Don’t get me wrong – I’m a huge fan of Apple… products.  I made the leap from PC to Mac a few years ago and haven’t looked back.  I also own an iPhone and iPad, a 27″ Thunderbolt display, use iTunes – the whole kit and kaboodle.  Those that haven’t used Apple products for more than a few hours simply don’t understand – the bloomin’ stuff just works – and works like I want it to work – every time all the time.  That has value, and is why I happily pay more for Apple products.  Just this past weekend I watched a friend spend nearly an hour trying to get his Android phone to do what he wanted it to do.  Wow.  Really?  There’s a reason why less than 1% of Apple users leave Apple.

I’ve heard several people call Tim Cook the world’s greatest supply chain executive.  Sorry, I’ve never bought that.  Tim Cook executed a traditional “chase cheap labor” supply chain strategy in a great way.  But in my book that’s not excellence – that’s being the shining star of lemmings – the golden sheep if you will.  The China factory isn’t necessarily a bad thing – one valid reason to have a factory overseas is to be closer to your customers, and there are a lot of potential customers in that part of the world.  But as nearly a singular factory serving the whole world?  With employees that are abused?  Sorry, no dice.

Apple, and Tim Cook, has done some good things.  They do audit their supplier’s factories more than most companies.  They are taking some strong workers rights positions in their industry.  They are opening their kimono and exposing more of their dirty laundry.

Apple has $96 billion in the bank – think of what they could do.  More than just words and policy statements and such.

They could significantly increase the wages of their employees in China – even if they doubled their wages Apple would still have record profits.  But that could actually cause more harm than good.  Many workers simply want to earn enough to eventually go back to their home town or help their remote families.  Some social destabilization dynamics need to be understood.

However consider this, Mr. Cook:

How about immediately hiring and sending an Apple observer into every plant, perhaps every line in every plant, full time.  That way Foxconn wouldn’t be able to shift workers from one line to another to hide abuses before audits occurred.  How much would that cost?  A million or two a year?  Put Foxconn on notice that this is not acceptable, with milestones that could transfer manufacturing elsewhere.  Difficult?  Sure.  Ethical business often is.

How about publicly saying (words…) that chasing low cost labor is not a long-term “manufacturing” option and then back it up by sinking a billion or two into developing truly innovative manufacturing methods and systems. Imagine what could happen if the same level of design prowess that was applied to product design was applied to manufacturing design.  Perhaps Apple could become the next Toyota – instead of just another cheap labor chaser lemming.

I could go on – and I’m sure there are lots of other ideas out there.  The bottom line is that thanks to its success – built on the backs of abused workers – Apple has the unique opportunity to change a global dynamic.  But that will take more than just words.

As my friend Shrikant Kalegaonkar tweeted this morning, the world is changing.  Voice of the customer now extends beyond products, and now includes the process for making the product.  As an Apple customer – and also a shareholder – I care about Apple’s financial performance.  I want it to do well so it can return value to me in terms of new products and direct shareholder gains.  I don’t have a problem with wealth being created and distributed commensurate with individual effectiveness.  But I also have a conscience, and increasingly I hate battling my conscience when using my Apple products.  I bet many Apple customers are feeling the same way.  That’s dangerous for any company, and especially one like Apple which claims to embrace people.

So imagine.  Imagine what would happen if Apple took the high road, then backed up the words with serious, solid, perhaps expensive action.  Action that would change a global dynamic, showing that it is possible to be very profitable, very global, and very human-centered.  $96 billion gives Apple the ability to do something truly incredible.

In addition to the actual improvement of the global condition, I bet a lot of folks would be impressed with the company – and would be inclined to buy its products.

Besides these alarming legacy costs, many Government sectors have identified that there are enormous wastes/costs involved in delivering current services.  The Governor of Connecticut, Dan Malloy, mentioned in his statewide budget address on February 16, 2011 some examples of this waste:

• There are 10 agencies in CT to make sure the other agencies do their job
• There are 5 agencies for business to work with to do business in CT, when there should be one
• There are 7 agencies focused on energy, when there should be one

In Minnesota there were 25 different agencies that a person with disabilities had to interface with, instead on one.

In the March 1, 2011, General Accounting Office (Federal, Non-Partisan) report:

“presents 34 areas where agencies, offices, or initiatives have similar or overlapping objectives or provide similar services to the same populations; or where government missions are fragmented across multiple agencies or programs. These areas span a range of government missions: agriculture, defense, economic development, energy, general government, health, homeland security, international affairs, and social services. Within and across these missions, this report touches on hundreds of federal programs, affecting virtually all major federal departments and agencies. Overlap and fragmentation among government programs or activities can be harbingers of unnecessary duplication. Reducing or eliminating duplication, overlap, or fragmentation could potentially save billions of tax dollars annually and help agencies provide more efficient and effective services. The areas identified in this report are not intended to represent the full universe of duplication, overlap, or fragmentation within the federal government. We will continue to identify additional issues in future reports.”

http://www.gao.gov/products/GAO-11-318SP

It’s very interesting to note in the GAO report that savings in the Billions/year can be achieved without hampering any programs!  In fact, implementing these recommendations would actually cause existing services to run more efficiently and effectively for their intended Customers, generating additional savings.

At the root cause of these organizational wastes, many are based on the services, processes, and procedures being “Government focused” as opposed to “end-customer focused (taxpayer)”.  Who really is the customer and how should they be serviced most effectively?

Lean is a set of tools and techniques that allows organizations to attack these wastes.  Some examples of State Governments using Lean/Kaizens:

Minnesota (http://www.lean.state.mn.us/LEAN_pages/results.html):

• Dept. of Human Services – Reduced the elapsed time for processing professional/technical contracts by 40% and reduced the amount of staff processing time by 30%.
• Veteran’s Affairs – 70% reduction in task time and a 58% reduction in wait time in the process for reviewing and approving financial benefits for qualified veterans seeking assistance.

Iowa (http://lean.iowa.gov/results/index.html): 142 Kaizens already done, such as:

• Dept. of Natural Resources – The construction procurement process – process steps were reduced by 46%, handoffs by 62%, and decisions were reduced by 56%.
• Iowa Workforce Development – Unemployment Insurance Tax Collection – reduced steps by 35%, delays by 56%, decisions by 30%, loop backs (rework) by 44% and handoffs by 78%.

Local Government is also utilized by (to name a few):

• Cape Coral, Florida
• Grand Rapids, Michigan
• Erie County, New York
• Ventura County, California

Links to these and other Government sites utilizing Lean can be found on:http://leangovcenter.com/govweb.htm

Similar to what would be done in the private sector; a more holistic approach to Lean embodies top management in the initial Lean training and, more importantly, how to introduce major change (Lean) into an organization.  Experience has shown that Lean, like any other major initiative, is more about changing the culture (Culture = “the way we do things around here”) of the organization (85%+ of the factors driving success), versus just a tools and techniques approach (15%).  If the actions, behaviors, systems & structures in the organization aren’t modified, success will be limited.  Ultimately, the broader the use of Lean and embedding it in the actual organizational culture, the more leverage/savings the organization achieves.

When Lean is coupled with annual employee attrition rates of 4% (historically) to now 6%+ due to baby boomers, Government can utilize Lean to provide improved services/capacity at less cost by removing the waste, while not having to replace departing employees.  In Lean Government deployment, attrition is advocated instead of layoffs.

A caveat when applying Lean is that the metrics for the “Measures That Matter” should have two components – the better, faster component for speed of service to customers/greater capacity and the cost/cheaper component to ensure the delivery of these services have less unit cost.

So, if Lean is so great, why hasn’t it spread like wildfire in Government?

1. Lean is a foreign paradigm to Government.  It’s new and seems like a panacea – how can something deliver less costs, reduce wastes and also provide better service and capacity at the same time (Lean does!)?
2. The “cost of not knowing” since Government leaders don’t know what or how to do Lean, it’s politically risky to take a leap of faith forward and use Lean.  So, slashing costs and increasing taxes through the old traditional methods wins out, leaving less service/capacity.
3. There is no competition in Government.  If you are the Mayor of a city, there aren’t 3-4 other Mayors competing for the city’s business or governance.  With no competition (except for elections), there is no outside driving force causing Lean to take hold, even in the face of huge budget issues

In summary, Lean is a clear solution for Government to provide greater service and capacity at reduced costs = Better, Faster, and Cheaper.  Finding good leaders in Government is the key to utilizing Lean and being successful!

People have a basic expectation of fairness in their interactions with other people. This expectation also exists among people conducting business transactions because business is a socio-economic activity. The principle of fairness is accepted as a fundamental moral construct for human interaction. Therefore, outcomes in business that are unfair can be seen as immoral. However, that is usually not the case, as people can be very forgiving: an outcome is fair as long as it is not too unfair. But if unfairness goes beyond commonly accepted limits, or is seen as outrageous, then a judgment of immoral practices may be made. The following three examples illustrate unfairness going beyond commonly accepted limits, which makes people upset and causes them to disengage or look for ways to get even.

The first example is the use of online reverse auctions (ORA), in which a buyer pits new and incumbent suppliers against one another in real-time dynamic bidding to drive down purchase prices. While ORAs may have a broader purpose than to drive down prices, rapid price reduction is the main focus and principal desired outcome from the buyer’s perspective. The process is clearly zero-sum in its intent: suppliers’ financial losses are buyers’ financial gains. The use of ORAs has been so divisive that people have worked to soften the zero-sum outcomes for suppliers, such as introducing ORA codes of conduct – but to avail. ORAs are nothing more than technology-assisted zero-sum power-based bargaining. Suppliers soon realize there is nothing in it for them and refuse to participate. Importantly, the employees who run ORAs are caught between management’s mandate for cost reduction and the company’s ethics policies, which almost always cite fairness as a fundamental requirement for how business will be conducted. Thus, management has put purchasing people into a position where they are forced to deviate from ethics policies, yet will surely be held accountable on an individual basis for failure to comply with ethics policies. That too is unfair – to one’s own employees.

