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How a strong company culture provides a foundation for Lean Manufacturing improvements

Article by Kreg Brown June 19, 2016, 03:02 pm MDT

Many companies know the benefits of Lean manufacturing and other process improvement programs, including decreased costs as a result of enhanced operational performance, elevated quality, and quicker throughput. These outcomes can also lead to faster delivery. A 2012 study performed by researchers at the University of Canterbury on mostly large, U.S,-based international companies, revealed that Six Sigma programs result in an average savings of 1.7 percent of revenues over a period of several years and such strategies can return a cost-to-savings ratio of up to 2.6 to 1. 

But, organizations committed to performance improvements must also be committed to another factor: company culture. Without a great culture and a trust-based work environment companies could be in danger of losing some or all of the benefits of the Lean model. The Toyota Way, by Jeffrey K. Liker, one of the first books written about Lean operations, promotes principles that reflect a strong cultural component. It includes details about the "four Ps": philosophy, process, people & partners, and problem solving -- the idea being that Lean strategies cannot be successfully implemented without a strong culture.

Liker contends that most companies focus too much on process, and not enough on the other three "Ps," which offer such notions as basing management decisions on a long-term philosophy, developing and motivating exceptional people and teams, and becoming a learning organization. Meanwhile, the recent example of Volkswagen activating emission controls in some of their cars points to the possibility of fraud common in highly efficient organizations that lack a solid culture or in this case, values. In fact, a recent Scripps Health study revealed that an improvement in positive regard for a company can result in significant increases in profit (see graph below). On the other end of the spectrum, companies with ill-defined or weak cultures pay a price in "trust taxes," which include redundancy, high turnover, energy-draining office politics, disengaged employees, excess meetings, and wasted time and resources. Such companies are also typically subject to a strong resistance to change. These consequences can lead to significantly reduced profit over time. Like a person, if a company does not continually evolve and get better, it will eventually become irrelevant.

Figure 1: Scripps Health survey finds correlation between positive employee regard and profit.

It starts with values

Just as a person's values are the basis for daily decisions, which ultimately form his or her character, a company's values ultimately form its culture. Based on quantitative measures, companies with strong cultures consistently outperform their peers, and generate more profit. The book, Firms of Endearment, by Rajendra S. Sisodia, David B. Wolfe, and Jagdish N. Sheth, discusses this very phenomenon. Their book explains that companies with high values want to lift up all key stakeholders, including employees, suppliers, and the community. According to the book, these companies have outperformed the S&P 500 index by 15 to 1 over the last 15 years. 

Figure 2: Firms of Endearment (FoEs) show connection between high company values and returns.

It's easy to think of values as something "touchy-feely" that doesn't impact the bottom line, but having a strong values system in place can lead to very concrete results in terms of profitability. Countless high- and low-level decisions must be made every day for a company to grow, and a foundation of solid core values ensures that the best decisions are made more consistently. Developing a strong set of values can have a positive impact whether a company does it to increase revenue, to become known as a "best place to work," or simply because it's the right thing to do.

Time for a culture overhaul?

A company that experiences high turnover in employees and/or customers compared with industry standards is very likely in need of a cultural makeover. Other symptoms may include employees not knowing — or feeling connected to -- the company's purpose, or lacking a sense of cohesion and teamwork with coworkers. Companies in this position might also see sales lag, get a lot of customer service complaints, and have trouble hiring new workers due to a tarnished reputation. Further, an overdependence on metrics as a driving factor for employee behavior may indicate they're being used as a substitute for values.

Developing and maintaining a set of defined company values and a solid corporate culture takes time and work; top-level executives must be willing to commit to the established values, and encourage employees to do the same. No company is perfect, but those willing to move steadily in this direction will eventually find themselves within a fun, high-trust, high-profit environment. Companies that believe the cost and time associated with developing and maintaining a great culture aren't worth it should consider the very high cost of not taking these steps.

How to create culture

Every company has values, though they may not be articulated. The first step in nurturing a strong company culture is recognizing the need for one. Once a company agrees to the underlying philosophy, it's a matter of defining the values of key stakeholders. Examples include:

  • Commitment
  • Customer satisfaction through serving
  • Direct communication
  • Forgiveness
  • Honesty
  • Humility
  • Innovation
  • Integrity
  • Keeping commitments
  • Kindness
  • On-time delivery
  • Patience
  • Reliability
  • Respect
  • Responsibility for one's actions
  • Selflessness
  • Transparency

 Company leaders should gather suggestions from employees and discuss which values are right for their organization. Once these values are defined, leaders should make a point of adhering to them in concrete ways, and employees should be given clear boundaries for acceptable and unacceptable behavior. The values should be woven into meetings, trainings, and strategic discussions about proposed changes. Some companies, like EKS&H, provide actual "trust training" and servant leadership sessions for all employees.

Systemic change in culture could take years to solidify within a company, so leaders and employees must be patient. Employees that stray from expected behavior should be given a chance to modify it, but those unable to do so may need to seek opportunities elsewhere. Company culture should also be considered when an organization is conducting succession planning.

Conclusion

Manufacturing companies that use Lean principles are well on their way to greater efficiency and higher profitability. However, organizations that fail to support those principles with a robust company culture may not be taking full advantage of the Lean philosophy. Manufacturers without strong core values and with low levels of trust are likely to find both leaders and employees working at cross purposes with the Lean model, resulting in smaller profits as a result of "trust taxes." While building a strong company culture is typically neither fast nor easy, companies that invest in themselves in this way can look forward to ever greater levels of success.

Kreg Brown is a Partner at EKSH. Contact him at 303/740-9400 or kbrown@eksh.com.

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