Clever Geek Handbook
11 March 2026

Competitive Value Management

Recommendation

In his book, Hermann J. Stern identifies the weaknesses of traditional market analysis, and financial and strategic planning. He drafts a convincing alternative to budget-based management. His analysis and planning processes are largely well-known but the author subordinates them to one goal: increasing the value of the company. Alongside his explanations, he throws in guest contributions and interviews with renowned finance experts to add insight into the practice of value-based management. He includes case studies in every single chapter to provide – much needed – illustration of the theories and models. BooksInShort finds this demanding yet information-laden book extremely useful for CEOs and directors, and especially for decision makers in the finance and strategy sectors. Why? Simply because it can help you increase the value of your company considerably.

Take-Aways

  • Budget-based planning does not motivate employees toward great performance.
  • You should replace absolute objectives with relative ones. To achieve this, management must reorient itself.
  • Derive forward-looking objectives from the expectations of the financial market.
  • Think like an investor: Compare your company to similar organizations.
  • Incorporate all capital costs when evaluating your company.
  • Closely examining “value added” best reveals the development of market values.
  • The market-value model acts as an acquisition radar: You can identify takeover targets and also assess your own company’s risk of takeover.
  • With the “Stern radar,” you can depict an abundance of figures, and easily compare your company’s performance with that of competitors.
  • This radar makes it possible for you to identify weak points early on – even in highly profitable divisions.
  • The Balanced Scorecard can help implement the findings from the Stern radar.

Summary

Moving from Budgets to Value Management

Today’s companies should heed this motto: “Don’t beat the budget; beat the competition.” However, more than likely, your company also takes part in the yearly ritual of tedious budget negotiations. After all, budgets do not only determine objectives, they often serve as the basis for employee assessment and the incentive system. Nevertheless, with budgets you lose valuable time and inspire employees to only mediocre performance. Furthermore, budgets are not a suitable criterion for performance: What counts is market performance. To increase the market value of your company, you must break the vicious circle of budgeting and look toward the future.

Orientation toward the Market: Observing the Competition

Your main question should be that of any potential investor: Is your company better or worse than comparable companies? Answer this question irrespective of how large your company is or whether it can really finance itself above the equity market. The long-term capital gain matters. Unlike in benchmarking, where you only look at a few competitors, you should compare yourself with a large number of similar companies (peers). Peer companies are those in similar industries or sectors, with comparable business cycles, business models, target markets, suppliers, or purchasing, production and sales processes.

“What is nice about the Stern radar is that it functions with relative benchmarks. We’re not evaluating the absolute change, as the traditional evaluation process does; we’re looking at change relative to peers.”

The “peer universe” marks alternative investment possibilities from an investors’ point of view. Identification requires instinct and intimate industry knowledge. Ideally, the peer universe comprises 60 to 80 companies.

To track down your peers, search electronic databanks, for example those of industry federations, big banks, data providers, market-research institutes or rating companies. Look for test subscriptions before signing up to any services, as the scope and features of each provider differ. For financial analysis, divide your peers into groups and investigate each one individually. For direct competitors, use categorization systems such as Standardized Industrial Classification (SIC) or Global Industry Classification Standard (GICS).

“Every company has peers or competitors with whom they can compare themselves. That sounds obvious but it is denied by most companies.”

Carry out statistical evaluations and trend analyses for all peer companies. When gathering data, focus on the value drivers for growth, margins and resource efficiency. Pay particular attention to these factors:

  • Pretax margin.
  • Growth in turnover.
  • Earnings before interest and taxes (EBIT).
  • Earnings before interest, taxes, depreciation and amortization (EBITDA).
  • Net operating profit after tax (NOPAT).
  • Turnover of invested assets.
  • Net working capital.

