strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: June 10, 2008

 
 

Jeffrey Liker: The Thought Leader Interview

After the first edition of the book was published, Wiremold did so well that it was bought by a French conglomerate, Legrand, which proceeded to get rid of all the existing managers and bring in its own people. The managers who were let go were the lean leaders who had brought the company to that point. The new managers didn’t have any real understanding of lean. As a result, Legrand basically destroyed much of what had been built up. It took only a couple of years. And now, you’ll find that Wiremold is trying to reinvigorate the lean effort, because its performance has suffered. But it’s unlikely that this will be accomplished.

Wiremold originally was a private, family-owned company. The company might still be an exemplar if the ownership group had somehow maintained the equity arrangement in such a way that the family didn’t give up complete control or lose all the top managers. That could have been the result if the owners had valued the company enough to say, “We’re going to be very picky about who we sell this to. And when we sell it, there are going to have to be certain agreements.” But that didn’t happen. One ad­vantage of Toyota being in Japan is that it’s much more natural there to keep equity ownership within a small family of the keiretsu [a group of affiliated companies].

S+B: Is Wiremold’s story typical? In maintaining a lean system for many years instead of just a few, what difference does the financial structure of a company make?
LIKER: The one constant in lean management is that it takes a consistent leadership philosophy, one that doesn’t change even as the top leadership changes, for long-term success. And a consistent leadership philosophy is the hardest thing to ensure in companies that turn over as frequently as Western companies do and that have such a short-term orientation toward their returns.

Thus, there are people in the lean world who are calling for different models of equity ownership. The most common models — build a company and then, once it’s successful, take it public or sell it to a private equity owner who’s interested in flipping it relatively quickly — are anathema to developing lean systems. In a company benefiting from lean systems, one thing management can do, although it may be difficult, is refuse to capitulate, and instead make a strong business case to private equity owners that actu­ally shows the value of maintaining the management philosophy and growing leaders from within who are able to do this.

Really big companies such as Boeing, which are publicly traded but have a senior leadership with a lot of power, don’t have to think short term because they have orders for the next 10 or 15 years. Those kinds of companies can sometimes maintain the lean philosophy pretty consistently. Boeing is not perfect and has had its ups and downs, but it has always come out of tough times still supporting the lean philosophy and continuing to work at it.

Boeing’s not in danger of being bought out. They’re just too big. As a result, they’ve been able to be pretty persistent about lean for many years. So has Alcoa. Former CEO [and former U.S. Treasury Secretary] Paul O’Neill helped to lead the charge for lean at Alcoa, and it has continued there without him. The Alcoa business system has to a large degree become its management philosophy.

One can compare Alcoa, Boeing, or other companies that have had long-term success to Toyota, and that represents a really high standard. But I can also tell you that when these companies run into short-term financial difficulties, they often abandon their own lean principles — and end up going backward. Managers at these companies have described it this way: “For a while, it was great and everything was lean and ‘do the right thing’ and ‘reduce lead time’ and ‘work with the people.’ And then something bad happened and suddenly everything became, ‘What’s the bottom line?’ and ‘What’s the short-term payback of this lean project?’” So, even in the best of the Western companies, you see a lot more variation over time and a lot more “stutter starts” compared to the amount of variation you see at Toyota.

 
 
 
 
Close
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.

Close