Do Lean Companies Create Fewer Jobs?

No, they create more. If you assume the lean company grows sales at the same rate as some poorly management company then it may well be that the lean company creates fewer jobs. However that is not a valid assumption. Deming provided the reason in his presentations to Japan in the 1950’s with his chain reaction. From page 3 of Out of the Crisis

• Improve Quality —>
• Costs decrease because of less rework, fewer mistakes, fewer delays, snags, better use of machine-time and materials —>
• Productivity Improves —>
• Capture the market with better quality and lower price —>
• Stay in Business —>
• Provide jobs and more jobs

For an example of this process at work see GM, Ford and Toyota. Toyota defines lean (Toyota’s management system is what was called lean manufacturing by Jim Womack and Dan Jones). Toyota continues to add employees while Ford and GM have been shedding jobs.

It is true, for lean (and un-lean) companies alike, productivity is improving (it just improves more at lean companies) which means that fewer people are needed to produce the same amount as we have in the past. We have posted previously about the mistaken belief that jobs are moving overseas.
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I get asked for examples of Deming managed companies fairly often. And recently I have had a number of such requests. So I figured I would provide an answer as a blog post. First, Dr. Deming would respond to such questions by referring to the theory of knowledge and the fallacy of trying to learn via examples. So remember to read up on why learning from examples is dangerous before taking to much from this.

I see Toyota as the best example of a Deming company. Dr. Deming did not propose a cookbook to follow. Instead he proposed a theory that requires learning and application within the specific institution. Toyota has created a management system that is based on Dr. Deming’s ideas and then they have evolved that over 60 years into something that is consistent with Deming’s management philosophy and has new ideas Deming did not mention. As odd as it may sound that very act of developing new concepts that were not mentioned by Dr. Deming is exactly what makes them the company that most exemplifies Deming’s management system.

Other companies that have also done a great job applying his ideas. Peaker Services has done great things. Ian Bradbury is the President and a friend. He spoke at a seminar I co-presented and I included links to a couple documents of his in a blog post. He worked at GM Power System when Dr. Deming was working with GM. Richard R. Steele founder and also serves on the Deming Institute board of trustees.

Hillerich & Bradsby Company has been following Dr. Deming’s ideas since 1984. John A. Hillerich is President and Chairman of the Board of Hillerich & Bradsby Company and serves on the Deming Institute board of trustees. The companies brands include: Louisville Slugger and Powerbuilt.

A couple of good books explore companies adopting Dr. Deming’s ideas: Free, Perfect and Now by Robert Rodin (a great book by the CEO of Marshall Industries), highly recommended). Unfortunately the company was bought by a larger company and I do not believe the Deming philosophy is alive and well (but I could be wrong). Always Think Big by Jim McIngvale is by the CEO. Mattress Mack: One man, one store, one of a kind.

Omnilingua has had amazing success applying Dr. Deming’s idea and I am proud to call Eric Christiansen their president a friend. Lean Blog Podcast with Eric Christiansen “A Deming Company”. In a previous post I recapped another example: Dr. Deming’s Ideas at Markey’s Audio Visual.

Companies awarded the Deming prize can also provide good examples. Four subsidiaries of the Rane Group in India has received awards in the last few years. Numerous people have done great things within companies - creating pockets of Deming practice. Some great examples include Steven Prevette - see some of his articles on Deming. David Anderson has incorporated Deming ideas within Microsoft and then Corbis - see his Agile Management Blog. William Bellows has a long term effort at Boeing’s Rocketdyne Propulsion & Power business unit. They offer conference call study sessions on Deming’s ideas for those within Boeing and also allow outside participation. He is also a member of the Deming Institute board of trustees.

This is just off the top of my head so I am sure I have left off many good examples. Also, for me the company needs to have an understanding what they are doing evolved from Dr. Deming’s ideas to list them (many companies have practices which are Deming based but they do not have an appreciation for Deming’s system of management - I think that appreciation is needed to be a “Deming company”). Many companies that truly and deeply practice lean manufacturing are applying many of Deming’s ideas. However to me if they do not understand the roots of the ideas from Dr. Deming I don’t consider that a “Deming company.” But that label is not all that meaningful anyway - so this just explains my thinking.

