Introduce key concepts of lean methods- focusing in particular on the organisation of work

Reasons for its worldwide diffusion

Implications of lean work organisation for companies’ performance and for job quality (e.g. wages,
autonomy, skill utilization)

By taking a comparative perspective, it will show how labour market and industrial relations
institutions affect the impact of lean methods on workers’ outcomes

Why do work organizations implement lean methods?

- Mission statement
- Business Strategy
- Cut cost
- Improve efficiency
- Innovation
- No innovation, but maintain market position

How do work organizations implement lean methods?

- JIT
- Kaizen
- TQM
- Supplier relationships
- Order demands
- Training

In what way do work organizations that have adopted lean methods affect worker’s outcomes?

- Wages
- Autonomy
- Skill utilization
- Work conditions
- Employee treatment
- What are the incentives
- How does it compare with traditional mass manufacturing
-
Greg Distelhorst- HBR- Can Lean Manufacturing Put an End to Sweatshops?

Producers in less-developed countries compete by keeping costs low →hence, if firms were to
improve working conditions →costs money→undermine the competitive advantage these firms
enjoy = consequence of global trade [conventional wisdom]

Lean manufacturing [conventional wisdom] →ranged from scepticism that lean could be successfully
applied in places like Vietnam and India, to the hypothesis that lean actually exposes workers to
greater risk of exploitation and injury than mass manufacturing

“Lean manufacturing” principles- developed by Japanese automakers

Traditional mass manufacturing= based on principles of “Scientific Management” that date back to
the 19th century→workers specialize in simple, highly routinized operations →they are incentivised
to complete operations as quickly as possible →managers hold virtually all decision-making
authority

Lean manufacturing context= assembly line workers learn to execute a variety of production tasks
→take responsibility for product quality→encouraged to find ways to improve the production
process and delivery times →has also been linked to improved terms of employment →workers
tend to earn more and report higher engagement with their jobs

Nike on the lean manufacturing program = support from suppliers→extensive training to factory
management →inspected production lines for adoption of new management practices →deliver
high-quality products in relatively small batches and on shorter production deadlines

The impact of lean production on the workplace:

- Using factory audit of wages, work hours, disciplinary practices, health & safety, and
environmental compliance- looking whether the transition from traditional mass
manufacturing to lean manufacturing had any impact on factory compliance with the
standards of decent employment

→ Research has shown that factories that adopted lean manufacturing improved compliance
with labour standards. On average, serious violations of labour standards fell by 15% of
factories.

→These labour compliance ratings primarily reflect factory wages, benefits and rest days-
important issues that shape workers’ take-home pay and work-life balance.

→Even though the production system requires more worker skill and effort, employers have
incentives to retain these valuable workers through improved working conditions.

→According to research, there has been improved compliance in India, Malaysia, Thailand and
Vietnam, but no effects in China, the world’s largest exporter of apparel.
James P. Womack and Daniel T. Jones –HBR- From Lean Production to the Lean Enterprise

“Lean Production” pioneered by Toyota= eliminating unnecessary steps →aligning all steps in an
activity in a continuous flow→recombining labour intro cross-functional teams dedicated to that
activity→continually striving for improvement→companies can develop, produce, distribute
products with half or less of human effort, space, tools, time and overall expense→become more
flexible and responsive to customer desires

If there’s a continuous value stream that creates, sells and services a family of products, the
performance of the whole can be raised to a dramatically higher level→this effort will require a new
organizational model→the lean enterprise.

Lean enterprise= a group of individuals, functions and legally separate but operationally
synchronized companies →the notion of the value stream defines the lean enterprise →the group’s
mission is collectively to analyze and focus a value stream so that it does everything involved in
supplying a good/service (from development and production to sales and maintenance) in a way
that provides maximum value to the customer.

The Lean enterprise differs dramatically from the much-discussed “virtual corporation” →members
are constantly coming and going →there’s no way that such an unstable entity can sustain the
collaboration needed to apply lean techniques along an entire value stream

Going through a re-structuring to a lean enterprise will entail radical changes in employment
policies, the role of functions within companies, and the relationships among the companies of a
value stream →managers will have to concentrate on the performance of the enterprise rather than
on the performance of individual people, functions and companies →especially important because
even though one company will be the “team leader”, the enterprise must be unified by shared logic
and shared pains and gains.

Also, difficult for managers to oversee every single little activity within the company →undertaking
lean production and management styles associated with it can be met with resistance at first from
employees/functions/companies

The three needs

1) Needs of individuals

For most people, having a job is the minimum requirement for self-respect and financial well-
being→ludicrous to assume that people will identify and orchestrate changes that eliminate their
jobs

Making any process lean immediately creates large numbers of excess workers and then continually
reduces the amount of effort needed →the jobs problem is a major obstacle confronting any
enterprise that is trying to make a performance leap and then sustain its momentum

Beyond a job→ most of us need a career to give us a sense that we are developing our abilities and
are “going somewhere”.