Calculating the Value Added

To ascertain the performance of your company or its divisions, don’t compare just your profit-and-loss account with the competition, incorporate all asset costs, too. But watch out: Asset costs are often misinterpreted, and it is easy to overlook the interest on borrowed capital or on net assets. This is dangerous: If investors do not receive an appropriate interest yield, they will take their money elsewhere. Use the widely accepted and easily applicable Capital Asset Pricing Model (CAPM) to determine the capital costs. It allows you to calculate investors’ expected average return, the weighted average costs of capital (WACC).

“From the investors’ point of view only one thing counts: What peer company can earn what return? Because of that, growth rates, margins and the use of the invested capital are just as relevant as trademarks, future products or scale effects.”

Find out how the market might develop by taking a realistic look at the value added (the profit after deduction of capital costs), as opposed to EBIT or EBITDA. At a glance you will learn whether an increasing EBIT is sufficient to cover the capital costs, and intuitively recognize trends as well as changes in the relationship of different variables. Keep the calculation simple:

“The value-added calculation is frequently misunderstood and, hence, done in an overly complicated way. The following rule of thumb is sufficient: value added = profit after deduction of the capital costs.”

Value Added = NOPAT – Capital Costs (invested capital x WACC).

You need to make only a few adjustments to find the true value added: Balance the research and development (R&D) costs around periodic fluctuations, neutralize the marketing expenditure around the build-up of patents or markets, or evaluate one-off costs. Before you carry out these adjustments, check whether the corrections could better represent the actual added value.

Defining Objectives from an Investor’s Perspective

Value-based performance figures such as value added or return on investment (ROI) can help define goals from an investor’s point of view. To do this, determine the market value of your company, which is composed of the operating value and the strategic value (also called future growth value). The strategic value captures investors’ future value expectations derived from their assessment of the management team and its strategy. The operating value conveys the company’s accountancy value based on its current profitability. It shows the operating business’ contribution to market performance. The strategic value lets you forecast the income and profit expectations, and define them as objectives both for the corporation and its separate divisions. This data allows you to see the organization from the outside in, which is a criterion for a top-down approach to strategy and planning. Of course, you can also elicit investors’ profit expectations according to the current market value. For highly diversified companies, the additional benefit of market-value analysis is the ability to compare business divisions to those of peer companies.

Keeping Track of the Acquisition Radar

Market-value analysis can do even more for you: If a company’s strategic value grows faster than its operating value, you can assume potential for success. With this information you can identify takeover targets and also assess your own company’s risk of takeover. Value-based performance measures turn this market-value model into an acquisitions radar. When depicted graphically, it gives considerably more information than the conventional price-earnings or market-to-book ratios. The radar also identifies troughs and turning points which make it a suitable tool for predicting business cycles. You should take the acquisition radar into account half-yearly or yearly.

Early Recognition of Weak Points in Profitable Divisions

The “operative index” can help you interpret value-driving performance figures. You can compare performance figures within a division, across different divisions, or against those of the competition. That way, you can identify the state of your divisions and peer groups, your company’s (and its divisions’) strengths and weaknesses, and its divisions in comparison with the market. You will be able to recognize potentially problematic areas much easier with this index than with traditional performance calculation, especially for highly profitable divisions. For example, you will be able to see straight-off where weakening results stem from: the breaking-away of a share of the turnover? An increase in costs? You can then react accordingly. In that way, the operative index supports top-down strategy and planning. It should also be reviewed half-yearly or yearly.

Stimulating Relative Objectives

Because of its relative reference points, the operative index, as a strategic instrument, paves the way from fixed objectives (i.e., x% increase in turnover) to relative objectives (i.e., x% more return on investment than the market average). These relative objectives are more enduring. You don’t need to renegotiate them every year, and can leave them in place. They encourage top performance more than fixed objectives do. At the same time, they inhibit employees’ potentially harmful strategies of trying to reach fixed objectives at all costs.

“An operative index describes the development of a certain performance metric over a period of time compared to the corresponding values in the peer universe.”

