A System of Management

"Year after year, Toyota has been able to get more out of its people than its competitors have been able to get out of theirs,"^[1] according to Gary Hamel. "It took Detroit more than 20 years to ferret out the radical management principle at the heart of Toyota's capacity for relentless improvement....Only after American carmakers had exhausted every other explanation for Toyota's successan undervalued yen, a docile workforce, Japanese culture, superior automationwere they finally able to admit that Toyota's real advantage was its ability to harness the intellect of 'ordinary' employees."

^[1] "Management Innovation," by Gary Hamel, Harvard Business Review, February, 2006, p. 74.

Lean is a management system that creates engaged, thinking people at every level of the organization and most particularly at the front line. If you implement all of the lean principles save onerespect for peopleyou will reap only a shadow of the potential advantages that lean can bring. If you implement only one principlerespect for peopleyou will position the people in your organization to discover and implement the remaining lean principles.

The Boeing 777

In 1988 Boeing made the rounds of its customers with plans for a new plane, a larger version of the 767 that would carry maybe 350 passengers. But somehow no one at Boeing had really understood what customers were looking for, and the proposed design got a collective yawn. So Boeing found itself designing a brand new airplane, listening carefully to customers this time. Two years later the Boeing 777 design competed with the McDonnell Douglas MD-11 and the Airbus A 330both existing airplanesfor a large order from United Airlines. Boeing won the order, but with two conditions: First, the plane would be delivered certified for extended range operation within five years, and second, since the plane didn't exist yet, Boeing and United would work together to be sure that the airplane would truly meet United's needs.

This was a "bet the company" deal, an incredibly aggressive deadline with fierce penalties for not meeting it, coupled with a once-in-a-decade opportunity to define the next generation aircraft. Alan Mulally was charged with making it happen, and he responded by creating an entirely new management system for the Boeing 777 program. There were those who argued that this was not the time for a new management systemthe old one had worked well for years. But root cause analysis of every problem that delayed the schedule of previous programs led to only one conclusion: Delays were caused because people were not working together, not looking for problems early enough, not paying attention when a problem arose, not communicating with each other promptly or effectively. So Mulally focused his energies on Working Togetheran enormously successful example of organizational teamwork that has been largely credited with the extraordinary success of the Boeing 777 program. He created more than 200 design/build teams with members from design, manufacturing, suppliers, and customer airlineseveryone from pilots to baggage handlers. These teams captured the insight of those who would use the plane while it was being designed. For example, one team discovered that the fuel port on the wing was so high that no United fuel truck could reach it, something that would probably not have been caught until delivery under the former approach to development.^[2]

^[2] Deadline! How Premier Organizations Win the Race Against Time, by Dan Carrison, AMACOM (American Management Association), 2003, Chapter 5.

Mulally urged everyone to "share early and share often," and he insisted on no secrets. Every problem was to be raised with and discussed by the team until a solution emerged. Suppliers worked on the basis of trust, and customers were given an unprecedented insight into the development process and status, as well as a large voice in trade-off decisions.

Mulally preached a "test early and fail fast" philosophy. Testing was moved as early in the development process as possible at all levels. For the first time the entire plane was designed using a 3-D modeling system. 3-D modeling provided a sort of unit test for each part, to be sure it fit and did not interfere with other parts. This resolved a problem that had plagued the early manufacturing stage of all previous models.

Testing was aggressive at every stage of integration. The new Pratt & Whitney engine was considered so well-tested that flight tests could be bypassed. But the collective wisdom of the engineers was biased toward testing it anyway, so at considerable expense, one of the new engines was mounted to a 747 and tested in real flight. The engine backfired badly, and a critical part had to be redesigned. Mulally's reaction was: "Isn't that great! We found the problem early."

We know his reaction because Boeing allowed the Public Broadcasting System (PBS) to film the entire five-year development effort without exercising editorial control. The resulting five hour, publicly available documentary^[3] brings home how Working Together solicited and quickly acted on the ideas of everyonea wing sealer on the production line could get a suggestion implemented in an hour instead of weeks. It showed how a small company in Australia manufacturing the rudder was handed one impossible change after another by Boeing, but working on the basis of trust, they figured out how to deliver the rudder on time.

