The Missing Pieces in the Lean Enterprise
- Raphael L. Vitalo,
Ph.D. and Christopher J. Bujak
Several years ago, we undertook a project to document the Lean Enterprise
approach to commerce and provide additional tools to enable its successful
use. Both authors had studied and applied Lean thinking for more than two decades.
We each had observed and measured its effects. When implemented with the aim
of benefiting all stakeholders inclusively, Lean thinking increases the value
received by customers, reduces operating costs, and provides employees the
opportunity to experience pride in the products they produce and the services
they deliver. It also yields new learning, improved employee engagement, elevated
teamwork, and has raised the performance of businesses on traditional measures
of business success.
As we proceeded with our project, however, we uncovered problems in documenting
what we understood to be the Lean Enterprise approach to commerce. Addressing
these problems caused us to elaborate and extrapolate what is termed “Lean
thinking” to the point that we could no longer confidently say that what
we were describing was “the Lean model.” These problems included:
- confusion among Lean practitioners about the meaning of Lean Enterprise,
in the development of Lean Enterprise as a commercial model,
- absence of foundational knowledge1 that
explains the intellectual basis for Lean thinking, and
- failure to recognize Deming, not Toyota, as its origin and the proper
inclusion of his thinking in its teachings.
This paper shares the results of our efforts and describes the gaps in Lean
thinking we uncovered. We see it as a first step in problem solving ways to
improve the Lean Enterprise model and its use by Lean community members. Since
no one person controls the content and interpretation of the Lean model, the
solving of these issues will require consensus across the Lean community.
Confusion About the Meaning
and Purpose of Lean Enterprise
We, and others in the lean community, consider the name, “Lean,” to
be misleading. Yes, the application of “Lean thinking” (Womack
and Jones, 2003; Womack, Jones, and Roos, 1991) does streamline work and workplaces
and results in less use of resources, but that is the least of what it achieves.
Exhibit 1 explains two possible origins of the
name we uncovered. One possible source of the name appears to be due to an
error in the translation of a statement by Taiichi Ohno, a person presumed
by the Lean community to be a primary source for Lean thinking. Another source
the name, “Lean,” is John Krafcik, a member of the Massachusetts
Institute of Technology research team that studied the question of why Japanese
manufacturing was superior to manufacturing done elsewhere in the world. It
reflects his amazement at what was, at the time, a startling discovery—namely,
that one can actually produce quality products, tailored to customer needs,
and in relatively small quantities with strikingly fewer resources.
In researching the origins of the name lean, we uncovered another, more serious
problem that challenged our understanding of what Lean really means. We discovered
that there are, in fact, inconsistencies among Lean community members about
the ultimate aim the Lean approach to commerce serves. That judgment is not
just based on our analysis of the Lean literature. Indeed, the fact that Lean
community members are confused about the ultimate purpose their approach seeks
to realize is apparent to all who participate in or are observers of various
Lean community online forums. Witness, for example, the different answers members
produce to the basic question of “What Is Lean?” (See Exhibit 2).
Members appear to anchor their responses in their personal experiences, training,
and readings. And, while not agreeing with each other, everyone with
an answer speaks with confidence.
In every online discussion about the meaning of Lean Enterprise we observed,
at least a third of the answers asserted that Lean is all about “efficiency
and cost reduction” with the intent of maximizing profitability for the
company. For these community members, the name “Lean” is a good
fit. While respondents proposing this ‘efficiency and cost reduction’ interpretation
rarely cite sources for their assertions, they could. For example, despite
Ohno’s assertion in his work Workplace Management (Ohno 2013) that efficiency
in itself is destructive, he makes the following seemingly paradoxical statements
in his book, The Toyota Production System (Ohno 1988).
“The most important objective of the Toyota system has been to increase
production efficiency by consistently and thoroughly eliminating waste” (Ohno
1988, page xiii). And, later he adds, “In the Toyota production system,
we think of economy in terms of manpower reduction and cost reduction [italics
added]. The relationship between these two elements is clearer if we consider
a manpower reduction policy as a means of cost reduction, the most
critical condition for a business’s success” [italics added] and “...
all considerations and improvement ideas, when boiled down, must be tied to
cost reduction. Saying this in reverse, the criterion of all decisions
is whether cost reduction can be achieved [italics added]” (Ohno 1988, page
Be clear, we do not propose that this excerpt, on its own, presents a correct
understanding of Ohno’s perspective. Nonetheless, on its face, it does
strongly support the assertions of the ‘efficiency and cost reduction’ camp.
A second portion of respondents define Lean from a continuous improvement
perspective. They see Lean as focusing on the application of tools (e.g., 6S,
to eliminate all non-productive work from work processes and to elevate the
utility of workplaces. Ohno is also the touchstone for their thinking, perhaps
especially his book, Workplace Management (Ohno, 2013). In that work he emphasizes
continuous improvement. He exhorts everyone to challenge the current state
of work processes and imagine still better processes. He wants everyone to
understand that the term, gemba,2 applies not just to production areas but
to administrative areas as well.
Still another cluster of respondents view Lean Enterprise from an executive
perspective. Their minds are anchored on the extended value stream and see
Lean Enterprise as a cooperative strategy integrating the contributions of
all participants to commerce. They also see it as a different approach to leading
and involving people, one that recognizes the knowledge and creativity of workers.