It’s obvious: Management needs to reposition itself to define goals beyond fixed budget targets. A new management culture and organizational structure is in order. However, if your company thinks and plans beyond the budget, it won’t be able to promise quarterly figures to the capital markets. Instead, you should publish the actual figures in a well-structured way, and communicate potential risks and strategic initiatives openly to the public.

“When implementing value-based management, it should not be overlooked that the basis of every approach for accretion is a deep understanding of a company’s actual value drivers.”

Manage your current assets actively. Comprehensive Working Capital Management (WCM) releases liquidity and improves the financial situation. At the same time, the return on capital grows. Together with the supply-chain manager, financial managers should exert direct influence over storage, manufacturing time, and purchasing and handling processes. To have a successful WCM, you need reliable forecasts concerning sales, material requirements and production.

The Helicopter Perspective

You need a tremendous amount of data for competitive value-management framework. To capture all of the value-driving performance figures at a glance, use a star-shaped graph, the “Stern radar,” to plot the change of each considered performance figure: turnover growth, gross margin, EBIT, EBITDA or NOPAT margin, turnover of the net current assets or invested capital – one axis for each performance metric. Use the percentile performance as a measure to show by what percentage the competitor is worse than your company. Show your own status in a different color. Doing this gives you an overview of the position of the whole company (or separate divisions) in relation to the competition. With the aid of several Stern diagrams, you can gauge how the organization’s overall performance has grown – or how a business division over several years, or several business divisions within the same year have fared. The Stern radar is particularly valuable as an early warning system.

Implementing Objectives with the Balanced Scorecard

The Balanced Scorecard is most suited to implementing objectives. This strategic tool is well-known, and you may already have it in place. However, it is crucial to link the Balanced Scorecard to other management instruments, especially those used with value-based management. Specify important influential factors for the acknowledged value drivers and derive performance figures from them. When you link the value-driver concept with the Balanced Scorecard approach, consider, along with financial considerations, customer and process perspectives, and learning and development expectations. The graphical representation can help you recognize causal chains and deduce appropriate target values. Realize that the shareholder-value concept is often too narrow: Customer and employee perspectives actually form the basis for value-based management.

About the Author

Hermann J. Stern is manager of the CFO Intelligence Force Obermatt. The Swiss organization specializes in value and risk analysis for finance experts and decision makers. He received his Ph.D. from the University of St. Gallen, and worked as CFO for a leading telecommunication provider in Switzerland and as financial manager for a computer company. He is author of The Value Cockpit and several other books.

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Competitive Value Management

Book Competitive Value Management

Achieving competitive advantages using a Finance Intelligence Radar

Wiley-VCH,
 


11 March 2026

The Electronic B@zaar

Recommendation

Author Robin Bloor makes it pretty clear: Either get your business involved with the Internet or prepare for your enterprise to die. Bloor’s credentials are fairly impressive. He turned his business, Bloor Research, into a Web business that actually makes a profit, or so it says on the jacket blurb. Bloor is pretty straightforward about the book’s focus: mass media communications history, the current Internet and the World Wide Web’s future potential. This in-depth read (good and gripping, though the writer’s constant use of the @ symbol can be annoying) takes us from Guttenberg all the way to a future filled with smartcards, micropayments and data privacy. The most interesting element is Bloor’s speculation on how future media might affect future political systems - because as the information society gives us more data about political happenings, we might want more control over our governments. BooksInShort finds this stuff pretty interesting, but then we’re already on the Web. Are you?

Take-Aways

  • The author’s Web business is profitable, which is reassuring in these troubled dot-com times.
  • "Adapt or die" should be your mantra in evaluating Internet strategy.
  • The Internet may already be the world’s most dominant medium.
  • Changes in technology will spawn changes in culture and politics.
  • Many Internet companies will crumble during bad times.
  • The Internet is eliminating the ignorant customer.
  • With the Internet, the public knows your product and how much it’s worth.
  • Video bandwidth must become available before the net can mature.
  • Cyberkids, who grow up immersed in the Web, will take it to undreamed of levels.
  • You can try some interesting rearguard tactics if you’re not yet on the web.

