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As is often the case with Stephanie Flanders' blog, the most interesting observations are often in the comments rather than the initial post, because of the type of questions asked and all the insightful comments that result ... because of this I thought I'd join together an important thread here (which actually started from one of the observations I made in my previous posts about economists, the 'failure of economics', and about asking the right questions & finding the real answers ...).
The discussion moved on to the defenses/resistance to change put up by 'traditional establishments', and then onto the ins & outs of 21st century management ['lean management'] - and more specifically 'value management', ... as well as their underlying 'value systems', which also underpin 21st century 'economics' (i.e. 'Leanomics') too ...
Contrary to popular belief "Lean is NOT Mean", or about "Cost reduction" ... and Leanomics isn't about these either ... in fact they are about the complete opposite ... they're about "value", "prosperity" and "growth" ... which is something our nation (and our enterprises) desperately need more of right now ... e.g. take a look at the definition of Leanomics below ...
Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.
and at the valuable thread of discussion below ...
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... glanafon said (Post 146) ...
"127 leanomist ... you are looking at a protective behaviour towards a model by those involved in the building of the model, in this case an economic model. The more it is attacked the greater the resistance to criticism. It reaches the point where critics are dismissed out of hand and ridiculed.
Coupled with vested interest it can have a devastation effect. It blocks progress. It develops faux science. It is also present in other sectors, in my opinion it is present in medicine. Actions and policies are taken and there is then hostility to any objection ...
I do not actually believe the problem is economics, although it seems to me that economics has major flaws. The problem quite simply is those with the job of regulating, of being corrosive in assessment of the commercial sector, lost that perspective. Simply, HMG came to depend on the financial sector revenues, therefore it de facto became partners with the financial sector profit and that eroded the regulation role ... It is generally said in cases of domestic abuse or violence that somebody knew what was going on somewhere and tries to raise some sort of alarm, however muted.
It is obvious that with the bubble, which seems to be based on systematic abuse that somebody knew what was going on, and there is plenty of data about people warning. There is anecdotal evidence and reports by journalists of graphs at the treasury and BoE. There are published comments of concern. There are a lot of clever people working in the sector and it is inconcieveable that questions where not raised. They were swamped by the model believers and vested interests.
Critically HMG were the problem, they were lax. this is why Brown is politically dead. Everybody in there heart knows he was part of the game and the game has failed. There is no escape for him. It is a sad case because I do believe he genuinely wanted to build infrastructure and services. However one cannot trust effective monopolies and what look to be near cartels and effectively that is what he did. That is why what ever is said as a political strategy has little impact.
Business has one desire, to create monopoly and exploit. It has to be balanced by regulation. It becomes more difficult when business becomes multinational, because logic says the regulation has to become multinational, and no solution has been implemented todate.
It is only fright that is controlling business not HMG.
BTW Darlings recent plead for the banks to play ball, as he sees it, on loan costs. I understand the issue is that the smaller the loan the high the risk of default. In other words credit ratings are failing, because only a high credit rating will get a high value loan. The outcome is that consumer purchase volumes cannot, well are unlikely, to grow in the near term as many are based on low value loans.
Mr Darling seems to be slow to learn that his drive by shooting was not stringent enough for his needs, and that at the end of the day he should have seized opportunity. That is what a business would have done. Left to their own devices the banks rebuid their bottom line not the economy. It is to be expected. It is however typical of the dichotomy of the infrastructure role of banks and the commercial risk taking activity of the banks. Logic suggests that the infrastructure role should be split off.
There remain major problems in the UK hosting multinationals with an individual book larger than the host, the UK, and the UK taxpayer being the lender of last resort in an ad lib Ponzi scheme. eg RBS for one. That is inescapable ..."
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In response I wrote (Post 161) ... "I agree with a great deal in your post. The only bit I would personally tweak is the following: 'Business has one desire, to create monopoly and exploit' and change it to ... '20th Century enterprises have one desire, to create monopoly and exploit' - as 21st century enterprises see/do things very differently ... and operate using very different 'value systems' - hence the link to a "new economics" ..." and glanafon agreed (Post 163).
