A comprehensive guide to Lean Six Sigma

Lean, Psychology, Culture and Accounts — How they link and why it matters.

There is no doubt, that in the right hands, ‘Lean’ works! and makes companies and organisations incredibly profitable. If you listen to those who promote World Class, Lean, Lean Six Sigma, TOC or operational excellence, these benefits are there for the taking!

But not everyone is hugely profitable and ‘Lean’ so what goes wrong?

Following some 35 years+ of application experience under the influence of a Western management mindset (from Quality Circles to TQM to Lean and whatever next brand will be applied to the principle of using a set format, to improve organisations), the success rate of lean six sigma and other related change initiatives are justifiably considered dubious regards sustainability.

To understand why ‘Change’ fails culturally, the subject has to expand into other seemingly detached disciplines. Creating ‘sustainable systemic change’ automatically includes psychology, philosophy and theology; whether we like it, know it, or not!

Most bury their heads in the sand to this fact and soldier on with a tools and techniques or Strategy approach, keeping their comfort zones consistent — let’s face it, in the world of ‘Lean application’ where we apply tools and techniques and / or strategy, it’s “Just the way we do things around here”.

If this were sufficient, the question mark hanging over sustainability wouldn’t be there! But it is, so ignoring the bigger issues we face as humans’ trying to navigate change obviously doesn’t work!

When the issues ‘Lean application’ faces as a system are considered in relation to these esoteric subjects, multiple and often disparate systems can be considered as a whole.

This article is aimed at anyone involved in a process of ‘Change’ in any organisation who wants to make those changes stick;

Introduction

Lean has been implemented from an entirely logical perspective for around 35 years seeing multiple re-branding activities, largely at the hands of consultants.

A new ‘brand’ has been applied to a largely unchanged product each time industry recognised that the TPS replica-d’jour failed to produce the results that were generically expected.

This system of change, (lean six sigma) as we currently know it had a few additional tools included through each iteration, some of which have achieved an independent status, like TOC from Pareto and 6Sigma from Standard Deviation and SPC.

The critical issue however, in the form of an ‘emotional’ (Right brain — psychologically aware) element working in harmony with the ‘logic only’ (left-brain) system, has been largely overlooked regardless of brand or real need in the market.

It is due to the ‘Logic only’ western approach, with roots in an Aristotelian influenced culture (spanning 1000’s of years) that the system has struggled to achieve its own expectations and has been regularly re-branded with little real change.

If what you’re selling is seen to be 75% snake-oil, isn’t it the logical thing to do? Rebrand it, and sell it as something new! (Especially when you can be confident that the ‘market’ won’t overtly state that what you’re selling won’t work, through FEAR of rejection and issues related to the concept of cognitive dissonance).

It’s ‘The Emperor’s new clothes’ on a worldwide basis!

That statement made, there is no doubt that ‘Lean’ as we know it today WORKS! But, it only works well in the minority of cases (based on my own experience of the market around Europe for 15 years and supported by various studies).

It is ‘marketed’ as being a success, there are accounting figures that show a ‘success on paper’, but the impact on people is sometimes nothing short of destructive. Over time performance can be detrimentally affected by the attitudes the ‘change’ program provokes, witnessing a distinct lack of sustainability of the initially ‘claimed’ success.

By a process of elimination, that must (logically) suggest the large majority are missing a key ingredient? That ingredient is the recognition of people (by leadership), the emotions in those people and just how much this ‘right brain’ consideration detrimentally impacts the effectiveness of any ‘Change’ program when overlooked.

You might think that ‘logically’ people couldn’t possibly be overlooked as they are integral to the system, but with an accounts driven system that CAN NOT conceive emotion, over-looking ‘Culture’ and the psychological aspects of it, is surprisingly abundant in the great majority of change implementation projects.

Quality Circles, TQM, JIT, World Class, Lean, Agile, operational Excellence! Regardless of ‘Brand’ the western world has consistently perceived this ‘applied methodology for Change’ through a ‘logical’ left-brain, assumption based mindset. This is in large part rooted in our need to satisfy what is tantamount to a belief system in industry. i.e. an accounting system. Boards of Directors influenced by Accountants have identified to them the ‘Tools’ out of the system will give the best ROI and approve the implementation as a task for the management team, blissfully unaware that the tools only work when;

1. The attitudes of ALL the people are right toward them.
2. When they are applied as a system, &
3. Leadership is aware of ‘people’ issues (i.e. tools are systemically applied with an emotional right brain balance and not in logical pockets).

Most importantly ‘Lean’ when applied in the atypical ‘tools and techniques / strategy’ based, logical way, becomes only part of a system, ‘detached’ from people (emotionally) and ‘detached’ from the batch based throughput accounting system (logically).

