Lean Bibliography

Deming, W. Edwards. Out of the Crisis. Cambridge, Mass.: MIT Press, 2000.

Among the greatest causes of wastes are variation, poor utilisation of human potential, and managing the organisation without an appreciation of it as a system. Deming’s ideas is widely acknowledged as a major contributor to Japan’s transition to a producer of quality products. (Link to Amazon).

Fujimoto, Takahiro. The Evolution of a Manufacturing System at Toyota. New York: Oxford University Press, 1999.

The word ‘Lean’ is a Western conception, but the idea originated from observing how Toyota’s production system operated. (Link to Amazon).

Goldratt, Eliyahu M., and Jeff Cox. The Goal. Abridged; 3rd Rev. Ed., 20th Anniversary ed. Minneapolis, MN: HighBridge, 2006.

Lean is about removing flow bottlenecks to help smooth the flow of value. There’s no better introduction to the phenomenon of bottlenecks than this novel by the late Goldratt. (Link to Amazon).

Liker, Jeffrey K. The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer. New York: McGraw-Hill, 2004.

Definitive description of Toyota’s principles by a Western author. (Link to Amazon).

Liker, Jeffrey K., and Gary L. Convis. The Toyota Way to Lean Leadership: Achieving and Sustaining Excellence through Leadership Development. New York: McGraw-Hill, 2011.

(Link to Amazon).

Modig, Niklas, and Pa M. This Is Lean: Resolving the Efficiency Paradox. Stockholm: Rheologica, 2012.

Short and engaging introduction to Lean. The opening example of a 500% more efficient health care is memorable. Focused on the tensions between resource availability, resource utilisation, and flow throughput, and how they can be addressed. (Link to Amazon).

Ohno, Taiichi. Toyota Production System: Beyond Large-scale Production. Cambridge, Mass.: Productivity Press, 1988.

(Link to Amazon).

Seddon, John. Freedom from Command & Control: Rethinking Management for Lean Service. New York: Productivity Press, 2005.

Recommended by the authors of “This is Lean”. (Link to Amazon).

Taylor, F. (1911). The principles of scientific management. Mineola, N.Y.: Dover Publications.

Though not directly about Lean, Taylor’s work began the science of scientific management – how to maximise work efficiency by maximising utilisation of resources. Depending on how you interpret maximising resource utilisation, you either end up as lean or as a heavy organisation. (Link to Amazon).

Womack, James P., and Daniel T. Jones. Lean Solutions: How Companies and Customers Can Create Value and Wealth Together. New York, NY: Free Press, 2005.

Lean production is focused on producing goods with a minimum of waste. But what happens after you’ve produced the products?  There is a lot of waste delivering the product’s value to the customer. This book addresses that question. (Link to Amazon).

Womack, James P., and Daniel T. Jones. Lean Thinking: Banish Waste and Create Wealth in Your Corporation. New York: Free Press, 2003.

Popular introduction to the concepts of Lean production. (Link to Amazon).

Womack, J., & Jones, D. (2007). The machine that changed the world: The story of lean production--Toyota's secret weapon in the global car wars that is revolutionizing world industry. New York: Free Press.

The book that introduced the Toyota Production System to the popular business literature. (Link to Amazon).

Woollard, F., & Emiliani, B. (2009). Principles of mass and flow production: Including some notes on British methods of continuous production 1925.

Recommended by the authors of “This is Lean”. (Link to Amazon).

The Keys to Success

Some thoughts on success.

There is not one key to success; there are many.  There are many doors to success.  A problem we have is that neither the doors nor the keys are labelled. We don’t know which keys opens which door. While some keys can open several of the doors, some of the doors require multiple keys. We have to try the keys we have against the doors we find.  If we're lucky, we might open one of the doors.

The key to success is remembering these three rules:

1. Have an iron determination - never be swayed.
2. Be adaptable.
3. Know which of the first two keys is applies to a situation

Success consists of first defining what you mean by success.

If at first you don't succeed, try redefining what success means

Very often, success and happiness do not go hand in hand. The same way that success and good looks don't necessarily come hand in hand. If you achieve success, you achieve success; you don’t necessarily achieve happiness.