Summary

Get Real

The electronic economy is gradually absorbing all of the world’s national economies. In fact, as you examine the modern Internet and ask where it will lead, you may find that your corporation needs to plunge in - if it hasn’t already - and build its own Web sites and computer systems, just to catch up to the marketplace.

“We have been living in an economy that is driven by paper-based information founded on paper money. We are moving to one where the market, money and all its supporting information systems are completely electronic.”

Not being involved in Internet commerce right now is like rearranging the deck chairs on the Titanic. If your business isn’t already involved with the Internet, "Your ship is on a collision course with an iceberg." The Internet has already arrived and the greatest danger to businesspeople is that they are in denial about what is happening. Are you making these ten statements that define Internet denial?

  1. The Internet will not affect my business - Not true. Soon the Internet will pervade every business.
  2. The Internet is over hyped - It is deeply under hyped and its overall effects have just begun to be glimpsed.
  3. We are manufacturers, so we will not be greatly affected - Wrong. The net will force manufacturing to change.
  4. We are not retailers, so we won’t be affected much - Everything is changing and you will be affected.
  5. Only certain retail areas will be affected - Some types of businesses, such as coffee shops and other places where you have to go in person to receive service, will remain unaffected. Everything else will change.
  6. We can take orders online; we have a Web site, so we are an Internet business - Sorry, wrong again. You have to broaden your idea of what to do with the Web.
  7. You have to cannibalize your traditional business to move to the Web and I can’t afford to do that - "Then sell up and get out." Adapt or die.
  8. We don’t have the necessary expertise to run an Internet business - Then attain it at once. Hire some bright kids if necessary.
  9. Some of my market may migrate to the Internet, but not all of it will. I can concentrate on the part that remains in the realm of bricks and mortar - Get real. The Internet could reduce your whole business into a quaint irrelevant niche.
  10. The Internet is just a fad - Dream on.

Growth Factors and a Word of Caution

The remarkable growth of the Internet hinges on several developments. The first one, the "jolly hockey stick curve," is a model of behavior that explains the remarkable growth of the market. Unlike a bell-shaped curve, this model predicts growth even after market maturation.

“Ignorance has died and been laid to rest. The publish-subscribe mechanisms are responsible. As a simple fact, the customer can now know just about everything it is possible to know about a particular product or service. Any business strategy based on keeping information from the customer is now fraught with danger.”

The next factor is "cobra response time." Technical speed established the need for personal computers, but today, if computers operate below a certain threshold of quick efficiency, the user feels unsatisfied. The consumer’s need to traverse the Internet quickly has caused a parallel increase in the need for faster and faster computer speed.

“If you’re not going to monitor the traffic on your Web site, then there is no point in running the Web site. Give up and go home.”

However, the growth might not last forever. The conditions for current success never persist indefinitely and may have already passed by the time you read these words. Some new Internet businesses will be destroyed by the changes to come. But there will be survivors (including Amazon, eBay and Yahoo!) who have built solid foundations. They won’t be greatly damaged as today’s Internet continues to change.

Shrinking Geography

Technology is changing the geography of business. The Internet allows a customer to check prices worldwide. This will lead to some major changes:

  • It will be possible to recruit in a wider area.
  • It will be less expensive to enter new markets.
  • Establishment costs will be reduced.
  • Supply costs will be reduced.
  • The general level of competition will increase.
“Technologies and ideas for automation are being invented all the time, but every now and then a change occurs that suddenly introduces a discontinuous change into the economy. At that point, the force of automation suddenly hits like a sledgehammer.”

One reason why competition will increase is that the customer has never been better informed. The consumer will be better educated and therefore more discriminating. Businesses will also have to become more responsive to their customers. Commercial time will be compressed as the Internet puts everyone into a 24-hour operation, seven days a week.

“From a technology perspective, many large-scale organizations, particularly educational organizations, social services, the legal system and a whole mass of governmental and quasi-governmental institutions are due to be undermined and replaced.”