The second example is that of Fake Lean. Most organizations’ Lean efforts are nothing more than a large-scale zero-sum effort to reduce costs. The rapid introduction of zero-sum Fake Lean is due to a combination of short-term thinking, ignorance of what Lean management is, and ineptitude on the part senior managers and consultants. Nevertheless, the resulting zero-sum outcomes negatively impact one or more key stakeholders: employees, suppliers, customers, investors, and communities. The most common and most damaging outcome is to lay employees off as a result of process improvement. This quickly results in a tangible sense of unfairness that destroys employees’ desire to participate in continuous improvement. It also fundamentally contradicts the “Respect for People” principle. The cause-and-effect is obvious, yet managers choose to ignore this reality and continue to expect employees to participate in continuous improvement. Can this be seen as anything but unfair, and unreasonable? Note also that continuous improvement engineers are put in a position by management to cut costs by improving processes, which often means unemployment for their colleagues, yet also abide by the company’s code of ethics – which will usually cite fairness as a fundamental requirement for how business will be conducted. This too is unfair to one’s own employees. Fake Lean is unfair Lean.

The third and final example relates to corporate wealth; creating shareholder value, which is one of the responsibilities of senior management (not maximizing shareholder value). In the early 1970s, two U.S. business school professors wrote a paper in which they argued that granting stock options to top executives would compel them to think like owners and make decisions that better reflected owners’ interests. The professors and others continued to advocate for changes in executive compensation as a means of improving decision-making and to increase shareholder value. Within about 10 years, the idea had begun to take hold in corporate boardrooms, and annual executive compensation for American executives went from about 90 percent cash salary and 10 percent stock options, to about 10 percent cash salary and 90 percent stock options. As might be expected, what has happened in the U.S. since the early 1980s is a never-ending stream of new tactics designed to increase stock price, usually at someone else’s expense – most often employees.

The tactics are many and include: mergers, acquisitions (and usually overpay); lay people off; stock buybacks (usually at peak prices, which consume the greatest amount of cash); eliminate defined benefits pension plans; cut wages; limit wage increases to 3 percent or less; cut current employee benefits; cut retiree benefits; underfund pension and benefits plans; take out life insurance policies on employees to fund deferred executive pay; use pension funds to finance retiree healthcare benefits; hire contractors to do the work formerly done by employees (thereby reducing headcount, wages, and benefits expenses); rapidly grow the company (to be so large through acquisitions that it cannot be managed effectively) then split it into two or more independent pieces; conduct online reverse auctions to reduce the purchase prices of goods and services; outsource work; offshore work to lower wage countries; hire cheaper labor (women earn about 16 percent less than men; hire cheaper B.S. grads instead of M.B.A.s [that one is OK]); increase (or decrease) dividend payments to investors; and sell bonds to finance certain activities. Have I missed anything? Yeah, probably. How about creating shareholder value by improving the value proposition for end-use customers!

During the last 40 years, American workers’ productivity has increased nearly as much as in the period 1947-1975, yet median real wages have steadily declined and household income has declined more than 10 percent since 2000. Despite all the merger and acquisition activity over the last 30 years, which has greatly reduced the number of competitors in most industries and increased economies of scale, most companies have little pricing power because workers’ wages have decreased substantially. That, plus year-over-year increase in healthcare insurance premiums, forces companies to continue to cut costs via process improvement and outsourcing, both of which result in more layoffs. Thankfully, however, the stock price continues its upward march. (Note also that flat wages and layoffs cause tax receipts to decline, which, in turn, lays the groundwork for privatizing public assets. This is how citizens unfairly lose their public assets).

What has emerged among U.S. workers over the decades is a sense of unfairness that has gone from tolerable to intolerable, resulting in discontentment and conflict. The actions taken to increase stock price have left the workers who add value to goods and services, and other stakeholders, behind. Is this the outcome that executives, who were incentivized to think and act as owners, wanted? As a business owner, this is not an outcome that I would want.

REAL Lean business is moral business because it seeks to ensure that outcomes are fair – no perfectly so, but reasonably so. One party may not gain as much as it wants, but it does not lose as much as it could. Perhaps the moment for Lean management to take off has finally arrived, but for a reason far different than anyone of us could have imagined: as an antidote to long-term systemic unfairness in business.

REAL Lean business is fair business.

When someone says the cost of a first class letter is X, while the cost of a piece of junk mail is Y, the only way they could have arrived at those numbers is to have made a bunch of allocations. The actual cost of delivering a letter is pretty close to $NADA. The cost of opening up all of those post office doors and firing up all those trucks, however, is astronomical. They get to the cost of each type of item by going through some undoubtedly very clever arithmetic that ends up telling them x.xxx% of funny truck expense is assigned to letters and y.yyy% is assigned to magazines. Just because someone conjured up a slick equation, and has some pretzel logic to justify the math doesn’t make it so, however. The cost of the truck does not in any way shape or form depend on what sort of stuff it is being used to deliver on any given day. It is simply the cost of the truck and trying to make it into the cost of anything else leads nowhere other than to bad decision making.

So here we have Senator John McCain introducing the Postal Reform Act of 2011, stating, “Additionally, there are certain types of mail upon which the Postal Service routinely loses money. This bill would require that the vendors responsible for this mail be responsible for covering their costs. In Fiscal Year 2010, the Postal Service lost nearly $1.7 billion on these type of ‘underwater’ postal products that failed to cover their costs. For example, the Periodicals class of mail, which includes newspapers and magazines, has not covered its costs for 14 consecutive years, generating total losses of $4.3 billion over that period.”

The reason the post office lost $8.4 billion last year is not because their prices were too low on some products. It is because they have a huge installed capacity (and the associated fixed costs) that was grossly under-utilized. The solution is greater volume. No matter what the price charged for the volume, since the direct cost is zip, any revenue they get for the additional volume will help to cover the fixed costs. That being the case, the key to increasing volumes is not to raise prices – it is to lower them. That is Price Volume/ Price Elasticity / Economics 101 / Basic common sense.

Periodicals did not, with all due respect to the senator, lose money. Their direct cost is nothing. What he is saying is that they were priced at something less than enough to cover the allocation, in light of the actual volume. The Senator should stick to what we pay him for – that is to look damn good for a man of his age, shake hands, kiss babies, and make pointless speeches in the well of the Senate – and leave things like pricing and strategic marketing to people who know what they are doing. If the Senator wants to help, he should start by abolishing PUBLIC LAW 109–435—DEC. 20, 2006, which says the Post Office is “To allocate the total institutional costs of the Postal Service appropriately.”

The idea that some products are profitable and others are not is a foible limited not to the Post Office. A whole lot of businesses unhampered by federal law make the same foolish mistake. Allocating costs leads to silly conclusions like believing delivering magazines is unprofitable, which leads to price increases, which leads to lower volumes, which leads to allocating the same fixed costs over smaller volumes, which leads to cost increases, which leads to further price increases … you get the picture.

Cost allocating is sending the Post Office down the drain – and a whole lot of our money with it.

Pricing has nothing to do with cost. It is set by the market as a function of the value created relative to the value proposition of the competition. It is destructive thinking to believe that COST + PROFIT = PRICE. Toyota told us a long time ago that PRICE – PROFIT = COST. There is a huge difference. So long as the government institutionalizes the wrong formula, the Post Office is doomed. Private enterprise, however, has no such excuse.

My thoughts on China change with each trip – perhaps just as the country is changing rapidly. You can’t help but wonder about the true meaning of communism when you get off the plane and are hit with a barrage of ads on the jet way for various luxury items. Today’s state-sanctioned Shanghai Daily even had a feature article discussing how many Chinese were on the list of the wealthiest in the world. Unlike in the U.S. the article, and by extension the government, praised their success. Go figure.

On my last trip I was amazed with the accelerating improvements in this potentially monster economy. I visited medical device companies that had technology on par with the best in the U.S. and who were investing in their future growth by creating 10,000-student engineering universities of their own. I noticed how discussions with trade show attendees had changed from “here’s a sample of a product from our competitor in America – can you back-engineer and build me a million” to “here’s exactly how we’d like to improve on our competitor’s product”. Society had become, for better or worse, very westernized with teenagers wearing the latest fashions to a Starbucks on every block.

This time I’m not as optimistic. I talked to a lot of customers as well as several expats running the local operations for foreign companies. Times are changing, and not necessarily for the better. Wage inflation is accelerating, restrictions on foreign control of local outsourced manufacturing operations are increasing faster than the ability of local Chinese to manage such complex operations, and the disparity between the upper and lower class is growing.

Basic services are becoming very strained by growth, and one expat living in Shanghai told me that healthcare quality had significantly declined just in the past year – to the point that she now goes to Hong Kong or back to the U.S. for even basic care. Technology does not create great service – knowledge and experience using the technology does. The human factor, once again. I fear significant social upheaval in China’s future, and the impact that will have on the world.

Local governments have monstrous infrastructure loans that are becoming a problem. In the past they would seize property by eminent domain, sell it to companies to develop into infrastructure, and use the funds to seize more property. Lots of homes and businesses seized with as little as 90 days notice, which is why a primary consideration for multinational companies building factories is to develop in an area where seizure isn’t likely – i.e. not on a straight (potential rail) line between two cities. The problem is that the amount of property that can be seized has dried up, thereby drying up the ability of local governments to repay loans. Oops.

But what has really struck me on this trip is the lack of consistency and adherence to standards. It is pervasive and makes me wonder if this is the goal, and then the hurdle, of great civilizations. How’s that for a deep thought?

I don’t necessarily mean regulation-enforced standards, but simply an inherent desire to do things right, the same way, and an inner knowledge that consistency is efficient and practical. It is also an awareness that something is wrong and needs to be changed.

A few examples to illustrate what I mean, beginning with the very basic. In our hotel, a five star by local standards, light bulbs are inconsistent in the same type and application. Overhead lighting cans may have incandescent, compact fluorescent, etc. At the breakfast bar the coffee is in a different location each morning. Sometimes there’s low fat milk, sometimes not.

Trivial? Perhaps – it didn’t strike me as all that unusual or systemic until I came across or heard about the following other examples.

