans­late a sys­tem from auto man­u­fac­tur­ing to, say, health­care or bank­ing; and in other cases, the Ja­panese jar­gon — hei­junka, kan­ban, muda — is too high a hur­dle to over­come, and lean is never seen as any­thing but an alien way of work­ing. I would ar­gue that try­ing to be like Toy­ota is their key mis­take: what lead­ers need to do in­stead is learn — from Toy­ota — how to con­vert their flabby or­ga­ni­za­tions into ‘fit’ ones.

I de­fine a fit or­ga­ni­za­tion as ‘a dy­namic, con­stantly-im­prov­ing, pro­foundly cus­tomer-fo­cused en­tity that de­liv­ers su­pe­rior per­for­mance and re­sults over the long haul’. As ev­i­denced by Toy­ota, be­com­ing this kind of or­ga­ni­za­tion rests upon six prin­ci­ples: 1. Making an un­shake­able com­mit­ment 2. to in­crease value by 3. Do­ing the right work (things that de­liver value to

the cus­tomer) 4. In the right way (through stan­dard work) 5. With con­tin­u­ous mon­i­tor­ing 6. And struc­tured coach­ing for ev­ery­one (us­ing a sci­en­tific


Th­ese prin­ci­ples are the sub­ject of the six chap­ters of my lat­est book [ Build­ing the Fit Or­ga­ni­za­tion], in which I dis­till crit­i­cal prin­ci­ples from Toy­ota’s ‘lean play­book’. The core of lean is founded on the con­cept of con­tin­u­ous im­prove­ment in both prod­ucts and pro­cesses and the elim­i­na­tion of non-value added ac­tiv­i­ties. In this ar­ti­cle I will share some of my think­ing about this univer­sal prin­ci­ple of or­ga­ni­za­tional fit­ness.

The Im­prove­ment Im­per­a­tive

In a 2014 New Yorker ar­ti­cle, James Surowiecki made the case that the big­gest change in per­for­mance over the past few decades isn’t that the best per­form­ers in var­i­ous fields are so much bet­ter than they used to be — al­though they are; but rather, that so many peo­ple in th­ese fields are so ex­traor­di­nar­ily good.

For ex­am­ple, in the 1970s, only two chess play­ers had ‘Elo rat­ings’ (a mea­sure of skill level) higher than 2700. Th­ese days, there are typ­i­cally more than 30 such play­ers. Like­wise, the qual­ity of clas­si­cal mu­si­cians has im­proved dra­mat­i­cally — to the point that pi­ano vir­tu­osos are now, as Times mu­sic critic An­thony Tommasini has ob­served, “a dime a dozen.”

The story is the same for pro­fes­sional ath­letes. In­nate ath­letic abil­ity is now the bare min­i­mum re­quire­ment for sucess; what really mat­ters is a re­lent­less com­mit­ment to prac­tice and im­prove­ment. Gone are the days when pro­fes­sional base­ball and foot­ball play­ers sold in­sur­ance or laid bricks in the off-sea­son; to­day’s pro ath­letes spend that time hon­ing their phys­i­cal con­di­tion — and any ath­lete that isn’t will­ing to com­mit to fit­ness and im­prove­ment isn’t go­ing to com­pete at that level for very long.

The busi­ness world has seen the same shift. In the decades af­ter World War II, Amer­i­can man­u­fac­tur­ers dom­i­nated, un­chal- lenged by for­eign com­pe­ti­tion. How­ever, with dom­i­nance came com­pla­cency, in the form of low pro­duc­tiv­ity and poor qual­ity. One 1969 study found that 30 per cent of the peo­ple who bought a new Amer­i­can car that year judged it to be in un­sat­is­fac­tory con­di­tion; in 1974, ser­vice calls for Amer­i­can tele­vi­sions were five times as com­mon as for Ja­panese tele­vi­sions; and in 1979, it took Amer­i­can com­pa­nies more than three times longer than Ja­panese firms to man­u­fac­ture their TVS.

With the ar­rival of for­eign com­pe­ti­tion — pri­mar­ily from Ja­pan — the im­per­a­tive to im­prove be­came un­avoid­able. But for some com­pa­nies and in­dus­tries, it was too late: the U.S. tele­vi­sion in­dus­try, which had more than 90 man­u­fac­tur­ers in the 1950s, ceased to ex­ist in any mean­ing­ful way when Zenith was sold to Korea’s LG Elec­tron­ics in 1995.