The Internet will also cause the decline in value of existing assets. Brands, manufacturing plants and other market channels may all become liabilities.

New Kids on the Block

The Web has brought some distinctly new kinds of businesses into existence. These companies don’t have real parallels in the old markets. You can classify them in these categories:

  • Portals
  • Commercial communities
  • Information subscription services
  • Web-casting and narrow-casting
  • Software merchandising
  • Games and recreation
  • Pure advertising
  • Electronic market makers
  • Supply chain enablers
  • Merchandisers
  • Pure e-businesses

Challenges and Defensive Strategies

Company CEOs have to respond to the challenges of the new networked economy. You will need to transform your business so that it has an open information flow and is truly global.

“When a new information technology develops, its use for the purpose of entertainment will eventually become dominant.”

You will also find yourself compelled to:

  • Reevaluate the buy/sell transactions that are critical to your business.
  • Remake your relationship with your customer by finding out more about him or her.
  • Take advantage of lower transaction costs as fast as possible.
  • Formulate a business strategy that can’t be outflanked by new players coming into the market.
  • Become knowledgeable about the possibilities of information technology and find ways to leverage them.
  • Learn to take advantage of the Internet by using partnerships.
“First came the technology to enable the new economy, then came the new economy, and then came the political writers and finally the political earthquake - the monarchies were torn down and replaced in the main by democratic republics. Something similar will happen again, but who can predict the outcome?”

The CEOs of traditional companies might also have to use rearguard actions or defensive postures if their companies haven’t moved quickly enough to understand the net. If you are in that position, take some simple advice: Just Do It. That axiom boils down to taking steps to directly implement Internet involvement, including making sure that everyone in the company who has a computer terminal or PC has access to the Web; ordering all executives to surf the Web on a daily basis; implementing a company intranet; encouraging the use of e-mail for all external communications; insisting that the marketing department use the Web to monitor the competition; setting up a Web site now if you don’t have one and making sure that everyone in purchasing uses the Web to research the pricing of products.

Internet Misconceptions

Just for the record, there are misconceptions about the Internet that have to be challenged. For example: It is not true that Internet businesses do not make a profit. It is not true that everything will be sold directly from the manufacturer. It is not true that the large portals, such as AOL, Yahoo and Lycos are establishing a monopoly on Internet traffic. It is not true that large retailers (or "etailers") such as Amazon have already sewn up whole areas of commerce. It is not true that much of retailing will be reduced to a commodity business where pricing is everything. It is not even true that you need a thorough understanding of computers to build a Web business.

Constraints to Overcome

However, it is true that a number of new technologies must be developed - and some limitations must be overcome - for the Internet to mature. These include:

  • Household availability of video-capable bandwidth.
  • Integration of broadcasting and the Internet.
  • Integration of video and computing.
  • Centralization of databases.
  • General adoption of electronic money.
  • Availability of micromoney.
  • Availability of video-capable bandwidth to mobile devices.
  • Electronic signatures.

What Dreams May Come

New technologies have the ability to bring about great political change. Just as the technology of the printed word pulled down the old power structures of Europe, the publish-subscribe mechanisms of the electronic economy will lead to a new emancipation. "Technology changes bring economic changes, then political changes." These changes will not be easy to predict. Right now, people are subject to government - a monopoly organization - that we pay for and that we receive services from in return. Most of us don’t choose our citizenship any more than we choose our religion. Like religion, our government hands us a number of rules and laws with which we may not wholly agree.

“The electronic bazaar is the rapidly developing electronic economy that is gradually absorbing all of the world’s national economies.”

What would happen if we could choose our political systems? For example, future societies of better-informed people might not tolerate voting just every four years (as in the U.S. today) and may either seek radical changes in the government or create new virtual governments that better serve their needs.

“The Internet will become the dominant news medium with time; indeed it could be argued that it already is.”