Feel free to add your suggestions in the comments.

Related: The Purpose of an Organization - Deming management blog posts

Procedurally Enforcing Workflow by Michael Salamon:

Why matters. You can’t just expect people to act in a way that seems arbitrary. As I stated in Poka-Yoke Assembly, Do you Read Instructions Carefully Before Assembly? Nope, I don’t. I expect I can make a quick judgment if I really need to or I basically get it and can put things together well enough. I expect the supplier to make very obvious anything critical. It is not ok to expect people to think the way you want them to. You have to understand how people will react and create solutions based on that.

We have discussed similar ideas: Why Isn’t Work Standard? - Visual Work Instructions - Visual Instructions Example - European Blackout: Human Error-Not - Find the Root Cause Instead of the Person to Blame

A similar example I learned long ago. Many schools try to force students not to walk on the lawn and create ugly paths through the grass. A smart alternative. Wait for the students to wear a path. Then pave that. If you are frustrated because people won’t follow your rules your rules are probably bad. Fix the rules (or procedures…). Don’t expect telling people in a loud voice (or stern memo or…) that they must follow your rules.

Marissa Mayer speech at Stanford on innovation at Google (23 minutes, 26 minutes question and answers). She leads the product management efforts on Google’s search products- web search, images, groups, news, Froogle, the Google Toolbar, Google Desktop, Google Labs, and more. She joined Google in 1999 as Google’s first female engineer. Excellent speech. Highly recommended. 9 ideas:

(inside these are Marissa’s comments) [inside these are my comments]

1. Ideas come from anywhere (engineers, customers, managers, executives, external companies - that Google acquires)
2. Share everything you can (very open culture)
3. You’re Brilliant. We’re Hiring [Google Hiring]
4. A license to pursue dreams (Google 20% time)
5. Innovation not instant perfection (iteration - experiment quickly and often)
6. Data is apolitical [Data Based Decision Making - this is true but as an operating principle requires people that really understand data. See: Data can't lie.
7. Creativity loves Constraints [process improvement and innovation]
8. Users not money [the opposite of what business school's teach business case]
9. Don’t kill projects morph them

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In response to Is Laying People off Really Anti-Lean?:

Layoffs are a failure of management. If the company has not been executing a long term strategy to respect people and manage the system to continually improve, manage for the long term, working with suppliers… it might be they have created an impossibly failed organization that cannot succeed in its current form. And so yes it might be possible that layoffs are required.

It is very easy to jump to layoffs as the “answer” though. While it is possible to construct a situation in which they make sense that such a hypothetical situation it rarely is the case that an organization is committed to lean and then makes layoffs. Instead they just think the same old way and mention the word lean since they see others doing it and layoff sounds like it is lean to someone that doesn’t know the first thing about lean thinking.

I would not see, “a focus on improving operating income above all else” as a lean way of thinking. Improving that is one focus among many that are needed to achieve long term success.

Does that mean a organization doing a great job of managing in a truly lean way may not find itself in a position where layoffs are necessary? No. Failing to predict and execute may have consequences and those may include layoffs. In your example things are confused a bit by separating the responsibility of getting into the mess from what to do next. Definitely, riding out a few poor quarters would be preferable. I have absolutely no question about that.
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The newest data from the UN confirms most of the recent trends in manufacturing output - most notably that China continues to grow dramatically. The data also shows a stagnation in USA manufacturing output over the last several years, though the USA remains by far the largest manufacturer. The most significant news from this latest data, I believe, is that that manufacturing output growth in the USA has been slower than global manufacturing output growth from 2002-2005. This was not the case prior to 2002. I will be writing more on this data in the Curious Cat Investing and Economics Blog. UN Data, in billions of current US dollars:

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U.S. Health Spending Estimates:

So the rate at which healthcare spending continues to increase is decreasing. That is better than increasing at an increasing rate. However, it is already a huge drag on the economy and the need is for the expenditures to actually decrease (not slow down the rate of increase) and for performance to improve. There are good things being done but much more is needed. Health care costs are a huge cost for companies.