Hello there,

Going viral as an example of how NOT to communicate to your employees that more than 12,000 of them are going to be let go, is Stephen Elop's, "Hello there," memo:

http://www.microsoft.com/en-us/news/press/2014/jul14/07-17announcement2.aspx

Prediction: the phrase "pink slip" will be replaced by "'Hello there' memo", as in "They just gave me a 'Hello there' memo!"

Elop is Microsoft's EVP for Devices & Services, and was previously CEO of Nokia.
 

Core Incompetency

Core competencies have been a corporate buzzword ever since Hamel and Prahalad popularised it in "Competing for the Future".  The idea was for organisations to understand themselves, know their strengths, their core competencies, so they can leverage it to advantage (or 'Stick to the knitting' as Peters and Waterman wrote in 'In Search of Excellence')

Perhaps companies can also benefit from understanding their core incompetencies.  Where do they compare badly to their peers?  

The Problem and the Non-Solution

What’s wrong with presentations like the table below?  You’ll find tables like that in many enterprise communications.

Problem	Solution
Customers moving to a competitor’s product.	Increase product information campaign to let customers know the benefits of our product
Employees unhappy about the new salary arrangements.	Provide a channel for employees to voice their concerns.

Let’s ignore the actual problems and solutions as shown – they are just vehicles for this discussion.  The problem with solutions like this is that there is no description of the desired effect that will dissolve (or reduce) the problem.  For problem number 1, what is the intended effect of the solution? Is it to stop the customers from moving to the competitor?

Before a solution to a problem is proposed, we need to first identity the effect we want.  What will the world be like once the (still unknown) solution has been put into effect? For the first problem, perhaps what we want to achieve is a stanching of the flow of customers to the other side.  Next, we ask what is the measure?  How do we measure the effect?  One measure might be the number of customers per month moving to the competitor.  The higher the better. 

By this method, we make it clearer what we want the solution to do.  We make it clear what the mission of the solution is: to stanch the flow of customers to the competitor. 

We can come up with several solutions to this.  For example, we might decide we want to offer additional perks to our products.  Or we might decide to lower our prices.  The next question is: which of these solutions might be the most effective?  That is, which one will more considerably deliver the effect we want?  We can measure solutions by several attributes.  These would include the number of losses it stops, the cost to implement the solution, the length of time required for the solution to be implemented, and so forth.  We decide which solution offers the best bang for buck based on these attributes (using systems analysis).

Only in this way can we show the solid relationship between the problem, the effect desired that dissolves the problem, and the solution that will bring the intended effect.

First Level Requirements

We devise systems to bring about a new, better situation, a better tomorrow. This better tomorrow can be an alleviated problem, a realised vision, or a captured opportunity.

Unfortunately, many systems are built with only a passing familiarity with what the mission is.  Without a rigorous understanding and clarity of what is being sought, the result will be unsatisfactory.  Systems are expensive to build.  They cost money, use up time, extract effort.  We can do things more effectively. How?

First, one must have a clear understanding of the current situation.  What is it that’s causing pain, causing dissatisfaction?  The examples are myriad: foreign aircraft are able to cross our boundaries at will; our payroll system is too slow and making the staff spend too much time using it; our operating costs are too expensive compared to the industry for the same services, and so on.

Then we analyse the situation, and identify what changes need to occur in the problem domain for the problem to be alleviated.  For example, a change might be to have the ability to detect, intercept, and if necessary shoot down unwelcome aircraft; vastly reduced payroll processing time; reduced operating costs by at least 15%.

These changes are what the solution systems needs to ‘effect.’  A solution system that provides the ability to sink ships; run a payroll program on Unix; improve morale do not address the changes required.  They would not exhibit the necessary effects on the problem domain.

Some solutions will be more effective than others. A solution may be able to track 10 planes at a time while another can track 100;  A solution may reduce payroll processing time by 5 hours while another by 1 hour.  A solution may reduce operating costs by 20% and another by 25%.

The difference in their level of effect is the measure of effectiveness. All things equal, we want more effective solutions than less effective solutions.

The changes required on the problem domain map to the effects required from the solution system. 

Impact of the Risky Situation on Present Value

 An investment that is more risky must offer higher returns (if only potential), than safer investments.  If it did not, why would anyone invest in it? 