In the long run, new Web technologies will undermine the monopoly control of governments. The Web may even transform governments into competitive organizations. What would you be willing to pay for government if you had a choice? Like it or not, revolutionary change is coming. It will probably be brought about by cyberkids, children who grow up immersed in the Internet environment, who will march "down the e-road behind the ghost of Tom Paine."

About the Author

Robin Bloor is the CEO of Bloor Research, a major European IT analysis organization. Bloor is also the author and publisher of a series of industry reports on corporate computer strategy including The Enterprise by Other Means. His Web address is www.TheElectronicBazaar.com

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The Electronic B@zaar

Book The Electronic B@zaar

From the Silk Road to the E-Road

Nicholas Brealey Publishing,
 


11 March 2026

Creating a Lean Culture

Recommendation

Lean production offers the promise of competitive, high-quality, low-cost manufacturing, but operating it successfully requires a lean management system. David Mann, head of lean management and organizational development at Steelcase, an office equipment manufacturer, helps you understand how to implement a simple, effective, proven lean management system. He explains how to take action, leverage a few simple processes and create a culture that will sustain your gains in the long term. Obviously, no system is a panacea, and Mann says you have to spend time every day comparing your actual performance to what you expected from each process. By focusing your management efforts on actively closing those gaps, you can find the right ways to improve your lean production system. The book includes a very useful glossary to help you understand the specialized vocabulary of lean management, and provides charts, forms, pictures and diagrams to aid you in implementing each chapter’s principles. BooksInShort recommends it as a hands-on manual, not a theoretical read. Though Mann targets managers and other leaders, anyone involved in lean manufacturing can benefit from his practical advice.

Take-Aways

  • Many lean conversions fail because organizations don’t implement a lean management system to support the change.
  • A lean management system has a simple structure, but requires daily attention.
  • Constantly update your system to reflect technical changes.
  • Lean management systems have four primary components: “leader standard work,” “visual controls,” a “daily accountability process” and “leadership discipline.”
  • Standardizing leaders’ work makes lean leadership requirements explicit and increases the stability of production.
  • Visual controls, such as charts, help workers see how well they follow lean processes.
  • Brief daily meetings reinforce personal accountability for action and improvement.
  • Leadership discipline is the “fuel” that keeps a lean system running.
  • Lean management centers on taking appropriate action to fix problems. Your actions are also your most powerful tool for teaching lean principles to your team members.
  • A consistent lean management system creates an organizational culture that will sustain high-quality production in the long term.

Summary

“The Missing Link in Lean: The Management System”

Many companies flounder after they convert to lean production. Why? Because they established lean processes, but retained their mass-production management systems. Lean management is crucial to the success of lean production; it both “sustains and extends the gains” from establishing lean procedures.

“The premise of this book is that culture is critical, and to change it, you have to change your management system.”

For best results, implement your lean management system as early in your lean conversion process as possible – preferably before you put the finishing touches on the “physical changes” you’ve implemented to support lean production, such as “new layouts to establish flow.” Lean production and lean management are intertwined; do not change one independently of the other. Any technical modifications must correspond with changes in your management system. If you don’t coordinate your conversion by aligning lean management with your production processes, your system will soon lose its cohesiveness.

The Core of Your Lean Management System

The basic outline of lean management is simple. However, even simple systems require close attention and maintenance. Various elements of lean production systems and lean management systems are interdependent. Every lean management system has four essential ingredients:

1. “Leader Standard Work”

Just as workstation operators successfully accomplish their tasks by employing standardized methods and systems, leaders can standardize important aspects of their work. Standardized controls and processes not only provide a framework for a leader’s workday, they increase the stability of production – for example, by smoothing the transition to a new leader. Standardized work presents “a clearly stated recipe” for leadership, making it easier to evaluate leaders’ effectiveness. It “reduces ambiguity” about leaders’ duties and responsibilities, and specifies “the conditions under which an individual leader’s success is more likely.”