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A fellow blogger (Post 171) then added ... "Post 161 leanomist - Now there is a sweeping statement! Fortunately or unfortunately (depending upon your position) 21st century enterprises (whatever they may be!) are more than outnumbered by those operating in the 'present' economy..."
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To which I replied (Post 186) "... 'Unfortunately 21st century enterprises are more than outnumbered by those operating in the 'present' economy' ... I agree with the statement above - but it's changing times and those that are (e.g. Toyota) will survive (and prosper), and those that do not, will not (e.g. GM - $170bn bankruptcy). History says "Happen it will", and we haven't really started yet - we don't quite know how long the overall process will take, but this time appears to be shortening rapidly by the day ... and those enterprises/nations who ignore this (which many of course will!), will do so at their peril I'm afraid ... as unfortunately ignorance in this case is not 'bliss' * ...
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glanafon then added (Post 188) ... "The question for me is can the old ways change. I have my doubts. You are talking about whole new structures and cultures and values that need to be introduced. I was involved in trying to introduce new ways of doing things in old companies on two occassions and it was unbelievably hard work.
Embracing the new was not something that came to mind. Even though it gave a 10+ percent improvement in operating efficiency which went straight thru to the profit line it was fought every step of the way. At the second outfit I recommended setting up a detatched fresh new start operation rather than trying to change from within. They ignored the advice, failed to grapple with the inbuilt cultural problems and are now a fraction of the size they were. Ego got in the way. Of course there is no data to prove the alternative because it never happened.
To me it remains the central problem that structurally many businesses are just not suited to the forthcoming environment. Can adaptation occur fast enough. It is more likely there are pleads for special treatment and funding to try and prop up what has gone on before in a reduced size. Big has to act small, which demands flexibility and responsiveness and a high degree of networking. This applies to businesses big and small.
You mention the Japanese automakers. They introduced a new way of working in the 60's, Just - in - time, highly flexible focused production. If you take a look at the prodcuts they introduced the idea of flexibility in response in models. A common floorplan and running gear has different upper bodywork and interiors, allowing quick new model introduction and critically smalled volumes per model, targeting niches in the market.
It all is a bit basic now but if it is compared with the production in the UK at the time the diffence is startling. The UK production was monolithic and sequential in process, very slow to take to market. The UK production could not respond in time. That was not the only problem, subsidised plants elsewhere in the EU did not help.
It has nothing to do with how hard a workforce works or how efficient they are, it comes back to how smart they work and whether they are undermined by a low wage zone..."
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I then added (Post 193) ..."I agree with what you've said here again. Most enterprises will fail ... because their current 'leaders' will fail to lead*, will fail to change, or will fail to change quick enough ... (and the starting whistle has already been blown!)
The future primarily involves a fundamental change in 'leadership' and 'management' practices, and most will fail to do this (in fact, as you say, many will try to resist this - as it's opposite to what they currently do and to what's got them to where they are today) ...
History tells us this too I'm afraid, as your comments quite rightly point out, and 21st century management practices go way beyond just a few techniques like the ones mentioned** (e.g. in-built quality, just-in-time) ... in fact the entire management system has now been virtually decoded (that's what 'Lean World' is about) ... the problem is that history is set to repeat itself again (viz a viz Dr. W. Edwards Deming, a US Citizen, being largely ignored by the West but his work being rapidly embraced by the East - e.g. Japan) ..."
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A fellow blogger (Post 208) questioned the example of Toyota and the likelihood of their future success ... "leanomist brings forward the example of Toyota. Will they survive the 21st Century? Only time will tell. Are they better managed than their competitors? Well that is debateable. There does not appear to a sustainable competitive advantage over their local or global competitiors gained by Toyota ..."
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so I responded by adding (Post 211) ... "The success of Toyota is already there for everyone to see (e.g. compare their situation with the demise of GM - a $170bn bankruptcy) ... they have still got a lot more to do, but they know this already and have everybody working everyday to improve these things too (nb their philosophy is one of continuous improvement - and one of their common phrases is 'no problem - is a problem'! ... if only more UK 'leaders' were willing to take such an approach and systematically expose all problems faced ... so they can be removed / solved ... we would frankly not be in the mess we are in now).