^[3] 21st Century Jet: The Building of the 777, Produced by Skyscraper Productions for KCTS/Seattle and Chanel 4 London, 1995.

Boeing had to work creatively with the Federal Aviation Administration (FAA) to obtain long-range flight certification before delivery of the plane to United, because twin engine planes were supposed to be tried in actual use for a couple of years before being allowed to fly more than an hour from an airport. Boeing proposed a set of tests so rigorous that pilots and regulators alike were intrigued: Could a brand new plane really pass such a rigorous test regime? The "test early and fail fast" strategy worked. The new plane passed the extensive testing with ease, and was the first twin engine plane to receive "out-of-thebox" long-range certification.

The 777 was Boeing's first fly-by-wire aircraftcontrolled by software and electrical actuators rather than hydraulics and cables. As part of the Working Together program Boeing insisted that everyone use the same software language: Ada. Although suppliers were initially resistant, they came to like the discipline that a strongly typed, object-based language imposed at compile time. The largest part of the software was the Airplane Information Management System developed by Honeywell's Air Transport Systems division. Honeywell used a loosely coupled architecture that allowed the seven main functions to be developed independently by teams of 60100 engineers. In the end, all of the 777 software was delivered and working on time except the passenger phone system.

On June 7, 1995, three Boeing 777s took off on their first commercial flights, meeting the deadline established five years earlier. For more than a decade, Boeing has delivered 777 aircraft at the rapid pace of about 50 per year, and as of this writing it holds orders for another five years of deliveries.

I Worked On the 777

I worked at Honeywell's Air Transport Systems division in Minneapolis at the time the 777 was being developed. We designed the triple redundant inertial navigation systemthe laser gyroscopes that tell an aircraft exactly where it is even in the absence of GPS data. There was a lot of evidence of Boeing's Working Together program. This was before the Internet brought ubiquitous e-mail to the world, so we linked our internal e-mail systems together, which was novel at the time. We used FTP to exchange current versions of documents electronically, and we held status and feedback meetings every week via teleconference.

Those were challenging times for the aircraft industry, which experienced one of its cyclical downturns in the mid 1990s. There were industry-wide layoffs, so many people moved on to do different things. But every time I meet others who worked on the 777, their memory of the experience is uniformly positive.

Tom Poppendieck

Boeing has moved on to the defining program of this decade, the 787 Dreamliner. This program brings another management innovation: an unprecedented degree of collaboration between Boeing and its global partners in the design and development of the aircraft. Boeing has created a worldwide innovation network and directs design challenges to the center of expertise around the world that is best equipped to handle the challenge. The 787 development is supported by far superior electronic collaboration tools than were available to the 777 teams, but it is Boeing's Working Together culture that makes the collaboration work.

W. Edwards Deming

In July of 1950, a US statistician named W. Edwards Deming, who had been to Japan to help with the census a few years earlier, was invited to return and give a series of lectures to some of Japan's most influential industrial leaders. Deming was asked how to change the world's perception that Japan produced inferior products. He responded that production is a "system" that includes the supplier and the customer, and that business leaders should focus on continually improving the overall system. One way to do this is to use statistical process control to build quality into products instead of inspecting it in later. Recordings of Deming's lectures were translated into Japanese, and proceeds from their sale were used by JUSE, the Union of Japanese Scientists and Engineers, to fund the prestigious Deming award.

Deming traveled to Japan several times over the next 15 years, but back home in the United States, he was relatively unknown. Then in 1980 the NBC report "If Japan Can...Why Can't We?" featured Deming chiding US companies for the poor quality of their products. At 80 years old, Deming had finally been discovered by his own country. The TV show aired only once, but it shocked the country and put quality on corporate agendas. Deming was at the forefront of the quality movement in the United States until his death in 1993.

Deming espoused a System of Profound Knowledge that has four main points:

1. Appreciation for a System. Deming taught that the synergy between parts of any system is the key to the overall success of the system. Since he saw production as a system, he emphasized that it is important to manage the relationship between its partsthe relationship between departments in a companythe relationship between suppliers, producers, and customers. Above all, Deming believed that a systems view was fundamental; suboptimizing any part of the system was not in the best interest of the whole.