“You do not need a different management system for lean because it is so complex compared to what you have done before. You need it because lean is so different.”

A “standard work form,” such as a task checklist, is an essential tool; as a leader, you should always carry such a document. If you are unable to finish a task in its prescribed order or in the allotted time, note why. Standard work forms suit both action-oriented leaders, who tend to focus on task completion, and creative leaders, who prefer to spend less mental energy on routine duties so they can expend it generating improvement ideas.

2. “Visual Controls”

Visual controls, such as “hour-by-hour production-tracking charts,” make a hefty contribution to your management system. They keep everyone focused on the process and “the human scale of production activity.” Your staffers can compare their actual production results against their expected results and measure other meaningful aspects of their work. Seeing their output quantified in concrete terms helps them understand how well they are following lean processes.

“If you stop following through...because things seem stable and in control, it is certain that you will soon face unstable and out-of-control processes.”

Determine where and how you display your visual controls based on the specific needs of your team members and your management team. Don’t spend too much time making your visuals look good. Using handwritten and even crudely fashioned visuals is fine. Posting the production numbers as soon they become available is more important than perfecting their appearance, which will only delay you. You want to send the message that the information matters, not the presentation. Having the most current, relevant data enables your team to spot the best opportunities for improvement. Uphold the value of visual controls in your lean management system. If you treat them as an afterthought, your team will, too.

3. “A Daily Accountability Process”

Holding brief accountability meetings every day is a great way to concentrate your efforts on active improvement. Whether you are having a production, supervisory or value-stream meeting, focus on what happened yesterday and what you can do today to make things better. Don’t hold accountability meetings to share information of low relevance, or to have long, rambling discussions. That is not the purpose of these “paced, stand-up meetings.” Instead, stick to the information in your visual controls. Interpret their results and create action items for improvement and follow-up. Assign responsibility for the necessary tasks.

“Learn to trust that results will take care of themselves when you take care of the processes.”

Also use your daily accountability meetings to demonstrate important business tools to your leadership team. For example, you could teach the basics of project management to those who don’t know them. Daily personal accountability reinforces every other principle of lean management and production.

4. “Discipline”

Think of your lean management system as a car. Standard work is its “engine,” visual controls are its “transmission” and your daily accountability process represents its “gas pedal and steering wheel.” Discipline is the “fuel” that keeps the vehicle running. Indeed, having the components of your management system in place is not enough; “each has to be scrupulously observed for the system as a whole to work.” Bring a disciplined approach to all your leadership tasks. That means consistently completing standard work, carefully examining visual controls and always adhering to accountability processes. Don’t fall into the trap of letting your discipline flag when things appear to be running smoothly. Without a constant supply of this vital fuel, your processes will grind to a halt.

How to Learn Lean Management

To become a master of lean management, first become a student. Engage a sensei (“master”) who can teach you the fundamental principles of lean and guide you during your initial applications. Taking “gemba,” or “real world,” walks with your sensei will help you see how lean principles apply to your production system. Once you understand these principles in depth, you can become the teacher, instructing those who report to you by taking them on gemba walks.

“Leader standard work provides a structure and routine that helps leaders shift from a sole focus on results to a dual focus on process plus results.”

For the lean methodology to thrive in your organization, it must permeate your culture and earn upper management’s support. Executives benefit from studying under a lean sensei, just like all other employees, and they gain insight from using gemba walking as a learning and teaching tool. “At its most effective, gemba walking cascades down through the organization,” meaning that executives and leaders who learn lean principles can motivate and educate all other workers. Since lean is a way of thinking, helping others adopt this mind-set is a big part of ensuring the success of lean systems.

Leading Lean

Transforming your company from mass production to lean production requires considerable effort. The two systems vary widely, so a conversion requires you to re-educate everyone in the organization, beginning with yourself. As a lean advocate, you are asking people to adopt habits and practices that are the exact opposite of what they are accustomed to doing.