Most of us need a “home” that defines who we are in our work lives → i.e. “I am an electrical
engineer”; “I’m a Matsushita employee”; “I’m a steelworker”;

But the value stream itself can’t fill these needs for long→while functions and companies endure, an
employee’s position within a specific value stream is tied to the life of the product
 2) Needs of functions

In order to optimally utilize the knowledge of employees, companies must organize this knowledge
into functions, i.e. engineering, marketing, purchasing, accounting and quality assurance.

Functions do more than accumulate knowledge →they teach that knowledge to those who identify
their careers with the function →they search continually for new knowledge

In the so-called “learning organization”, functions are where learning is collected, systematized and
deployed →thus; functions need a secure place in any organization

Because of the required depth of knowledge, the time and effort needed to obtain that knowledge
and its inherent portability (much knowledge can be carried from one employer to another),
functional specialists often feel a stronger commitment to their function and its intellectual tradition
than they do to either the value stream or the company.

Focusing processes= the means of making organizations lean →requires a high degree of cross-
functional cooperation

Some business theorists and executives advocate permanently assigning members of functions to
multifunctional teams as the solution to this conflict between function and process.

Others propose weakening functions or subsuming the activities of “minor” functions like marketing
within product teams. Both solutions may work for a while but will weaken companies in the long
run.

3) Needs of companies

The narrower the scope of responsibility= the more easily a company can calculate costs and the
benefits it generates and see the results of its improvement efforts →the value stream should be
segmented so that each company is responsible for a narrow set of activities

Throughout most of industrial history, the value chain has usually been integrated vertically within
one company, or one company has dominated the other companies making up the chain.

As a result, firms understandably consider control more important than efficiency or responsiveness.
The natural response during hard times is for the strongest company to reintegrate as many
activities as it can within its corporate walls or for each company in the value chain to grab as much
of the profits or revenues as it can from its neighbours.

Hints from three industrial traditions

Given all these conflicting needs, it’s easy to see why few enterprises achieve maximum efficiency,
flexibility and customer responsiveness.

In searching for a solution, it’s useful to look anew at the three preeminent industrial relations: the
German, the American, and the Japanese. → Each has derived different strengths by trying to satisfy
the needs of the function, the individual or the company.

• The German tradition

The backbone of German industry has been its intense focus on deep technical knowledge organized
into rigidly defined functions

Individuals progress in their careers by climbing the functional ladder

Companies strive to defend their positions in a value chain by hoarding proprietary knowledge
within their technical functions

→The consequence of this focus has been great technical depth and an ability to compete globally
by offering customized products with superior performance.

→The weakness of the German tradition= its hostility to cross-functional cooperation. E.g.
Mercedes-Benz takes three times the number of hours Toyota requires to engineer and manufacture
a comparable luxury car, largely because the engineering functions won’t talk to each other.

→Mercedes makes durable, high performance cars, but with too many labour-intensive loops in the
development process and too little attention to manufacturability. The same holds true for almost
all German industries, which have discovered that the world will no longer buy enough customized
goods at the high prices required to support the system’s inherent inefficiency.

• The American Tradition

Individual efforts have been key advantages in introducing continuous flow and mass production (i.e.
whether be individuals, suppliers, assemblers).

However, extreme individualism created its own needs i.e. in the post-war era, managers sought
portable credentials (e.g. an MBA) and generic expertise independent of a particular business (e.g.
finance).

The consequence was the US industry gradually became as functional as German industry, but self-
preservation, rather than a desire for technical knowledge, drove functionalism in the US.

The “every company for itself” tendency is most evident in hard times greatly reduced the ability of
US firms to think together about the entire value stream.

Even though the willingness of Americans to innovate by breaking away from employers and
traditional intercompany relationships imparts a real advantage in potential industries like
information processing and bio-technology, this extreme individualism has caused the US to lose its
lead in efficient production.

• The Japanese Tradition

The Japanese have stressed the needs of the company.

Government policy, with its focus on production rather than individual consumption, has reinforced
this emphasis.

The enormous benefit of the Japanese tradition →has been the ability of big firms to focus on the
needs of the entire value stream unimpeded by functional fiefdoms, career paths within functions
and the constant struggles between members of the value stream to gain an advantage over each
other.