The Lean approach emphasizes the importance of engaging people’s minds.
It develops people’s knowledge and skills and provides them opportunities
to contribute to improving the business and share in the benefits they generate.
These community members define Lean’s purpose as maximizing the delivery
of value to customers as judged from the customers’ perspective. This
maximizing of customer value, however, must be accomplished in a way that benefits
all stakeholders in commerce inclusively. Proponents of this perspective sometimes
emphasize waste removal as the singular means to this end. For example, Womack
(2016) states “The objective [of Lean] must be to produce a better result
for the customer, better work experience for employees, and better performance
for the organization, all by removing waste.” At other times, Womack
and others also discuss the importance of affirmatively adding of value to
offerings and services and not just eliminating waste. For example, Jones (2016)
states, “At its core, Lean is a customer-focused strategy to develop
better products, which are created and delivered by much better product development
and production processes.”
Authors assuming the executive perspective also envision the Lean approach
as responsible for creating value for communities, governments, and society
as a whole (for example, see Emiliani 2004). Their focus leads us to characterize
their view as strategic and not just operational. This strategic perspective
also emphasizes the importance of competing through the excellence of one’s
offerings and of engaging the extended value stream3 in applying Lean thinking.
Regarding executive functions, they discuss the need to change the role of
managers from overseers and controllers to enablers of employee success and
to adjust human resource management systems to comply with the Lean perspective
(for example, see Liker and Hoseus 2008). They also assert the need for all
business activities—ranging from the board room and executive suite through
the management, supervisory, and front-line tiers in and across every business
function—to work together as a team in the continuous pursuit of maximizing
the delivery of value to customers in ways that benefit all stakeholders inclusively.
While you might respond that none of these different perspectives are necessarily
mutually exclusive—that comment leaves unanswered the central question: “Which
of these notions or what higher order notion represents the controlling aim
of the Lean approach to commerce?” Minimization of cost? Maximization
of profit? Delivering of value to customers? Benefiting all stakeholders inclusively?
What should constrain the pursuit of one or another of these ends when
trade-offs are required? How does a Lean community member systematically resolve
different ends businesses pursue without a definitive understanding of the
controlling aim Lean pursues?
The legitimacy of our confusion about the goal of Lean Enterprise was reinforced
by the findings of a survey implemented by Womack in 2010 (Womack 2010). He
asked community members at large to identify what the major barriers to propagating
Lean’s application were. To his “surprise”—but not
ours—Womack discovered that “Many of you [Lean practitioners] identified
confusion about the meaning of Lean as a barrier to progress in your organization
[sic]” (Womack 2010a).
The Implications of Uncertainty About
Lean’s Ultimate Aim
The significance of this definitional problem seems poorly grasped by the
leaders of the Lean community. A set of ideas coheres into a system only when
they are organized around a specific aim. The aim of each system determines
the relevance of each component within it and the role it will perform. It
defines the relationships among elements and regulates how they interoperate
to achieve the system’s aim. The necessity for a definitive statement
of a system’s aim applies to every system whether human or mechanical
(Barnard 1968; Deming 2000). Thus, the purpose of Lean Enterprise, the ultimate
end that its approach to commerce is to serve, determines the validity and
meaning of all other assertions one may make about it. Its absence renders
Lean thinking a mere collection of ideas with no way to detect which ideas
truly belong in its ensemble of thought or which applications are proper to
its purposes. Our research findings make clear, there is no consensus-based,
commonly accepted definition of a Lean enterprise’s aim.
This definitional issue, therefore, is a fundamental problem for the Lean
community and any serious researcher. No science about any conceptual
is possible if one cannot define its boundaries and establish what is and is
not part of it. To realize this end, a single, common, operational, and stable
definition of the conceptual system’s function is essential. Absent a
definitive statement of the model’s function that is endorsed community
wide, “Lean thinking” becomes a euphemism for a set of tools and
activities pursued by different people, in different ways, for different purposes.
Other Gaps in Lean Thinking
Tools support people in accomplishing tasks. No matter
how carefully designed a tool might be, its actual use is determined by the
judgments its user makes. These judgments decide the the task the tool will
be used to accomplish and whether and
how it should be used in
In a commercial context, the judgments that guide task performance
are steered by the goals and principles embedded in the commercial model an
organization chooses to implement. The knowledge detailed in that model of
commerce, as understood by the tool user, provides the only intellectual
control on the purpose for which a commercial tool is put and the manner in
is used. Thus, for example, if my commercial model is based on the singular
pursuit of the producer’s self-interest as expressed in maximizing the
producer’s profit—I will apply tools to uses in ways that realize
that end. If my commercial model’s purpose is to maximize the delivery
of value to the business’s customers in ways that benefit all stakeholders
inclusively, I will make other choices.
We understood this requirement. Therefore, given that we wanted
to add some tools to the Lean tool kit, we drafted a summary of the Lean model
organized around the aim we thought defined the purpose Lean commerce pursued.
We populated this summary with the contents of Lean thinking consistent
with that aim. Our initial summary of the model captured what we perceived
to be the Lean Enterprise approach as described in existing Lean literature, albeit
culled to align it to the aim we imagined Lean Enterprise to have. We
used this summary to guide our tool building and to construct the principles
should control each tool’s use. Our premise was that the Lean literature
would provide us with any additional content we needed to complete our work.
