As we make our way out of the recent economic meltdown, it is clear there have been a series of tectonic shifts in the business world and there is no going back to things as they were. We are facing a new world that calls for new approaches to generating consistent competitive advantage.
Unfortunately, contemporary management theory and practices have ill-prepared us for this new world. The near universal rush to cut costs and headcount, while predictable, is more likely distracting us from, instead of enabling, the real work of re-tooling our enterprises to be competitive in the new world we face. We want to use this critical moment to introduce a new way of thinking about and seeing organizations and the forces and factors currently killing much needed productivity and profitability.
Historic inventions frequently are developed in times of historic difficulties, as these difficulties create the demand for something new to emerge, and as such, they also are times of great opportunity. These difficulties drive the articulation of powerful new distinctions—a new way of seeing the world. Here is an example of what we are pointing to. At the end of the World War II, the people of Japan faced historically unprecedented difficulties. Their infrastructure, morale, productive capacity, and international relations all were destroyed. Taiichi Ohno, an engineer, in the enterprise today known as Toyota, began the task of building a new capacity for Japanese industrial production. He was then a student of Henry Ford's industrial process designs and innovations, but was clear they did not universally fit with the circumstances that existed in post-war Japan.
For example, Ford incorporated everything into one integrated mega-plant; Ohno designed for operations in a network of factories. Ford went all out for volume, and minimized variety. He did this based on the interpretation it was the most efficient way to support the U.S. market and generate the capital he needed to support the enormous investments in his integrated production model. The focus on volume and the revenue it generated also enabled him to pay his workers enough to buy his Ford cars—roughly doubling the then normal pay for that sort of factory work. Ohno built a production system that would optimize scarce capital and raw materials, which required efficient operation with small production runs.
The operational heart of Ford's industrial model was designed by engineers with the intention of minimizing the opportunities for human error, standardizing the production processes so workers were interchangeable, and driving maximal speed in the coordination of the work. Ohno's model centered on processes that built the capacity of each person on the production floor to take responsibility for the quality and coordination of their work. His processes required more skilled workers, a different partnership-oriented work culture, and were based on the assumption employees derived personal value from contributing to the improvement of products, processes, and the company. Ohno's inventions became the foundation of the quality movement that swept the world starting in the 1970s and 80s, and evolved into what is today known as the Toyota Production System.
To keep the workers thinking and engaged, Ohno invented a new set of distinctions about "waste" for them to observe and eliminate. Let's pause for a moment to build a precise distinction. To be clear, "waste" is not a thing; it is an assessment, an interpretation. The word "waste" names a class of assessments we make about events, phenomena, experiences, and features that diminish our capacity to take care of what matters to us. In the business world, waste kills productivity and profitability.
As an example of naming or distinguishing wastes and the power of a new distinction, Ohno said the time workers' spent waiting—for parts, for others to complete work, or anything else—was waste. The value of this new distinction was immediately obvious to most observers, but not to the finance and accounting worlds as they initially had no way to measure it. Even today, when business people speak of waste they tend to refer to those things they have been conditioned to see and measure: waste of money and waste of materials. While it is now becoming common to speak of the waste of opportunities and the waste of human time and capacities, we are considerably less used to and competent at seeing those wastes.
What was not immediately obvious to most observers was Ohno's new distinction that inventories were waste. This example, the assessment that inventory was a "waste" illustrates the way a new distinction opens the door to a historic shift in management theory and practice. Before Ohno declared "inventories are waste," there was universal agreement that inventories were an asset. They appeared on the balance sheet, they could be re-sold; they gave confidence to people that production could be sustained and customers satisfied with products from the inventories. By inventing the distinction that inventories are waste, and putting attention on many other previously under-appreciated wastes such as workers waiting to work, Ohno was able to bring about important revisions in the way the people of Toyota thought, acted, managed, and led. What we in the West now call "just-in-time logistics," "Lean," "Six Sigma," and many other innovations of the last 30 years, were born out of these distinctions.
Wastes are particular to specific concerns and moments in time. As both concerns and moments change, the wastes that are important for particular moments in time change. What was wasteful yesterday may or may not be wasteful tomorrow. The wastes the business world had been concerned with for the last 50 years—wasted movement, wasted time, and wasted resources, were invented in the traditions of the industrial revolution, manufacturing, and mass production. We are no longer living in that world.
As a result of the work that was begun at Toyota, many of these wastes now are gone from manufacturing enterprises. At the same time, the elimination of these traditional wastes is still a critical driver in most Western manufacturing enterprises as they strive to remain competitive against lower cost competitors in developing countries. While this work on eliminating waste has been going on, the backbone of the Western economies has changed. Today what we call work has little to do with manufacturing. Instead work now is more about the coordination of diverse competencies and capacities to generate powerful effective actions that satisfy customers. The value generators in today's economy are no longer factory workers but what we call coordination workers. They create value not by making things but by designing what gets made, determining markets for products, and generating consistent customer satisfaction.
As the world of work has changed, we are convinced the historical "industrial era" wastes will not be the most important wastes for the new business world unfolding today and will become the new norm over the next 20 years. Instead it is time to distinguish a new set of wastes. We have dubbed these wastes the new silent killers of productivity and profitability.
Central to the challenge of building competence and capacity for working in this new world is a fundamental re-orientation to work. In the new world work is no longer focused on making things. It is about coordinating with others both inside and outside of a business to mobilize resources that enable the effective and efficient production of customer satisfaction. The notions and practices of agility, adaptability, flexibility, innovation, coordination, cooperation, mobilization, and trust are critical to this emerging new reality. The implications for what we are pointing to touch every aspect of a business.
New Orientations for Building Value
"Waste" is a curious assessment. Assessments generally have the role of generating action in our lives as people act out of their assessments. "I think this would be a great time to get some coffee" invites the speaker, and possibly others, to start looking for a place to get one. The assessment that something is a waste invites people to go to work to eliminate it.
The feature that is curious is the way that by eliminating the right kinds of wastes, an organization "backs itself" into a new future without having to design or declare precisely what the future will be. Here is what we are pointing to. In our view, the central operating mechanism of the invention of the Toyota Production System was the collection of "new wastes" declared by Taiichi Ohno and the resulting efforts to eliminate them. Those writing about TPS tend to speak about the values that constitute it and the cultural underpinnings that enabled it. Our interpretation is it is only with the wisdom of hindsight we can point to those things as there is little evidence they were key elements in the original process. The invention of the TPS was accomplished by a group of waste-identifiers who diligently backed themselves into the new future we know as the Toyota Production system and reinvented Japan by eliminating sets of then innovative wastes.
We are not naive dreamers who think the transition to this new way of working is going to happen either on its own or overnight. It won't come as the result of good intention, a series of memos, or a new set of offerings at the corporate university. Nor do we think everyone is going to welcome the changes being called for if we are going to reinvent ourselves and our companies to be competitive in the new world.
Twenty-five years of working with companies around the world has given us ample experience to know what it takes to change an organizational culture, and for us, the mission is clear. The world is making tectonic shifts, and if we continue to meet these changes with puny responses, we have no hope of maintaining ourselves as the world's leading economy. For that reason, we invite you to join us in inventing a contemporary set of competitive advantages, eliminating the new silent killers that are sapping our productive capacity, and creating a new business world.
Chris Majer is CEO, and Chauncey Bell is executive vice-president of enterprise design, for The Human Potential Project.