In addition, the people are typically detached from the accounting system in their daily responsibilities, providing all individuals in any organisation a number of ‘priorities’ directly or indirectly pushing them to satisfy conflicting interests — i.e. Logical (standard) accounting measures — do not support — Lean initiatives — or — emotional common sense — which do not support — standard accounting measures — we often hear of people ‘Juggling’ to keep up, ‘Spinning plates’ or trying to find a balance.

When Lean Six Sigma (TPS) was originally introduced as ‘Quality Circles’ in the mid to late 1970’s, it was described as a ‘Philosophy’, which considered logical intelligence, tacit and intuitive knowledge and emotional intelligence; of course this didn’t sit well with the mindset of the day. The incapacity to accept TPS as it was, [a balance between logic and emotion], led to the re-branding of the system to suit the level of cultural acceptance the western world could muster, which inevitably led to a distinct move away from any degree of ‘emotional intelligence’.

If we pick out some of the words used in the above text, we find Fear, emotion, perceptions, people, change, mindset, our need to satisfy, beliefs, attitudes, system, responsibility, philosophy — you may notice NONE of these issues can be ‘accounted’ for ‘logically’ but all have a direct correlation to the psychological considerations we must face in any ‘Lean’ implementation program, regards the performance of people.

Originally, Lean Six Sigma (TPS) promoted the importance of a ‘No Blame culture’ in a change program — this consideration has lost momentum through generic ignorance of how we use blame psychologically. We also respond automatically to those around us with defence mechanisms rooted in fear and guilt, via issues established through imprinting phases from childhood. These are all issues we must consider when looking to use targets and measures to change behaviours and people regards the comfort zones they build within their particular environments.

However, these issues are MORE important relative to the degree of control people can exercise over themselves, their performance, their levels of responsibility and their environment, which in turn enables people to establish a self-concept that enables performance detached from inherited (imprinted) fear.

It is here we find the link that I propose exists, between psychology, accounting and Lean manufacturing tools.

Lean fundamentally requires self-discipline (an internal locus of control) and responsibility (a mature self-concept) as an intuitive element in the people interacting with Lean as a system, such that the system can subsequently provide ‘Control’ for the people in the environment in which these people exist — it is a ‘reciprocal relationship’ in which the ‘Lean system’ is inert until activated by the interaction with people, reflecting the attributes of those people.

We might say, Lean, accounting or any organisational system is a mirror, held up to reflect the attributes and virtues of those interacting with it.

The ‘energy’ the Lean system taps into, is, how people are ‘Being’ in and of themselves and in their relationships with others. Standards, morals and virtues all play a part in how people are ‘being’.

Fundamentally people ‘ARE’ who and how they are relative to their beliefs, and the belief in industry is standard accounting practice, which, through its inherent need to make assumption is not timely enough to provide control; assumptions actually remove psychological perceptions of control in the form of budgets and forecasts (among many other things that are ‘assumed’ & temporally detached from real time events).

These detached measures, based on fiscal ‘logic only’ ultimately drive behaviours that will interact with attitudes and subsequently the performance of individuals and the organisation.

In Lean implementations, unless challenged from a temporal and people perspective, standard accounting practice sets measures that drive fear and blame based defence mechanisms, unconsciously undermining an ‘ability to exercise control’ at an individual level. This subsequently undermines the performance of the organisation, for which accounting practice sets the measures, initially, to gain control.

Please feel free to consider this a paradox, a dichotomy or a bloody mess! And the reason why a philosophical and psychological perspective is required.

By taking control [through standard accounting practice] we ultimately lose control, and generate a blame culture in which people psychologically behave in such a way that they can protect themselves from the dangers of not meeting the targets set. (This is rarely achieved by meeting the targets!)

By giving control, and developing a mature perspective regards responsibility, blame and the use of Fear and Guilt, we gain control.

This is a psychological and fundamental change in leadership mindset that requires trust in people, effective communications, and relationships that transcend measurement. Realising in practice, a no blame culture, such that communities develop within organisations with a psychological awareness that ultimately changes the way people are being toward themselves [self concept / locus of control / self betrayal / resistance etc.] and toward others around them [what I’ve previously termed ‘Bursting their bubble’].

This is the first stage of any program of Change; when this level of ‘being’ Lean in mindset and vision is addressed (and only then) should we concern ourselves with strategies, tools and techniques.”

Practical common sense.

Through experience, we eventually come to realise that Logic and language have their limitations. Logic and language cannot, and do not, consistently transfer meaning or understanding between humans, largely due to both practices being routed predominantly through [what is today commonly referred to as] the ‘Left Brain’.

To adequately transfer a degree of meaning, a balance of left and right brain stimulus is required, as has been recognised through relatively recent discoveries regards multiple intelligences, accelerated learning and FMRI scanning.

Subtle variations…

“Subtle variations in the logical translation of meaning and understanding between humans regularly provoke exponential differences to outcomes over time”. Qualifying the old phrase ‘A little knowledge can be a very dangerous thing’.