An expat I talked to who is running the local operations for a large U.S. multinational told me of her frustration mentoring her Chinese leadership team – and why she believes it will be a long time before the company entrusts the operations to them without an expat chief. One example she gave was how on her gemba walks she noticed trash on the floor, every day. Her management team simply doesn’t see it, let alone take action to improve it. She then connects it to understanding the financial statements and data required to run the operations – if they can’t see trash on the floor, can they see the minor and what may appear on the surface to be trivial, but still potentially important, issues in metrics and data? Let alone do something to correct it?

Recognizing, digging into, asking why, then improving is a fundamental requirement for solid autonomous leadership. In her opinion it’s not there yet.

A third and final example, one that will scare most people flying in and out of Shanghai’s Pudong airport. A different expat was telling me about the amount of news that really is censored, especially including safety issues. The world witnessed some of this recently with the derailment of a high-speed train in China and how it was initially covered up to the point even having train cars buried before an investigation could take place.

According to a good friend of hers, a commercial pilot, the actions of planes around Pudong are scarily similar to the cars and buses on local streets – effectively a free for all. Instead of the highly-ordered sequencing, positioning, and following commands of traffic controllers that you see at U.S. and European airports, in China commands are often ignored. Just last week a Qatar jet had declared a fuel emergency and was given a direct approach into Pudong. Still, on final approach, two local airliners dove in in front of the Qatar jet to land sooner. Disaster was narrowly averted. Perhaps this is why United turns off Channel 9 when landing in China?

Understanding the value of consistency and standards, regulation-enforced but more importantly an inner knowledge and understanding of the value of consistency and adhering to standards, appears to be a key to an efficient society.

Similar to that, understanding that standards can and should be changed and improved upon with appropriate review is also key. Otherwise stagnation occurs. I see the U.S. as having a high level of standards and consistency, but struggling with creating the ability to improve and move forward.

Creating and adhering to standards and standardization are both a critical goal, and a critical hurdle. For both societies and organizations.

As we shall see, the countermeasures for our situation entail Compression Thinking, changing how we think from expansion to coping with Compression. While this may be necessary, most of us like our comfort zones, and see no reason to change thinking. Our optimism bias is to keep working harder as we do now, and surely the economy will take off again. And it might, a time or two, but not forever, and for many reasons.

Common definitions of “compression” include squeezing anything mechanical, compacting redundancy out of data, and cramming for a test. It’s an apt analogy to describe both our impending global situation and proposing what we can do about it:

• Population growth leads to densely packed populations to feed, clothe, and shelter.
• Squeezed resources; earth is a finite planet. Its resources are also finite, even if their limits cannot precisely be known.
• Compress unnecessary activity (waste) out of all work processes, eliminating everything unnecessary for the purpose.
• Compress resource footprints for all human activity.
• Compress work organizations’ learning cycles: Complexity is increasing, so we must collectively learn more, integrate the learning, and put it into action faster.

The last bullet point is italicized because dealing with a difficult situation is seldom pleasant. Documenting a doomsday scenario is much easier than actually doing anything: First we must convince ourselves that we should. Second we have to learn what to do, and keep learning. Third we have to substantially change how we look at the world. Fourth we have to change our habitual actions. Anyone designing an election campaign would quickly rate the probabilities of this as near zero, but lets try anyway. Once people regard new goals as important, they are capable of amazing accomplishments.

The Case: Why We Need Compression Thinking

The case for Compression rests on no single, clinching thread of evidence. That for practical purposes the world is finite should be self-evident, yet optimistic bias in the simplest of financial formulas for compound interest presumes growth; perhaps unending growth. Presuming that a higher price will bring a greater quantity to market assumes that more can be had – somewhere, somehow. But if no more can be had at any price, a market in any conventional sense no longer is possible. That is, recognition that we live in a physically finite world turns many of our rules of economics, and for living, upside down.

We’re not in that kind of world yet, and may not be for years, but humans keep globally consuming more resources at a faster rate. Humans do not change quickly, and unless we begin to act, the consequences of this will be on us before we learn to cope. Why?

Figure 1. More Global Issues Than a Single Mind can Absorb in Detail

In Figure 1 the scattering of issue headlines on a fractal image is intended to crudely illustrate that all these issues interrelate. Exactly how things will play out is not precisely predictable. These issues have been classified in four headings in the four colored balls.

1. Finite Resources: Evidence is that at the present rate of growth in their use, we are near peak extraction for many sources of energy and materials. Peak oil has had the most attention. No one knows whether we are at peak oil now, or within another decade or so, but it does not have an infinite horizon. Peak does not mean that we run completely out. It means that we can no longer extract at an increasing rate. After hitting peak, the annual draw of any virgin material cannot support continued growth in its use. Indeed, assuming two percent annual growth in use, even iron ore will hit a peak within 50 years.Another key to understanding the nature of shortage is yield on energy. After rich natural sources of materials are worked out, subsequent ones are more dispersed, so it takes more energy and technology to get them. That is, it takes more energy to obtain energy. This is obvious today in the deep drilling for oil, hydrofracking for natural gas, and so on.The same is true of minerals; they take energy to obtain. Basic physics: the more dispersed any source is, the more energy it takes to concentrate it into useable form. Improved technology can improve this return, but it cannot beat nature’s basic physics. And all known sources of fossil fuel alternatives have energy yields far below the 100/1 or higher of the first Spindletop oil gusher.Water is another impending shortage, water we can use, that is. Fresh water is scarce in many places around the world. The Colorado is not the only river nearly tapped out. How climate may affect this is not precisely predictable, but in most places we can use water far more frugally and still maintain quality of life. But we may not able to maintain lush golf courses in the middle of deserts. And to maintain supplies of fresh water, we had best be careful with toxins. Don’t dump them in rivers or pump them into the ground to contaminate water tables.
2. Precarious Environment: While it’s always possible that a sudden tipping point could dramatically wreak environmental Armageddon, so far a steady diet of human abuses has only made nature’s balance ever more precarious.  Even environmentalists cannot keep up with all the threats in detail. Dig into a few, and unknowns are of more concern than the problems already mapped. One reason is delayed effects. For example, the slow build up of dioxins in tissue was not discovered until well after they were widely dispersed (as from incinerators), which made large-scale remediation much more disruptive.An illustrative issue now is the size of the Pacific Gyre garbage patch, and whether the tiny subsurface plastic particles that constitute nearly all of it contain plasticizers that are endocrine disruptors adversely affecting sea life. Several unknowns factor into clarifying this possibility: how much stuff is out there, what is in it, and will it seriously affect sea life or the carbon cycle? This will take a while. In the meantime, skeptics want to see evidence no one can ignore to believe that a patch “bigger than Texas” even exists. Debates on this are now limited to “crying wolf” arguments vs. “boiling frog” arguments. Without resolving every detail, however, one course of action is possible. Stop growing the garbage patch. Whatever problems it contains, why keep making them bigger?The media cannot front-page many old issues that are still with us; like the ozone hole, or dead zones at the mouths of rivers. When not kept in consciousness, and when consequences appear in places far removed in time and distance from potential causes, both problem solving and remedial action are delayed.Of all these concerns, ocean acidification and the carbon cycle are two with catastrophic potential. About half of all atmospheric oxygen is from the ocean, and here also, too much knowledge remains “gray box.” However, it is known that acidification damages coral reefs and inhibits calcification of zooplankton. Seriously depleting the activity of all oceanic plankton would not only disrupt the food chain at the bottom, but could start shutting down our own supply of oxygen.Without the related uncertainties of climate change, plenty of evidence suggests how human activity could nudge the global ecosphere out of a Goldilocks zone. By conventional wait and see thinking, we will take little preventive action, and waiting for scientific investigations to be conclusive is like experimenting with the fuse of a bomb while sitting on it. We’ll never be able to foresee every unintended consequence coming. However, we can keep our problems to a minimum by making them smaller. Just produce and use a lot less stuff.
3. Overconsumption: The mere existence of a global population of 9-10 billion people might not overtax the resources of the planet, but living in the industrial society style to which are accustomed will. We use too much.All industrial economies have high consumption rates, but the United States remains the world’s consumption champion. On average, Americans drink 50 gallons of cola per year. We burn more than our body weight in petroleum every week. While we may not think that we consume much, everybody has seen such numbers, plus health warnings about obesity and sedentary living, all suggesting that we consume more than is good for us. Nonetheless, cutting back is hard when the companies persuading us to buy don’t want us to cut back either.Measured by GNP, mining, agriculture, and manufacturing are small parts of the economy. The lion’s share of it consumes. Governments consume resources. Service companies consume resources internally, and most of them encourage their customers to consume more and more besides.However, the growth of our trash trails has slowed. During the last decade American solid waste leveled off at about 4.5 pounds per capita daily. Because of recycling and incineration, only about half of it goes to landfill, but total solid waste still grew 6 percent during the decade, equal to the increase in population. Waste disposal has stabilized, but it remains a big, messy problem.Industrialized regions having less than 20 percent of the world’s population burns about 75 percent of the world’s energy. The remaining 80 percent of the global population can better use what is available to them, but can’t be expected to reduce the use of resources that they are barely using now. It’s pretty clear from whence the heaviest cuts and greatest imagination must come, but industrial societies can also apply more advanced technology to these goals.

   Were there no real shortages, why anyone would want to use resources just to be using them makes no sense.

