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Womack, J. P. and D. T. Jones. 1994. From lean production to the lean enterprise. Harvard Business Review (March-April): 93-103.

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

JIT and Lean Enterprise Main Page | Lean Accounting Main Page

The purpose of this paper is to describe a new organizational model the authors refer to as the lean enterprise. An important point to grasp at the beginning of this discussion is that the lean enterprise model makes a distinction between a lean company and a lean enterprise. These terms are closely related but the creation of a lean enterprise requires a great deal more than the implementation of the lean production approach.

Lean Company vs. Lean Enterprise

A lean company is one that embraces the lean production approach developed by Toyota, e.g., where unnecessary steps are eliminated, all steps in an activity are aligned in a continuous flow, and labor is organized into cross-functional teams with emphasis on continuous improvement. In the lean enterprise model, a company is part of a value stream that may include many interrelated companies. A value stream links all the companies along the value chain that are involved in creating, selling, and servicing a family of products.

The value stream includes all the activities within each company that are required to design, produce, and deliver a specific product to the customer and service the product after delivery.

A lean enterprise is defined as a group of individuals, functions, and legally separate but operationally synchronized companies. The value stream defines the lean enterprise.

German, American, Japanese and Lean Enterprise Behavioral Models

The German approach is to focus on and hoard deep technological knowledge where individuals advance by climbing the functional ladder. The weakness in this approach is its hostility to cross-functional cooperation.

The American approach has always been to focus on the individual. The weakness is that each individual and company in the value chain seeks to create its own defendable position. But this "every company for itself" attitude prevented companies from working together along the value chain.

The Japanese approach stresses the needs of the company. The strength of their approach is the ability of companies to focus on the needs of the value stream avoiding the conflicts and struggles between members to compete with each other. Their weakness is that the focus on the company and cross-functional teams limits the ability of company engineers to create new knowledge in the technical functions.

Linking lean companies to form a lean enterprise is difficult and requires a new lean behavioral model for individuals, functions, and companies.

The Lean Behavioral Model

Although individuals, functions, and companies have legitimate needs that conflict with those of the value stream, creating a lean enterprise requires a high degree of cooperation across individuals, functions and companies.

Individuals need to accept an alternating career path that focuses on a specific value stream as well as knowledge building within a functional area. Sole allegiance to a function (e.g., engineering, accounting, marketing) is not acceptable behavior. Extreme individualism must be replaced by more cooperative team oriented behavior.

Functions in this new model no longer perform their function, but become support groups for value creating teams. Functions serve as schools that create and summarize knowledge providing guidelines or best practices for how their function (e.g., engineering, purchasing, production) should be performed. Cross-functional product development and production teams perform the functions.

Member companies in a lean enterprise need a new code of behavior that includes an agreement on the principles for verifying and regulating the behavior within the value streams. For example, this might include process audits to make the activities of each company transparent to up-stream and down-stream members. Each value stream needs a team leader represented by a company that organizes and leads the member companies of the lean enterprise. Companies also need to become more focused on a narrower set of tasks that they can perform well, and to participate in several enterprises and a range of value streams involving different products or services.

Lean Enterprise vs. Japanese Keiretsu

Conceptually the lean enterprise and Japanese keiretsu are similar, but different. The Japanese keiretsu structure involves a group of companies that take equity stakes in each other. Participants in a lean enterprise must be free to replace a member company if it fails to follow the established code of behavior.

Strategy for the Lean Enterprise

Successfully implementing the lean enterprise model will mean doing more with less and less. Continuously removing waste and excess will create stress on employees who fear that their jobs will be lost. This clearly conflicts with the need to maintain a lean enterprise culture. Therefore, lean companies need to explore all their options for preserving jobs including lowering prices as cost savings are obtained, and increasing the speed of product development to expand product offerings and create new markets.

The Prize

An economic system dominated by the lean form of business structure will generate more prosperous individuals and companies and could provide the remedy for economic stagnation that is plaguing all advanced economies.

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Baggaley, B. and B. Maskell. 2003. Value stream management for lean companies, Part II. Journal of Cost Management (May/June): 24-30. (Summary).

Cooper, R. 1996. Activity-based management and the lean enterprise. Journal of Cost Management (Winter): 6-14. (Summary).

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