Health Care Spending in the United States and OECD Countries

Related: USA Health Care Costs reach 15.3% of GDP - the highest percentage ever (2 years ago) - Health care spending rose at twice the rate of inflation in ‘05 - Health Care Costs Approach $2 Trillion - Excessive Health Care Costs article directory - Bill takes on prescription costs

At the Hunter Conference, years ago, a speaker (I forget who) talked about how to get useful feedback. He discussed how asking “how is everything” normally will get the response: “fine” (which is often that is exactly what the staff wants so they can move on without wasting any time). However, if you really want to improve that doesn’t help.

He explained how he worked with Disney to improve their restaurants. Using the “how is everything” question had not alerted the restaurant to any issues. So he visited the tables with the manager and asked - “What one thing could we do to improve?” Over 50% of the people said the rolls were stale: clear information that is actionable. And in fact they were able to adjust the system to remove that problem. A small thing, in this case, but a clear example of a good method to help target improvement.

To encourage useful feedback, specifically give the customer permission to mention something that could be improved. What one thing could we do better?

This post was sparked by Seth’s post: This must be hard. I think he was on the right track, but I think the results could be even better using a question like: what one thing could we do better?

Related: Usability Failures - CEO Flight Attendant - customer focus blog posts

Jeff Bezos’ Risky Bet

In my view Amazon is doing some very interesting innovation. As with most true innovation it is not easy to understand if it will succeed or not. I believe Amazon uses technology very well. They have done many innovative things. They have been less successful at turning their technology into big profits. But I continue to believe they have a good shot at doing so going forward (and their core business is doing very well I think). Innovation often involves taking risks. Bezos is willing to do so and willing to pursue his beliefs even if many question those beliefs. That means he has the potential to truly innovate, and also means he has to potential to fail dramatically.

Related: Bezos on Lean Thinking - Making Changes and Taking Risks - 10 Stocks for 10 Years Update - A9 Toolbar for Firefox Browser
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The job market is an inefficient market. There are many reasons for this including relying on specification (this job requires a BS in Computer Science - no Bill Gates you don’t meet the spec) instead of understanding the system. Insisting on managing by the numbers even when the most important figures are unknown and maybe unknowable. Using HR to find the right person to work in a process they don’t understand (which reinforces the desire to focus on specifications instead of a more nuanced approach). The inflexibility of companies: so if a great person wants to work 32 hours a week - too bad we can’t hire them. And on and on.

At first I titled this post the Hiring Process but that creates a analytic view of the hiring process separated from the important part which is workers actually working. The hiring process just provides resources that are needed. But in many places it is the reverse, the hiring process provides resources and then the rest of the process deals with that output as best it can.

Seth Godin had a very good post recently, The end of the job interview:
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What’s Driving Toyota? by Mel Duvall is an interesting, long article discussing Toyota overall and focusing on Toyota’s Information Technology systems.

This is such a simple point but so hard for many to truly adopt. IT is a support function. IT is a means to an end.

Great way to deploy software: nice use of PDSA methodology.

Related posts: Toyota IT for Kaizen - Planet Kaizen - Toyota Robots - management blog posts on information technology
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The Risk Pool by Malcolm Gladwell (author of The Tipping Point and Blink):

Pension plans did work well for a short period of time. But recently they (along with the attached retiree health care) are one of the big problems facing large old companies: like GM. Gladwell talks about the dependency ratio for an economy and the dependency ratio of companies. Worsening dependency ratios can cause pension plans to kill companies (if they are not funded when the obligation is incurred) - as the company is forced to pay for more and more retirees with fewer and fewer workers.
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This poster may do a better job, than my posts, of showing why posters and slogan are not an effective management strategy. Text from the poster: “If a pretty poster and a cute saying are all it takes to motivate you, you probably have a very easy job. The kind robots will be doing soon.”

Despair (link to the motivation poster shown here), offers many such de-motivational posters and note cards - well done satire, in my opinion, but they might be too much for some.

Along the lines of our post, Stop Demotivating Employees, the founder of Despair wrote a book entitled: The Art of Demotivation.

