Can lean be used to turn around a company?

Dear Gemba Coach,

Can lean be used in a turnaround situation? Does a burning platform make it easier or harder?

Ouch. I have been involved up close in both turnarounds and turn-to-the-worse cases (where new management set fire to a stable platform) and neither situation is much fun. I was discussing this recently with a healthcare lean officer I know who has become CEO of a 4,500-person hospital close to bankruptcy with a legacy of conflict and strikes and a toxic culture that had made many of the more competent people leave.

The answer, surprisingly, is kanban.

To make this case, let me backtrack some, and explore the problem.

Lean is the perfect approach for turnarounds and burning platforms, yet personally, I’d rather avoid them. Turnarounds are vital, but really really hard. Best not to try your first lean effort on a burning platform! As we describe in The Lean Strategy, the main difficulty in a turnaround is to face the real problems the company has. If the company is in trouble, it has lost the fit between its market and its offer – customers are no longer buying enough of what it offers at the price it offers to sustain the cost of producing it.

This is usually due to a renewal of customers because of demographics and customer expectations because the spirit of the times changes. From the inside, it’s hard to fathom because some loyal customers continue to purchase – just less and less of them. The difficulty of a turnaround is figuring out:

• What do you need to change to recapture new customers
• What do you need to protect to retain your remaining loyal customers

The additional pressure you’ll be under is to protect the very culture that brought the company in the red in the first place: past dubious decisions from previous leadership, dysfunctional behavior from teams, sacred cows, and so on.

Because of the fog of war (hard to see what you’re doing from the inside) and daily operational friction (fires burning everywhere), it’s very hard to grasp what is really going on and how to go about it. The core issue of turnaround is to fix the team first: who will you listen to, and who will you ignore.

Don’t Make This Mistake

The very process of failing creates a lot of internal conflicts, and so you rarely see people at their best. At first, it’s almost impossible to distinguish angry cranks from frustrated people who mean well and gung-ho people from frenemies with their own agenda. The hard question we start with in The Lean Strategy is: double the good, halve the bad:

• What are the growth areas that are in synch with the audience and which the organization is currently undermining?
• What are the legacy areas that the organization depends on for its current revenue or operations but have been constantly worsening and without any future?

Finding this is the hardest part because the company is in trouble precisely because it is confused about what is heritage (to be protected, nurtured, and developed) and what is legacy dragging it down (to be progressively eradicated). Organizations get hooked on bad turnover (revenue that only leads to less revenue) and need their fix. But it’s very, very hard to spot.

The worst mistake you can make at this stage is to jump to conclusions and choose. The place to start is with kanban: Sell one, make one. Setting up kanban – and the thinking that goes with it, will reveal:

• What customers are actually asking for
• The quality issues with singular jobs
• Who helps versus who is making noise

Your real challenge is finding what the real problems are and discovering who to partner with. Kanban will reveal both. In the hospital context, for instance, it means focusing on patient exits, finding the free beds in the wards, to alleviate the pressure on emergencies. My friend has been asking specialists from the wards to tour the emergency wards once a day and look at ambiguous cases. He was astonished how quickly this pull revealed:

• Competent physicians – other doctors eagerly asked for their opinions and listened;
• Willing physicians – those who show up and stick with it.

Don’t Neglect Suppliers

The second counterintuitive trick with kanban is to start by fixing supplier issues. At the end of the day, much of the value your organization delivers depends on suppliers – supply chains are vast networks of resources and energy. Focusing on fixing supplier issues – starting with fraught relationships with key providers – will stabilize the organization and let the good people inside do their job as they meant to.

Internally, you’ll be beset with a big case of “exit, voice, and loyalty,” to use the economist Albert O. Hirschman’s phrase. Competent, disappointed staff will first try to voice their frustration with how things are going, typically be silenced by middle-management, and then shut up and prepare their exits. One key behavior you can change right away when someone has a gripe is to adopt “tell me more,” rather than “just shut up.” This will change the culture faster than you’d think.

