INNOVATIVE INSIGHTS
“Lean” Is Back: And This Time It Means Business
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By Ricardo dos Santos
Chief Business Officer, Biological Dynamics
Lecturer of Entrepreneurship & Innovation,
San Diego State University
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When the American auto industry desperately needed help in the 1980’s to catch up to foreign competition, namely from Japan, it essentially followed the motto: ”If you can’t beat them, join them.” Unconditionally, American auto companies gradually adopted a management philosophy that came to be known as “Lean Production” to improve competitiveness in operations, from logistics to manufacturing and sales.
Lean Production was a term coined by MIT researchers James Womack, Daniel Jones and Daniel Roos in their seminal magnum opus,
The Machine that Changed the World, which profiled the “secret sauce” of Japan’s premier auto manufacturer, Toyota and their eponymous and now famed production system (largely devised by the venerated Toyota legend, Taiichi Ohno).
Soon, terminology such as Kaizen (Continuous Improvement), Muda (Waste),
Jidoka (Quality), Genchi Genbutsu (See for Yourself), Pull vs. Push, and Continuous Flow vs. Batch Processing became common language among masses of eager managers and line workers alike, enthralled by a philosophy that empowered them to focus on customer value and reduce the superfluous. The immutable change in approach to excellence happened first in the auto industry and was quickly adopted by numerous other firms in fields ranging from hard-goods manufacturing, to software development, to a litany of consumer services.
It is interesting to note how the change from complacency to Lean Production actually happened in the American auto industry. Fearing the proverbial “Not Invented Here” syndrome that plagues most large and siloed corporations, the leaders of the big three, namely GM and Ford, set up (relatively) small experiments with Japanese partners to understand the nuances of Lean Production and adapt them to their particular culture and circumstances.
GM opened a joint venture facility with Toyota in Freemont California, called NUMMI (now Telsa’s main facility) to learn the Lean Production principles first-hand.
Ford and Mazda followed suit, opening a plant in Hermosillo, Mexico, which quickly became a benchmark for proving that the Lean Production system could be transplanted across oceans and wasn’t dependent on any particular national culture — it could be mastered by everyone.
Once the experiments proved successful, the system was rolled out across all sites, and in turn, to European partners (Ford and VW set up a joint venture in Portugal in the early 1990’s, Auto-Europa, where I personally learned the Lean Production system as the company’s first Industrial Engineer).
Lean Production was the answer for the problem of the times. It was how to improve operational efficiency to compete in a crowded and predictable “known-market.” You either kept up with the best-in-class “Jonenes,” or you perished.
But the major problem that faces companies today isn’t yesterday’s problem of efficiency: The major problem has become unprecedented uncertainty. With the possible exception of the coffin and tax-preparation industries, nothing is for certain anymore. Clayton Christensen’s “Disruption” has become “Hyper-Disruption” and “Competitive Advantage,” once the stalwart of corporate strategy has given way to what Columbia Business School’s Rita McGrath characterizes as “Transient Advantages.”
The era of rapid change has changed what the function of the corporation is all about — from that of efficiently executing a known business model to searching for new business models — and form must follow function.
Like the search for a better production system, so has the corporate search begun for a better innovation system. This time, large companies are turning not to other best-in-class, established companies (you’ve probably seen the flack Apple has been getting about not being an Innovation act to follow), but for the best-in-class startups, whose very nature is to innovate or die.
Turns out large companies are in luck! The Taiichi Ohno of the top startup innovation system exists and his name is Steve Blank, who is the father of the Customer Development movement — and he even has a Womack, Jones, and Roos to coin a catchy term to his seminal teachings: Eric Ries, Steve’s best and intrepid former student at Berkeley and author of the best-selling book, the Lean Startup (whose term has now replaced Customer Development). We have gone full-circle!
Another brilliant scholar should be given credit for promulgating the Lean Startup movement: Alex Osterwalder, who added “Business Model Generation” to the mix. A Lean Startup is searching not simply for a better product or technology, but for a better business model.
Combined, these three gurus are bound to become the biggest force in corporate innovation since Schumpeter, Drucker, and Christensen.
Taking a page for how auto firms learned and adopted Lean Production, various companies today are setting up small experiments to “grok” the principles of Lean Startup thinking — they’re not simply observing actual startups in corporate venture capital “fish-bowls,” they’re allowing their own employees to learn and practice the principles themselves in bold, corporate accelerators, where emphasis is placed not simply on hard-metrics of new venture success such as fast time to market and revenue, but on learning both substance and process of how to search in highly uncertain market conditions — the new reality for most firms.
Lean Startup terms such as “Get out of the building,” “Minimum Viable Product,” “Pivot,” and “Business Model Canvas” have become part of the innovation lexicon among the early adopters (namely at my former employer Qualcomm but also General Electric and Intuit), and they are gradually taking root among other pioneers where I’ve had the pleasure to personally consult such as Clorox, Jarden, Panasonic, and HP. There are many others joining the ranks of the new Lean — Lean has crossed over from production to business — and business is now inseparable from innovation.
About the Author
Ricardo dos Santos is a leading expert on entrepreneurship and corporate innovation, having amassed more than 20 years experience driving internal ventures at major corporations and launching early stage startups. In 2012, Ricardo brought that experience and his vast knowledge of the Customer Development methodology he learned directly under startup expert Steve Blank to Biological Dynamics, a molecular diagnostics startup focused on the oncology market. Before joining the executive team at Biological Dynamics, Ricardo helped set the standard for successful corporate accelerators as the senior director of business development at Qualcomm. He is a lecturer at San Diego State University, teaching courses on Entrepreneurship and Innovation and he is also a part-time speaker and advisor on Lean Innovation to Fortune 500 companies.
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