4. Pushback: Environmentalists push back on wasteful commercialization, some quietly and some noisily, but when personally pushed, others squawk too. Almost anyone whose property or mode of living is degraded by grubbing for resources is apt to affiliate with a NIMBY (not-in-my-backyard) movement, even if a project has a purpose like alternative fuels. Most of us like the benefits of an industrial society. Few of us like to absorb its costs in our pocketbooks. Some of us don’t like its costs to nature either.Much pushback is an exacerbation of age-old resentments fueled to flash point by shortages. For example, “Arab Spring” uprisings began where food costs were high and water short. Tunisian and Algerian unrest began with food riots. If shortages are long-term, not temporary price spikes, whether new governments can deal with this is questionable. (Food riots factored into the French Revolution. Louis XVI could not repress hungry peasants for decades, but some governments do; North Korea is a case in point.)When doomsday possibilities remain abstract concepts, they are hard to concentrate on. If they begin to affect us personally, human reactions shift rapidly, but then we have little time to grasp Compression in a holistic way. Doing that easily meanders off into economics, business, philosophy, psychology, and a few other topics. Trying to do this while people are still civil is a noble objective, if a bit of a stretch. For most action-oriented executives the first challenge is just taking breaks to personally give thought to a long-term future.
5. Complexity. Almost everything in business is more complex than 50 years ago: taxes, regulations, international competition, financial systems, software… An all-mechanical car became a rolling network of computers. Anyone using all the burgeoning social networking channels available has no time to do anything else. Add the earth’s problems to this mix, and complexity overwhelms us.What we have done is concoct a great deal of human system complexity in addition to that which nature serves up to us. Uncertainty about the future is probably the most confounding aspect of this complexity. Executives keep looking for the “new normal,” meaning a different stable state from which they can resume conduct of business in a predictable way. But suppose that never happens? Worse, suppose that, given our mindsets today, the business world will never again be simpler than it is right now. Then the only way to find a “new normal” is to create it ourselves by looking at our situation differently.

Compression Thinking

Since the world is obviously finite, expecting to use more and more resources forever is unreasonable. Even if a breakthrough like solar power lets us maintain a high level of energy consumption, always expecting to use more and more of it, or to consume more and more other virgin resources indefinitely makes no sense. However, that is exactly what the simplest of formulas used in business, like compound interest, implicitly assume. They are growth formulas.

If we dump the growth assumptions, our rules go upside down. Bigger is not necessarily better. At some size, economy of scale starts becoming diseconomy of scale.

If we pursue that old Toyota ideal of lot-size one, the concept runs outside the bounds of production for volume markets. Why not give a customer what she needs, designed to her real needs, where the customer is, or very close? Doing so is no longer attempting to “win” in a volume market. It revolutionizes business models; operations and production become the enabling side of a service business model focused on one customer at a time.

Keep going with this logic, and one questions why our processes are designed to use low concentration ores when the customer is discarding high concentration refined product? Yes, there are all kinds of problems with metallurgy and materials separation, and with reverse supply chains to pull this off, but posed simplistically, the question begs us to fundamentally rethink what we do, on what scale, and why.

All the issues in the case for Compression are global, but each has roots in actions we take locally. Nonetheless, translating grand global issues into working level action is an intellectual exercise. To help, Compression Thinking poses an arbitrary global challenge:

By the year 2040, globally improve quality of life to an industrial society equivalent using no more than half the energy and half the virgin raw materials as in the year 2000, and with virtually no known toxic releases.

Sounds impossibly idealistic, doesn’t it, but posing a challenge in an operational way simplifies a great deal of complexity about what to do:

1. Using a lot less stuff is a tough goal to execute, but easy to understand. With thought, almost any work organization can figure out how to start.
2. Improving quality of life is harder to quantify; it’s subjective, depends on each person and their culture, and many people conflate quality of life with having more stuff. But to make headway on the Compression challenge, paying attention to quality of life may move us along much quicker reducing our use of stuff.
3. Goals with dates start to become an operating plan. Most work organizations can set up goals and work plans related to this outrageous challenge.
4. However, these goals are glaringly inconsistent with how we have thought in the past, so our biggest challenge is our old nemesis – us. We begin using different kinds of tools, but we end with a different view of life, a change in values.

OK, how do we start? Can we follow principles, rules, tools, or road maps?

Yes, one can devise general “principles.” These can extend endlessly, but even more than with lean, quality, or any other difficult-to-digest mouthful, thinking and learning are the digestive juices for absorbing them. Do that and you too will soon devise “principles.”

Space being insufficient for endless lists, the compressed tabulation in Figure 2 is only a starter kit. Even more than lean, Compression Thinking is a practice. (The author is still practicing – awkwardly.) With no fixed body of knowledge, there is no stopping point. The idea is to greatly reduce resource consumption by greatly expanding our learning.

Much of the thinking attempts to reconcile the obvious clash between goals 1 and 2 in Figure 2. Going on down to goals 3 and 4, the use of tools gradually leads to a shift in values.

Figure 2. A Few “Principles” of Compression Thinking

Compression Thinking attempts to overcome a shortcoming of lean and quality thinking in practice. All too often, we remediate processes, that had we been wiser, should not have been designed. Improvement of existing processes is commendable, but Compression Thinking attempts to elevate our thinking so that we design a better future.

Vigorous Learning Enterprise

The ideas for a vigorous learning organization are a composite of the best seen in a number of companies over a 25-year span, so it is possible for real people to do these things. Migration of an existing organization to this state would take years, so it is not easy, but it seems possible.

The operational objective of a vigorous learning organization is to create that elusive ability to be both highly disciplined and highly flexible – not an easy match. In an attempt to become highly efficient, most 20^th century organizational successes became too rigid to adapt quickly. Henry Ford vs. GM in the 1920s is a classic case. GM did not try to beat Ford building Model Ts, from which everybody (including Ohno) learned a lot. Instead, GM flat out-innovated Henry, who could not adapt quickly enough to hold his market. But all that was from an earlier era, and we are entering a very different one.

Figure 3. Vigorous Learning Organization

Figure 3 shows five major aspects of a Vigorous Learning Organization. All parts interrelate, so development of such an organization is not by independent structured projects that stack up like bricks in a wall. Instead, begin initiatives to develop people, including leaders, and use systemic structure as a framework on which human capabilities can grow. (A concept of developing people in that way is why TPS senseis, if they tried to articulate development of TPS at all, used some verb like “create” and never one like “install” as if one were wedging in another software package.)

Meta-Vision: This philosophical term means the ability to see a picture of any organization from an outside-in perspective. It includes the ability to see yourself somewhat as others see you, which is not implied in the trite phrase, “seeing from the 40,000 foot level.” While no one can completely master this, the ability of leadership in particular to stop and think about a bigger picture than the P&L statements is necessary to comprehend the issues in Compression. Change starts here.

Common Mission and Goals: In the sense used here, a mission is not a goal like making a record profit, nor even a vision of some future state. It’s a statement, or common understanding of what the organization exists to do, which could be as simple as “help people dig dirt.” If they consider it socially vital, people will unite around a common mission, and some will dedicate themselves to it. Sometimes, as with health care, a mission is so obvious that it hardly needs stating. Other times it’s not obvious, so a stated mission inhibits people from flying off in multiple directions. Of course, they will not always agree on everything, but it helps if all are working for the same cause.

Missions don’t change very often. Goals change regularly. They are statements of overall transformations or improvements that everyone can work toward in the course of a few months or a few years. Two to four of these will do. Multiple people can’t keep too many in mind at once. If you are familiar with annual strategic plans developed by hoshin kanri, the upper level objectives would be goals in this sense.

Why is all this important? People can unite around common missions and goals. Throw many monetary incentives in the mix and the carping about fairness starts.

Rigorous Learning Systems: This begins with problem recognition and problem resolution using some version of scientific logic, like PDCA. It includes asking 5 whys or 500 whys, going to the gemba (which may be with a customer, etc., not just a factory), and learning how to think critically. That’s a start; there’s more.

Common issues using such frameworks are not probing deeply or widely enough to frame a problem in context, whether it is important or symptomatic when deciding where to invest learning power. A second is not retaining what we learn so that we rework the same problem time and again. That is, collectively absorbing what individuals learn so that it is shared and becomes standard practice is not as easy as it sounds.

A learning system is incomplete without a way to capture what is learned so that it is easily accessible when new situations are faced. The filing system need not be complex; it’s better if it is simple. A3 paper files are a form of such a system, but files are useless repositories if unused. And use of a record system is two-way; as input to it as well as output from it, expected as a regular part of work. Human psychology factors in because we do not like to report negative findings or failures in detail, but that is some of our most important learning.

To explain why design and development of this system is important, consider a description of a university library, used to explain to graduate students why they should know the history of their field. “The library is our past speaking to our present so that you can make our future better than today.”

Behavior for Learning

Vigorous learning refers to collective learning by an active working organization, which can extend to big external networks. It is more than individual learning just for self-interest, although that can be a valuable source of innovative ideas. Collective learning implies sharing what we learn that is relevant to our mission or to immediate challenges. Some of us like to hide what we know. Indeed a company’s reward system may perversely encourage this by overemphasizing individual performance.

Thus behavior for learning digs into the worm cans of organizational culture, the composite of “how we do things around here.” Culture is influenced by everything, but notably history, reward systems, and leadership behavior. Changing it may be like restructuring noodles, but it can be done.

So what behavior encourages collective learning? Just developing people for teamwork, for starters. Many people have been through forming, storming, norming, and so on. Beyond that, three factors seem to help:

1. Encouraging the reporting of negative outcomes. Before people will do this, they have to actually experience that doing so is not a career impediment. They are still valued.
2. Set up a code of behavior. Better yet have employees from all areas devise one. That may take time, but the outcome is thought out from many angles, and it is theirs. Even better, have some form of organizational recognition that people actually commit to abiding by the code; like they put their John Hancock on a big thing on a wall that everybody else can see.
3. Devise a code used in meetings to straighten up someone straying off, especially if discussion is degenerating to personal attacks, or a hidden agenda is sensed. It could be a code phrase like “Are we going below the belt here?”

For most of us, behavior for learning – collective learning – is not normal. Neither Mother nor schooling fully prepared us. Instinct is to revert to form because conflict may be more fun. So once a code of behavior is in place, leaders need to be exemplars of it, and little “ceremonies” should regularly reinforce it, sort of like standing for the national anthem every time you go to a ball game.

Servant Leadership: The foundation of servant leadership by that name is a book with that title by Robert Greenleaf. However, the military version of it is short, no-nonsense, and equally applicable to any organization. In military organizations, the mission has to be the primary motivation, not money. Few people go into combat because of immediate financial incentives, so leadership has to be of the people.

The nub of this kind of leadership is recognizing that an organization’s purpose is to carry out a mission with excellence. It’s not to maximize profit. A military commander developing troops has to be aware that the next mission may be something unexpected. Versatility and preparedness are important. Finally a good commander realizes that in any tough situation, the welfare of everyone depends on top performance as a unit.

