Beyond Lean: Compression Thinking for Finite Resources

Businesses need a new framework to tackle this century's new challenges, says Robert "Doc" Hall, Professor Emeritus at Indiana University, a founding member of the Association for Manufacturing Excellence. In this intervew, Hall says that the old economic models of value don’t work in a world of finite resources.

PEX Network: You've had a long history with Lean: you've been involved with what became known as Lean operations since the 1970's, indeed, you've written a half dozen books on manufacturing excellence and were a founding member of the Association for Manufacturing Excellence. But you now think a profound shift is necessary with regards to how businesses approach the concept of "Waste". Why?

RH: The Association for Manufacturing Excellence was formally incorporated in 1985, but it had a semi-colorful six-year prior history trying to get going. I was one of the persons writing the by-laws and legalities to incorporate, but actually we had a following of some 300 people ready to sign up and get going.

TPS had no formal name as far as I've been able to discover, until Toyota felt compelled to nudge their key suppliers into the system in 1974-75 as a result of the first oil shock. Then they had to call it something, so it was TPS, or Just-in-Time. Toyota leaders then thought that Westerners would see past the shallow name to sense that there was a lot more to it. They also thought that Westerners would not see that it was a people development program. Thirty years later Westerners are just beginning to appreciate both points.

"Lean" was a helpful descriptor. It implied more than just low inventories and delivery as needed. But the financially-minded may still see "lean" merely as cost-cutting. A sadistic few may even construe it as working a skeleton crew to the bone.

TPS originated to maximize the contributions of people to process improvement, and to sustain those contributions after the "system" was in place. There really is no end point. Changing situations require re-thinking all the time. This month's problems are not last month's problems.

TPS originated when Toyota was struggling for financial survival. To do that, the connection to pleasing customers was clear, so increasing output was no good if customers were displeased, and making what no one yet wanted was a real sin -- overproduction. Quality was defined as anything that added to customer satisfaction. Waste was anything that did not. From there it was easy to define waste as any activity that a customer would not pay for if they knew about it. For maximum efficiency, every action, every motion should add to value for the customer. Anything else should be eliminated.

That began over 50 years ago, when Toyota was struggling to compete in a global economic system based on industry (I dub it "Industrial society"). Today, that whole economic system is increasingly a victim of its own success. One Achilles heel of lean thinking is defining waste as anything a customer will not pay for. But the counterpart is that if a customer wants it and will pay for it, waste disappears. Some customers may highly value businesses that the rest of society actually regards as a plague. An example is recreational drug "enterprises."

Beyond that, waste as nature might see it does not depend on customers or suppliers, but only on the consequences of human physical actions. Very few businesses can psychologically stand to question whether, from nature's viewpoint, their whole business model is waste. In a lesser context, this issue also afflicts lean. In principle, everybody wants to eliminate waste -- until they realize that they are making money on it, subconsciously or otherwise.

I've been studying people's reaction to Compression Thinking for over a year now. As a result, I try to explain it in three parts.

1. Case for it: The world is finite, and as we draw on resources of lesser and less concentration, we expend more energy to get them. We simply over-consume in the industrial world. Consequently, the industrial world has to learn to have a better quality of life using much less. (This is very different from the usual lean objective -- better quality at lower cost so we can be more competitive and sell more.) And there's a lot more than this -- so many social and environmental issues that nobody can keep up.

2. Reasoning by which to pragmatically attack the problem. Start from quality and lean thinking, but press it to creating better quality of results for your customers which using a small fraction of the virgin materials and energy to do it. Very tough, but understandable, and it cuts through the complexity in the usual sustainability message, but it is not sugar coated. Tools would be the lean and quality toolkits, but augmented to do much more. One is life cycle analysis, augmented by mass-energy balance. (In effect, look at the total physical consequences of all value streams through a total life cycle.)

3. Re-think business models. Study them based on physical activity first, then regard profitability as just an engineering spec to add to product and process design. (Much of Toyota's advantage the past 20 years or more has not been in production. It's in superior design processes. And today, Hyundai and other OEM's are becoming very competitive with Toyota in these activities. Some of them may be edging toward Compression Thinking, but none, including Toyota, really aggressive about it.

PEX Network: What would a business that operated within these constraints look like?

DH: Well, PortionPac Chemical is a pretty good starter case. I have another one, not yet company approved, Ventana Medical Systems. They make histology equipment mostly for hospital tissue analysis labs, looking usually for cancerous growths. The company R&D strategy is leaner than the factory. Each generation of machine should be smaller and use less reagent. Consequently, sales have increased several fold without expanding the factory for either machines or for reagent. Ventana realizes that the machine and reagents are really only props necessary to enable customers to find cancer faster. Most employees are in the field, charged with making sure that the machines work, and that technicians know how to use them. That is, the value added is in the service, not the machine per se. The sale of each machine is accompanied by technician training.

But that's only a starter. Further out, Ventana would like to spot cancer in a very early stage without using histology, perhaps even before it would show up on a tissue examination. R&D in this area is on a fast track. They hope to make histology obsolete.

There are other examples of companies that have a smattering of the idea. Southwest Airlines is one.

Ultimately, one would like a company to delivery exceptional quality service while using almost zero virgin raw material or energy to do it.

PEX Network: Can existing process improvement methodologies, like Lean, help us get there?

DH: Lean and lean tools are a start. Almost any company I know headed down the "lean & green path" begins with conservation. Shortening travel distances and reducing scrap levels almost automatically reduced both material and energy usage whether the company had any conscious intent of doing so. (Judging various lean prize winners, I've noticed that phenomenon for the past 20 years or so.) But conservation in internal operations is barely a start. To cope with Compression, companies must re-design products, life-cycle usage cycles, and business models. (Suppose that an OEM must take cars or circuit board back, as in Germany. But if they must take them back on a regular use cycle, what is the point of selling them? The implications run very deep.)

PEX Network: You've talked about turning economic fundamentals on its head - transforming an expansionary environment into one of compression. I can almost hear the skeptics out there bristling. Can business as we know it operate within such an environment?

DH: I would not be surprised to be lined up against a wall and shot, especially in Texas. This is like trying to tell a mother that her baby is ugly. If true, she has to conclude that on her own. No external message is apt to cut through the denial.

A big factor in this is fear: Fear of losing control of a company. Fear of going broke. Fear of doing almost anything very differently from in the past. One reason for Compression is to propose countermeasures. Of course, if executives see the end of their world as they know it, but don't know how to start doing anything very differently, they are scared to death. If Compression is to go big time, we have to dispel that fear.

The human side of this change in thinking is probably its most difficult aspect. It's like lean in that regard, except that both the problems and the depth of change needed run much deeper.

PEX Network: At the end of your 1992 book The Soul of the Enterprise, you concluded that the world in the 21st century has no "easy out." Do you still believe that?

DH: Yes. That's the heart of the case for Compression. We are very unlikely to find magic answers in huge, new deposits of energy or materials that can be safely and easily worked. We have to become much smarter and capable than most companies are at present. That is, we need what I call vigorous learning enterprise -- that's learning by people doing the work becoming very observant of their own process, highly skilled and flexible so they can adapt quickly, and capable of seeing a wide range of relevant issues world wide. The key is to think of you and your company as a mere node in a big network or set of processes to be "optimized," not as an entity that the resources of the planet should used to optimize. That's a very different view of a company. (In almost every field, real advance has come from people realizing that they are not the center of a big universe; they are embedded in a number of much larger systems.)