The first shock to our thinking was the discovery of uncertainty
about the aim Lean Enterprise pursues described above. We encountered more
shocks the deeper we proceeded into building the new tools. As we encountered
issues that a tool user would have to resolve, we derived a solution for the
tool user from our understanding of Lean Enterprise. When we sought to verify
our thinking, we could not uncover within Lean literature a commonly accepted
principle upon which to rest our thinking. The more we proceeded, the clearer
it became that Lean literature did not address all the issues we encountered
in guiding people in the proper use of the tools we were building. We uncovered
a number of different gaps the most significant of which we grouped into the
- lack of knowledge to guide one in discriminating the the ends served and
controlling values that should determine the application of Lean tools in
- lack of knowledge to guide one in determining how certain executive functions
should be implemented (e.g., structuring an organization, understanding
what market strategies are acceptable, how a business should deal with externalities,
- lack of knowledge that explained the “why” behind Lean management
By “definitive knowledge,” we mean a set
of principles expressed, defined, endorsed, and applied consistently across
of people who represent a particular system of thought—in our case, the
Ends Served and Controlling Values for
Certainly everyone in the Lean community will agree that Lean is about driving
waste out of processes. But, we could not find agreement across the Lean literature
about how the benefits of waste removal should be shared or applied. Should
they be disbursed to owners or shareholders as the popularly endorsed aim of
a Capitalist enterprise would seem to suggest (Bainbridge 2012; Friedman 1970)?
Should some of it be put at risk and applied to discovering better ways to
meet customer needs? If so, how does one assess the amount of profit to apply?
Should the increased margin produced by reduced cost to current price be shared
with employees, returned to customers, or both? Who decides such issues and
what guidance does one use to answer these questions?
As another example, can one properly apply Lean tools to downsizing a company.
If you say “Yes,” then how do you address the negative effects
on worker participation in continuous improvement activities when people realize
are assisting in ending their jobs? Would we not be endorsing the view of
people who see the true meaning of the term ‘Lean’ as, “Less
Employees Are Needed”? How do you resolve the application of Lean tools
to downsizing with Womack’s assertion that, “those of us in the
Lean Community have always said that we won’t work with enterprises that
use Lean knowledge to eliminate jobs” (Womack 2016).
If you say “No,” do not use Lean tools to downsize, then how do
you resolve your position with Ohno’s assertion that “we consider
a manpower reduction policy as a means of cost reduction, the most critical
condition for a business’s success” (Ohno 1988, page 53).4
Similarly, what about the use of Lean tools to drive cost reduction solely
for the purposes of improving the company’s profits? Is that consistent
with the purpose of maximizing the delivery of value to customers or the notion
of generating benefits for all inclusively? In our experience as management
consultants, owner profit alone certainly has been the most common end
that cost reduction has served and the main interest business’s have
had in applying Lean thinking. And, as you recall, perhaps a third of all Lean
community members agree with this use. But, if you accept Emiliani ’s
position (Emiliani 2004, 2011), you will not. He decries what he sees as the
dominant business thinking which, he terms, “zero-sum thinking.” By
that calculus, one stakeholder can only improve his or her wins at the cost
of other stakeholders. Owners maximize their profits by keeping them and that
extracts resources from the enterprise. It benefits themselves singularly,
not all stakeholders inclusively.
The above are just a sample of the decisions one faces in “properly” applying
Lean tools. And, in our research of a wide number of such decisions, Lean thinking
lacks a consistent and authoritative set of knowledge to guide one in choosing
the right course of action.
Executive Functions Guidance
Executive functions are those activities that ensure an enterprise maintains
itself as a whole and viable enterprise capable of accomplishing its purpose
(Barnard 1968). They include activities such as defining a company’s
business intent, designing the organization, setting yearly goals, developing
solving organizational problems, and improving organizational performance.
They also include the activities that ensure the presence, engagement, and
effective contribution of each person needed to accomplish the business’s
aim. Finally, they ensure the integration of efforts among all contributors
to the business. Most of the tools we were developing were targeted to enable
the performance of executive functions. Below, we select four executive activities
and discuss the gaps we found in Lean guidance. They are: defining a company’s
business intent, designing the organization, developing a market strategy,
and structuring employee compensation.
Defining a Company’s Business Intent
A statement of business intent expresses a company’s purpose, vision,
and core values; how it defines the meaning of profit; and the stakeholders
the enterprise recognizes and its relationship with each. It also specifies
the outcomes the business must produce at the Strategic level for it to claim
success. The purpose component of this statement states what the business
will produce for exchange, with whom, where, and why.
Lean thinking provides little guidance at all concerning how a Lean enterprise
decides these issues. Here are a few examples. Can a company that makes a
product that is inherently unhealthy (e.g., cigarettes) become a Lean enterprise?
Can the pharmaceutical companies that knowingly produced and profited from
drugs they knew were injurious to health (e.g., Celebrex, Vioxx, and OxyContin)
have been Lean enterprises? What about the chemicals and coatings manufacturers
who knew the toxic consequences of such products as teflon and talcum powder
could produce yet sold them while hiding that knowledge? Or can any of the
other producers of commodities that reap profits from selling products that
undermine their buyers’ well being be Lean enterprises? Is the caveat
emptor (“let the buyer beware”) principle that is perfectly appropriate
within the commonly applied producer-focused, profit-driven capitalist approach
to commerce also appropriate within a Lean enterprise?
