Viewpoint -- Warning: Lean, Six Sigma Can Lead to an Identity Crisis

March 7, 2010
The organization that blindly focuses internally on lean and six sigma for its survival suffers from an identity that is based on the products produced and not the value it provides its customers.

While my 25-year career in operational excellence has taught me the value of lean, six sigma and the entire operational excellence body, I am hearing a lot of talk, unfounded in my opinion, that continuous improvement efforts can save American manufacturing.

I believe that lean and six sigma can lead to an identity crisis and certain slow death for your company. As advances in information, transportation technology combine with the globalization of markets, companies are being pushed at a faster rate than ever. I find it difficult to believe that lean or six sigma can be the key to your commercial challenges.

Commercial excellence is a whole other body of knowledge which requires associated skill sets that can identify, finance, develop, market and sell great products and services. Operational excellence is the field of putting commercial decisions into action with the least waste. The lowest cost, highest quality product delivered on time is useless if no one wants or needs it any more. The organization that blindly focuses internally on lean and six sigma for its survival suffers from an identity that is based on the products produced and not the value it provides its customers. Companies need to invest in honest objective soul searching in order to avoid having an identity crisis.

Manufacturers need to understand the business they are really in to compete in today's world. This constant talk of unlevel playing fields is not productive. There has never been a level playing field and there will never be one.

But the good news is that if you have a great product or service the world will buy it. How the product is made and where it is made will change as economics change and evolve all over the world.

So the question I pose is what does it mean to be an American manufacturer? Does that mean that you make things in the United States or that you're an American company that makes things somehow some where? Manufacturers, particularly American manufactures, must identify better and closer with the value they provide their markets to grow profitably. This identity crisis that confuses what a company makes with the value the company provides to its customers will lead to missed opportunities and ultimately the decline of the business.

Successful manufacturers must take the following seven critical actions to preserve their future.

Identify the Value You Provide Customers

Your company should not be overly attached to what you make and how you make it but instead focus on the customer and the value you provide them through your products and services. Do you make wire harnesses or do you solve electrical interconnection challenges? Do you make pressure measure instruments or do provide pressure management solutions? More interestingly do you make aircraft engines or do you deliver aircraft uptime?

Stay Externally Focused on Markets and Technology

Minimize your company's focus on internal operations and lowering costs. It's easy to circle the wagons and batten down the hatches when things get rough. It's harder to get out of your office to confront and experience the harsh realties of your market. This is where the mistaken belief that lean and six sigma can be the silver bullet that saves your life comes into play. No amount of waste elimination is going to save you from your destiny if what you make is not valued or what you make should be made in a location that is optimal for producing that product.

Putting a new textile mill in Lowell Massachusetts around 1830 was a good idea because the area supported it with the appropriate labor, supply base and resources. I am sure there were many locations in the Untied States or in the world that would have been very bad choices because they did not have what Lowell had. It's not necessarily the best location for one today. Today you need to look globally to figure the best location to manufacture your product. It might not be the United States. And that's not necessarily negative if it's the result of the U.S' continued economic success or if it is the reality of a changing world.

Link Emerging Trends with Customer Needs

Move away from the belief that new technologies or products don't work as well as the older ones. Demand will see to it that technology will be updated and your products enhanced. It's just a matter of time. Linking the trends requires that you focus plenty of energy on the world outside your four walls. Do you really know what your customer's ongoing needs are?

Depending solely on your sales people for that information is not the best course given that their role might cause them to be short-term thinkers rather than long-term thinkers. It's unlikely they are incentivized today for sales five years from now. A better way to gather information is to hear it for yourself and seek a variety of sources.

Are you keeping your ear to the ground for emerging technologies that you could productize and package into solutions for your market? I would argue that leadership needs to 'get out in the world' and experience it real time not virtually to truly appreciate what's happing.

