Good business principles never go out of style. They may fade every now and again, but usually innovation adds a new perspective and they come back stronger than ever. For instance, the concept of Lean Thinking or Lean Manufacturing was recently popularized within the technology community by Eric Ries, in his 2011 book, The Lean Startup. However, it may come as a surprise to many entrepreneurs and business owners, that the principles of Lean Thinking were developed many years ago and have been successfully adopted by some of the leading global industries, particularly manufacturing, logistics and healthcare, and proven to create significant value. In other words, there is no need to reinvent the wheel, just take what has been proven to work and apply it to your own business!
I was fortunate to start my career in high volume electronics manufacturing, while working for The Ford Motor Company (within its electronics division) during Ford`s epic battle for survival in the 1980`s against fierce Japanese competition. The senior management of the company had the vision to realize that radical change to business practices was required, so one business unit was picked to prototype ideas for change, which happened to be where I was working. For over 6 years, I was immersed in implementing lean thinking in leadership, operations, quality, product development and customer service. I ultimately took this experience with me to Pirelli Cables and Optical Systems in Surrey, BC, where I lead a team in the extraordinary turnaround of the company from losing $1M a month to making $1M per month, and turning the Canadian operation, into a Pirelli global leader in productivity and profitability. The basis of the entire turnaround was the implementation of lean system principles: continuous improvement, respect for people, elimination of waste and the focus on value creation for the customer.
What did my experience with lean teach me that is most is relevant to your business today?
1. Lean is a Proven Strategy: Lean is proven. It has produced significant improvement for thousands of companies. It is not necessary to reinvent the wheel, only adapt a proven and existing system which is readily available, easy to understand, and then apply it to your own business.
2. Lean is Focused on the Customer: The foundational principle of lean is to focus all value added activities on your customer, and to remove or mitigate, all non-value activities. This customer focused approach is critical to a high growth technology company, and all other activities should be aligned with the customer including financing, product development, and administration.
3. Lean Is A Culture not a Tactic: Companies which have successfully implemented lean thinking fully embed it into the culture, so it is pervasive at all levels of the company and across all activities. Like innovation or entrepreneurship, Lean is something a company is, not something a company does.
4. Lean Makes You Money: By focusing on the customer and by stripping away non-value added activities, your precious capital is precisely deployed and significantly leveraged. This improves sales, gross margins, and cash flow, which will mitigate the need for external financing.
What did I learn about lean that you can apply to your business today? Here are the most important lessons that you can apply to your own business.
• If you are in start-up or growth mode, outsource as much activity as possible (particularly non-value added – defined as no direct value to the customer), and become experts at the customer focused value added activities.
• Make continuous improvement a habit within your company by applying the PDCA Cycle (Plan-Do-Check-Act) regularly.
• Implement customer focused Key Performance Indicators (no more than 3 – 6), review them regularly and take immediate action to improve. Focus on what creates value fast!
• 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 (and mostly with future prospects and current customers) and 50% of your time on the business (implementing improvements based on a system such as lean).
Any business, whether product or service, can benefit significantly by building these principles into its operating philosophy from the beginning, so it can scale well and preserve precious resources. It won’t happen overnight, but if you focus on building a culture around Lean Thinking Principles, your employees and customers will be happy, while your business grows!
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