As far as decoding the management system is concerned, I think you'll find it does (as that's what other people have said - e.g. CBI/business school deans) and it also defines what a 'management system' actually is - and how it also applies to every type of enterprise (service/production, big/small, public/private) as well as civil service departments and entrepreneurial enterprises too ... however, I'm not here to educate, or to persuade anyone on anything - individuals need to be curious and start to find more things out for themselves (and look into what's already happening*) ...
To this end I hope more people do become more curious about the changes already going on around them ... because our future economy depends on it ... 'leadership' and 'management' practices are already starting to change, and 'leading' enterprises / groups are already starting to benefit from this (including a few key leading NHS hospitals / UK police forces !) ... and creating much better outcomes for everyone as a result ...
For our economy to turn around it will take the concerted effort of many, and not the reliance on just a few ... In the 21st century survival is not a given, as history also tells us that those who are left behind will find it very difficult to catch up ... "
and gave another reference to an interview with GE ... "You might also want to look at GE - a company who are now starting to move to the next phase of 'lean management' maturity/practice (and who are also referred to in the book) ... e.g. there are quite a few clues in Robert Peston's recent interview with their new Chairman/CEO, but you probably need to know where to look (as Robert didn't necessarily ask all the right questions - e.g. about their fundamental practices) ... nb GE are arguably at second generation maturity, and they are a production/service company too ..."
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They responded (post 221) by saying ... "Firstly let me agree with you that leadership and management are major elements of both our existence and future. How that management is implemented is still up for debte and you will find the argument is still hotly contested in both academia and in practice.
Since 1950, GE took a corporate strategy decision to base the whole of their organisation upon what Porter describes as Overall Cost Leadership. This strategy demanded that all of GE's actions and plans were dedicated to being the lowest cost provider in their various market places. It should be noted that this strategy goes far deeper than any 'normal' cost reduction exercise. They were so sure of the advantage that at the end of each Annual Report they published not only their targets for the coming year but also the basis of their system. Perhaps they were quite safe to do so as there can be only 1 cost LEADER and any newcomer would have a lot of catching-up to do! Perhaps a 'hidden' advantage in the strategy was that competitors equated Low Cost with both Low Quality and Low Price. As GE proved this was a fallicy. I only make this point to show that GE has been an innovative organisation for many, many years and that their success/failure is not solely due to "lean management".
You really cannot claim Toyota as a success by comparing them to GM. Part of Toyota's market success has also been due to the failure of GM, Ford and Chrysler rather than their own efforts. There are many similarities in the collapse of the US auto industry to the death of the UK motorcycle industry. So will Toyota be successful in the 21st century? Well let's compare them to say Nissan, Honda and what may emerge as the Euro car industry in say 10 or 20 years.
One of the things that I feel sure of is that this crisis has finally cracked-open the US Corporate model. Many things will flow from this in terms of management and organisational structure, finance and maybe even ethics! My hope is that effectiveness replaces cost-efficiency. In the UK, I would love to see organisations put the CUSTOMER back at the heart of their decision making i.e. a return to true marketing philosophy.
That there are many different approaches to meeting the future can only be good.
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and one of the original bloggers (glanafon) added (Post 224) ... "the idea of being the lowest cost provider is an anathema to me. Why on earth would anybody want to have that title. All you attract is the nillionaires, nil in the wallet but talk like millionaires and ponce and preen. They are the wallies who helped pump up the bubble on credit. Its all about being valued, simple as that. If something is valued it is given value and commands money. The ever present demand for cheaper and cheaper goods promoted by consumer oriented business is self harming for those businesses, as a strategy it just devalues the goods. Insane. A reduction in consumer affluence, or credit if you prefer, will increase the value of goods and ensure people are more careful with purchase and use. If all that drives things is cost then logically you would never use any bag other than a supermarket plastic carrier bag and you would never drive a car younger than 10 years old, both can be perfectly functional. It is about soul. Thats also why many businesses are in trouble - they are looking at the wrong target..."
and glanafon went on to say (Post 236) in response to a comment directed towards them ''...'YOUR costs are only of interest to you. However, if you can manage your activities so that your products and services match your competitiors BUT cost you less then you have already earn't a major element of profitability.' ...