“A lean thinker welcomes...the appearance of interruptions, anomalies and problems in his or her processes as opportunities to understand and eliminate sources of variation and disruption.”

Changing your own behavior is a first step in any lean conversion. Your success as a leader relies on your actions, not on your personality. So that you can model behavior that supports lean processes, you should master the “eight leadership behaviors”: “passion for lean, disciplined adherence to process, project management orientation, lean thinking, ownership, balanced commitment to production and management systems, effective relations with support groups” and awareness of the “tension between applied and technical.” A leader who understands this tension senses the “need to sweat the details, as well as to get things done.”

Rapid Problem Solving and Improvement

Lean management centers on improving your lean production system. Unlike mass-production management systems, which try to “work around [a] problem” to stay on schedule, lean management requires you to dig out a problem’s “root cause.” Sometimes, that means stopping production altogether to investigate the glitch and find a solution. In most situations, however, incremental improvements are the best way to address issues. Categorizing improvements as short-, medium- or long-term projects will help you organize your approach to each type of change.

“It is one thing to set perfection as a goal; it is another thing to put in place the tools that allow you to make progress toward the goal.”

In a lean system, a problem in one area of production can rapidly affect other areas. Put a response system in place that enables you to react to production issues as quickly as possible. However, not all problems have immediate solutions. You may have to implement “short-term countermeasures” that let you maintain production while you analyze an issue. Organizing a support system requires handling the challenging task of “realigning the priorities, and perhaps the measures, of support groups.” To create a real response system, not a hollow idea, you must develop a unified, universally accepted support process.

People and Lean

In a lean production system, every worker counts, and unplanned employee absences can disrupt production. To increase worker accountability, use tools like an “attendance matrix.” This month-at-a-glance matrix employs a color-coding system: Workers who take planned vacation time on a given day are coded “yellow,” those who have temporary assignments in other production areas are coded “blue” and people on medical leave are coded “green.” Workers who call in unscheduled absences are coded “red”; late-comers are coded “half-red.” This matrix “makes attendance visual,” so people will do everything possible to avoid having a red or half-red code next to their name.

“Lean requires much more precision in execution than a batch-and-queue system, so issues that interfere with disciplined adherence to lean processes must be addressed quickly.”

Going lean is likely to require changes in your human resources (HR) policies on topics such as pay, layoffs and discipline. For instance, in a lean system, you need to empower team leaders to implement corrective procedures more quickly. Include your HR team early in the process to earn the members’ support. Human resources personnel who understand the benefits of lean can make your organization’s transition easier and smoother.

Staying Lean in the Long Term

Do not implement a lean management system and expect it to run itself. Your new system will soon deteriorate if you don’t make a direct effort to sustain it through constant attention and the application of fresh energy. Heed these seven principles for “maintaining lean management”:

  1. Routinely follow your prescribed standard work. Ensure your people follow theirs.
  2. Keep an eye on your visual controls; make sure they are accurate and up-to-date.
  3. Hold brief daily accountability meetings to compare actual performance against expected outcomes.
  4. Use gemba walks to teach subordinates about lean processes.
  5. Foster ongoing conversations about the processes your organization uses, and examine areas for improvement.
  6. Focus on fixing processes with the biggest gaps between actual and expected results.
  7. Take steps to avoid burnout and to enjoy your team’s successes and achievements.
“Making accountability easier to see and execute is the objective that underlies lean management’s ways of thinking, its tools and approaches.”

As you saturate your workplace with lean management processes, you’ll create a lean culture that will provide the energy necessary to sustain your efforts in the long term. Live the principles of lean management, so others can follow your example and gain confidence in the system.

About the Author

David Mann has worked at office equipment manufacturer Steelcase since 1987, contributing to more than 30 conversions to lean manufacturing at the firm. He serves in many industry organizations that focus on lean processes and is an adjunct faculty member at Ohio State University’s Fisher College of Business.

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Creating a Lean Culture

Book Creating a Lean Culture

Tools to Sustain Lean Conversions

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