This principle of ‘misinterpretation impact over time’ is valid for any organisational change, whether the pursuit of a new ERP system, an Environmental policy from government, NHS I.T. systems or Lean-6S improvements.

This can readily be demonstrated with some simple examples.

E.g.1. the word Kaizen 改 善: We all know and accept that this means ‘Continuous Improvement’, but, we might suggest an alternative translation. ‘On-Going Goodness’.

From Wikipedia we find;

The original kanji characters for this word are: 改 善. In Japanese this is pronounced “kaizen”. 改 (“kai”) means “change” or “the action to correct”. 善 (“zen”) means “good”.

In Korean this is pronounced “ge sun” 改善 (“ge sun”) means “improvement” or “change for the better” In Chinese this is pronounced “gai shan”: 改善 (“gǎi shàn”)

means “change for the better” or “improve”. 改 (“gǎi”) means “change” or “the action to correct”. 善 (“shàn”) means “good” or “benefit”.

“Benefit” is more related to the Taoist or Buddhist philosophy, which gives the definition as the action that ‘benefits’ the society but not one particular individual

(i.e., multilateral improvement). In other words, one cannot benefit at another’s expense.

The quality of benefit that is involved here should be sustained forever, in other words the “shan” is an act that truly benefits others.

At first glance the two terms ‘Continuous Improvement’ and ‘On-Going Goodness’ may seem similar and many (left brain) logical arguments could, I’m sure, be presented to prove they fundamentally allude to the same end.

However the first fails to address the philosophical definition of ‘Good’, where the second directly addresses the perception of ‘good’ (relative to its continuation once definition is established [by individual or group]).

The failure to consider what is ‘Good’ has provided us with approx. 35years of Lean implementation that has largely proven to be unsustainable in the West, ignoring as it does, culture, comprising moral standards, virtues, ethics and attitudes toward responsibility.

E.G.2.

We can also demonstrate the shortcomings of language, regards ‘misinterpretation impact over time’ if we consider the term ‘Human Being’ [Singular].

We have historically referred to the plural as ‘human beings’. However the subject in the term is ‘human’, so the plural would more accurately be ‘Humans being’.

The second option may prompt us to question, what, when, where why or how are Humans being? When we elaborate on this, we might ask; how are humans being toward each other? A question that would possibly never be provoked from the use of the term human beings.

Combining these two subtle changes to language, we might ask “Are humans being good?” (Good in relation to taking responsibility for making ‘Lean’ improvements within an individual’s span of control within their organisation).

These examples tend to support the age old adage

“Whatever is impressed is expressed”.

i.e. If people are not being ‘good’ toward the system and / or each other, this will necessarily be an expression of what is impressed upon them.

Looking to substantiate this wisdom regards impressions and time-delay, we might consider the differences witnessed over time from historical examples that had a larger impact on change.

Jean Jacque Rousseau, 1712–1778 (French author of the social contract) was originally thought to be of much the same philosophical opinion as John Locke 1632- 1704 (English influencer of Hume and Kant).

However, over time students of both philosophers displayed some marked differences, to say the least, i.e. Churchill followed Locke while Hitler followed Rousseau.

The small differences impressed upon these respective followers, were expressed in wholly different ‘attitudes’ relative to the translation of what was ‘Good’ in their own realities.

i.e. the impressions Rousseau made, were expressed in Hitler.

From this it could be stated….

“Subtle variations in the logical translation of ‘meaning’ can have a huge impact on the way we are ‘being’ in ourselves and toward each other over time.”

Another principle to consider in relation to any ‘Change’ inclusive of ‘Humans Being’ is that of the fundamental physical and emotional needs we all share and the link between the two, that makes experience and our immediate environments so important.

In Space flight, storage volume and weight limitations are valuable resource issues to consider and calculate in detail. Considering these priority criteria, logic initially concluded that astronauts must be provided with a balanced and fully nutritional diet that is as light and small as possible.

A reasonable conclusion given the ‘measures’! (The Logic).

However, in practice it soon became clear that the consumption of (fully nutritional) liquid food had a detrimental impact on the astronauts. Psychologically, regardless of intellect or training, they needed to ‘Chew’.

This is just one example of the link between experiential imprints and muscle memory triggers that help us, if not ‘Force us’ to keep our reality consistent with previous experience — and how logical measures cannot always ‘account’ for the human requirements within systems.

This human ‘need’ to ensure our experiences are consistent with past experience (to confirm our perceived comfort zones) leads me to quote another old saying.

Congruence leads to confidence

(NB; regardless of how damaging our environment we can still perceive ‘comfort’ from consistency — witnessed in the tendency for abused individuals to return to their abuser).

In business however, a lack of congruence between our present and past experience (emotional linked to physical), leads to various degrees of psychological disquiet and disturbance — i.e. negative emotion and action in the forms of stress, anger, procrastination, despondency, a lack of confidence, fear, guilt etc.

