Lean In the Hands of the Forces of Evil

by BILL WADDELL

In an interesting article from Bloomberg Businessweek, an investment outfit called Monomoy Capital Partners' kaizen hit team approach to obtaining "efficiency" in one of their investment portfolio companies is described in some detail.  At first blush it reads like typical kaizen stuff with typical kaizen results - time from receipt of customer orders at Heat Transfer Products Group (HTPG) is cut from 13 minutes to 3 minutes.  There is something unsettling about the whole thing, however, as you read about the process.

A team of former Toyota employees leads the effort, going from one Monomoy company to another - experts in the techniques but folks who deliberately ignore the whole 'respect for people' pillar ... they understand very well that it has no application in the slash and burn world in which private equity bottom feeders like Monomy operate.  Nowhere does the article mention anyone talking to any of the employees below the team leader level at HTPG to get their input.  The kaizens are conducted by the Monomy hit team and managers from HTPG and other Monomoy companies. Even the Bloomberg Businessweek writer gets to make improvements, but not operators.

The lack of participation from shop floor people is probably related to the fact that Monomoy's results seem to be aimed primarily at getting rid of people - a goal usually tough to get the production people to sign up for.  "In 2010, Monomoy cut 86 workers from HTPG’s payroll in Scottsboro." 

The whole thing is rationalized by: "It’s a bright picture, clouded somewhat by the 150 jobs lost in Arizona when Monomoy closed the Yuma plant. If you add Yuma into the head count, the net loss at HTPG is about 75 people. The partners at Monomoy are not saints, and people are expensive. But if you cut costs through head count alone—and not by improving operations—you have to just pray the economy goes your way. To survive, you cut people. To grow, you cut waste."

Interesting theory, but it misses the whole point of sustainability.  It misses the reason Toyota built the lifetime employment idea into the system, but the Monomoy guys aren't trying to sustain anything.  They are in it to make a quick buck, and if the whole thing goes to hell in a hand cart s few months down the road, that isn't their problem.

"As I walk with Stewart, I notice tape on the floor that reads 'Top brazing cart #1.' It does not contain anything that looks like it might be a brazing cart. I see oil and water on the floor, too. A cart labeled 'closing cart' is a mess. I point these out to Stewart. 'TPS is an ideal state,' he says. 'We’re trying to get from a B-minus, C to a B-plus. We don’t have to hold this long enough to get to Toyota quality to get significant value.' I ask him whether this should worry a potential buyer. HTPG CEO May—and Farrister, a team leader on the line—both seem dedicated to the system. Yet on the plant floor, I can already notice it beginning to slip in places. Investors “aren’t going to look at it like that,” says Stewart. 'They’re looking at financials. They’re looking at 12 months of value.' "

 In other words, who cares if none of this sticks - whoever we sell this to is not going to be smart enough to realize we are selling them levels of performance that cannot be sustained - that we are selling them smoke and mirrors performance? 

Who cares are the people left holding the bag ... people like those at bankrupt Barjan - a Monomy companythey 'turned around' and sold only to have it go belly up less than two years later in a trail of lawsuits and layoffs ... and at Fortis Plastics, a company Monomy has 'improved' and liquidated.

So what's the takeaway from all of this?  For one, reinforcement of the need to involve and commit to people if you want improvement to sustain.  This sort of top down lean aimed at headcount reduction doesn't work, and can't work for any organization in it for the long haul. 

And that just because someone used to work for Toyota and is steeped in their tools does not necessarily mean they are going to do things the way Toyota taught them to

Original: http://idatix.com/manufacturing-leadership/lean-in-hands-forces-evil/

Comments

[JM]

Is it truly "slash-and-burn" if an operation really is excessively overstaffed and inefficient?

If an operation such as a warehouse has not mastered the fundamentals, then it is most likely severally overstaffed due to heavy amounts of process waste, poor layout, poor systems, and no labor management. What if the company simply hired a new warehouse manager that identified the same problems?

Typically you don't need floor associates to identify these type of issues...they are blatantly obvious after spending 5 minutes on the warehouse floor.

HOWEVER...

If a warehouse operation HAS mastered the fundamentals and operates fairly efficiently, then an approach of small incremental improvements, driven by floor employees, makes the most sense.

Slash-and-burn in this type of situation can be disastrous.

[Shrikant Kalegaonkar]

In reading your post I was reminded of people who flip houses. The emphasis is always on making the property look good for the flip. Forget about the rot hidden behind the dry walls. That is the next owner's problem.

This "kaizen" hit team and Monomy's objective appears to be the same - apply lipstick to a pig.

The optimization or profiteering by sub-systems (e.g. Monomy) is done at the expense of the overall system (i.e. society). But, sooner or later the sub-optimization of the overall system impacts everyone - see The Great Recession.

Best regards,

[Mike jones]

Spoken like someone who has never done an honest days work in a real job! There is no way you post this. Did you even read the article? Everything you point out is detailed in the article. Sounds like a case of "publicity envy"

I guess that is why bloggers control replies to their pages.