Apart from the purpose component of a company’s business intent,
how should a Lean enterprise define profit? What constitutes profit in a
Lean enterprise? Is it only money acquired that exceeds costs? Is it money
all? Do monetary gains, in themselves, advance the purpose of a Lean enterprise?
Or do they only advance it based on how that money is applied? Is learning
profit? Is having more knowledgeable, better skilled contributors as a result
of an organization’s development efforts profit? In our image of
what a Lean enterprise is, we answer these questions thusly. Profit
is whatever directly advances the purpose of an enterprise. Monetary gains,
in themselves, do not advance the purpose of a Lean enterprise. Only when
surplus money is applied to advancing the value-adding capability of an enterprise
does it have value within the context of the Lean Enterprise model. In this
vein, we also would assert that developing learning that improves the value-adding
performance of the enterprise is profit. So too is the result of having more
knowledgeable people who are better skilled and capable of generating greater
value-adding outputs. But, based on our research, such a set of answers would
generate much disagreement and, most relevant here, there is not a body of
authoritative knowledge within Lean thinking that one could use to resolve
Organizations larger than a single work unit or implementing processes more
complex than a single activity must divide their work into subsets of operations
with progressively more specific focuses. This division of the work is called
departmentation. Its output is represented by the various “boxes” that
appear on a company’s organization chart. Each box identifies a distinct
work group. Each lower tier represents a more limited level of activity.
Beyond structuring its work, an organization’s designer must distribute
authority and responsibility for accomplishing the organization’s goals
across its work units. The designer also must define the reporting relationships
among work units. His or her purpose is to clarify accountability for segments
of the company’s performance and to define the default communication
path members should use. This task draws the solid or dotted lines that connect
the boxes in an organization chart. An organization’s designer completes
the definition of the social aspect of an organization by clarifying the
basic role organization members are expected to perform, their involvement
in business decision making, and how they will work together to accomplish
the purpose of the enterprise.
Based on our business consulting experience, the design of most if not
all organizations is a hodgepodge of tradition, some logic, and a good deal
politics. For example, in most businesses you will find parts of one business
function split away and placed under different function heads. This splintering
of functions hinders implementing important aspects of the Lean Enterprise
approach. These include implementing a business measurement system capable
of supporting learning from performance; the implementation of an organization-wide,
yearly planning and renewal process (Hoshin Kanri); and functional teaming
within and across all work units and locations.
Realizing the problems with the existing designs of most businesses, we
decided to develop a tool for reconceiving an organization so that it enables
implementation of Lean thinking. This purpose led to the question of how
a Lean enterprise is organized. Most Lean community members would likely
answer by value streams. But, operationally, what does that mean? A modern
organization is composed of very many functions each of which has a value
stream. How should they be identified? How should they interrelate? By whom
should they be managed? We could not find content in our Lean literature
research that addressed these questions. Yet, without that knowledge one
cannot design an organization in a manner that will support critical elements
of the Lean Enterprise model.
Absent explicit guidance, we developed a solution. That solution was triggered
by statements made by Tokihiko Enomoto (1995) that revealed to us the role
of Chester Barnard in Japanese management’s conception of organizational
structure.5 But, this solution—despite its pedigree, logic, and utility—does
not make it Lean thinking. As far as we can discern, Lean community members
are not even aware of Barnard and his role in shaping Japanese management
The Lean literature is markedly deficient in its discussion of the competitive
strategies a Lean enterprise may undertake. Certainly, one well-rooted notion
is that a Lean enterprise competes in the marketplace by offering its prospective
customers better value than its competitors. Beyond that point, little to
nothing is said about what other marketplace strategies a Lean enterprise
should and should not use to realize its success. For example, one approach
to competing in a marketplace is to use control strategies such as creating
barriers to market entry by potential competitors so that customer choice
is limited. IBM reportedly used this strategy to build its almost monopolistic
control of the “big iron” mainframe computing market in the 1970s
and 80s (Baase 1974; U.S. Department of Justice 1995). One technique used
was “bundling.” It “often required buyers to pay for a
lot of services they did not want at all or could have obtained more cheaply
elsewhere, but they wanted IBM equipment enough to accept the package deal” (Baase
1974). As well, some customers complained that IBM threatened “to stop
maintenance service or cancel leases if the user attache[d] equipment made
by a competitor to an IBM main-frame” (Baase 1974). Bill Gates’ Microsoft
Incorporated used a similar tactic in the 1980s to squash competition to
its MS DOS operating system. It required all computer manufacturers to pay
for an MS DOS license for every machine they made whether or not it had MS
DOS installed. Otherwise, the vendor could not install MS DOS on any of its
machines (U.S. Department of Justice 1994). In both cases, the market strategies
used were not judged illegal, although actions to modify the behaviors were
negotiated with each company. Nonetheless, can a Lean enterprise use such
strategies? If not, why not? Where does Lean stand on these practices? Can
a company using market control strategies be a Lean enterprise?