2. Knowledge about Variation. Deming was appalled at the way in which workers were blamed for problems that were inherent in the system in which they worked. His lectures focused on making sure managers understood that most system variation was what he called common cause variation, that is variation inherent in the system. He did exercises to show that trying to eliminate this variation from the system is not only futile, it just makes things worse. Deming emphasized that the bulk of the causes of low quality and low productivity were inherent in the system and thus, lie beyond the power of the individual worker. Deadlines and slogans do nothing to address systemic problems. What was needed instead, Deming insisted, was leadership in changing the way the system works.

3. Theory of Knowledge. A physicist himself, Deming espoused the scientific method for developing a data-based understanding of the system and making decisions. The steps of the scientific methodhypothesize, experiment, learn, incorporate learninggive us the well-known Deming Cycle ^[4]plan, do, check, act (PDCA). A version of this cycle is found in virtually every quality and process improvement program. For more on this, see Chapter 7.

   ^[4] Deming called this the Shewhart Cycle, since it was originally taught by Walter Shewhart, who developed statistical process control in the Bell Laboratories in the United States during the 1930s.

4. Psychology. Deming admonished managers that numbers don't tell the whole story, and when it comes to people, the things that make a difference are skill, pride, expertise, confidence, and cooperation.

Deming summed up his multidimensional perspective on quality in 14 points for management (see sidebar).

Deming's 14 Points^[5]

1. Provide for the long-range needs of the company; don't focus on shortterm profitability. The goal is to stay in business and provide jobs.

2. The world has changed, and managers need to adopt a new way of thinking. Delays, mistakes, defective workmanship, and poor service are longer acceptable.

3. Quit depending on inspection to find defects, and start building quality into products while they are being built. Use statistical process control.

4. Don't choose suppliers on the basis of low bids alone. Minimize total cost by establishing long-term relationships with suppliers that are based on loyalty and trust.

5. Work continually to improve the system of production and service. Improvement is not a one-time effort; every activity in the system must be continually improved to reduce waste and improve quality.

6. Institute training. Managers should know how to do the job they supervise and be able to train workers. Managers also need training to understand the system of production.

7. Institute leadership. The job of managers is to help people do a better job and remove barriers in the system that keep them from doing their job with pride. The greatest waste in America is failure to use the abilities of people.

8. Drive out fear. People need to feel secure in order to do their job well. There should never be a conflict between doing what is best for the company and meeting the expectations of a person's immediate job.

9. Break down barriers between departments. Create cross-functional teams so everyone can understand each-other's perspective. Do not undermine team cooperation by rewarding individual performance.

10. Stop using slogans, exhortations, and targets. It is the system, not the workers, that creates defects and lowers productivity. Exhortations don't change the system; that is management's responsibility.

11. Eliminate numerical quotas for workers and numerical goals for people in management. (We add: Eliminate arbitrary deadlines for development teams.) This is management by fear. Try leadership.

12. Eliminate barriers that rob the people of their right to pride of workmanship. Stop treating hourly workers like a commodity. Eliminate annual performance ratings for salaried workers.

13. Encourage education and self-improvement for everyone. An educated workforce and management is the key to the future.

14. Take action to accomplish the transformation. A top management team must lead the effort with action, not just support.

W. Edwards Deming

^[5] True to his philosophy of continuous improvement, Deming continually modified the wording of his 14 points. This list is our summary of the 14 points and their discussion, found in Chapter 2 of Out of the Crisis, by W. Edwards Deming, MIT Press, 2000; originally published in 1982.

Alan Mulally created a management system for the 777 straight out of Deming's playbook at a time when many companies throughout the US were discovering the power of Deming's ideas. The design/build teams, the weekly team meetings to expose, discuss, diagnose, and dispose of problems went to the heart of creating pride of workmanship in everyone working on the plane. Although the deadline loomed, it was never allowed to get in the way of doing the right thing.

Deming said that the real purpose of a company was not to make money, it was to create customers who were so pleased that they would continue to buy products. Mulally made sure that the 777 development team was not focusing on hitting deadlines at the lowest possible cost; instead it was to develop a plane that would be efficient to manufacture, cost-effective for airlines to operate, easy for pilots to fly, simple to maintain, and comfortable for the people who flew in it.