You are miles away, or the rum is particularly good. I have no interest in having competitors. We have no direct competitiors. That is the whole point of what we do. We made the market. It is an internet based business. It is independent of location. It is in some respects a niche market we serve but it is a growing niche in a multicultural market which is part of an estimated population approaching one billion worldwide. How many customers do you want. As soon as you have a competitor you have some snivelling git saying they can offer a faxsmile of what you do but just a 'bit' different and 'cheaper', sort of like saying here is a marzipan or sugar mouse instead of a real live one, its much cheaper. Our website is monitored from the far east and elsewhere from the internet data reports from the IT guys but we are both too specific and too flexible in what we do. They cannot compete because they are not set up to do so, they are inflexible, unadaptive and slow, and unethical. We have had sustained (failed) attacks on our website trying to gain data. We have a custom and expensive website to avoid that sort of thing.
''Don't care what strategy you choose, if your succesful you'll still "attract is the nillionaires, nil in the wallet but talk like millionaires and ponce and preen." ''
We can spot 'em a mile off. They are dangerous because they influence marketing returns unless you know they exist. They are not a problem as far as we are concerned. We only supply on prepayment unless we know the individual, many are repeat purchasers. Simple. We make, flexibly and adaptively, and supply direct worldwide into a lifestyle market, objects that are valued, that was the objective, it eliminates the middle man and cuts overhead, we provide value. We network into the communities that our customer base is centred on. It is more difficult to set up but it eliminates as much dependency on other parties as possible and gives immediacy of contact with the marketplace. We have placed two low key adverts in our entire process that is how much we do conventionally in marketing terms. We are the subject of discussion on Facebook and forums, some foreign language ones, and word of mouth. I've said before - take the book out, look at the rules and write down the inverse, because the old rules are dead. Then try and do it, and keep doing it till it works.
The price is set by the customer in any business, not the business. With much of our output we are told the price is not an issue, please just do it. We control costs and do not overcharge, it is an ethical decision and also a defensive one. Once trust is lost it is never regained. We are trusted to provide something of high value at a fair price. It is an honour. We are in growth and profitable. We regard cost, profit, and money transfer as the means of enabling supply. How many businesses can say that...."
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A new blogger (BankSlickerminustheR) decided to join the discussion now too, by adding (Post 241) ... "I worked for Toyota for 4 years (in engineering), after that length of time you get an inkling of their philosophy.
It is, first and foremost, an engineering company run by engineers (how novel!)
Secondly, the work force never stop working. They work 'til they drop'. The company excuse for these conditions is that they could not afford their 'cradle to grave' social system otherwise. All employees have to save their holidays over a 5 year period to cover bouts of sickness.
Thirdly, and this is obviously a cultural thing, the far East Asian attitude toward self and group being the total opposite to the Wests'. It's not a case of 'what can my company do for me'...but more 'what can I do for my company/society'.
Lastly, their manufacturing facilities, and the personnel working in them, are King. Their product engineers spend many years working in the developing departments and are then regularly rotated to experience the manufacturing environs. Everyone knows what everyone else does, or more importantly, what they should be doing. But remember...those in manufacturing are the Kings.
...and of course, I could not endorse more...your final paragraph 'production and employment as the essential elements of the economy rather than the financial industry.'
PS I recommend the book 'The Toyota way' - think of it as the 'Total Manufacturing' equivalent of 'Total Football'. Toyota took Dr. Deming to their hearts. They would literally rather die than make something of inferior quality.
I'm pretty sure they will be around for another 70 years. I can recommend their cars too! ..."
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Whilst I had also added (Post 242) ... "21st century lean enterprises focus on VALUE, value as defined by the customer - NOT COST ... and GE have been rapidly moving towards this type of working over recent years (part of what their new Chairman/CEO hinted at in his interview with Robert Peston) - they're a company which has picked up the winds of change, built on where they were, and are starting to take themselves to a new level ....