So the key ingredients of becoming this kind of leader are personal attitude, integrity, and priorities. Four simple rules of behavior sum this up:

1. Mission comes first.
2. Welfare of the troops comes second.
3. My personal welfare is third.
4. Always tell the truth (good, bad, and ugly).

(Because of this, ex-military commanders usually make good lean leaders too.)

The Compression Institute

This fledgling organization is in the process of being incorporated. It’s puny compared with the global challenges presented, and it’s busy with the simple tasks necessary to get any movement started, but one must start somewhere.

Its mission is to create learning action groups to make Compression Thinking a common practice.

Of course, this is a leap into the unknown. Few people, if any, have done anything like it, but if you know of an exemplar case, we’d love to hear about it.

To learn a little more, visit www.compression.org. If you sign on for the newsletter there, about every two weeks you will get an update, and we hope to be reporting some progress soon.

Most of all, if you are eager to join this adventure, e-mail Doc Hall: doc@compression.org.

And yes, Compression paints a scary scenario, but if you follow global news, scenarios that are even scarier are pretty easy to concoct. We’re not pessimistic. If we wake up to the situation that we are in and take action, there’s reason to be optimistic.

Recently, Toyota has suffered some major blows to its reputation. Toyota’s failure to quickly respond to incidents resulted in the recall of millions of vehicles, millions of dollars in fines levied by the National Highway Traffic Safety Administration (NHTSA), individual and class-action lawsuits, and damage to the Toyota brand name.  Because of the problems, Toyota could see a financial loss of over $10 billion.

In the first two articles of this series, we introduced the concept of Zenjidoka, the extension ofJidoka from the factory floor to all employees who interact directly with customers.   When a customer reports a problem, Zenjidoka teaches employees (including the dealers) to be self-reliant, empowering them to use every tool and resource at their disposal to immediately investigate and address the customer’s problem.  We also introduced the Harada Method for personal and professional success.

We believe that the financial and human consequences could have been greatly minimized had Toyota practiced Zenjidoka. Empowered by Zenjidoka, customer service personnel and technicians could have raised a red flag, communicated with each other across dealerships, and solved problems much sooner. This article discusses how the Harada Method can assist in establishing aZenjidoka system.

Monozukuri and Hitozukuri, the Heart of Zenjidoka

In March, on my 78^th trip to Japan, I took a course from Takashi Harada on the Harada Method.  Harada taught us about Monozukuri and Hitozukuri, which are the heart of “Respect for People.” Together they form a secret recipe to enable domestic Japanese and US manufacturers to compete against low-cost labor in China, India, Indonesia and other emerging countries.

Monozukuriis a term that can be best translated as “the process of creating superior products through pride of workmanship, manufacturing excellence and continuous improvement”.  Its closest English equivalent is “craftsmanship”, which suggests that the work product is a labor of love, one that requires an extremely high level of skill that might take a lifetime to master.  This high level of skill is achieved through Hitozukuri.

Hitozukuriis an organization’s commitment to lifelong development of the skills and knowledge of all employees. Denso, one of Toyota’s major suppliers, has a saying, “Monozukuri isHitozukuri”.  In other words, Monozukuri (product excellence) cannot be achieved without Hitozukuri (people excellence).

To achieve Hitozukuri, masters from inside and outside the organization provide the lifelong training and mentoring of employees.  This enables the employees to:

• Learn new skills and technology to increase their value to the organization
• Become “masters” of their current positions and serve as mentors to more junior employees
• Advance within the company to positions requiring new knowledge and skill sets
• Develop a level of self-confidence and self-reliance that grows over time
• Create and implement ideas to improve work processes and the organization as a whole

“The kaizen system of incremental improvement owes much to traditional Japanese craftsmen. No one sits down and teaches an apprentice all the techniques he needs to become a master. He starts out as a minarai, and learns by watching. First, he is given menial jobs around the workshop. After a time, if someone calls in sick, he may get the chance to do a trivial part of the process. Later he may purchase his own tools and try things out in his spare time. He gradually gains more responsibility. At no time does the master specifically “teach” him anything. It is up to the apprentice to “steal the art,” to figure out for himself what the master is doing to get the right results. Over time, the apprentice develops a technique like the masters but also all his own. Each person sees the process with a fresh eye, observing the master but learning for himself how to make the process work.” 

Japan Intercultural Consulting

Building Hitozukuri with the Harada Method

How can organizations create a Hitozukuri structure for the lifelong development of employees, making sure that every employee is successful no matter what positions they hold and what challenges they face?  My study of the Harada Method over the past two years, along with my personal correspondence and training seminars with Mr. Harada, have convinced me that the Harada Method provides a structure and a process for Hitozukuri, enabling every employee to learn and be successful.

Today, many Japanese companies are using the Harada Method as a key process to achieve lifelong learning and continuous improvement. The Harada Method teaches that people can be successful in life, if they first identify and embrace a goal to drive them forward. The methodprovides a disciplined, rigorous process for learning and achieving success for every position at every level.

Bring Passion to Your Work

Too many people sleepwalk through life, never having a career, a trade or even a hobby that brings them passion, excitement and enthusiasm.  Just to survive, they take jobs they don’t like, that are full of stress, that don’t bring satisfaction or self-esteem.  There’s nothing wrong with this in the short term—we all have to feed and shelter our families and ourselves.  What is wrong is that they don’t have a plan to get to where they really want to be, to put them in a job or a career where they can do what they really want to do.

For most people, identifying this goal is not easy.  In fact, when I asked my 29 current students at Portland State University about their futures, only one student had a concrete career goal.  All of the other students, mostly seniors, were going to school to learn and get a degree, but they did not know what they really wanted to do to succeed in life. Their goal was only to convince some company to give them a good job, and they had no plan that could align their own passions with any future career.

Everyone should have a passion for what they do.  Their goal should be to find that passion and learn from a master, to “steal the art” from them and surpass his or her achievements.

Ask yourself:

• Do I feel passionate about my job?
• Do I look forward to going to work every day?
• Do I have difficulty containing my enthusiasm when someone asks what I do for a living?

If you answered “no” to any of these questions, the Harada Method can help you realign your life so that your passion translates into career and personal success.

The First Steps of the Harada Method – Choosing Your Goals

To get started with the Harada Method, pick something you want to master.

When you have picked something, write down ten variations of the idea and ask your family, friends and your superior at work for their input. After a week of reflection, pick one of the variations and write down your time frame. This can range from one year to many years from now. The important thing is to set a date.

Next, pick an intermediate goal, something to accomplish in the next three months. When you have that written down, pick a current goal, something that you can achieve this month.

Setting your long-term, intermediate and short-term goals are the first steps of the Harada Method. Once you pick something and learn to follow the process every day, you will be successful. The beauty of the method is that no one tells you what you need to do.  It is truly up to you.

Conclusion – The Harada Method and Zenjidoka

Companies that want to extend quality beyond the factory walls and implement Zenjidoka need to have employees who are skilled enough that they can be trusted with the autonomy to identify and solve customer problems. The development of excellent employees, or Hitozukuri, is necessary to make Zenjidoka work. The Harada Method provides a framework to help companies and individuals develop their knowledge and skills to this level. The method is a step-by-step process that also aligns personal and professional goals, providing motivation for anyone who undertakes it.

Mr. Harada teaches that “if you believe in yourself and are willing to work hard this year, I guarantee you can succeed in life.” Mr. Harada has taught over 50,000 people in Japan and it is our privilege to teach his self-reliance method in the West. Each month we will share more of our knowledge of this very exciting concept to achieve organizational and personal success.

Editor’s note: This article is the first chapter of the Shingo Prize winning book by Steve Bell and Michael Orzen, Lean IT: Enabling and Sustaining Your Lean Transformation.

The portion of the global economy spent on IT is substantial. For example, banking and finance enterprises in 2008 spent an average of 6.9 percent of their revenue on IT; this figure is a staggering 4.7 percent in health care.1 If you begin with a conservative assumption that just 20 percent of these investments do not add significant value to the customer, the numbers add up quickly. And beyond the direct waste of IT dollars spent that don’t return expected benefits, even more staggering are the consequences of poor-quality information and ineffective information systems on the productivity and general health of each organization, and by extension to the global economy as a whole.

Much is at stake here—clearly IT and the business must significantly improve the way they work together toward shared outcomes if they’re going to produce ongoing order-of-magnitude improvement. Aligning IT with the business has become an all-too-familiar slogan. But what does alignment really mean? And what are the consequences when alignment is lacking? Let’s hear from both sides.

The Business View

Business responds to change every day. Customers increasingly want more choice, speed, and quality, all at a lower total cost, while competitors wage a perpetual battle to steal market share. In order to succeed in such a dynamic and demanding world, business processes and supporting information systems must be both stable and responsive to change, always focused on delivering value to the customer. Unfortunately they often fall short.

Business perceptions of IT and the IT organization often include the following concerns:

• Complexity: Information systems are often difficult to use, costly, and resistant to change.
• Speed: The IT organization is often perceived as slow moving and late in responding to high-priority requests.
• Misdirection: The IT organization is focused on technical issues rather than on solving business problems.
• Foreign language: IT speaks a language that business people don’t understand, and IT often doesn’t understand the language of the business.
• Information overload: IT generates an overabundance of information; many workers suffer from data, e-mail and document waste, losing countless productive hours each week.
• Project failure: IT projects are sometimes costly, time-consuming, late, and disruptive, while failing to deliver expected benefits.
• Fragmentation: There are often many disparate, disconnected systems involved in each business process.
• Poor data quality: Data and information are often inaccurate, unreliable, inconsistent, untimely, or, in the worst cases, counterproductive.
• Inadequate decision support: Users are often frustrated by having too much data but not enough useful information, at the right time and in the right format, to support informed decisions.
• Systems anarchy: Many users attempt to control their own information with workarounds, spreadsheets, and homegrown systems, further contributing to data fragmentation, redundancy, and poor quality.
• Cost focus: IT is often perceived as a back office cost center, not an enabler of value creation or a catalyst for innovation.
• Unclear return on investment (ROI): The business is often unable to measure the ROI of information systems investments, and evaluate the quality and effectiveness of IT performance. This uncertainty leads to a vague understanding of IT’s true value to the business, which in turn leads to uninformed investment decisions.