Deming emphasized that suppliers should be chosen based on their ability to work closely with the producer to minimize total system costs. Boeing not only followed that principle, it went one step further and maximized system value over a long timeframe. For example, Boeing felt that the parts for the airplane needed to come from around the world, if it expected to sell the plane around the world. Thus, for example, 20 percent of the 777 would be manufactured in Japan, one of the biggest buyers of Boeing's wide body jets.

The innovation in management thinking that Deming brought to the world is this: When things go wrong, the cause is almost always inherent in the system, and therefore it is a management problem. Managers who push harder on people to meet deadlines or reduce defects are ignoring the system problem and will usually make things worse. Instead, leaders must envision and institute fundamental changes that address the systemic causes of current problems.

Why Good Programs Fail

We have seen many corporate initiatives over the years, from the quality programs spawned by Deming (and others) to the lean programs in the early 1990s to the Six Sigma programs that followed. We've noticed that lean is currently making a comeback. We've watched CMM and ISO 9000 as their focus changed from quality improvement to certification. These initiatives started out with the best of intentions, and they made a difference. But after a while their implementations tended to lose the original potency and become bureaucratic. Every one of these initiatives has generated large and sustainable improvements in some companies and mediocre to disappointing results in many others. So why is this?

Gary Hamel suggests that the largest improvements in companies come from a management innovationa marked departure from traditional management principles, processes, practices, or organizational formsthat confers a competitive advantage on the innovative company.^[6] When a management innovation creates a competitive advantage, it is a big one, and it is very difficult to copy, because management innovations are such a marked departure from accepted norms.

^[6] "Management Innovation," by Gary Hamel, Harvard Business Review, February, 2006, p. 74.

But that doesn't keep companies from trying to copy the best practices of a competitor and attempting to mimic their perception of the management innovation. Almost without exception, the fundamental principle of the innovation is overlooked by the mimicking company, because as Gary Hamel says, "Management orthodoxies are often so ingrained in executive thinking that they are nearly invisible and are so devoutly held that they are practically unassailable. The more unconventional the principle underlying a management innovation, the longer it will take competitors to respond. In some cases, the head scratching can go on for decades."

In other words, the central point of a management innovation is invisible to most management teams trying to copy the innovation. For example, many companies have tried to copy lean practices, but they often missed the central point. As Hamel noted, Toyota's real innovation is its ability to harness the intellect of "ordinary" employees. Successful lean initiatives must be based first and foremost on a deep respect for every person in the company, especially those "ordinary" people who make the product or pound out the code.

Do You Think We Want to Steal Your Hangers?^[7]

When Deming was a patient at Sibley Hospital in the early 1990s he called the chief operating officer, Jerry Price, into his room and said, "You don't trust your patients, do you?" Price was puzzled.

"Look in the closet," Deming roared. He shouted a lot, particularly at top management. Price looked in the closet, and it was filled with the coat hangers used in expensive hotels, the hangers that have little balls that must be fitted into tiny holes.

"How would you like to be 92 years old and sick and you couldn't even hang up your clothes?" Deming demanded. "Do you think your patients want to steal your coat hangers?"

Deming sent the hospital a $25,000 check with instructions to buy new coat hangers for all the patients' rooms.

Price did so, had a number of them sanded down, and had Deming sign them. Today, the quality awards at Sibley are sturdy wooden hangers with hooks and Deming's signature mounted in a frame.

Clare Crawford-Mason
Producer of the 1980 NBC report "If Japan Can…Why Can't We?"

^[7] Special to The Washington Post, by Clare Crawford-Mason Tuesday, April 23, 2002, p. HE01, used with permission.

Consider the kind of messages that your policies and practices telegraph to the "ordinary" people in your company and to your suppliers. Do you trust your employees, or do you have locked stock rooms? Do you say that quality is important but only look at deadlines? Do you ask people to work in teams but then rank them against each other or base bonuses on individual performance? Do you talk about trust with suppliers, but insist on fixed price contracts? If you do these things, you are missing the central point of lean thinking: respect for people.