Smart CEOs don’t hack away – they trim waste and preserve value
By Charles Mention
In a scene in “Christmas Vacation,” Clark (Chevy Chase) receives an envelope containing his Christmas bonus. He had earmarked it towards a backyard pool, writing a personal check for the down payment (which he couldn’t cover without the bonus) and had been worried until the envelope finally came a day late. Relieved, he confidently spilled his pool plan to the entire family. With the whole crowd waiting with anticipation, Clark opened the envelope to find a certificate for a one-year membership in the Jelly-of-the-Month Club. Everyone was shocked – Clark nearly catatonic – but Cousin Eddie (Randy Quaid) quipped, “Clark, that’s the gift that keeps on givin’ the who-o-o-ole year.”
Admittedly, if you’re expecting a pool-sized windfall, 12 flavors of jelly, no matter how exotic, won’t likely erase the bitter taste. Yet Eddie was onto something basic and essential for business growth and performance improvement: Today’s efforts and investments must be sound enough to fuel tomorrow’s gains and profits with, comparatively, minimal additional contribution. “The gift that keeps on givin’” for business executives is something called Lean Thinking.
Most companies – regardless of size, industry or sector – actively, even obsessively, pursue performance improvement, cost reduction and excellence in quality and customer satisfaction as a means to gain competitive advantage and increased market share, income and shareholder profit. Despite this, many leaders feel frustrated, trapped and disappointed by less than promised impact for their efforts. Many employees feel cheated, undervalued, disrespected and ignored by what they perceive as a “latest hot thing” (Jelly-of-the-Month) approach to management.
The difference between this frustrating paradox and true, all-in-the-boat, focused corporate energy with sustainable employee morale, improving customer loyalty and rising profits, is the continuity of Lean Thinking. Unfortunately, Lean for many companies becomes a problem, not because of failures of its tenets or principles, but because companies don’t think Lean.
When a good butcher prepares a lean cut of meat, his years of skill and experience allow him to trim the fat, but preserve as much meat as possible. He does this by using the proper tools and techniques and by keeping his tools sharp. He doesn’t hack; that would lose too much value. He trims carefully to avoid sacrificing saleable product.
Herein lies the problem in the corporate Lean approach. For many, the focus is not on “trimming,” but “cutting.” Worse, there is an underlying acceptance of sacrifice and collateral damage that happens with it.
An example will serve to make the point. Let’s say we have two companies of similar size, industry and geography. Their organization structures and products are similar, as are their sales channels. The chief executives of both companies attend the same training on Lean “something-or-nother” and both come back to their companies to announce, “We’re gonna attack waste around here!” Both implement the principles as prescribed, rather quickly figuring out how to fulfill their primary product commitment to customers with 38 people when it used to take 50. Wow!
The Company A CEO wastes no time. It has to be done. It’s not personal; it’s business. He cuts the “extra” 12 people from the payroll, banking the savings. To keep the numbers easy, let’s say that fully-burdened cost per person is $50,000. CEO A just saved $600,000!
CEO B was listening more intently to the “thinking” messages that “somebody-or-nother” consultant was preaching, so, realizing that he had already “trimmed” the fat and that “cutting” erases value, he viewed the 12 people as opportunity. He could now sell and fulfill products/services he couldn’t before, to customers he couldn’t, in regions he couldn’t. Instead of banking the $600,000 one time, he increased his revenues by some multiple of that! This extra revenue kept coming year-after-year … a gift that kept on giving.
Did CEO B work harder and expect and require more of his company than CEO A? You bet he did! That’s why before long, he will buy Company A at a steal when its love affair with cutting finally hits bone.
Here’s what CEO B did and what every executive must do, to promote Lean Thinking:
1. Re-program the company DNA and align completely to customer value by helping everyone concentrate on what your product/service does rather than what it is.
2. Demand continuous improvement; every day, every job should be measurably better.
3. Identify the purpose of everything you do (strategic, budget and compensation planning, performance evaluation, etc.) and link it all to customer value.
4. Train everyone, then coach and develop leaders to prioritize and capture improvement.
5. Keep vision bold to stretch targets; you can achieve far more than anyone believes.
Yep. Good Ol’ Eddie was really onto something.
Think Lean! Trim waste and preserve value.
Charles Mention is the president and founding partner of TFM Consulting Group, a corporate consulting company based in Simpsonville that helps medium-to-large-sized companies grow and improve performance. A former IT executive, he is an author and a Certified Supply Chain Professional.