The IT View

Now let’s consider the other perspective: the IT organization is often overloaded, and reactive crisis management behavior is all too common. Constant change, shifting priorities, new releases and upgrades, and the need to balance existing and emerging technologies, all contribute to an untenable mixture of complexity and volatility. There is usually more work than IT could ever complete; some companies report three to fiveyear backlogs. And through it all, IT is tasked with keeping information systems, and the business, up and running at all times, while rigorously controlling costs. This often creates the atmosphere of a no-win scenario within IT.

Common IT concerns and challenges include:

• Endless “firefighting”: The amount of unplanned work often exceeds planned work, which is unsatisfying, exhausting, and ultimately not sustainable.
• Unclear system requirements: End users can’t always articulate what they want and often ask for more than they need.
• Conflicting priorities: Business stakeholders are often unable to agree on priorities, so IT is caught in the middle with unclear goals, budgets, and timelines, having no choice but to pragmatically make important priority decisions based on incomplete information.
• Lack of engagement: IT is often brought into projects after important strategic and tactical business decisions have already been made.
• Resource thrashing: Due to unpredictable demand, magnified by unclear and shifting priorities, IT staff are frequently switched between projects, causing changeover costs, lost productivity, quality problems, frustration, and fatigue.
• Excessive automation: Rather than eliminating or at least simplifying wasteful processes, they are often automated, creating additional layers of system complexity and increasing total cost of ownership.
• Poor data quality: This creates additional errors, rework, and other downstream consequences, and is often caused by lack of end user training and documentation, and inadequate process design and controls.
• Scheduling of shared resources and services: A constant challenge, since specialized resources (human and other assets) are often shared among multiple projects and operations, each with competing priorities, causing bottlenecks and scheduling delays.
• Regulatory requirements: These can add layers of non-value-adding activity. The business often focuses on after-the-fact reporting and control measures, rather than creating high-quality, consistent, and naturally compliant processes to begin with.
• Outsourcing: The business may believe that outsourcing administrative processes and IT services will reduce costs. However, decision makers may not fully understand the distinction between commodity processes and those that offer competitive differentiation and strategic advantage, nor realize that outsourcing may have unintended consequences by restricting agility.
• Budget constraints: There is a natural tendency to focus on IT cost cutting, rather than waste reduction—emphasizing value creation, innovation, and enterprise performance improvement.

What Causes IT and Business Misalignment?

The business and IT organization each have a long list of concerns and challenges—pain they feel every day. While Lean thinking stresses that every problem is an opportunity for improvement, business and IT stakeholders often have difficulty finding common ground, or even speaking a common language. As a result, over the years we have observed that IT organizations are often not aligned or synchronized with the business in supporting the continuous improvement of business processes. In fact, IT organizations can become isolated from the business operations they support, losing trust and respect.

Furthermore, because of the complex, volatile, and often risky information systems environment, traditional IT change management moves at a slow pace. System changes are deployed in carefully planned test-and-release cycles in an effort to prevent unplanned downtime and business disruption. This cautious approach to change inhibits business agility, and hinders the rapid, iterative, and continuous improvement of business processes.

What is at the heart of this disconnect between IT and the business? In our experience, the lack of integration and synchronization between the business and IT is caused by unnecessary complexity.

The world is becoming increasingly complex, and large enterprises have been drawn into ever more intricate circumstances. Global supply chains, the Internet, intense competition, business combinations, regulation, and security have led to increased necessary complexity. Small and medium-sized businesses are not immune to this trend, as they are often drawn into these same global business networks. Their business processes are often no less complicated than those of their larger counterparts, yet they often lack the IT sophistication and budgets to address them.

Beyond the challenge of necessary complexity, there is an enormous amount of unnecessary complexity—self-inflicted pain—arising from the inappropriate design of business processes and supporting information systems. Lean practitioners call this the waste of overprocessing: excessive work where cost and complexity exceed the benefits. The human mind has a natural tendency to make things more complicated than they need to be. While business processes and supporting information systems are naturally complex to some degree, if stakeholders do not deliberately and continuously simplify and improve them, they naturally degenerate over time, becoming more and more complex, costly to maintain, and difficult to use.

Overdesign is often the result of a predisposition toward technology and automation, rather than exercising the discipline to first simplify and standardize underlying business processes. This tendency becomes magnified when system designers are eager to deploy the latest technology, or enthusiastically develop elaborate solutions to potentially simple problems. The problem is further aggravated when unnecessarily complex information systems are applied to unnecessarily complex business processes; a compounding effect of waste (muda squared)* results. In this perfect storm, the unnecessary complexity of processes and their non-value-adding automation feed on each other—fueling a self-perpetuating cycle that can only be broken when business process owners and members of the IT organization work together as partners to simplify and improve processes before applying technology interventions.

Seasoned Lean practitioners know, often through firsthand experience, that many transformation efforts fail to sustain themselves over time, as organizations gradually fall back on old habits and familiar mediocrity. For a variety of reasons, the IT organization is often not proactively included in the Lean transformation process. Due to the interdependent nature of process improvement and IT change management, and because the execution of business processes frequently relies on technology, the lack of IT involvement in Lean initiatives is a common contributing factor for the deterioration of many otherwise sustainable improvements. Put another way, how could an enterprise successfully transform itself without addressing the role of quality information systems, and the active participation of the IT organization?

For this reason, we believe the next evolutionary step for many organizations, and the next frontier of Lean across all industries, is the advancement of Lean IT practices to enable and sustain enterprise transformation.

How Lean IT Encourages Alignment and Creates Value

A Lean enterprise should empower teams to simplify, then when appropriate, automate routine tasks. Process improvement frees up capacity, providing individuals with more time and better information to exercise problem solving, creativity, and innovation in situations that are not routine. Early in the transformation effort, teams are often exhilarated when they realize they can streamline or even eliminate a frustrating process— one that has always been justified by saying, “That’s just the way we’ve always done it.”

Once improvement efforts gain momentum and the low-hanging fruit has been harvested, business and IT stakeholders work together to address the tougher issues that align strategy with daily activity throughout the organization. This naturally encourages the development of enterprise alignment in three dimensions:

1. Vertically aligning strategy up and down the hierarchal organization— from the boardroom through each geographic region, division, location, and department so everyone understands how their daily activities support the shared mission, strategy, goals, and objectives of the organization.
2. Horizontally aligning stakeholders across every functional silo, process, and project—emphasizing the flow of value to the customer, rather than suboptimization of the individual process steps within traditional department or workgroup boundaries.
3. Vertically and horizontally aligning information systems—both manual and computerized—ensuring that IT enables the organization’s strategy and adds value to business processes, projects, and management systems. Synchronized vertical and horizontal alignment is the balance point for IT-enabled process improvement.

While opportunities for alignment may arise spontaneously during kaizen (continuous improvement) activities, orchestrating and sustaining alignment require a disciplined and systemic approach—a Lean management system, a topic we will describe and explore throughout this book. According to Womack and Jones in their classic Lean Thinking, “Our advice, based on years of experience, is that every organization should carefully team a system builder with each of its revolutionary change agents in order to sustain results.”

More important than process improvement tools, lasting transformation requires effective management systems that prioritize work and align daily activities with those goals and objectives that are most important to the organization. In Lean, the focus of management is to create stable processes and standardized work which consistently deliver value to the customer. For a Lean management system framework to be effective, it must be simple to understand and execute, providing guidance while not getting in the way. It cannot be too controlling or rigid; otherwise, it will suppress creativity and learning, hindering improvement and innovation. And finally, an effective Lean management system must be supported by quality information.

Lean IT and sustainable Lean enterprise transformation are the result of collaborative problem solving guided by strategic intent. How is this lofty aspiration achieved? Let’s start with a working definition of Lean IT that we will build upon throughout this book:

Lean IT engages people, using a framework of Lean principles, systems, and tools, to integrate, align, and synchronize the IT organization with the business to provide quality information and effective information systems, enabling and sustaining the continuous improvement and innovation of processes. Lean IT has two aspects: outward facing, supporting the continuous improvement of business processes, and inward-facing, improving the performance of IT processes and services.

Moving Forward

For many years, Gartner (a global IT research firm) has been asking chief information officers (CIOs) to identify their top priorities. As you can see in Figure 1.1, businesses want IT to drive growth and value through alignment. But now, in the increasingly fast-paced and competitive global economy, organizations are turning to the IT organization as partners in change leadership.

Information, information systems, and the IT organization are tightly interwoven within the fabric of virtually every business process of the modern organization. IT does matter in the never-ending, always changing race for competitive advantage.

This is especially true as many IT infrastructure and commodity services shift to a scalable, low-cost, cloud-computing model. In this approach to information systems delivery, with utility-based infrastructure and service- based applications, the business will begin paying for functional utility rather than infrastructure. This will shift a significant portion of annual IT funding from the capital budget to variable expenditures, potentially making each investment decision more aligned with the business process it serves. Along with this shift, the business will expect change capability to be more rapid, less disruptive, and at a lower cost. The IT organization must therefore cultivate a clear focus on business process leadership, maintaining the appropriate balance between efficiency and flexibility … also known as agility.

Sustainable information systems improvement and innovation cannot be achieved with a focus on technology alone. The Lean IT journey depends on continuously improving people, process, and technology, in that order. Eiji Toyoda, who retired as chairman of Toyota in 1994, sponsored Toyota’s legendary Lean transformation beginning in the 1950s. He succinctly explained the relationship of people, process, and technology in the Lean journey:

“Society has reached the point where one can push a button and be immediately deluged with technical and managerial information. This is all very convenient, of course, but if one is not careful there is a danger of losing the ability to think. We must remember that in the end it is the individual human being who must solve the problems.”