As you establish kanban on the customer front end (including the andon stop-and-fix that goes with it) and fixing supply side issues to see the critical information and material your company needs to operate, you can focus on the really important thing: who to listen to, who to ignore. Regardless of their style and personality, some people will:

• Look towards customers, speak of competence problems, try things
• Look towards internal controls, explain problems away as normal, and spread the blame, not do

Once you know what you’re looking for, this basic orientation is easy to spot and is revealed by the just-in-time system.

When the dust had started to settle and he felt he started to have the right people in place (people who had helped him solve the financing, supply, and main technical problems), my friend then started on creating a culture of problem solving by asking each member of his team to continue to fight fires (imagine, things keep blowing up throughout) but also to each take a “cold” problem on – an issue they wanted to work on where there was less immediate pressure and:

1. Clarify the gains sought: Where are we going with this and what outcome do we seek?
2. Where do we look for gains: What is the current step-by-step process and what is your analysis of where things go wrong?
3. What new way can be tried: What is the new idea and how can it be expressed simply so that everyone can understand what it is and what improvements we expect from it (as well as what other things we need to protect as we implement).
4. Who do we need to convince: To develop teamwork and understanding of complex organizations, who needs to be on board to make this work and how to convince them?
5. How are going to make this work: How do we set clear milestones and hold a collective discussion of who is going to do what?
6. How do we know if it works: How do we set up the metrics within the implementation plan and measure as we go along with the changes to look for unexpected impacts and distinguish direct effects from the fallout?
7. How do we make the change stick: If it works, what else do we need to change to avoid sliding back?

Believe it or not, in the cases of turn-to-the-worse I’ve seen, the new management team started with … dismantling just-in-time so that they could impose their jump-to-solutions decision-making and their cronies. Never fails. Gains of lean are lost in six months to a year, and then we’re back to the well-known downward spiral of cost cutting that ends up in sell-or-close, first bit by bit, then all at once. But throughout, the new bosses are right and the world is just mean to them. Incredible.

Do: Staaaaay Cooool

Now, you’ll say: if it’s so simple, why isn’t it fun? Simple doesn’t make it easy. With a burning platform, you’ll encounter three will-grinding issues:

• First, it drags on. Not jumping to solutions is all well and fine, but when the fire is burning people ask you to be decisive. And in some cases, you need to prioritize and execute, no debate. Doing it the lean way is short in overall time (one to two years) but long on the day-to-day when every day someone steps into your office and tells you: “Do something about this.” Finding problems, looking for people first and helping them fix the problem is in fact quick in elapsed time, but takes away the satisfaction of immediate responses and feeling like “the decider.”
• Second, corporate is your worse enemy. My friend has successfully achieved one full year without work stoppage whereas his predecessors had many strike days. In the end, he estimates conservatively a saving of 10 million for the hospital. And yet his bosses in headquarters are not satisfied because he is not doing the job reductions they ask of him. Their solution to everything is to reduce costs by restricting and consolidating to reduce jobs. Never a word about patients. Never a word about quality. Or about attractiveness for good medical staff. In turnaround situations, hidden problems keep blowing up even after you have the whole thing more or less under control, and the people at headquarters who supported the previous decisions (that created the crisis) are still there and rarely disarm. You keep fighting the feeling of taking friendly fire all the time, and it does weary the soul.
• Third, your best people blow fuses. Turnarounds are intense, people work 200% and all converge towards the competent people you find to share your burden. As a result, they get overburdened and burn out, or blow their tops and suddenly do something very silly, or revert to jump-to-solutions. Normal life, but more intensely. In practice, an added difficulty is to make sure your allies remain fighting fit, which starts with making sure you stay in good shape and not overburden your own choice-making capability and staaaaay cooool.

All this to say, yes, lean is the perfect approach for turnarounds and burning platforms, yet personally, I’d rather avoid them. It’s heady work but leaves a bad taste in the mouth with a risk of becoming bitter because of the poor ratio of work/recognition. Nothing is more fun than helping a good place become great. Turnarounds are vital, but really really hard. Best not to try your first lean effort on a burning platform!