How Corporations Can Slim Down with a Bottom-Up Approach
The streamlining of corporate operations is usually executive-led, but engaging frontline employees is crucial to genuine reform.
Bottom Line: The streamlining of corporate operations is usually executive-led, but engaging frontline employees is crucial to genuine reform.
When firms try to streamline their operations — or “go lean,” in management-speak — they’re typically expected to employ a top-down approach, with executives unilaterally presiding over the cutbacks, modernization, or reallocation of resources that may drive such a project. But according to a new study by the Norwegian University of Science and Technology’s Torbjørn H. Netland and his colleagues, a bottom-up process that emphasizes the role of frontline employees working with dedicated teams of lean-oriented managers can be the key to pulling off a corporate streamlining program.
Although the benefits of slimming down are well-documented, especially in times of economic uncertainty, many of the largest firms in the world have struggled in their attempts to streamline while maintaining their competitive advantage. The authors of this paper recommend several management moves that firms can make to reduce the wasteful aspects of their operations and still deliver full value to their customers.
The authors studied a leading vehicle manufacturing company. The firm posted revenues of US$31 billion in 2013, employed 100,000 people across six continents, and was in the midst of a global lean program during the three years the authors tracked its operations. Specifically, they analyzed internal data from audits at 36 different plants and conducted surveys of the factory managers and shop-floor personnel involved in the streamlining efforts. They also toured factories and held informal interviews with employees up and down the production chain, to get a sense of the lean program’s effectiveness from the perspectives of both managers and rank-and-file workers.
After controlling for the effects of individual factories’ size, their level of union activity, and the complexity of the products they churned out, the authors uncovered some surprising results. Two strategies typically associated with streamlining — namely, conducting frequent internal audits at the factory level to measure the progress of reform, and dangling financial incentives in front of employees for meeting lean-related benchmarks — proved largely ineffectual.
An overemphasis on audit results prohibits the cultural transformation that streamlining requires, the authors found. Internal audits draw managers’ attention away from the day-to-day procedures necessary to implement a lean program and generate the sort of arbitrary deadlines that can turn employees against one another. Too much focus on compliance and too little attention to improvement backfired.
Similarly, the authors heard many complaints about the ostensible value of financial rewards. Frequently, the offer of monetary bonuses led to clashes on the shop floor and disgruntlement over the choice of the winner — in some cases, it even led to workers taking their new concepts elsewhere. “We tried monetary rewards, but it was a disaster,” one program manager told the authors. “Some employees even started to sell their ideas!”
“We tried monetary rewards, but it was a disaster.”
However, three management techniques stood out as instrumental in implementing an effective lean initiative:
• Assemble a dedicated team that responds to all levels of lean programming. Instead of concentrating authority in the highest echelons of management, firms should try to assemble a group of lean experts, middle managers, and frontline workers who are all focused on streamlining operations. Rather than alienating other employees, teams that received specialized training in lean programs acted as a valuable bridge between management and the rank and file.
• Put the power of reformation into the hands of lower-level employees. Managers of plants that held daily meetings on the factory floor, supported by the use of visual boards that described their progress in fiscal and operational performance, enjoyed strikingly higher returns from their streamlining efforts, the authors found. Gathering around a chart at the beginning and end of each shift imbues employees with a sense of purpose. “These daily, weekly, and monthly meetings provide the organizational structure needed for keeping up the motivation and pace of the improvement work,” said one assembly plant manager.
• Use nonfinancial incentives. Friendly competition motivates employees to band together and talk up their colleagues’ suggestions; fiscal rewards handed out to individuals tend to dilute the wellspring of ideas. Displaying the certificates of contest-winning teams on the shop floor, for example, or celebrating their achievements during town hall meetings goes a long way toward realizing success in streamlining.
The more firms stress the importance of streamlining throughout their organization — not just at the executive level — the more performance improvement they can extract, the authors suggest. And experience plays a part: Factories with the highest rate of lean implementation were often helmed by leaders from sister plants that had just gone through a similar transformation.
But the impetus for change must come from within, and ground-level employees are the most adept at driving the streamlining process. “We need to go from a push-based implementation to a pull-based implementation,” said one lean manager who overcame early hurdles, pointing out that improvements should be sought out from below rather than dictated from above. Accordingly, the bottom-up structure seems well-suited to enacting true top-down reform.
Source: “Implementing Corporate Lean Programs: The Effect of Management Control Practices,” by Torbjørn H. Netland (Norwegian University of Science and Technology), Jason D. Schloetzer (Georgetown University), and Kasra Ferdows (Georgetown University), Journal of Operations Management, May 2015, vol. 36