One impact on the present value is that the the required interest rate will be increased by the ‘risk premium’, which is the additional rate on top of the risk-free rate.  If the risk free rate was for example 2%, and the risky investment offers a risk premium of for example, 8%, then the total interest rate of the investment would be 2% + 8% = 10%.

The simple formula for present value:

CV = PV (1 + i)^t

needs to be adjusted to include the risk premium:

CV = PV (1 + i + rp)^t

Where:

CV = cash value in the future 
PV = cash value in the present (most commonly known as present cash value) 
i = interest rate of a given time period (for example, the interest rate for 1 year) 
rp = risk premium 
t = the number of time periods to consider

Example: What is the present value of an investment that will give us $12,000 one year from now, if the risk-free interest rate was 2% and the risk premium was 8%?

CV = PV (1 + i + rp)^t  12,000 = PV (1 + 0.02 + 0.08)^1  PV = 12,000 / (1.10)  PV = $10,909

What does $10,909 mean?

1. $10,909 today, if invested for one year at the combined risk-free and risk premium rate would return $12,000 in one year.
2. $12,000 one year from now is worth $10,909 today if a comparable investment is available today.

For the sake of comparison, what is the present value of $12,000 -- to be received one year from now -- without the risk premium?

CV = PV (1 + i + rp)^t  12,000 = PV (1 + 0.2 + 0.0)^1  PV = 12,000 / (1.02)  PV = $11,534

Present Value of Future Cash in a Risky Situation

The most basic way of determining the present value of a future cash flow considers only 3 things:

1. How much cash are we talking about?
2. What is the interest rate that you could invest the cash in if you had it today instead of in the future?
3. How long is the future?  1 year?  2 years?

Why would you be receiving that future cash flow anyway?  Sometimes it’s cash that came from you.  Sometimes it’s cash as payment for services you rendered.  Consider the following three scenarios:

1. You put in $10,000 in a term deposit.
2. You lend $10,000 by buying a corporate bond.
3. You provide a service to a company which now owes you $10,000

In each case, the other party has an obligation to pay you back your money.  Is the chance that you will get paid the same?  It’s almost certain you will get your money back from the term deposit.  Even if the bank collapses, the $10,000 is most certainly covered by insurance.

The corporate bond is at risk if the company that issued the bond goes bankrupt.  How likely this is depends on who the company is.  A bond issued by an IBM is less risky than one issued by a smaller startup.

The company who owes you $10,000 may decide not to pay you at all.

Since the risk of not being paid in these scenarios is not different, there are two key things to note:

1. The value of the future cash flow should not be the same. 
2. You would normally want to be compensated for taking more risk.

The most basic means of computing the future cash flow, as outlined above, is not adequate for computing future cash flows that have a certain amount of risk in them.  The formula needs to incorporate the risk factor.

Present Value of Future Cash

 A thousand dollars in your hands today has more value than a thousand dollars promised one year from now. Why?

There's many reasons, but let's consider three.

First, if the cash was in your hands today, you could place it in an interest bearing facility, such as a time deposit.  In one year, that cash will earn additional money for you.  You could not do this with the thousand dollars promised to you 1 year from now.

Second, if you had the money with you today, any opportunity you come across between today and one year from can be acted upon.  If you don't have that money, you will end up not being able seize the opportunity.  Besides opportunities, you could also experience an urgent need for mpmey, as in the case of emergencies.

Third, for a long as the money is not in your hands, you are under the risk of not being paid your money.  In the case of a seller who sold a thousand dollars worth of merchandise to a buyer, should the buyer end up bankrupt, or for some reason unable or unwilling to pay the  money, the seller would be left with a thousand dollar loss.

So a thousand dollars today is worth more than a thousand dollars promised one year from now.  But how much more?

We can answer the question in two ways.  We can figure out how much a thousand dollars today will be worth one year frpm now. Conversely, we can  figure out how much a thousand dollars one year from now, is worth today.

The method of calculation can be as complicated as there are factors to consider, such as the risk of not being paid, the inflation rate, the possible opportunities to be foregone, and so on.  The simplest and most simplistic approach is to just consider the interest rate by which we can deposit the money if we had it in our hands today. This can be computed using the formula:

CV = PV (1 + i)^t

Where:

CV = cash value in the future
PV = cash value in the present (most commonly known as present cash value)
i = interest rate of a given time period (for example, the interest rate for 1 year)
t = the number of time periods to consider