Why lean is not enough

Over the past two decades, companies have been focusing on squeezing more value out of their manufacturing operations. Cleaving the fat, making things lean. This process has, for the most part, been helpful in restoring competitiveness. At least for the short term. Because cutting costs is not enough.

Years ago I remember learning about the difference between competitive and comparative advantage.  Comparative advantage, I came to understand, was based on production costs and places like Asia, with its low labor costs, was a great environment for reducing that element of manufacturing costs. But comparative advantage is difficult, if not impossible, to sustain. Someone will always find cheaper labor costs.

I learned that competitive advantage is based on value. Create more value than anyone else and you can build long-term customers. The problem, however, is that value is not static, but is constantly evolving as customer needs and aspirations change.

What I now understand is that competitive advantage is not based on value itself, but on the speed in which it evolves, that is, the rate of innovation.  Innovating value faster than your competition is the only way to survive and thrive.

Which leads us back to lean. Improved efficiency is indeed important, but it is only one component. For a company to be successful it must also find ways to increase its agility and creativity.  Combined, efficiency, agility and creativity are the three core elements needed for increasing an organization’s rate of innovation.

The question, then, is this. When was the last time you measured your organization on these three dimensions? You should ask your employees. You may be surprised what you learn.

Agile Innovation

It’s no secret that today’s market rewards faster innovation. The Iridium disaster was a painful lesson on how 9 months in technology is an eternity.

Getting to market fast is important, but your product is not always going to be right. Which is why agility is as important as speed. Agile innovation means:

• Getting to market fast
• Evaluate quickly what works and doesn’t
• Coming up with the new version – fast

The software industry provides the model for innovation as we move from the industrial to post-industrial age. The old, closed innovation model (doing it all in-house) is too slow and expensive. Software these days employs:

• Community sourcing
• Agile iteration
• Open innovation (partnering and sharing technologies and methods)

By creating mashups of available enabling technologies, products get to market faster. You no longer own it all, but let’s face it – there’s no alternative anymore.