Wednesday, June 3, 2009

Lessons In Lean - Lean Is A Growth Strategy

I am currently attending the University of Tennessee's Center of Executive Education to obtain my Air Force Smart Operations for the 21st Century (AFSO 21) level II certification which is the equivalent of a Lean Six Sigma Black Belt. The course is two weeks long and although I have only been in the class for a few days it has been a great experience.

Although I have been involved in lean for a few years now, I had an a-ha moment today which is the point of the class I guess. The topic today was surrounding Theory of Constraints and Lean and how they are utilized as a growth strategy. It might sound anticlimactic but its actually a very important concept that many people don't seem to grasp. Most people view lean as cutting positions or reducing resources. Or doing more with less type mentality. I had a mentor that referred to that as 'fake' lean.

The instructor divided business strategies into two realities. He said that there are cost cutting strategies and there are throughput strategies. Cost cutting strategies never beat a throughput strategy in the long term. Cost cutting can often provide short term 'results' for a balance sheet, but running through the various mathematical scenarios and second and third order consequences they cannot be a viable strategy. This is not to say that cutting costs is a bad practice; it is merely an extremely ineffective strategy. A throughput strategy seeks to decrease the time from the customer order to cash in hand. By decreasing this time you are in essence freeing up space for additional capacity. When you are providing a product or service at a faster speed, not only are you beating your competition you are able to charge a premium for it. This avoids the price war dilemma and allows you to grow existing market share or even grow the overall pie of market share by creating new markets and exploiting new opportunities.

Intuitively we all know this. "If you aren't growing you're dying" is a quote that many people cite. Yet when it comes to business many leaders and executives lie to themselves and believe that a cost cutting strategy is viable for the long term. Lean is a growth strategy, and the only successful strategy is a growth strategy.

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