Jidoka is one of the core principles of the Toyota Production System, one that empowers production line workers to take immediate action the moment a defect is detected.  The worker who discovers the defect pulls a red cord and the entire assembly line stops.  Co-workers and the supervisor rush over to that worker forming an ad hoc problem solving team.  The team, led by the worker who pulled the cord, quickly works to resolve the problem to prevent any defects from reaching the next operation.  Using Jidoka and other tools Toyota became the quality leader in the automotive industry, admired and respected by customers, competitors and the media.  Unfortunately Toyota’s reputation for quality has become tarnished due to the well-publicized sudden unintended acceleration problem and the associated recall since October of 2009 of over 10 million Toyota and Lexus vehicles.

Editor’s note: Read part one of this series: Zenjidoka: A Simple Tool for a Complex Problem

Beginning with certain Lexus models, the first reports to the National Highway Transportation Safety Administration of sudden unintended acceleration began in the 1997 – 2000 time frame, with the first recall coming in 2005 and the second in 2007.   One question that’s been raised repeatedly is why did it take so long for Toyota to take definitive action?  It appears now that quality and safety problems that should have been addressed immediately were stalled somewhere between the Toyota and Lexus dealers and Toyota headquarters in Japan.  Toyota needed something more than Jidoka.

Zenjidoka is a new word meaning “Total Jidoka.” Instead of confining Jidoka to the factory floor, Zenjidoka extends Jidoka to every employee who has any contact with the customer.  When an employee hears directly or indirectly about a customer problem, that employee is empowered to use their knowledge, skills and judgment to immediately take action, even if that action means going against company policy or procedure.

In Tokyo, I was at the Haneda airport early in the morning in a restaurant when I noticed an orange and a banana on the counter.  I ordered both the orange and the banana but I received a glass of orange juice and the banana.  I told the waitress I wanted the orange not the orange juice, for I was afraid that the juice might also come from a can.  She quickly told me that she was not allowed to sell the orange to me.  She even giggled to her fellow worker how silly I was to want to buy a fresh orange.

With Zenjidoka employees thousands of miles away from corporate headquarters have the trust of management to make timely and necessary decisions to solve customer problems.  This unprecedented level of management respect has two powerful effects:

1.     The immediate attention to a customer’s problem by the first person contacted becomes a competitive advantage, building long-term customer loyalty, and creating a word-of-mouth grapevine that’s more effective at winning new customers than any marketing, advertising or incentive campaign.

2.     This unprecedented level of management respect for the skills and judgment of the customer-facing workforce builds employee self-confidence, loyalty, and most importantly, self-reliance.

Self-reliance might seem like an old-fashioned concept in this age of Google, where help is a click away.  It might bring to mind a pioneer or explorer who is hundreds, if not thousands of miles away from any help and must confidently rely on their knowledge, skill and self-confidence to overcome a life-threatening situation.  In the context of Zenjidoka the danger is not to the individual, but to the company.

If we just look at the financial impact of Toyota’s sudden unintended acceleration problem, (not forgetting the emotional impact of the resulting injuries and deaths), the cost to Toyota will be measured in the billions, if not tens of billions of dollars, including:

·       The cost of recalling and repairing over 10 million vehicles

·       $48.8 million in fines levied by the US Government

·       Multiple product liability lawsuits, the first of which cost Toyota a reputed $10 million

·       Class action lawsuits by investors due to loss of share value

·       Lost market share

·       Loss of potential sales to competitors

·       The cost of sales incentives

·       The cost of public relations, marketing and advertising campaigns to overcome negative consumer perceptions

What if Zenjidoka had always been a part of the Toyota culture?  What if the first Toyota employee to hear a customer complain about sudden acceleration was empowered by Toyota with the self-reliance to blaze a problem-solving trail all the way to the office of the Toyota President in Japan, and was celebrated by Toyota management for doing so?

I was in a Harada Method workshop in Osaka, Japan on March 11^th. (This was the date of the 9.0 Sendai earthquake and tsunami.  The building we were in shook and swayed for around five minutes. I knew this was a big earthquake but I had no idea it was as large as it was. I have been to Japan 78 times and had felt many earthquakes. So with very little knowledge of the overall damage done by the earthquake and tsunami, we continued on with the workshop as if nothing bad had happened.  It was not until days later that we recognized what a terrible tragedy had come to Japan.)

Prof. Takashi Harada and Hidekazu Moriyuki taught the workshop.  Mr. Harada is a former middle-school teacher who is now revered as a genius in Japan at helping people develop the skills to define and accomplish meaningful, rewarding and self-fulfilling personal goals.  In his own words, the Harada Method is a means to achieve self-reliance.

During the workshop, Mr. Harada told us this story, “Uniqlo is one of the fastest growing clothing store chains in the world where you can buy fashionable clothing, well made, at very reasonable prices.  The stores are filled with merchandise up to the ceiling, all arranged perfectly, folded neatly and properly displayed.  A woman shopper carrying a baby came to a Uniqlo store and asked to use the store phone to call a doctor for her child.  The clerk was very apologetic and told the woman that the company’s policy manual forbid the use of company telephones by customers.  In desperation, she went next door to call an ambulance. Later she wrote to Tadashi Yanai, the president of Uniqlo, to express her anger and frustration.  Fearing negative publicity and personally ashamed by the incident, Mr. Yanai called Mr. Harada requesting that he teach Uniglo employees self-reliance. Now after the training, Mr. Yanai’s employees have learned to balance the needs of customers with the needs of the company, and now have a sense of pride and accomplishment when they do the right thing, even if it goes against company policy.

On the flight back from Japan, I told the flight attendant that the “fish” was not good. She apologized but told me to write to the company to complain that she could do nothing for the company would listen to customer but not listen to her.

I can’t count the number of times over the course of my lifetime that I’ve experienced a problem with a company’s product or service, reported that problem, and heard one or more of the following:

• We’ve had no reports of that from other customers.
• You must be mistaken.
• You’ll have to call…..
• Are you sure you didn’t…..?
• You’ll have to speak to a supervisor.
• I’m not authorized to help you with that.
• I’m sorry, there’s nothing I can do.

You can probably add to the above list. If you’re like me, on hearing this kind of response, you probably feel frustrated and angry and wonder how such a company can stay in business in this era of Angie’s List, Consumer Reports, and a seemingly endless number of customer rating websites.  Why aren’t the people who operate the cash register, or answer the phone, or sit behind the counter empowered to help solve customer problems?  Why must a problem be elevated to a manager or supervisor?  Why aren’t customer service employees trained and encouraged to be self-reliant, to make the decisions necessary to address customer problems?

How can Zenjidoka address this absence of self-reliance, and make customer service a competitive advantage?

Imagine an automobile owner who goes to the service desk at the dealership and reports a problem, describing the symptoms in detail to the customer service representative.  If the service desk employee sees the same or similar symptoms in the dealer’s or the manufacturer’s database, the representative knows what to tell the customer and what to do to get the problem solved.  But if the symptoms were not in the database, the customer service representative would take responsibility for the customer’s problem. The representative would be the key point person for this set of symptoms, and would be able to call on other technical, safety and quality resources within the company to verify and solve the customer’s problem. The representative would not immediately defend the company but would be on the customer’s side and enter the symptoms and raise a red flag in the database.  This process becomes the Zenjidoka equivalent of pulling the red cord, the service worker relying on a combination of procedure and self-reliance to find the best approach to solve the customer’s problem.

A few months back, in the midst of playing musical chairs with medical specialists, I was referred to an endocrinologist on staff at the medical clinic in Vancouver, Washington that I’ve been going to for a number of years.  He told me that I needed to have an operation to remove one of my thyroid glands.  I didn’t like the idea of having an operation, and wanted a second opinion.  I’d recently read nearly 200,000 deaths occur annually from hospital errors and I did not want to join that statistic.  I also read that last year Rhode Island Hospital doctors operated three times on the wrong side of the brain.  Toyota is not the only one that makes mistakes.  I went for another opinion to a new doctor at the Oregon Health and Science University and met with Jessica, a second year resident.  I thought she was very good and told me about a new medication. Before prescribing it for me, she said, “I want to consult with my mentor, the chief resident.”  She left for a moment and returned with her mentor in tow, who complimented her on her recommendation and I left with a prescription.  Now Jessica could have written the prescription without consulting the chief resident. She didn’t need approval.  However, she had learned in her training that a team often makes the best medical decisions, even if that team is just two people.  This helps saves lives, prevents medical errors, and lowers the cost of health care.

Zenjidoka is not an approval system.  The customer service worker is drawing on other resources to help solve the problem. The idea is to bring in others with different perspectives, different skill sets, to help find new ways to solve problems.  No one, even the most experienced manager or executive, has all the answers.  In this way Zenjidoka removes the fear from asking the questions, and the “ego” that drives some managers and executives with the need to be “right”.

The self-reliance of Zenjidoka is the knowledge, skill and self-confidence to make the right decision to help the customer with their problem. But Zenjidoka is also “selfless-reliance,” the reliance on others to help solve that problem.

How do we get people to be self-reliant?  Earlier in this article I mentioned Takashi Harada, the genius who has been helping Japanese Corporations answer this question.

I am as enthralled with the Harada Method, to teach self-reliance, as I was back in the early 1980’s when I first met Dr. Shigeo Shingo and Mr. Taiichi Ohno, the geniuses that developed the concepts that we now call Lean Manufacturing.

Mr. Harada was a track and field coach in perhaps the worst middle school in Osaka, Japan. He felt that most of the students were despondent, not having much hope for their future and not believing they could achieve athletic success.  He was troubled by the lack of enthusiasm and absence of motivation of his students and decided to impose some discipline, insisting that the students come to class on time, practice as he directed, and do their homework every night.  The students complained that too much were being asked of them. The parents agreed and scheduled a meeting with the school principal and Mr. Harada.  The parents confronted Mr. Harada during the meeting; he told them that to be successful in life, their children must learn discipline.  He went on to tell them that if they gave him three years, the parents would see the school’s athletic program go from the worst to the best in the city.  He concluded, “If I don’t succeed then fire me, but at least give your children a chance to succeed.”

