Management And Accounting Web

Johnson, H. T. 2006. Sustainability and "Lean Operations". Cost Management (March/April): 40-45.

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

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This paper follows Johnson's discussion of three models related to how organizations are designed to conduct economic activity. These include the mechanistic model, the self organizing lean system model, and the living system model. Johnson focused on the first two models in the article noted below.1 The purpose of this paper is to focus on the third model, i.e., the living system, and to provide some recommendations related to how firms can use this model to achieve true sustainability.

A key argument is that the most popular definition of sustainability is focused only on the development of the human economic system. Although this view of sustainability recognizes that economic development creates externalities, it includes the assumption that human technology and other types of innovation can be used to remedy any environmental damage to Earth's biosystem. Thus, in this way the development of the human economic system can be sustained. However, this popular view of sustainability is flawed because human technology cannot create a substitute for the Earth's capacity to regenerate the waste caused by the process of life itself. True sustainability is the possibility that all life forms on Earth will flourish forever. This is not the same as sustainable development. The question should not be how technology can be used to offset the damage to the Earth while sustaining economic development, but instead how economic activity can be conducted without damaging the Earth's ability to sustain itself so that all life forms can flourish indefinitely.

How can true sustainability be obtained?

1. Businesses should be designed or redesigned according to the principles of living systems. These principles include the fact that everything that exist is related to everything else that exists; everything that exist is self-organizing; and constant interaction among these self-organizing entities continuously creates more diversity and complexity. Toyota's self organizing lean system discussed in the previous paper is offered as a way to achieve this first step. (See the note below).

2. Use the principles of living systems to make businesses competitive at smaller and smaller scales so that they compete at the local level rather than at the global level. A flaw in the typical business model is the assumption that competitive cost can only be achieved through economies of scale. However a comparison of equally effective and efficient Toyota plants in Kentucky (500,000 units per year) and Australia (90,000 units per year) reveals that it is possible to develop an operating system that can achieve competitive cost at almost any scale. Of course this provides Toyota with an important strategic advantage, but more importantly it provides a solution to the view that endless growth is needed to maintain a competitive position. If all firms were designed using the principles of living systems, a possible consequence would be that no firm would need to grow outside its bioregion. This would tend to reduce inequality in the area of rewards, reduce externalities as they become more visible at the local level, and reduce, if not eliminate the need for financial controls. Using the concept of the living system provides a way to obtain true sustainability.

Additional Note

While reading Johnson's article I was reminded of one aspect of the power of context described in Chapter 5 of The Tipping Point2. In that chapter Gladwell describes a powerful concept he refers to as The Rule of 150 and how it relates to organizational design. I believe The Rule of 150 provides support for Johnson's arguments in this paper. See the summary of The Tipping Point below for more information.

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1 Johnson, H. T. 2006. Lean accounting: To become lean, shed accounting. Cost Management (January/February): 6-17. (Summary). For more see Johnson, H. T. and A. Broms. 2000. Profit Beyond Measure: Extraordinary Results through Attention to Work and People. New York: The Free Press. (Summary).

2 Gladwell, M. 2002. The Tipping Point: How Little Things Can Make a Big Difference. Back Bay Books. (Summary).

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