I don’t find much about lean strategy in the literature. Where should I look?

Dear Gemba Coach,

I’ve been tasked to come up with a presentation on what is a “lean” strategy to our Strategic Planning Group. I don’t find much about lean strategy in the literature and am stumped. Where should I look?

Thank you for your question, it certainly gave me pause. The truth is I don’t know either. Now that Toyota is numero uno again, the question doesn’t come up so often but through the years of studying lean, the company has been continuously disliked by financial analysts for its absence of clear strategic planning, or indeed its lack of communication of its strategic intent. Several years ago, I asked Toyota executives what the company’s strategy was and the answer came down to, in one form or another, “kaizen.” Not very helpful – how can kaizen be a strategy?

An interesting book to read on the topic is Osono, Shimizu and Takeuchi’s (of knowledge-creating company fame) Extreme Toyota. The authors claim that Toyota’s success is not built on a clear strategy but, on the contrary a set of paradoxes, deep contradictions that, in their terms push the company to extremes and keeps it on the edge. They’ve narrowed down these contradictions to the six following points:

1. Moving gradually and also taking big leaps
2. Cultivating frugality while spending huge sums
3. Operating efficiently as well as redundantly
4. Cultivating stability and a paranoid mindset
5. Respecting bureaucratic hierarchy and allowing freedom to dissent
6. Maintaining simplified and complex communication

Paradoxes as Strategy?

Having visited Toyota sites around the world over the years, these “contradictions” do speak to me inasmuch as I’ve never been able to see twice the same thing. On one hand the company will do a lot of kaizen to shave a second from a work cycle and on the other there are coordinators and staffers and lots of people at lots of meetings everywhere.

Stability is a constant obsession and so is the feeling that Toyota is permanently failing and not doing what it should.  I’ve seen cases where the company is tight fisted to the point of penny pinching and then willing to lavishly spend on other things. Last time I was in Durban, South Africa, I was struck by the efforts Toyota made to teach its team members to drive (many didn’t) to get them to understand how it felt to own a car, as well as a huge investment in their own container storage area above the Durban harbor because they felt service from the port was too slow. And so on.

This flies in the face of the “clarity” proponents of lean, the “North Star,” “Clear Direction” (and I half-heartedly include myself in that group) because it certainly has not been my direct experience of observing the company from the outside (maybe things are incredibly clear inside, but I somehow doubt it). Does that mean there is no such things as a “lean strategy”? Surely, paradoxes can’t count as strategy, can they?

Well, one thing we know about the company is that is isn’t afraid of very bold moves to capture customers, such as creating a fully fledged luxury brand (unheard of) with Lexus, and did the same to capture young drivers with Scion or to attack head-on the impossible goal of the clean car, revolutionizing the industry in the process. There has to be some strategic thinking there, right?

Let’s go back to the gemba. I recently visited an independent automotive supplier specialized in roof windows who had just succeeded in selling a project to a top-of-the-line German OEM (pushing out their traditional German supplier) as well as a Japanese manufacturer. This is of strategic importance to this company because it opens new markets of higher value products (and a chance for long-term growth.) Another company makes automotive springs and they’ve been having a hard, hard time since the Lehman Brothers crisis, but at now bouncing back (ha ha!) thanks to a non-automotive construction contract they obtained by focusing narrowly on delivering on time every time.

The first company convinced higher-range customers by the intent of their customer focus through the application of lean engineering tools such as immersion and customer preferences identification. The second branched out of its traditional market by using a pull system and learning just-in-time discipline.  Was it strategic? Or simply opportunistic. Operational improvements open doors we didn’t know were there and new opportunities arise. Better be lucky than good any day.

The Strategic Planning Bias

Choosing your customers is probably what lean strategy is about. Most strategies are “market” and “resources” based. What markets should be pursued to maintain growth and profitability and what can we actually do with the resources on hand. As Roger Martin explains in his Jan-Feb 2014 HBR piece on “the big lie of strategic planning”, no matter how glorious the strategic planning seminar location and how groovy the interaction, strategic planning’s built-in bias is to keep the management team in its comfort zone. Real strategy, the author claims should feel uncomfortable. “Focus your energy on the key choices that influence revenue decision makers — that is, customers,” he advises.

From this point of view, there is indeed a lean strategy:

1. Focus on existing customers first – on your promoters. There is nothing more important than doing what it takes to convince an existing customer to repurchase, and be so happy about your product or service she or he will tell their friends about it.
2. Look for customers willing to pay more for better – in order to improve revenue now, try to reach for upper range customers, if you can provide that extra value (or understand what really matters to them) they’ll pay for unstintingly simply because they’ve got the money to do so.
3. Look for customers with new tastes or quirks. What do customers that don’t choose us prefer? Faster? Organic? Friendlier? Cheaper? Let’s look out for these and, if we’re lucky, find customers who wouldn’t have purchased the product at all but solved their problem through other alternatives.
4. Take care of your new entrants. In Toyota terms, who wants to drive their parents’ car? In order to do (1) we have to get customers hooked into our brands, so what entry product do we have that is fun, sexy, cheap, exciting and so on?

You become the customers you’ve picked – it goes way beyond marketing. As you work with certain customers (and I’m not talking about segment, but individual customers), their values and quirks will inevitably rub off on you. Work long enough for a French automotive manufacturer as a supplier and you’ll start thinking that bleeding your own suppliers dry is the only way to stay profitable in the current market conditions. Work with a customer that accepts 0.5 percent of defects as inevitable and pretty soon you’ll wonder why your lean guy is loosing his or her temper all the time. You are your customers. Your destiny is their destiny, so choose them wisely.

It’s Kaizen

But how is it possible to choose one’s customers? Well, ahem, kaizen. Taking a page from Toyota’s book, the two companies I mentioned didn’t explicitly seek these new customers – they work hard at establishing kaizen within their own organizations. Then, suddenly, the improvements generated by the kaizen efforts opened up new opportunities and top management started thinking about what they could do to fuel and encourage this. Kaizen is the lean strategy.

This is the point Osomo, Shimizu and Takeuchi have made. In a mass-market industrial age, contradictions, paradoxes, opposites are seen as needing to be avoided. Think! The chaos, the duplication of effort, the confusion — shock, horror. But in the knowledge age, however, new knowledge appears when we reconcile our own unique perspective with those who disagree with us. They claim that “what differentiates Toyota from its rivals is its view of the factory worker as more than a pair of hands on the assembly line. Each is a knowledge worker who accumulates new knowledge through direct experience and interaction with others.

What Toyota is postulating is a new management model fit for industrial production in the knowledge age, where growth depends not only on operational efficiency but also on people and organizational capability. Toyota’s model represents a more human approach to industrial production because it positions humans, not machines, at the center of all things.” (Extreme Toyota, Wiley, 2008). Kaizen is the lean strategy.