By con­trast, the U.S. auto in­dus­try has sur­vived — but only by dra­mat­i­cally im­prov­ing prod­uct qual­ity. As in sports and mu­sic, how­ever, the gap be­tween the best and the worst in

the in­dus­try has shrunk: in 1998, J.D. Power and As­so­ciates found that the most re­li­able car had 92 prob­lems per 100 ve­hi­cles, while the least re­li­able had 517 — a gap of 425. By 2012, the gap had closed to 284 prob­lems. As J.D. Power’s Dave Sar­gent has said, “We don’t have to­tal clunkers like we used to.”

And it’s not just cars: de­spite in­creas­ing com­plex­ity in nearly ev­ery cat­e­gory you can think of — from cell phones to planes to com­put­ers — qual­ity and re­li­a­bil­ity has con­tin­u­ally in­creased. The over­all les­son is clear: im­prove, or face ex­tinc­tion.

Making Im­prove­ment a Daily Habit

Don’t try to find a spot on the Stairmaster at your lo­cal gym on Jan­uary 8th. The busiest week of the year at any gym is the sec­ond week of the new year, when — fu­eled by an ex­cess of calo­ries from the hol­i­day sea­son — peo­ple make res­o­lu­tions to get fit. Of course, by Fe­bru­ary, ev­ery­thing is back to nor­mal, and you could toss a foot­ball in the gym with­out hit­ting any­one.

Or­ga­ni­za­tions aren’t that dif­fer­ent. Pre­ced­ing each new fis­cal year, se­nior man­age­ment an­nounces its goal to cap­ture the top spot in the mar­ket­place, rolls out 37 new strate­gic ini­tia­tives, and vows to el­e­vate em­ployee en­gage­ment. By the sec­ond quar­ter, it’s busi­ness as usual: peo­ple get caught up in try­ing to make the quar­terly num­bers and employees feel no more con­nec­tion to the com­pany’s vi­sion than they did be­fore. The or­ga­ni­za­tion loses mo­men­tum, fails to achieve its stated goals, and wad­dles along un­til the next an­nual strate­gic off-site, when the cy­cle re­peats it­self.

For both in­di­vid­u­als and or­ga­ni­za­tions, the root prob­lem is the same: there may be a stated goal — ‘lose 15 pounds’ or ‘be #1’ — but there is of­ten no clearly-de­fined pro­gram to reach that goal. If there is, it is of­ten the lat­est fad, promis­ing re­sults with min­i­mal ef­fort. More im­por­tantly, for peo­ple who aban­don their fit­ness ef­forts, go­ing to the gym and ex­er­cis­ing is some­thing that re­mains ex­ter­nal to the daily flow of their lives:

it is viewed as a chore that re­quires ad­di­tional time and ef­fort — not as some­thing that is as fun­da­men­tal to their life as, say, go­ing to work or brush­ing their teeth.

Truly fit in­di­vid­u­als don’t so much make a generic com­mit­ment to get­ting fit as they weave ex­er­cise — and health — into the fab­ric of their daily lives. Sim­i­larly, truly fit or­ga­ni­za­tions don’t so much make a com­mit­ment to an im­prove­ment pro­gram per se as they build im­prove­ment into the way they op­er­ate, ev­ery sin­gle day.

Cre­at­ing the Cul­ture

Or­ga­ni­za­tions don’t nat­u­rally turn to­wards con­tin­u­ous im­prove­ment. It takes fo­cused, con­certed ef­fort to cre­ate this kind of be­hav­iour and cul­ture. Fol­low­ing are nine points to con­sider.


Most or­ga­ni­za­tions face a ‘flavour of the month’ probPLAIN WHY. lem with new ini­tia­tives, be­cause of­ten, the un­der­ly­ing ra­tio­nale isn’t ar­tic­u­lated. HR ini­tia­tives, in par­tic­u­lar, tend to re­ceive this sort of cyn­i­cism, and you can understand why: most peo­ple don’t see how self-iden­ti­fy­ing as a My­ers-briggs ENTJ is go­ing to af­fect new prod­uct de­vel­op­ment — or their bonus at the end of the year. Fit lead­ers live the gospel of con­tin­u­ous im­prove­ment and con­tin­u­ally show how it di­rectly af­fects the or­ga­ni­za­tion by con­nect­ing it to larger goals and strat­egy.