Another poster example: Ambition - The journey of a thousand miles sometimes ends very, very badly.

One of Deming’s 14 obligations of management was to eliminate slogans.

Also see:

• Dilbert and Deming
• Our blog posts on: respect for people
• Our blog posts on: Psychology
• Deming on Management: eliminate slogans

Related: Why Extrinsic Motivation Fails - Dangers of Extrinsic Motivation - Alfie Kohn has some great books and articles on the problems with extrinsic motivation

Fortune recently published an article talking about the “new rules” for management using Jack Welch (GE six sigma) as the focus of the old rules. It seems to me there is nothing new here (once again).

“New” rule: “Agile is best, being big can bite you”
Yeah. Does anyone think this is new. Do they really believe Jack Welch thought agile was not a good thing? Yes, Jack Welch wanted to be number 1 or number 2 in the field or get out of that business line. I still don’t think that he thought being a big un-agile organization couldn’t hurt you.

“New” rule: “Find a niche, create something new.”
Yeah, good idea. I seriously doubt GE was against creating new things. Finding niches in fact is basically what being number 1 or 2 is about. Find those niches you excel in and focus there. I think saying you have to be number 1 or 2 is a silly arbitrary target. But that was just as true 10 years ago as today. Lets look at who the article for these new ideas quotes (with big photos on the main page): Starbucks - number 1 coffee shops, Xerox (I don’t know), Cisco - number 1 switches/routers, Coke number 1 sugar water sellers. Boy this old idea of number 1 or 2 is sure old thinking. Why are those highlighted as experts all perfectly suited to the old rule?
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I think the The Quality Movement Vs. The Innovation Movement by Bruce Nussbaum makes a mistake in calling the innovation movement separate from the quality movement.

Lets quote Deming on innovation from New Economics, page 10:

What is required? Innovation.
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Topic: Management Improvement

Management Advice: Which 90% is Crap? by Bob Sutton, Stanford University:

I share this frustration with declaring old ideas new: Management Improvement, Better and Different, Quality, SPC and Your Career, Deming and Six Sigma, Management Lessons from Terry Ryan, Everybody Wants It, Toyota’s Got It, Fashion-Incubator on Deming’s Ideas and on and on.
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A very thoughtful post, Respect for People on the Kaikaku blog raises some interesting questions. What does respect for people really mean?

Those are indications of respect. The post also notes “Ohno was absolutely ruthless, employees and suppliers lived in fear of him.” I would say that while Taiichi Ohno was truly remarkable that doesn’t mean he did everything right. And he might well have failed to communicate in a way that conveyed respect for people. That doesn’t mean doing so is good. It might mean that if you offer as much positive value as Ohno did people may be more forgiving of your weaknesses (I know that is my tendency). (more…)

When encountering a problem or defect the inclination of many is to find a person to blame. W. Edwards Deming believed that the system was responsible for 93% of the problems and over time he increased that number to at least 97%. Why did he see it that way, while so many others first inclination is to blame someone?

As I see it the issue has to do with what is the effective way to improve. Often if you ask why do we have this problem or defect, people will point to some error by someone. So you can blame that person (there are reasons this is not a very accurate way to view the situation often but even without accepting that premise the blaming a person strategy is not wise). The reason the blaming a person is a bad idea is that your organization will improve much more effectively if you keep asking why.
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Why Your Employees Are Losing Motivation by David Sirota, Louis A. Mischkind, and Michael Irwin Meltzer from the Harvard Management Update:

Clear, simple and right. Douglas McGregor explored this topic well in 1960. He explained theory X management (managers believe the workers will do only what they are forced, coerced into doing) and theory Y management (managers believe the workers want to do a good job and the managers job is to help them do so) in his excellent book: The Human Side Of Enterprise.
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Brad Setser posts on manufacturing comparisons: Have China’s manufacturing powers been exaggerated?

But I would submit that the real story here is the growth in China’s conventional wisdom to improve our understanding of the real situation. I agree with him that the growth in China’s manufacturing sector is the most important story.

But, to me, that story is so over-reported that many get the wrong impression. (more…)