Simply focusing on being lowest cost risks a downward spiral towards commoditization (and outsourcing to the lowest labor rate economies etc), which in the vast majority of cases is 'fools gold' (hence I agree with glanafon's previous comments in Posts 222/224 - who really wants to chase that goal?)
21st century lean enterprises focus on value management, not cost management (which is where GE are now going ... and employing some simple & clever ways to do this too - which are referred to in 'Lean World'), they also focus on long term goals, and as you quite rightly say effectiveness (rather than simple cost-efficiency), which is underpinned by a pervasive philosophy of innovation & continuous improvement, channelled by a robust strategy and underpinned by the application of strong ethics & a robust 'values system'.
There is much more besides, but I think you'll find most of the things in the 'wish list' are actually already in there* - including far more effective customer focus and an innovative market philosophy which applies 21st century marketing practices (nb glanafon's Post 236 refers to a number of these, and many of attributes the above too).
I'm not looking to expand on this much more on this blog, because those who are curious will hopefully go find out more about 'lean' themselves ... I'm starting to feel like I'm starting to summarise the book 'Lean World' now, which is not the purpose of this blog (those who are interested can read it online, take a look at Deming's work and/or the book "The Toyota Way' for instance). I hope this helps to tie some of the discussions we've been having together here, and that it's managed to remove a few of the most common misconceptions ..."
[* NB a 'management system' is well-defined and very different to 'management styles', and the terms 'leadership' and 'management' also require simple and more robust definitions too. PS Nissan & Honda also apply Lean Management, but Toyota are recognised all around the world as the true 'world leader' - nb one of their key differentiators is that they can now launch new cars twice as fast, and at half the cost, of their competitors (e.g. I believe they've launched 5 new models this year alone). Toyota do have weaknesses however, and still have much they need to do (so you are quite right - they have to address these to stay ahead)...] .."
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The initial blogger who questioned Toyota then said (Post 246) "... as an amusing aside (especially for BankSlickerminustheR), there is always the Moulinex experience. As part of an economy drive many years ago Moulinex required all of their directors to find major savings in their respective departments. The production director had a bee in his bonnet about the amount and cost of flex attached to their products. Therefore he ordered a 10% reduction in the flex.
At the next meeting he proudly announced that he had made a major saving only to be told by the marketing director that all of the saving had been lost due to the increased number of returns - on the basis that the flex was not long enough!
A true story? - well maybe! But it proves to me that a truly succesful organisation attempts to marry all of the skills without creating KINGS. It also proves that a CEO who spends the majority of his time in his own boardroom or those of The City is NOT doing his job"
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To which I replied (Post 248) ... "thanks for the Moulinex example - a good example of 'traditional management' in practice! ... and as you (and BankSlickerminustheR) quite rightly say, the 'kings' are actually the front line staff (not the CEO's) ... and again a very big difference between 21st century management & traditional management [cf glanafon's post 236 ... "take the book out, look at the rules and write down the inverse, because the old rules are dead ..."]
As BankSlickerminustheR also said, if you are interested in Toyota and manufacturing I would definitely recommend Deming's work as well as the 'Toyota Way' - 'The Toyota Way' is indeed 'Total Manufacturing' and it highlights many of Toyota's core principles and values too.
IMHO one of the major challenges we really face, and I've alluded to this in the past (e.g. the history of Dr. Deming, Japan, Toyota)*, is the fact that the UK/US (i.e. the West) are unlikely to pick this up as quickly or as effectively as the Far East, which some of the additional comments made here arguably allude to too ...
e.g. BankSlickerminustheR (post 241) wrote "... Thirdly, and this is obviously a cultural thing, the far East Asian attitude toward self and group being the total opposite to the Wests'. It's not a case of 'what can my company do for me'...but more 'what can I do for my company/society'..."
21st century economics (i.e. Leanomics**), and 21st century management (Lean Management) are founded on 21st century 'values systems' that are generally more natural/prevalent in the Far East (than here in the West) ... and IMHO we ignore this at our peril ... [as the current 'economics' already favors the Far East, and the West is already in serious trouble!] ... and hence this is something I'm keen to blog about ..."
ie. hence this blog - as well as the very definition of Leanomics itself too ....
** Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.