What company did you actually work at to get your experience?

I happen to have worked with these guys at Toyota and they are the best of the best!

How "evil" is it to call someone else that you have never met "evil"

[Bill Waddell]

Actually Mike, we post all comments unless they contain profanity - even silly ones like yours.

So you "happen to have worked with these guys at Toyota and they are the best of the best"?

Did Toyota teach the 'best of the best' that a B+ is good enough and "We don’t have to hold this long enough to get to Toyota quality to get significant value"?

It would come as news to a lot of people that Toyota's "best of the best" operate on a 'half-assed is good enough to flip the company and make a quick buck' philosophy. And if you think such an approach to lean constitutes the "best of the best" what does that say about your lean philosophy?

[Mike jones]

Did you read the article? That is not what was said. What was said is that during their ownership they are trying to take the company from a C ncompany to a B+.

Given that they only own a company for 3-4 years, it would not practical to try to make the company an A. Also n happens continually, so small steps are how sustainable kaizen is achieved. From a C to a B- seems like a logical first step.

The fact is that you have guys that get to touch a lot of companies and they are at least introducing and starting these companies down the correct path. When you look at the world of private equity firms , that is a huge change in the culture. This is another thing that you should be giving these guys credit for!

Have you reached out to John for a comment? I am sure he would give you his side to the story.

Or are you just interested in bashing people phased on your version of things.

This doesn't boas well for your kaizen mind, since understanding the current situation is essential for kaizen.

[Bill Waddell]

Ah Mike, my naive new reader,

Only in the minds of the private equity world can dumping employees, communities and suppliers; deploying a handful of lean shop floor tools knowing full well most won't sustain (and not caring); then dumping a business in 3-4 years merit a grade of B+ in a lean transformation.

In fact, this does not represent a culture change in private equity, it is a bastardization of the fundamental principles and philosophy of lean to serve the ingrained culture of short term greed that is the well-deserved hallmark of private equity.

Who, other than the private equity firms are the big winners at the end of the day? Not the employees who lost their jobs or the city of Yuma, not the remaining employees or unwitting investors who bought the companies from these guys.

In your previous post you asked about my background ... 5 years of it were wasted doing exactly the same thing your friend is doing for two different prvate equity firms, and it will take me a lifetime to atone for it. I know very well about that which I am writing.

You asked if I read the article. Obviously I did, and I also took the time to look into a few of the companies that were on the receiving and of the Monomoy B+ lean program - Barjan and Fortis. Did you read about them?

[Alex McEncroe]

Bill, would you please expand on your experience with private equity firms trying to implement lean (or a bastardisation thereof) in their portfolio companies?

Is there something inherent in the private equity structure that makes a true lean transformation difficult or unlikely? Do any private equity firms leave a company with a good foundation for building a lean culture?

If I'm not mistaken, didn't some of the leaders from the original Wiremold transformation start a private equity firm?

[Bill Waddell]

Alex,

First, it is admittedly unfair to categorize all private equity in any manner. There are lots of different private equity models with different strategies and approaches. That said, for the most part the goals Mike ascribed to Monomoy are typical – buy a company, hold onto it for 3-4 years, then sell it at a sizeable profit. It is that goal of increasing the value of a company in a very short period of time that is so fundamentally incompatible with lean.

I refer you to my post from July of last year, “Why Lean Is Not A Good Cost Reduction Strategy”:

http://www.evolvingexcellence.com/blog/2011/07/why-lean-is-not-a-cost-reduction-strategy.html

The most common approaches the private equity folks take to creating paper value in the short term are radical cost cutting (the Monomoy approach in the article) or rapidly expanding the target company by piling on debt (the Mitt Romney / Bain Capital approach). Both of these are 180 degrees counter to lean principles.

The tough part of a lean transformation is not the mechanics – the stuff these guys did in their kaizen events. It is building a long term culture of inclusion and full participation in the continuous improvement effort. I suggest you read Mike Rother’s “Toyota Kata”. There is good reason why one of the critical four elements of Toyota’s operational ‘True North’ is 100% employee engagement in the effort. Laying people off, as these guys did, is the polar opposite of working to build that culture.

I am certain the defenders of the effort at this and other private equity firms that purport to use a lean strategy have lots of rationalizations for downsizing. It doesn’t matter. Dowwnsizing is a step away from lean, and makes it that much harder for whoever acquires the company to instill a legitimate lean culture. Employees simply are not going to commit to an improvement strategy that defines improvement as reducing payroll costs no matter how eloquently the private equity guys may argue for its necessity. Kevin has explained it much better than I in his numerous posts about Yahoo and others – no one has ever downsized their way to long term success.

As for Wiremold, I really don’t know what their founders have done since selling the company out to the French. Perhaps they are an exception to the private equity rule.

[Mark Graban]

I just read the article and, while there might be questions about sustainability and the level of staff engagement, there's nothing here I would call "evil." Employees said it is less stressful. Customers are getting faster deliveries. The place is growing sales and is committed to keeping the manufacturing here.

There is plenty of evil in the world, but not in that article.