Companies seeking a competitive advantage sometimes compete on price. One
can restrain prices by applying Lean tools to remove waste thereby reducing
cost and applying that saving to reducing prices. Another approach companies
have used is simpler. It shifts cost to the customer without the customer
seeing it. Consider a simple example involving rework costs. Let’s
say that a company attempts to reduce its rework cost by determining the
likely breakdown point for its product—essentially, its product’s “mean
time to failure” given the product’s existing state of quality
in terms of both its design and execution. Despite knowing ways to improve
the product’s mean time to failure, the company chooses, for profitability
reasons, to adjust its warranty period so that there is little chance that
a product failure will occur within the warranty period. By doing this, the
company shifts that cost to its customers. This means, rather than paying
for the product’s repair when it fails, it arranges matters so that
the buyer pays. Can a Lean enterprise use such a strategy? It is certainly
legal. If you say “No,” then what if the Lean enterprise is
low on funds and can’t afford to make improvements in its product?
Would it then be acceptable? If so, why?
Still another strategy producers use to win customers involves withholding
information from customers that might negatively affect one’s sales
or profits. As documented by Vitalo and Bujak (2019), Toyota used this strategy
to protect its sales and profits during the period between 1995 and 2010.6 It
withheld information about defects in its cars. Before that, U.S. tobacco
companies used this strategy to sustain their sales of cigarettes for decades
(Levin 2006). More recently, Exxon has apparently used it to protect its
highly profitable fossil fuel business (Banerjee and Song 2015; Banerjee,
Song, and Hasemyer 2015; Banerjee, Song, and Hasemyer 2015a; Cushman 2015;
Hasemyer and Cushman, Jr., 2015; Song, Banerjee, and Hasemyer 2015). Again,
can a Lean enterprise use this strategy? If not, why not?
An externality is a cost (negative externality) or benefit (positive externality)
experienced by a party who was not a participant in the transaction that
caused the cost or benefit. Air pollution experienced in eastern states in
the United States caused by coal-burning power generating companies operating
in the western states is an example of negative externality. Companies implementing
the dominant producer-focused, profit-maximizing approach to commerce do
not recognize externalities as a producer responsibility. When a negative
externality exists in a free market context, producers take no responsibility
for the costs required to remedy it nor the human harm it produces. Rather,
these consequences are passed on to society. Such companies employ a two
part strategy in dealing with externalities. They seek to off-load negative
externalities and to maximally benefit from positive externalities.7 What
is the Lean thinking about how a Lean enterprise should deal with externalities?
What principles should guide its conduct? What is permissible and not permissible?8
Compensation refers to the monetary benefits provided to employees in exchange
for their work. It includes base pay, variable pay, awards, and benefits.
Compensation is one of a set of actions that distribute the financial gains
produced by a company. The commercial model a business implements and, to
some extent, the form of business it assumes (e.g., a C-corporation (for-profit
corporation), limited liability company, partnership) determine how those
decisions are made and in whom the power for making them is vested.
Within a producer-focused, profit-maximizing corporation, management decides
the compensation of all roles except the chief executive officer role. At
least for hourly wage workers, the pay structure is designed to ensure the
lowest cost compensation system that will attract, motivate, and retain needed
employees since the company seeks to maximize its profit and wages detract
What is Lean thinking’s guidance on compensation? Liker and Hoseus
(2008) describe the approach to compensation they report the Toyota Motor
Corporation uses. In the absence of foundational knowledge, Toyota is used
as the case example one studies to understand what constitutes the Lean approach
to commerce. Toyota’s guiding concept for compensation within the United
States is “perceived fairness.” If it sets compensation such
that employees perceive it as fair, then compensation will be deemed acceptable
from the employee’s perspective. It judges that “perceived fairness” is
essential to employee morale and retention, at least in the United States
Operationally, Toyota sets the pay for hourly wage workers using
market surveys. These surveys reveal what other companies pay people in specific
a geographical area. These surveys always find a range of pay and Toyota
attempts to either match the first or second best pay level in a given locale.
This intent is subject to a controlling condition. Toyota “wants to
be competitive without giving away its profits [italics added] (Liker and
Hoseus, 2008, page 408).”
But, is “perceived fairness” really “fairness?” And,
if not, what approach is consistent with Lean thinking? Consider these facts.
The findings of market surveys for determining a fair wage can be artificially
depressed due to coordination between employers for the purpose of suppressing
wages or through Governmental actions that weaken labor’s ability to
organize and bargain for better wages. An example of the former action, is
how major IT companies conspired to and succeeded in suppressing employee
wages in Silicon Valley. “In early 2005, ... Apple’s Steve Jobs
sealed a secret and illegal pact with Google’s Eric Schmidt to artificially
push their workers wages lower by agreeing not to recruit each other's employees,
sharing wage scale information, and punishing violators” (Ames 2014).
The participants in this agreement expanded to include Intel, Adobe, Intuit,
and Pixar (Knoczal 2014). With this collusion among employers, employee wages
were effectively suppressed. An example of governmental action, over the
last 60 years both at the state and federal levels in the United States,
governments have limited the right of workers to unionize, strike, and otherwise
bargain for what they perceive to be fair wages. This weakened state of workers
has been openly acknowledged by Federal Reserve Chairpersons Alan Greenspan
and Janet Yellen (Pollin 2002). By either of these means (employer coordination
or governmental action), any market survey would reveal comparative wage
levels that would be “perceived” as fair but, by any common sense
measure, not be fair.
What if one took a different perspective to judge fairness,
a perspective used by businesses themselves? Consider, for the moment, compensation
being an employee’s return on investment. His or her investment is
the time, effort, and skill applied in advancing the company’s goals.