Just remember how you felt the last time your partner had moved the seat, mirrors, heater and radio station in your car and left it nearly out of fuel on a Sunday, apparently knowing you had to leave for work at 04:30 the next morning!

In the moment you physically experience the difference, (Nose up against the windscreen, chest on the steering wheel) your emotions are triggered!

Which emotions you experience from this physical trigger are largely due to how you are automatically ‘being’ toward your partner — if they are ‘cute and adorable for their little idiosyncrasies’ or an ‘inconvenience you have to tolerate’?

Issues of ‘attitude’ and ‘confidence’ (psychological stability, i.e. a lack of negative emotion), in this sense, can be found in any world class performance, be it a factory or a ballet. When these issues are addressed in a factory, huge improvements and subsequently huge profits can be realised, without these issues being forefront in management mindset, a lot of time to failure constitutes the ‘wastes’ the systems are built upon i.e. Rework, over-processing and delay.

Taking ballet as a further example of the human element we must consider in organisational change; if and when pre-show nerves are taking their toll, professional ballerinas will often go back to practising the most basic of moves (that you might think they would take for granted at their level of ability).

In doing so they trigger fundamental ‘muscle memory’ giving them a root cause ‘impression’ such that they can reestablish their base knowledge and regain the confidence to ‘express’ their talent in the most complex of moves.

In business, we work with incredibly complex systems that often require we look at the most basic of issues. In most cases, the most basic issue overlooked is ‘Do the various systems within the business align and complement each other for all involved?’

However, in today’s ‘fast-track’ culture, these ‘fundamental issues’ are often ignored as we take them for granted or have insufficient time resource to address them adequately — especially when these basic issues do not satisfy the ‘Logical’ (From Eastern Theology — the Yin / Male) application of a new system not understood to question the various and previously existing systems.

Control — neural programming

As humans, we emotionally, [psychologically] and physically need to take responsibility and control over ourselves and our environments [to avoid resisting others through blame and justification from assumption].

We must be aware of what is making an ‘impression’ upon us (emotionally and physically) as we will inevitably ‘express’ this over time based on our own translation of that impression (relative to morals, virtues, ethics and what w are progr e ammed [imprinted] to conceive as ‘good’).

Here ‘Programming’ is worth consideration regards the workings of the mind. A quick overview of brain structure and psychological imprinting will suffice.

From conception to birth our brain forms in 3 stages, the basic programs forming first (reptilian brain) higher level processing capabilities occur in the next level (mammalian brain) and the higher intellect functions in the 3rd and last part of the brain to form (Neo-Cortex — ‘New brain’), reserved for cetaceans (Humans, Whales, Dolphins).

We might think of these three areas of the brain as learning versions of MS-DOS, Windows and Office, where;

MS-DOS is the fundamental ‘language’ [Psychologically this is simply degrees of abundance, or, lack, of ‘Love and Fear’],

Windows is the ‘operating system’ i.e. how we respond to inputs (impressions) and

MS-Office is our conscious (logical) thought process.

Together they are much more than this of course, being combined as a whole and more like a laboratory, experimenting, testing, logging results for reference and ‘learning’ together — they are a mutually beneficial and wholly interactive system.

Each of these interactive bio-PC’s when working as a whole are programmed by experiential imprints throughout childhood to the end of adolescence and of course, to a lesser extent, in adulthood.

The major differences being the frequency of brainwave patterns that enable a far greater capacity for learning from experience in the formative years (as it is said in the bible — give me the boy until he is seven and I’ll show you the man).

And, unlike a silicone based computer, we ‘Learn’ and establish neural pathways (Neural nets), that could be considered akin to a path in an over-grown forest, the more we use certain parts of our brain (the more we walk the same path through the forest) and the stronger the stimulus (experiential triggers to ‘multiple’ intelligences) the clearer the (forest) neural pathway becomes to walk again, just as in a forest, the regularly trodden track becomes clear.

This happens physically (dendritic neuron and axon ‘branch’ formations) and holistically (through imagination) in our brains as far as science can tell today. In essence, it is the formation of new pathways, through repetitive experience, from which we form ‘Habits’ (including automatic reactions — just think if the shadow board in a 5S system — it provokes repetitive behaviours that become habitual tidiness).

i.e. the more we experience something, the easier it is to experience it again (and experience our reaction to it in the same way), providing us with ‘Confidence’ through Congruence — we literally FORM a new (neural) reality we can be comfortable with, through experiential understanding.

The concept of visual management from the Lean Six Sigma tool box ticks many of these fundamental experiential repetition triggers, but they take a heightened degree of self-discipline. And let’s face it, it ‘Easier’ to do what you’ve always done, as that’s already a ‘strong’ habit (neurologically), so we overtly oppose the application of methods that will challenge our comfort zones — i.e. we ridicule 5S, denigrating it to a ‘Clean desk policy’ and totally missing the reasoning and psychology inherent to it as a ‘Lean tool’.

