At core – lean is a business model based on the idea of customer first thinking (CFT). To open this out a little further, CFT means businesses and corporations striving to provide their end customers with precisely what they want, when they want it, in the quantity they require – all at a price they want to pay.
Lean organizations take steps to eliminate ‘waste’ (by streamlining their operational processes), reduce lead times, and control costs, with the overall goal of being able to meet the customer’s exact order immediately – without producing surplus stock – at a price determined by the customer.
For lean purposes, the customer is always taken to be the person or company ultimately paying for and using the goods or services produced by the organization: the final consumer at the end of the line. ‘Waste’ is the term used to describe any process in an organization’s operating system that does not explicitly add value to the product or service they produce from the perspective of the customer.
The method of determining price in the lean business model departs from more traditional price setting methodologies. In most established business models, production costs are generally seen as being fixed. To increase profits – a company must therefore rely on hiking up the prices paid by its customers. Lean companies take a radically different approach. Instead of fixing costs – the lean business model takes the price of goods and services on offer to be fixed at the amount the customer is most willing to pay. Profits can only be increased by cutting costs – in other words, by eliminating waste and streamlining processes.
This may set alarm bells ringing, causing you to imagine that lean companies rely on shoddy workmanship, buy in cheap materials, or replace their workforce with machines. In fact – the opposite is true. In lean manufacture, the aim is for no defects to be passed on to the customer; costs are reduced with no drop in quality and no loss of manpower. Lean management involves the redirection of resources and pruning of operations with a heavy focus on increasing ‘value added work’ and eliminating waste.
Lean works on a principle of continuous improvement, adhering to the philosophy that a 30% improvement now is better than a 100% improvement that never leaves the planning stages. Lean management in a nutshell works by establishing the current condition of the organization – defining the ideal condition – analyzing the gap between the two – and setting achievable, incremental goals to gradually close the gap through a process of continuous improvement.
Kaizen is a Japanese term essentially synonymous with this idea of continuous improvement. It is the job of lean managers to build and maintain a Kaizen bridge linking human development and customer first thinking. The people that work for the organization develop new capabilities and skills through involvement in projects, challenges and problem solving. As their capability grows, so does the organization’s ability to meet the goals of CFT.
Value added activity (VAA) – that is, processes that transform the product or service in some way that directly contributes to an increase in its value for customer – typically only take place on the ‘shop floor.’ I have put shop floor in inverted commas since this could as easily be the factory floor in a manufacturing plant, the main work space in an office building, or even out in a field. The point is that 99.9% of the time, VAA consists of the work completed by the team members constructing or developing whatever an organization is responsible for bringing to the market. Very rarely does VAA take the form of boardroom meetings or management activities. Input from team members is therefore extremely important, as they know better than anyone what they do in their process – and how it could best be improved; they are the experts.
Lean management thus involves a move away from more traditional hierarchical management structures, in which a few key players make all the decisions. Lean management relies on open communication of ideas throughout an organization, up and down the chain of command. With the world and the business environment changing almost minute by minute, lean management places a heavy focus on understanding the current condition and working to solve problems affecting the organization in the here and now. Lean managers utilize these open channels of communication to keep their finger on the pulse of the organization and to create an environment where problems are quickly and effectively solved. One person can only do so much; more engagement leads to more creativity, involvement, security, and empowerment – ultimately resulting in vast growth and continuous improvement.