It also includes all the costs associated with being able to make that investment.
These include the currently non-reimbursed cost of the worker’s prior
education and non-compensated time spent in developing his or her expertise.
It also includes all costs associated with the worker’s personal maintenance
(food, shelter, clothing, safety, maintenance of fitness to work, etc.),
and any expenses related directly to his or her work (e.g., travel, uniforms,
cleaning of uniforms). One might challenge that a truly fair wage must deliver
a positive return on this investment. Since employers look at their success
in these terms, would it not be “fair” for employees to do likewise?
Would this perspective be more consistent with Lean thinking?
Still another possible perspective on fairness is to set “total compensation” as
a negotiated portion of the monetary value of what a worker produces for
the business.9 Such pay would reflect the actual yield of benefits the business
derives from the worker’s invested effort. Is this the perspective
a Lean enterprise should assume?
Finally, consider this. According to Liker
and Hoseus (2008), Toyota decides what compensation it will pay an employee
with an eye to preserving its profit.
It alone, without transparency, decides what amount of profit Toyota “deserves.”10
Would not equity in a Lean enterprise, with its emphasis on team and community,
require that both employees and employer participate in this decision making
with equal access to information?
The third significant problem area in documenting the Lean model concerns
the absence of an explicit statement of the basic theory that explains why
the actions Lean thinking directs one to do make sense. This theoretical underpinning
is the set of assumptions and derivative principles that form the knowledge
foundation from which the model’s various ideas and edicts flow and which
explain they work.
All theories of commerce and organizational performance are rooted in their
premises about people. People are the agents who accomplish commerce and achieve
corporate goals. They do it by direct action or by working through other people
they manage. Especially with regard to management decision making and action,
one needs to understand people’s motives, values, inclinations, and purposes,
and management must use that understanding to guide it in engaging, enabling,
and supporting the performance of others.
Deming (2000) referred to this set
of knowledge as “psychology,” a
fundamental understanding of the nature of people and the factors that affect
their behavior.11 It answers questions such as: Are people inclined to be self-serving?
Do they act on the basis of external rewards alone or is their behavior directed
by inner values and for reasons other than the acquisition of material rewards?
Do people consider what effects their actions have on others? Are they inclined
to ensure that their actions benefit others as well as themselves? Each of
these questions affects whether and how an organization can be created and
sustained; whether and how people can be aligned to a common goal; and whether
and how one can successfully engage, involve, and enable their successful performance.
prevailing producer-focused, profit-maximizing approach to commerce, for example,
has explicit assumptions about human motivation and the end people
pursue when interacting with others. Its view of people’s nature is that
they are driven to maximize their gains from every exchange with another and
that they rationally pursue this end without regard for the impact of their
decisions on others (“Homo Economicus”) (Hubel 2014; Yamagishi,
Takagishi, Matsumoto, and Kiyonari 2014). From these assumptions, the model
deduces that each person looks out for his or her own interests and engages
with others only on a quid pro quo basis. In every transaction, each party
seeks to get more than he or she gives.
Based on this thinking, people join
an organization to garner material rewards. Thus, employees should be recruited
using monetary incentives. They should
be persuaded that the deal being offered is the best they can expect to find
anywhere. As to obtaining from employees the performance the business seeks,
employees must be ‘managed’— i.e., actively supervised to
ensure that they align to the organization’s purpose since their intrinsic
direction is to pursue their own interest. Given that their interest is to
maximize their own benefits, they will be inclined to do the least to get the
most (Hubel 2014). That is, to take the rewards while not having to give the
effort expected in return.
Within the context of seller-buyer exchanges, these
assumptions translate into the rule of caveat emptor—“let the buyer
beware.” The producer-focused,
profit-maximizing model assumes that it is the customer’s responsibility
to look out for his or her own interest, not the producer’s. The producer
seeks to maximize profit measured monetarily. The buyer seeks to maximize the
satisfaction of his or her values, which, in economics, is also measured monetarily.
What are Lean Enterprise’s assumptions about people? How does Lean thinking
replace this producer-focused, profit-maximizing set of assumptions? Does Lean
thinking accept that model’s assumption that people operate from self-interest
alone and are a singularly focused on maximizing their personal gain? Is a
Lean marketplace ruled by caveat emptor?
If you think the answers to Lean’s
assumptions about people are contained in the Lean management literature, think
again. Lean management guidance is
essentially a set of rubrics that clarify what one should do and how one should
behave. “Strive for perfection in all operations.” “Respect
people.” And many others. While at first it may appear that one can extract
from these rubrics Lean’s view of the nature of people, that is not the
case. For example, the two just mentioned rubrics might imply the need to correct
a natural inclination within people—i.e., the inclination not strive
to improve themselves and the natural inclination not to respect others. Or,
they may be attempts to reinforce and encourage the free expression of an inherent
inclination people already possess. Vitalo and Bujak (2019a) attempted to derive
Lean’s perspective on human nature from Lean management’s rubrics
and failed. In their article, Why Lean Management’s Rubrics Cannot Tell
Us What Lean’s View of People Is, they demonstrate that it is not possible
to extract a definitive statement of Lean’s perspective on the nature
of people from its guidance on how to manage a Lean enterprise.
As an alternative
to developing Lean’s view of human nature, one might
respond that there is no need to replace the assumptions about people that
underpin the dominant producer-focused, profit-maximizing approach to commerce.