These phases of ‘programming’ (imprinting) in childhood are known as the biosurvival, emotional territorial, Semantic and Socio-sexual phases and in the last, i.e. during adolescence, these imprints make us part of the culture and generation we experience — we all have much stronger imprints from musical stimulus during our socio-sexual awakening and imprinting phase.

Basically we are emotionally stimulated more by music that was popular in our environment when our bodies and brains first experienced the notion and or experience of sex — purely because it is such a strong and multi-faceted method of stimulus, provoking serotonin, dopamine and adrenaline release in conjunction with smells, sounds, physical movement and touch — we have no choice but to be imprinted strongly during this phase of our development. In my mind this tends to support some age old philosophical and psychological wisdom;

I hear, I forget

I see, I remember

I do, I understand

These self-same principles apply to Lean Six Sigma and ‘Change’ generally, relative to the ‘measures’ we are exposed to, set by standard accounting practice.

i.e. Our behaviours in business are an expression of what we are impressed by, and the ‘belief’ in standard accounting practice is so strong and so integral to our batch manufacturing based model of constant economical growth, the measures logically delivered, make that impression, supported by the structure and physical experience of our environments — we’ve always had large stock holding areas, so we will always have large stock holding areas tying up cash! I’ve even had some Directors tell me, “we’re comfortable with that!”

Impressions, of course, are not limited to the measures we experience at the hand of standard accounting practice or by the conditions of our environment. We can be impressed (Imprinted neurologically) by the type of leader or manager we experience when we first start work or relative to the validity of the data we use [or, as in standard accounting practice, what is assumed in the form of budgets, sales forecasts or recoveries].

Self-Discipline or Self-Defence?

I consider it necessary to highlight the difference between the psychology of Lean Six Sigma principles in practice and business as usual;

Visual management is experiential, environmentally, locally, interactive and repetitive. Accounting practice is …….well, not!

Standard accounting practice is detached practically and temporally, yet sets the measures the practical environment has to attain. Lean forms habits through self discipline (which requires people ‘care to understand’), whereas imposing measures often contradicts common sense and drives non-beneficial behaviours in self-defence (requiring only ignorance and an ‘over-the-wall’, ‘not-my-problem’ attitude).

I hope I am starting to establish that, due to the way our brains function, we react best to facts understood through experience and this is where we find a disconnect in business and the connection in people; left brain logic and right brain emotion, are both used by ‘humans being’, to strike a balance, and understand a new experience based on past experience, when ‘understanding through doing’.

The confusion between logic and emotion in business may be demonstrated with the following example;

I happen to be a Princes Trust Business Mentor, and during my training for this it was explained that helping often underprivileged youngsters to pursue a better future, in some cases runs up against barriers one might not immediately consider. This is simply that due to past experience it is often hard for these young adults to trust their mentors, as they cannot understand just why anyone would want to help them, especially as a volunteer — they literally can’t answer the question “What’s in it for them?”

This is a self defence mechanism and reflects a pattern of doubt we have all experienced in times of ‘Change’. Implementing a new system, i.e. being exposed to new events in life, including a volunteer who genuinely want’s to help for no reward other than the satisfaction of helping another human being, provokes the same emotional (right-brain) reaction in all individuals, just to greater and lesser extents based on previous experience and personal degrees of ‘Comfort’ with perpetual change.

The same resisting nature can be seen between organisational systems and functions that are predominantly logical or emotional. Although even the ‘personnel department’ has been re-branded to become ‘Human resources’ moving the whole issue of dealing with ‘people’ further toward a ‘logic only’ left-brain approach, as if a wage bill is a cost to be reduced, rather than a revenue generating, ideas generating investment! So the ‘emotional systems’ in any organisation are rare if they exist at all today and as such are predominantly left to the staff themselves to organise, where the real relationships are formed and they actually exchange emotions as part of their existence.

The Disconnect

Current accounting practice projects assumptions a year ahead, or under the guise of ‘strategy’ three to five years ahead. It is from this practice we fail to consider our fundamental psychological needs when using standard accounting methods.

Any temporal disconnect from actual events, detaches us from our in-built capabilities to truly grasp a degree of ‘understanding’ (to feel in control). In this environment, managers have to guess, report on those guesses, have degrees of ‘blame’ apportioned to them and so have to ‘justify’ the variance between the guess and reality, then project plan (based on more guesses) to ‘prove’ they are in ‘control’ due to the pressure and stress leveraged over them relative to the degree of variance; all to satisfy the theoretical alignment of numbers.

We don’t so much run our businesses by fact based on action, but by failing to trust through fear of failure (requesting guesswork to alleviate our fear) and then by judging the accuracy of that requested guesswork and exercising degrees of fear over those guessing by apportioning blame for the results as compared to the numbers we forced from people through our accounting models and sanctioned as ‘Right and proper’ in the first place!

Let’s think about ‘Direct Debits’ as a social example of the ‘detached responsibility action’ through logic.

