The concept of Lean was recently popularized within the technology community by Eric Ries’s excellent 2011 book, The Lean Startup. While the concept of Lean is new to the technology community, the principles of Lean were developed and adopted by other leading industries many years ago, particularly in manufacturing and logistics, and have proven to create significant and enduring enterprise value.
I was fortunate to start my career in a difficult industry, high-volume automotive electronics manufacturing. I worked for The Ford Motor Company (within its electronics division) during its epic battle for survival in the 1980’s against fierce Japanese competition. The senior management of the company had the foresight to anticipate that radical changes in business practices were required, and therefore, picked our business unit as a prototype for the implementation of transformational change, including Lean principles. For a number of years in a variety of technical and managerial roles, I was immersed in implementing Lean principles into leadership, manufacturing, quality, product development, and customer service. I ultimately took this experience with me to Pirelli Cables and Optical Systems where, in a General Manager role, I made the implementation of Lean principles the bedrock of our significant turnaround of the company.
I learned a number of critical lessons that can be adapted by your business today, which will help create both significant short-term financial returns and long-term shareholder value. These lessons are:
- Lean is a long-term transformational business strategy. It is based on the concept of directing and delivering profound and increasing value to the customer, with the least expenditure of limited resources, particularly time and capital.
- Lean is a proven growth system. You can get there faster by using a proven system like Lean, which will mitigate your risk and increase your probability of success.
- Lean is a culture shift, not a tactic. Companies which have successfully implemented Lean fully embed the principles into the culture, so like innovation or entrepreneurship, Lean becomes something a company is, not something a company does.
- Lean makes you more money by satisfying customers first. By focusing on the customer and by stripping away non-value added activities, precious capital is precisely deployed and significantly leveraged, improving sales, gross margins, and cash flow, and mitigating the need for external financing.
While the topic of Lean is broad, there are a number of specific steps which can be taken today, in order to improve your business immediately. These steps include:
- In startup mode, outsource as many non value-added activities as possible (defined as no direct value to the customer), and build deep expertise in the customer focused value-added activities.
- Implement customer focused key performance indicators, to a maximum of 6, and review them regularly.
- Make continuous improvement a habit within your company by applying the PDCA Cycle (Plan-Do-Check-Act) regularly.
- In growth mode, rigorously review all activities and spending, and then either eliminate or significantly reduce activities and spending not directly aligned with creating value for the customer.
- If you are the CEO, spend 50% of your time in the business (mostly with future prospects and current customers) and 50% of your time on the business (implementing improvements based on a system such as Lean, and building great talent).
Eamonn has a B. Eng. (Electrical) from Lakehead University, MBA (Finance) from University of Toronto, and has completed Executive Education at Stanford University Graduate School of Business. He lives in Vancouver, Canada. Follow him on twitter @EamonnPercy.