People can act on a selfish basis and still provide benefit to others (i.e.,
value-adding products) because “benefiting others will maximize benefit
This “enlightened self-interest” response, however, does not withstand
real-world, rational analysis. First, in the zero sum world of the dominant
approach to commerce (Emiliani 2004), any benefit a second party gains from
a transaction is a benefit lost to the first party. Second, if I, as an individual,
am driven to maximize my personal gain, I will seek out a way to get all I
can from every exchange with another. Based on the self-interest model, I would
search out and use methods that accomplish the redistribution of all benefits
to myself. And, those methods both exist and are in use. Essentially, they
boil down to establishing power over the other party in commerce. The means
for doing this are many. A few have been described above. These methods may
be direct, as through the use of deception, misinformation, or the withholding
of information. They may be indirect, as through the manipulation of the commercial
context by influencing law and regulation or by colluding with others.
counter argue that one cannot continue to exploit others in a commercial context
over the long-term and win—again, you would be historically wrong.
As just one example, big Tobacco did it and these firms continue to thrive
Finally, consider the time horizon of “self.” By definition,
it is the length of one’s adult life or, more narrowly, one’s commercial
career. While a business may exist over many employee “lifetimes,” it
is implemented by people pursuing their self interest within their limited
lifetimes. Any argument that self-interest will be constrained by the ‘long
view’ in which the long view assumes the accumulation of wealth past
one’s personal lifetime is, by definition, nonsensical since it implies
that self-interest persists past the death of ‘self.’
The Missing Deming Content
If Lean community members seek to establish the set of premises that underlay
their approach to executive functions, they have easy access to a beginning
point. Our research to find answers to the problems described above, and others
not detailed here, led us to revisit the work of W. Edwards Deming. We say
revisit because both of the current authors had studied and used Deming’s
ideas in our early careers as managers and consultants. When Lean emerged,
we both heard echoes of Deming in its edicts but rarely saw any mention of
him outside of Lean’s incorporation of his Plan Do Check Act tool for
guiding problem solving actions.11 Based
on our further research of Deming (Vitalo 2017), however, it was clear to us
that he had made the seminal contribution to what evolved into the Lean model.
We based this judgment on the following facts:
- First, Deming’s thinking and the Lean model’s views concerning
the role of executives, managers, and supervisors are essentially identical
except that Deming’s provides a theoretical underpinning for it.
- Second, Deming taught the leaders of Japanese industry about the quality
approach to commerce through the auspices of the Union of Japanese Science
and Engineering (JUSE) beginning in June, 1950. His teaching of top Japanese
management began in 1950 at the Hotel de Yama on Mt. Hakone in Japan (Deming
1950a, 1982a). He continued to teach and consult with Japanese management
throughout the decade and into the 1960s.12
- Third, Deming played a pivotal role in enabling the resurrection of Japanese
industry to its place of worldwide importance in the post 1950s era. Indeed,
Japan, as a nation, recognized Deming’s contributions to the resurrection
of its industry by extending to him the Second Order Medal of the Sacred
- Fourth, Ohno himself stated, “The Toyota production system is one
and the same with TQC13 ...
. They are simply different names for the same basic approach” (Shimokawa
and Fujimoto 2009, page 3).14
- Fifth, Masao Nemoto, a former Toyota senior Manager, credited Womack,
Jones, and Roos’ original book on Lean by stating that, “It was
truly an excellent book.” But, he went on to say that, “Its one
really disappointing flaw is that it fails to mention the role of TQC in
Lean manufacturing. It’s a pretty thick book, but even where it mentions
quality control, it leaves off the T [for Total]” (Shimokawa and Fujimoto,
2009, page 175).
- Sixth, Toyota’s rise as an automobile manufacturer took off in the
1960s after it adopted Deming’s quality management approach (Shimokawa
and Fujimoto, 2009, page 177).
- Seventh, Deming’s contributions to the Lean model, as practiced
by Toyota Motor Corporation, were personally acknowledged and appreciated
by Dr. Shoichiro Toyoda, the son of the founder of the Toyota Motor Corporation
and its chairman from 1992–1999. “Everyday I think about what
he [Deming] meant to us,” said Dr. Toyoda, “Deming is the core
of our management” (Toyoda, 1988). The Toyota Production System is
often cited as a foundation for the Lean Enterprise model.
- Eighth, many elements essential to Lean thinking were first expressed
by Deming in his teaching to Japanese leaders. Just one example is the concept
of the value stream and the necessity of managing from the perspective of
the whole system. In Out of Crisis, Deming reproduces a graphic of what,
in the Lean lexicon, we term the extended value stream (Deming, 1982a, Figure
1, page 4). In its caption, he tells us that “This chart was first
used in August 1950 at a conference with top Japanese management at the Hotel
de Yama on Mt. Hakone in Japan.” Elsewhere he states “The simple
flow diagram was on the blackboard at every conference with top management
from 1950 and onward” (Deming, 2000, page 57). Another example is the
redefinition of the management role from oversight and control to enabler
of every employee’s success (Vitalo 2017). Exhibit 3, next page, provides
Most relevant to this paper, Deming’s teaching is underpinned by four
sets of what he termed “profound knowledge” and we term, “foundational
knowledge.” He declares managers must master this knowledge because it
provides the “why” behind
all management decision making and actions (Deming 2000; Vitalo 2017). These
four domains of knowledge are:
- a theory of organization (the nature of systems),
- the concept of variation and its significance,
- a theory of knowledge, and
- the basic principles that reveal the nature of people and the source of
Should the Lean community seek to develop its fundamental premises about the
nature of people, human organizations, and commerce itself, Deming’s
thinking would be the place to start. It provides a knowledge foundation for
all Lean’s executive guidance.