As banks and (predominantly) service providers increasingly struggled to collect payment from their customer base, (as degrees of responsibility for making payment on-time waned in the general populous) automatic (technological) systems were developed so individuals didn’t have to take responsibility for what they consumed.

(Those with a strong Lean understanding will smell the comparison to Jidoka (AutonOmation) here — e.g. Automation that retains a Human element).

Rather than addressing the issues generating a lack of ‘responsibility’ (challenging the way of thinking and locus of control in individuals) we found yet another method of circumnavigating that responsibility, by allowing technology to take over, to ‘allow’ people to stop thinking.

On the face of it, it looked like a good idea, yet today the majority of people couldn’t tell you how much their Water bill, electric bill or life assurance is taking from their (electronic) wage packet each week or month, or even if they are charged the correct amount at the checkout — they just don’t understand (or care) because it is not something they ‘physically’ interact with any more.

The levels of debt recently reported during the current economic challenges (2008- 2009 worldwide downturn, fiscal stimulus plans etc.) are testament to this cultural acceptance of debt and a lack of accountability for individual fiscal solvency or sustainability, but not just at an individual level, whole countries are now ‘behaving’ in reaction to the way they ‘measure’ themselves with accounting based politics.

We drive our organisations by similar processes that embody assumptions, remaining detached from self-discipline and responsibility, and place ‘Trust’ in those assumptions, entirely detached in practice and time from real events.

One major accounting assumption is that the figures provided for use, usually by an I.T. system, are valid and associated to actual events on the front line. This is typically a false assumption, as ERP / MRPII implementations are another ‘System’ poorly understood and rarely matched to the business needs.

Which might suggest the same can be said of GDP and the other financial measures the decisions for the country are made upon? In my experience, the bigger the system, the less people think and the more detached from reality the numbers are).

Additionally, once ‘implemented’ they are operated by people that fail to understand the system and it’s interconnectedness outside of their own isolated pocket of interaction.

This ‘assumptions based’ approach, when interrogated, recognises the same principles and effects that Lean philosophy has b promoting for many decades i.e. Push vs. Pull (on process and people). Accounting practice ‘pushes’ measures onto people, rather than ‘pulling’ the results from the events, behaviours and actions performed. (Ideally with raised levels of awareness and responsibility regards customer requirement, and organisational performance on a financial, day-to-day basis).

In ‘assumption’ we fail to address what works, vs. what doesn’t work [common sense], the voice of the customer [what the next person or function in the system needs], Value vs. Non-value adding activity (Cost ‘only as measured’ being the prime concern in standard accounting systems over value ‘as actually occurs’) and of course ‘Flow’ bringing physical action [behaviours] and information together. This physical and temporal ‘bringing together’ of information and interaction with the product (physical experience) is readily demonstrated by many ‘Tools’ within the Lean toolbox, 5S, Visual management etc. but none so clearly as demonstrated by the placement of a Kanban ticket on the product, removed only when used / consumed by the process.

Not e-ban or fax-ban, that continues to keep info and product separate and buried in technology people cannot interact with to ‘experience’ the system, but a real ticket that moves with the parts — visual ‘physically and psychologically stimulating’ management in practice!

The psychological benefits of having to physically experience action are often lost when this part of the process is side-stepped by an over-reliance on I.T. (a bit like setting up direct debits — IT often stops people thinking for themselves).

This is regularly done in the false assumption that inaccurate speed (via technology) is of more ‘value’ than accurate visual and physical control, another by-product of subtle variations in understanding and a cultural tendency to ‘Fast-track’ as a brand rather than understand and provide a truly beneficial approach. (Bringing into question the validity of on-line and blended learning, alongside computer games, TV, I.T. and the academic devolution of apprenticeships, pursued in many cases to take advantage of the tax break for cheap labour rather than to genuinely have an interest in training the next generation?)

Accounting assumptions

In the same way information, parts and people are connected by relationship in any system, but this is overtly understood in a ‘Lean’ system, removing the practice of addressing isolated pockets of ‘waste’ from separate timelines & flows; ‘Lean’ accounting practice will only ever be used when it is directly attached to actual events, i.e. when accounting practice is part of ‘The System’, not a separate system sitting beside the ‘Lean’ tools or strategy system and detached from the human relationship system.

“Isolated improvements to information and product flows, addressed as two detached ‘systems’ leaves the system disconnects, that constitute QCD* wastes in place! We apply Lean at a superficial level, ignore relationships, especially between systems and people and wonder why improvements are not sustained.”

To address this ‘superficial’ approach to application we must consider accounting a mirror that ‘reflects’ what has ACTUALLY happened’; Ideally in as short a time as possible (Same day P&L reporting by value stream through box scores).