However, such exclusive focus on the company has led to certain weaknesses .e.g. technical
functions are weak in most Japanese companies despite the overwhelming dominance of engineers
in management → as most engineers have spent practically all their careers on cross-functional
teams developing products or improving production processes, they have gotten better and better
at applying what they already know.
Many Japanese companies (from Toyota in cars to Matsushita in consumer electronics) prospering
by commercializing and incrementally improving well-understood product and process technologies
have now made room for generating fundamentally new, innovative products and processes.

→E.g. Sony: no dramatic product breakthroughs hence had to defend its competitive position by
adopting lean techniques to cut costs in increasingly mature product lines. However, these should
complement rather than substitute for innovation.

Another weakness inherent in the Japanese system= preserving feudal relationships has become
more important than responding to shifts in the market.
David Collis- Lean Strategy- HBR

Strategy and entrepreneurship are often seen as polar opposites. Strategy= the pursuit of a clearly
defined path- systematically identified in advance- through a carefully chosen set of activities.
Entrepreneurship= the epitome of opportunism- requiring ventures to pivot in new directions
continually, as information comes in and markets shift rapidly.

→Yet the both each other i.e. strategy without entrepreneurship is central planning.
Entrepreneurship without strategy leads to chaos.

“Lean strategy process”=in this framework, strategy provides overall direction and alignment. It
serves as both a screen that novel ideas must pass and a yardstick for evaluating the success of
experiments with them.

→Strategy allows (even encourages) frontline employees to be creative, while ensuring that they
remain on the same page with the rest of the organization and pursue only worthwhile
opportunities.

The Entrepreneur’s Challenge

Entrepreneurship defined as “the pursuit of opportunity without regard to resources currently

controlled” (Harvard Business School) i.e. shortage of money, talent, IP, access to distribution etc.

Indeed, the single best piece of advice for any company builder is this: Know what not to do.
Strategy helps you figure that out.

Fundamental principles of entrepreneurs:

- The opportunity cost of doing A is that you can’t also do B

- Every choice creates a unique path with a different outcome and unforeseen implications
- Decisions are interdependent
- Simple market tests aren’t always useful:
➔ the lean start-up is an effective way to innovate incrementally and fine-tune offering’s fit
with the market, but some ideas simply can’t be evaluated in a series of quick, cheap
experiments
➔ innovations that bring novel goods/services often involve building complete eco-systems
and require long-term investments
➔ while adoption rates are accelerating (Facebook achieved 100 million users in just over 4
years, Whatsapp in two years) some businesses will mature more slowly- making the
lean start-up concept even more prevalent

Strategy helps entrepreneurs do four things:

- Choose a viable opportunity:

➔ i.e. knowing that the business can’t be sustainable in a competitive industry, the
entrepreneur does everything possible to minimize long-term commitments and
maximize the gross margin and sales while looking for the exit- lean production.
➔ Entering a large and growing market without analyzing whether the firm will be able to
build a sustainable competitive advantage is a mistake. Lean production offers a
competitive advantage in itself. It may be much wiser to pursue several smaller, less
risky opportunities that together could create a successful long-term business.
 ➔ An initial strategic screen can save a venture from going down the wrong path i.e. one
that might be readily validated by market test of a minimum viable product is unlikely to
support a long-term business.
- Stay focused on the prize:
➔ Ventures that lack strategic bounds try to do too much and spread themselves too thin.
Because they fail to concentrate their available resources, they can’t win in any key
market.
- Align the entire organization:
➔ In tiny start-ups, it may be possible to coordinate activities through daily personal
interaction.
➔ In larger ventures, project management or a bureaucracy can help somewhat with this,
but only a strategy allows a leader to empower all employees while avoiding duplicative
efforts and the pursuit of conflicting agendas.
➔ A clearly articulated strategy can ensure that every aspect of an organization- the
personnel, compensation system and reward metrics employed, IT system installed and
so on- is designed to support its distinctive value proposition.
- Making the necessary commitments
➔ After deciding which opportunities to pursue, firms must make the investments needed
for success.
➔ Testing should be done to minimize risk and maximize the value of each one.

Combining Deliberate and Emergent Strategy

Entrepreneurship- empowered local experimentation- allows a firm to explore the right innovations
and continually refine them to better fit the market. Here’s how to incorporate it effectively into
strategic approaches:

• Vision
The lean strategy process begins with perhaps the only aspect of the strategy that should in
any sense be permanent: the organization’s vision or ultimate purpose- the reason for its
existence. A vision should be compelling and motivational.
• Deliberate strategy
To deliver on the entrepreneurial vision, a deliberate strategy should be agreed upon by
senior executives.

The three underlying elements of strategy are: objective, scope and competitive advantage.

➔ Objective
Gary Hamel- The Why, What and How of Management Innovation- HBR