Lean isn’t about penny-pinching

In a time of “less is more", thought leaders across organizations are adopting Lean management turnaround processes and principles. A relatively new philosophy for service companies, Lean management refers to a set of practices that maximize customer value by minimizing waste and creating processes that give a long-term, sustainable benefit. Debashis Sarkar’s book, Lessons in Lean Management: 53 Ideas to Transform Services, is timely and covers extensive ground. From a basic explanation of Lean principles and a holistic road map, to building a culture where everyone thinks of process change instead of a one-time solution, making organizations more agile in the bargain.

Sarkar, an authority on Lean management, has held leadership positions in Unilever, Coca-Cola and ICICI Bank. His previous books are Lean for Service Organizations And Offices (2007), 5S for Service Organizations And Offices (2006) and Lessons in Six Sigma (2004).

In a chapter titled “Cost-Cutting Is Not Lean Thinking", Sarkar differentiates between the two and warns against quick fixes. Edited excerpts:

Lessons in Lean Management—53 Ideas to Transform Services: By Debashis Sarkar, WestlandLtd, 289 pages, Rs350.
Lessons in Lean Management—53 Ideas to Transform Services: By Debashis Sarkar, WestlandLtd, 289 pages, Rs350.

For example, imagine a scenario where the travel costs in an organization have gone up almost 200 per cent over their budget. The management panics and decides to do something about it. The top management team meets and takes the following decisions in an effort to arrest the spiralling costs:

u Travel costs of all sales and service managers cut by 50 per cent.

u Travel per-diem allowances of all employees cut by 20 per cent.

u All employees to travel in low cost airlines.

u Anybody who travels more than twice in six months to require approval from a Vice President.

u During tours, employees to travel by public transport and avoid taking taxis/cabs.

What are the results? The costs come down by half but these measures affect business volumes drastically too. By the year end the business volumes also decrease by almost 40 per cent as sales managers substantially reduce travel (given the cost pressures). They virtually stop cold calls, which they had done quite frequently earlier, to acquire new customers. Also, the customer satisfaction levels drop radically. While the quality of products remains the same, the after-sales service deteriorates. Earlier a visit by a service executive to a customer with problems cemented customer loyalty. But with the cost-cutting drive, the number of customer visits drops and this dents the perception of service in the customer’s mind. On top of this, the unilateral policies of the company on travel alienate its employees.

If this organization was actually practising Lean, it would have approached the same problem differently and communicated the cost challenges to everyone. This would have been then followed by brainstorming about what processes contribute towards these escalating costs. Cost-cutting is not Lean management. Whenever costs go up, I would suggest that management should tell their teams to evaluate the process. If your organization is using “activity-based costing", it can only add to this effort. While looking at the activities in the process the teams can use the Table (left).

This entire train of events would undoubtedly have been fairly time-consuming. However, it would have delivered fundamentally long-lasting benefits. Lean is about cost leadership and entails the dissection of processes for performance enhancement. Unlike cost-cutting it is not a one-time exercise but something which has to be revisited at regular intervals. Lean cost efficiency:

u Makes your customer happier (because costs may go down and the benefits could be passed on to them),

u Creates an engine of continual improvement wherein teams meet on a regular basis to question processes,

u Has the positive buy-in of the employees (unlike cost-cutting which is often unilateral or mandated from top),

u Brings about process thinking because whenever costs go up teams look at processes for improvement,

u Gives long-term and sustainable results,

u Increases the competitiveness of business,

u Makes the organization agile and nimble.

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