Develop Solutions to Market Challenges

Try not to waste time searching for the last people on earth that will buy more of what you make at the lowest cost and margin possible. Revenue chasing is disease that troubled manufacturers get when the start to convince themselves that every dollar is a good dollar. Consider the impact sales of certain products or services can have on your overhead. Being all things to all people was never a strategy that you see advocated in business school. However manufacturers continue to try to get blood out of a stone by taking an operation that was once optimized around their primary product and now needs to transform a wide variety of materials into a plethora of products. It does not work.

Great marketing professionals always segment the market and deliver a message around and customized for that segment. Manufacturers likewise need to be on the lookout for challenges certain segments of their market have and develop new innovates solutions to meet those needs. Once those needs are identified a company should optimize a value delivery process including the physical transformation process around the unique physical requirements as well as volume and demand qualities of that market.

Maintain Flexibility

Keep an open mind about materials or processes. Growing up I frequently visited my mother's home town of Winchendon Massachusetts. Know as "Toy Town" the town was famous for producing a wooden rocking horse for almost 65 years from 1870 to 1934. There are not many toys being built in Winchendon any more but think about how you would structure your operations if you lived in world in which your product would have a 65 year run built with essentially the same technology and materials. I think you would vertically integrate and lower your costs to the absolute minimum. Today however our world is different. Markets, materials and technology come and go in a few years if not months in some cases. How long were phonograph records made? Cassette tapes? Compact discs? Not all markets move at this pace but most are changing faster than ever.

Vertical integration will bias you against confronting the brutal reality of change. If you have an abundance of machines that cut metal then you're not going to be open to shifting to a technology in your product that mothballs that investment. As a young engineering manager I had to go to the president of my company to tell him we were going to shut down and sell $500,000 computer aided manufacturing system that was maybe 3 years old. You should have seen the look on his face. I had already checked with accounting and learned that the system had four more years of deprecation to go on our balance sheet. Luckily the sale resulted in a cash positive transaction as we sold it for more than the book value. The president still had a hard time accepting the pace of change. The demands of the market required more resolution that the old system could produce so we had to move on and buy a new technology.

Learn this lesson and stay flexible and realize that you are facing what all of your competitors are facing. While there are exceptions on the tails of the cure, very few are located there so be realistic in your assessment. Things are going to change faster that you think and make you more uncomfortable than you're probably prepared to be.

Create Intellectual Property

This IP should be used in selling scalable value so you're not locked into having to build another unit for every incremental sales dollar. Too many manufactures don't realize the value of the knowledge in their enterprises. Given the length of time in their industries, companies fall into the trap of thinking that what they know is simple or basic and everyone knows it. That's not the case as your knowledge is valuable and it is easy scalable as compared with scaling a plant or supply chain. The smart manufacturer looks to collect multi-variable and multi-dimensional data on its product and services and to learn how they are used and how they perform.

Data can open the door to innovation and to selling highly scalable knowledge based products such as software, consulting, training, expert decision management tools, design tools, design services, predictive failure and maintenance services. Take the equipment manufacturer that because of deep historical operating data on its products can predict failures based on operating conditions and cycles of use. This manufacturer has several options to sell higher reliability, monitoring services or make design changes that improve performance. It's just like today's media world in which content is king. Now content is a critical asset for manufacturers who want to thrive in this challenging economy.

Deliver Value Whether Physical, Service or Knowledge Based

Do this with the least waste and variation using an operational excellence culture fueled by lean and six sigma. Once your compass is pointed in the right direction deliver with flawless execution. The beauty of working in the field of lean and six sigma is that the"it does it work here" or "it does not apply here" debate is over.

The discussion your company should be having at this moment is analyzing the best way to deploy the thinking I outlined above. The days of proving that lean and six sigma work when appropriately deployed are over. Just don't let lean and six sigma lead your company to an identity crisis and certain slow death. Remember if you want to grow profitably you must sell value to customers which is different than viewing your business as solely a manufacturer.

Greg Fields is President of Bridgewright Management Consultants. Bridgewright is an operations improvement consulting firm that specializes in enterprise transformation. The company employs several bodies of knowledge to enable change including Lean Thinking, Six Sigma, and The Theory of Constraints.

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