Noth­ing is more toxic to the es­tab2. PAR­TIC­I­PATE, DON’T PRO­CLAIM. lish­ment of a con­tin­u­ous im­prove­ment cul­ture than hypocrisy. A fit leader par­tic­i­pates in im­prove­ment ac­tiv­i­ties her­self. It doesn’t mat­ter whether she is lead­ing them or in­volved pe­riph­er­ally — the key is reg­u­lar par­tic­i­pa­tion. Peo­ple need to see that you value im­prove­ment enough to in­vest your own time in the same ac­tiv­i­ties you’re ask­ing them to com­mit to.

Or3. CHAL­LENGE PEO­PLE TO IM­PROVE. THEN, CHAL­LENGE THEM AGAIN! ga­ni­za­tional in­er­tia is a for­mi­da­ble op­po­nent. You’re not go­ing to over­come it by ask­ing peo­ple to do one project — or two, or even five. Peo­ple are busy with their daily re­spon­si­bil­i­ties. As a leader, you need to con­tin­u­ally chal­lenge them to find im­prove­ments. This kind of on­go­ing pur­suit can be emo­tion­ally dif­fi­cult, be­cause peo­ple may feel that they can never sat­isfy you. But chal­leng­ing peo­ple is ac­tu­ally a sign of re­spect, for their ex­ist­ing skills and their ca­pac­ity for growth and learn­ing.

Make no mis­take about it: com4. GIVE PEO­PLE TIME TO IM­PROVE. mit­ting to im­prove­ment means reg­u­larly de­vot­ing time and at­ten­tion to it. Google and 3M have gar­nered much press for their ‘20 per cent time’ rule — free time for peo­ple to work on new prod­ucts and projects. I would ar­gue that if cre­at­ing some­thing new is worth 20 per cent of peo­ples’ time, surely, im­prov­ing ev­ery facet of the way your com­pany op­er­ates is worth at least six per cent (i.e. 30 min­utes a day). At Bloom­ing­ton, Min­nesotabased Qual­ity Bike Parts, man­agers are held ac­count­able for giv­ing employees the time to im­ple­ment their im­prove­ment ideas, which may in­volve re­dis­tribut­ing work, bring­ing in temp labour and shift­ing sched­ules.

A Google 5. MAKE IDEAS VIS­I­BLE AND RE­SPOND TO THEM — QUICKLY. search for ‘sug­ges­tion box’ leads to page af­ter page of boxes with pad­locks. I’m not sure where the no­tion came from that em­ployee sug­ges­tions — like dan­ger­ous an­i­mals — should be kept un­der lock and key. In­stead, post im­prove­ment ideas in pub­lic, where ev­ery­one can see them—and al­ways re­spond to them within a few days. Qual­ity Bike Parts’ pol­icy is that man­agers must re­spond to ideas within 48 hours, and those that are se­lected must be im­ple­mented within three weeks. Fit com­pa­nies know that if you don’t re­spond to all ideas, you in­crease the like­li­hood that peo­ple will see your ac­tions as in­au­then­tic.

6. FO­CUS ON IN­CREAS­ING CUS­TOMER VALUE — NOT ON COST SAV­INGS. Cut­ting ex­penses is not in­spir­ing to any­one, and as a re­sult, ask­ing peo­ple to find cost sav­ings is a guar­an­teed dead end. Peo­ple are much more en­er­gized when they are able to make im­prove­ments that cre­ate value, pro­vide bet­ter ser­vice, or make their col­leagues’ lives (and their own) a lit­tle eas­ier.

If you’re con­sis­tently run­ning ex­peri7. EX­PECT (SOME) FAIL­URE. ments, you will in­evitably fail, some of the time. Don’t crit­i­cize peo­ple for not suc­ceed­ing. The Sil­i­con Val­ley mantra th­ese days is, ‘fail fast’, which pro­vides li­cense to ex­per­i­ment with­out fear of fail­ure.

Some­times it’s hard for 8. LIS­TEN CARE­FULLY FOR COM­PLAINTS. peo­ple to think about im­prove­ments they can make; but by con­trast, it’s usu­ally pretty easy for them to find things to com­plain about. For­tu­nately, ev­ery com­plaint is a nascent im­prove­ment op­por­tu­nity: seize upon them, and chal­lenge peo­ple to solve them.

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