Mr. Harada had noticed that there were schools with coaches that were able to succeed year after year and with that awareness he felt it was the coach, not the students that determined the school’s success. He felt that with the right method, he could bring out the very best from the students. The principal and parents agreed to give him the three years to see if his method would work.  As promised, three years later, his school went from the worst to the best – that was out of 380 schools, and stayed the best for the next six years.  It was an amazing feat for Mr. Harada to see how inspired the students could become and to watch them put in the necessary effort top succeed. And, 13 of his students won gold metals in their track and field discipline.  The gold metal represented the best student at his/her age level in all of Japan.  It was like the students had won an Olympic metal.  Each student was taken through the Harada Method to become self-reliant, and taught to work out his and her own personal plan for success.  They were taught how to be self-reliant.  Not only was the school rated highest athletically but also the entire school was lifted academically.  The children learned to establish their own goals, to work out their own plans to attain their own goals, to evaluate their own progress towards those goals, and to do the necessary work to develop themselves to achieve those goals.   It is an amazing story and I am dedicated to teaching the Harada Method to the West.

In the next article, I will talk about the groundbreaking Harada Method and how it has helped build the self-reliance of middle-school students, teachers and corporate employees. I am honored to co-author a new book with Mr. Harada.  I’ll demonstrate in the next article and in the new book the Harada Method and show how it has had a profound bottom-line impact in Japanese corporations as Dr. Shigeo Shingo and Mr. Taiichi Ohno did with the concepts that we now call Lean Manufacturing.

KPAC’s prototypical seller is a Fortune 1000 company with an unprofitable subsidiary or division that has failed to sell through the normal auction process via an investment banking firm or through the parent company’s efforts to sell it. Once the transaction is completed, our KPAC team applies a “One Hundred Days to Profitability” (which could easily be renamed “One Hundred Days to Lean”) approach to the newly acquired, wholly owned portfolio company. When the company is healthy, KPAC utilizes the investment banking community to sell it, primarily to public competitors. Our ownership period averages 30 months, and in our 20-plus year history we have never bankrupted or completely liquidated a company.

The “hundred days” phrase and timeline is intended to convey a mandate for change. This change can be as major as closing an entire plant or eliminating half of the product offering. The main focus during this period is to be left with a company that has a clean business model and the resources to be both competitive and profitable. At this stage, we gain the attention of most of our competitors because of the very competitive pricing structure we implement, which is designed to apply stress to both the larger competitors and the smaller ones in hopes of further developing our exit strategy.

Most of the companies KPAC purchases are on life support by the time our team starts running them, so it is almost always necessary to eliminate jobs in the short term to keep the acquired company afloat and for the industry to learn that our strategy is to remain a long-term competitor.

It’s not unusual for our acquisitions to have more employees when we sell than when KPAC first got involved. But even if we manage to retain only forty-five out of a hundred jobs, if those jobs are stable and last for decades, I consider it worthwhile—and so do those forty-five workers!

Several years ago Ralph Keller, who at the time was president of the Association for Manufacturing Excellence, told the Nashville Business Journal, “Companies like KPAC that are going in and fixing these broken companies are performing a service to the U.S. economy by preserving manufacturing jobs.”

Whenever possible, we aim to save American jobs and make positive contributions to the economy. But that requires difficult choices and actions we sometimes wish we didn’t have to take in the short term in order to ensure long-term viability.  Our firm’s proven track record includes cross-border acquisitions, meaning the company we acquire has more than one plant in one country on a global scale.

While turning around manufacturing companies in the U.S. and other parts of the world for more than two decades, I’ve noticed trends in failing companies and learned some important lessons about why we have lost so much of our manufacturing capacity—and jobs—to international competition. Much of what I’ve learned about distressed manufacturers and the reasons they were failing was uncovered through our “discovery” process.

When KPAC meets with a prospective seller, we have already studied financials and understand the company’s product mix. Typically, KPAC has at some point owned the same or similar equipment and can determine capacity issues for the Property, Plant and Equipment, which plays an important role in valuation. We have evaluated how its products are produced, sold and distributed, and we’ve learned how the organization is structured.

With that knowledge in hand, we ask the seller pointed questions such as, “Why didn’t you close the plant in x country when its capacity was clearly well below the break-even level, and it won’t be above that level anytime soon?” Or, “You have duplicate personnel in your three plants. Why haven’t you consolidated the organizational structure so you can manage the business more efficiently?”

Many times we hear answers like, “Well, we knew we should have closed the plant, but we didn’t want to send the wrong signal to the customer base. We thought we’d let the new buyer make those decisions and handle the repercussions.” In other words, they often know they’re losing money through inefficient operations, but they want the tough decisions to be on someone else’s watch. I’ve noticed, too, that this pattern seems to get worse as the parent company gets bigger.

Another situation we frequently encounter is a product line that obviously is outside the company’s main focus. This product line requires more attention than it deserves, because it serves only a small group of customers and is unprofitable. When we ask why the company hasn’t divested itself of this money loser, a typical answer is something like, “This was one of the first products our company produced, and we didn’t want to send the wrong signal in the marketplace by discontinuing it.”

As outsiders, we look at a company objectively, rather than emotionally, which enables us to make the tough decisions. Yet I can certainly emphasize with company insiders. I’m a good CEO for the first six months—until I get to know the employees. But once I start thinking emotionally rather than logically, my “No’s” turn into “Maybe” or “Yes.” A good manager will run a tight ship and continue to say “No” until he or she can see the business benefits of a particular course of action.

Some time ago, I had an ownership interest in a manufacturer of heavy earth-moving equipment in Texas. My partners and I determined we could make the facility profitable, though to do so we had to reduce the head count, limit our product offerings and find new customers. But first we had to deal with the company’s union.

Fortunately for us, the union agreement gave plenty of leeway for a new owner to make changes and restructure the company. Union leaders understood what needed to be done and were cooperative. They recognized that we were trying to avoid closing the company and liquidating its assets.

We eventually turned the company around and made it profitable. After the first year, we not only called back employees we laid off, but also some that our predecessor had laid off. By the time I left the company, we had new work from an expanded customer base, sufficient to justify expanding the number of employees.

One reason we succeeded is that the union worked with us rather than against us, and it allowed management to focus on turning the company into a profitable operation able to sustain and eventually expand the workforce.

Unlike the federal government, companies can’t stay in business and spend large sums of money when running a long-term deficit. Sometimes, a business owner must have the courage to make hard, unpopular decisions to keep the company going, because if the company goes under, everyone loses. It is not compassionate to run a business into the ground simply because management doesn’t have the heart to cut costs and eliminate duplicate or unprofitable jobs.

Making time to compare your company with your competitors may lead to some interesting findings. I once visited two plants that performed the same function. One used nineteen people in a multi-step process to fill, seal and transport fertilizer bags to an eighteen-wheel truck. The other plant only needed two.

How is that possible? The plant using two employees knew how to work smarter, not harder. The fill and seal functions were automated. Then, compressed air under a long transport table stretching from the end of the production line to the waiting fright truck, like an air-hockey table, created frictionless, efficient movement of the product. It moved fifty-pound fertilizer bags so an employee at one end merely pushed the bags across the table, and a second person unloaded it at the other end.

Using innovation that required two rather than nineteen employees made the second manufacturer more competitive, which in my experience will enable it to survive, expand and eventually add more workers.

Being the lowest cost producer is another way to be more competitive because it can provide all kinds of advantages, such as improved cash flow, more efficient material procurement, enhanced profit margins and better inventory turns. The old “twenty-eighty rule” still applies in many cases: 20 percent of the product offering accounts for 80 percent of the profitability of the entire company.

If the other 80 percent of the products aren’t pulling their weight—especially the ones not contributing to the bottom line or, even worse, that lose valuable money with each product produced—it’s worth giving serious consideration to either reduce production of them or discontinue them altogether.

If that sounds too simplistic, let me assure you that my team and I have done this globally, and within a year-and-a-half to two years, on average, these companies once again became profitable.

While in the short-term such action likely would result in job losses, eliminating money-losing products would strengthen our manufacturing base and position companies for long-term growth and profitability. And as manufacturers grow stronger and rehire workers, America would likewise become a stronger and more stable nation.

Taking a macro view of domestic manufacturing, I believe that to save and even expand U.S. manufacturing jobs, we need to retool America and refocus on our strengths. To be competitive in manufacturing, we have to start with a workforce that is educated, motivated and willing to work in that sector. And just as a business owner must have the courage to discontinue products that lack sufficient market share, we need to recognize there are some industries in which domestic manufacturers should not try to compete because they are not winnable.

America has inherent strengths. It is an open and free country that promotes free enterprise, and that has enabled us to excel time and time again. This freedom sets us up for our greatest manufacturing strength: the ability to innovate and leverage the entrepreneurs our great, competitive marketplace naturally creates. To make the most of this strength, we need to identify new and profitable segments showcasing our innovation and competitiveness. By gearing our efforts more toward technological advancements and sophisticated service industries, America can revive its flagging manufacturing capabilities. U.S. manufacturers can produce precision components and replacements as well, if not better than, anyone else. Our country has done it before and the U.S.A. can surely do it again!

As difficult as it may seem, we also can compete with lower wages in other countries by identifying innovative ways to increase our productivity without compromising our standard of living. If American manufacturers can produce ten parts as quickly as other countries can produce one, they will gain a competitive edge through innovations which increase productivity even while we pay our workers significantly higher wages.

Our nation’s manufacturing base faces great challenges, including the loss of millions of jobs, but I firmly believe we can overcome them with the right strategies. Learning how to compete in the right industries and using innovation to do more with less not only will save U.S. jobs, but also expand manufacturing opportunities.

American business has always encountered challenges, yet the free-enterprise system has proven resilient because of the unparalleled opportunities for success it provides to people in all walks of life. Weneed to rediscover the entrepreneurial spirit that helped make our nation great. One way to do that is by taking the lead in developing new inventions, which will once again create booming manufacturing industries and start to rebuild our faltering middle class.

Jim Patton is founder of KPAC Solutions and author of Life in the Turn Lane: A Story of Personal and Corporate Turnarounds and the Principles that Make Them Happen.