Accounting reports must ‘PULL’ the information from the facts, ‘real time’ and express the levels of control that are impressed throughout the process — making ‘Variance’ and other ‘assumption mopping-up’ activities redundant while promoting systemic process control. i.e. from Sales to despatch, incorporating key strategic timeline reduction measures like;

1. Raw material to Finished Goods
2. Order to cash and
3. Concept to Launch.

However, over time, Accounting Assumptions (based on forecasts, allocated budgets, overheads etc.) have become a ‘PUSH’ function, isolated from the systems they affect, dictating what must happen in practice, based on the assumptions made about future conditions with the objective of making those future numbers right!

Originally, this may have been a clever way to link a future state vision to the fiscal performance of an organisation, generating buy-in and ownership throughout the ranks, as there would have been some degree of credibility and realism around the numbers and respect for those setting the targets.

Today however it is common to find leaders (MD’s FD’s COO’s CEO’s etc.) who, through exposure to accounting experience over practical experience, would struggle to provide a 5Y’s root-cause assessment or a 5W1H breakdown of the technicalities of their organisation — claiming, “I pay people to know that stuff” (and they want their staff to be responsible! Whatever happened to Lead by Example?).

To give an example, I’ve written the first thing that popped into my head out of 100’s of examples it would take too long to list. (Unfortunately, this IS from experience).

Why is it important to over-spend on the maintenance budget to buy a £60 1” BSPT Die!

1. Why do we benefit from the spend? — Because it takes longer to run a 1” BSP die over a pipe end than to use a 1” BSPT for the maintenance fitters, and a taper thread seals against PTFE tape better than a straight one, reducing the risk of leaks, failure, re-work, and delays in process. Leaks, although minor and tolerable incur increased running costs through an inefficient and leaking compressed-air system. That would give us a black mark on our Carbon Trust environmental audit, incurring more cost further down the road to rectify, stop production, re-audit and still need the BSPT die.
2. Why do we need it now? — The maintenance crew have been tasked with moving machinery around to suit cellular re-structuring on the shop-floor, (that we’re paying $100K’s to consultants to achieve). Without it, they won’t get the job done in time, keeping the consultants on site for further chargeable days.
3. Why don’t we buy it? — It is end of financial year and the budget is gone, the manager of the manager of the manager won’t give authority to spend another $1, let alone $60! On instruction from ‘on-high’ and through fear of getting the numbers wrong!
4. “we can’t make the spend and set a precedent for other departments, if the budget is gone, it’s gone! These things were set-in-stone a year ago! They’re engineers, tell them to ‘engineer a solution’ our hands are tied — Why don’t they understand?” — Oh-ho, they ‘Understand’ all too well! The message they get through the official channels of communication are ALL TOO CLEAR! The refusal to buy the right equipment to get the job done, and being told to ‘bring me solutions instead of problems, by someone who doesn’t listen to the solution presented’ well, what do you think that does to ‘their levels of motivation’?
5. Why did the project go late? Why am I having to sign off an invoice for additional consulting time? Why aren’t the CNC machines as stable and reliable as they were before they moved? We’re losing production up-time hand over fist! Why are we spending so much on environmental audits? Have you SEEN the electricity bill, the increased levels of over-time and the bottom line? …..etc. — Air leaks! the pressure fluctuates so the tool changer fails, the compressors are running flat out to try and keep up with pumping air to atmosphere and the motors are burning out, drawing huge amps and costing us a fortune in electricity, the CNC’s crash because the turret doesn’t rotate quick enough due to low air pressure, so we have to run extra shifts to keep up with the forecast demand 9That’s placed to stock through a lack of sales) and we have to pay for reaudits when we fail etc. The maintenance team told you about all of this when they asked for the new £60 die! (It’s your fault — i’m a good worker, you’re a bad boss). What! we heard none of this and told them to find a solution, you pay peanuts and get monkeys!!! (They obviously didn’t communicate adequately, it’s their fault! — you know I have an open door policy, I’m always ready to listen — I’m a great boss, they are bad workers).

This ‘accounting’ approach and subsequent ‘Blame’ culture operating at a psychological level, affects the perceptions of middle and senior management by the maintenance team, who, due to their unlimited access to all areas and their levels of de-motivation, bitch & moan to all other employees (Friends they have an established relationship with), creating a negative perception and an environment where a lack of Honesty, Respect and Trust are rife.

Within a negative workforce, individual and team levels of care wane, productivity falls, quality falls, customer returns increase and profits are eroded if not lost completely.

As attributed to Carl Von Clauswitz’ and included in Benjamin Franklins ‘Poor Richards Almanac’,

Although the origins cannot be certain,

It is common for this level of consideration to be ignored in the face of accounting practice.

The principle is similar to the infamous ‘Butterfly effect’ (Eastern Wisdom), the Arabian fable ‘The Camel’s Nose’ and matches ideas that come from Chaos Theory.

The problem in industry is of course, these networks of causality are only ever seen with 20:20 hindsight, with the standard by-product, in such a fast-paced world, the removal of a senior position, rather than those responsible continuously improving and instigating changes in approach to provide ‘Benefit to others’, as Kaizen philosophically promotes.