To explore further Deming contributions to Lean thinking, see Deming
Revisited: The Real Quality Model (Vitalo 2017). This monograph provides a detailed analysis
of Deming’s thinking and contains citations to his original works. Use
this monograph as a pathway into primary sources: Deming 1950, 1950a, 1967,
1975, 1982, 1982a, 1988; Reddie 2001; and Deming Prize 2006.
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1 Foundational knowledge refers
to the set of concepts, principles, and relations used to explain the “why” underlying
observed facts or the set of assumptions from which the judgments and directives
of a deductive knowledge systems are deduced.
2 The term gemba means “where
the real work is done.” It refers to the front-line workplaces where
the product or service offering of a business or a business function are actually
3 An extended value stream
represents the flow of input resources from suppliers to and through a business’s
production system and from the business’s production system to the customer
of its output. Each of the organizations who contribute to that flow, whether
internal or external to the business, is represented in it.
4 Again, this Ohno statement
seems at odds with his statement in Workplace Management (Ohno 2013) that efficiency
in itself is destructive. Nevertheless, he stated it and it seems unequivocal.
Chester Barnard (1886–1961) is considered by many to be the premier theorist
on the topics of organization and executive functioning. His seminal work, The
Functions of the Executive, was published in 1938 and is still taught in graduate
programs in business and management today. While the model of organization and
executive functions he formulated is an excellent fit to the current dominant
approach to commerce, it is antagonistic to the Lean Enterprise approach. Nonetheless,
his writings about how an organization should be structured, among other topics,
were widely praised in Japan in the early 1950s and did contribute to the Lean
model (Enomoto, 1995).
See Why Toyota Is Not Lean Thinking’s ‘Rosetta Stone’ (Vitalo
and Bujak 2019) for a thorough discussion of the limitations of using Toyota
as your guide for understanding what constitutes the Lean approach to commerce.
Milman (2019) reports on an effort underway to pass legislation that will extend
to polluting corporations legal immunity for damages done to the environment
by the pollutants they emitted. The law “would squash [a] raft of climate
lawsuits launched by cities and counties across the US seeking compensation
for damages.” The promoters of this plan include British Petroleum, Exxon
Mobil, Chevron, ConocoPhillips, Shell Oil Company, and Microsoft Corporation.
Can any of these corporations be a Lean enterprise?
We are aware of Toyota’s publicly expressed vision of community responsibility
and acting as a good citizen. However, we cannot use Toyota’s words. See
Why Toyota Is Not Lean Thinking’s ‘Rosetta Stone’ (Vitalo and
Bujak 2019) for thorough discussion of the limitations of using Toyota as your
guide for understanding what constitutes the Lean approach to commerce.
This calculation could be refined to net out from the value produced whatever
producer incurred costs were expended to produce that value and add in whatever
costs for producing that value were born by the employee.
We say, “without transparency” because we have not read anywhere
that the Toyota Motor Corporation uses open book accounting to share financial
information with its employees and nor do they share the specific decision criteria
executives use in making financial choices.
Actually, the tool derives
from Shewhart. Deming consistently represents the four-stage Shewhart cycle
as plan, do, study,
and act and sees it as a systematic
process for uncovering “learning, and for improvement of a product or
process” (Deming, 2000, page 131).1 In his earlier works, he refers to
it as the “Shewhart Cycle.” Later, he labels it the “PDSA
Cycle.” See Exhibit 14, Deming’s Different Representations of the
Shewhart Cycle in Deming
Revisited: The Real Quality Model for Commerce (Vitalo 2017).
12 Noguchi (1995) claims
that Deming did not specifically teach his “14 management
points” in Japan; however, a review of the contents of his lectures and
his notes indicate that the same ideas were embedded in the content he presented.
TQC is the term used at Toyota to refer to Deming’s total quality management
as reflected in the standards used to assess the Deming Quality Prize in Japan
(Union of Japanese Scientists and Engineers, 2016).
Of course, Ohno did also reveal in this statement his incorrect understand of
total quality management as he aligns it with the “principle of zero
defects” (Shimokawa and Fujimoto 2009, page 3). Deming abhorred “zero
defect” and condemned it as a empty slogan. He stated, “Of course
we do not want to violate specification, but to meet specifications is not
enough” (Deming 2000, page 16). One can have zero defects many ways,
most which can still deliver customers undesired outputs to customers. Nonetheless,
Michikazu Tanaka, a student Ohno, does confirm the importance of Deming. He
reports that, “Ohno always said, ‘Kanban won’t work right
anywhere that TQC isn’t working right. ... The kanban system only works
when you’re making quality products’” (Shimokawa and Fujimoto
2009, page 9). Thus, Ohno’s acknowledgment of Deming’s contribution
appears to stand.
Published June 12, 2019, Revised June 4, 2022 - © 2019-2022
Vital Enterprises - Austin,
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