As described above, this approach produces a fear based response (Fear of not meeting targets, fear of losing a high salary etc.) and becomes psychologically restrictive for those trying to perform under the pressure used to ‘drive’ positive behaviours, even though Fear has a massive de-motivating and organisationally restrictive effect at all levels and within all prevailing cultures. (See PAC toward the end of this document).

Forecasts are typically a year ahead, with monthly stage gates to achieve annual and monthly assumptions. Those who make these assumptions (often members of a sales team or a board of directors or politicians) have NEVER experienced the environment that generates value for the customer and therefore generates profit (GDP).

Having never ‘experienced’ production, their level of understanding is often questionable at best and non-existent at worst, relying heavily on the knowledge, capability, integrity and virtue of those they trust to communicate, often through many layers (with personal agenda’s driven by jealousy, guilt, greed, fear etc. — constituting Chinese Whispers) and an over-reliance on technology (I,T.).

The people without ‘experience’ are the ones making the assumptions on behalf of the customer, the shop-floor and in the case of politics, the general populous. They are also the same people who ‘instruct’ others to ‘do lean’, failing to see that it is not so much what others do, but how they are being, as humans themselves, that will impact on results, empowerment, ownership and freedom to act, providing psychological confidence throughout the network of relationships and systems they employ.

In relation to IT project management, I saw this once described as ‘The Law of Diminishing Foresight’ — the further out you assume / predict / plan and-or, the further your metaphorical distance from intuitive understanding, the less of that plan will actually happen /or/ accurate your guesses (assumptions) will be.

At Xerox in Japan, it is said;

“To change anything in a meaningful way, requires you understand;

1. The process
2. The Policy / Rule behind the process
3. The Assumption behind the Policy or Rule

Applying these 3 steps we find that (1) we openly accept ‘standard accounting’ as a valid process, (in a Lean environment this is not necessarily the case) (2) the rule behind that process is that we have to report our financial performance and the ‘best’ way to do this is to forecast that financial performance, (3) forcing us to use not one but a multitude of assumptions [to be listed later in the document].

Taking this one step further, into the realms of ‘Belief’ these three stages and assumptions are underpinned by a ‘Sponsoring thought’ in this case it is something along the lines of;

“Building ‘Batch’ based on a best guess is ‘Good’!”

[When linked to a lack of control and the psychological impact this has on people; it is obvious that this model is NOT good, for the individual or the organisation! It is not Kaizen or Gai Shan — an action to correct or benefit all (society) but no one particular individual]

Responsibility (Response-Ability)

In a truly lean environment, the responsibility (ability to respond through experience) will be found with the people performing the value adding operations, and when responsibility for performance, reflected in a daily P&L account, based on the actual events of the day, is ‘the way we do things around here’ the idea of batch build to best guess is an impossible model, it simply doesn’t provide consistency regards ‘Good’ across all elements of the system — data, process or people.

i.e. Making assumptions and driving action to achieve the measures these assumptions require, is detrimental to the fundamental building blocks of a positive attitude. Ultimately we have to recognise that assumption based accounting practice generates negative emotions in people, and those people, individually or in teams, who are constantly bombarded by drivers that trigger negativity, cannot (psychologically) perform as well as people who are fundamentally positive and satisfied — i.e. Happy.

Using a graphical representation to help put this into context, we might see the Taoist recognition of opposites in balance (after all, Lean originates from a Culture steeped in mystical philosophy and religion, including influences from the Hindu, Buddhist, Taoist and Confucian schools, in Zen and the Shinto Religion).

In the above graphic we can see, that relative to the keys,

• Responsibility/Control and
• Assumption,

The more assumption we utilise, necessitated by geographical and temporal detachment from events (political detachment — executive detachment), the less responsibility, control, performance and ultimately ‘happiness’ (lack of stress, positive emotion, lack of fear, high self-concept etc.) we experience ‘at the coal face’ / ‘At Gemba’.

The suggestion I’m making here is that;

‘To gain control, we have to give control’.

To reiterate that point again; the greater the assumption (relative to degrees of detachment from the responsibility and control exercised over actual events) the less chance there is for Happiness and therefore High performance to be realised in the environment that actually has to produce the results.

By default this necessitates we focus on the levels of honesty, respect and trust that are practised and perfected by the teams that constitute the organisation (and more generally regards politics and parenting, in the general populous).

In a ‘Lean’ analogy, this might be tools on a shadow board are always returned and not stolen or lost by the workforce they are purchased to serve. In this environment every individual fundamentally understands that anything other than high levels of care compassion and concern (3C’s ©2005) for their fellow workmates and equipment, is jeopardising the firm that pays their salary (As must be understood for TPM, OEE and all other tools and techniques).

In a Lean environment employees are led to understand that they are realising other old sayings, e.g. ‘shooting themselves in the foot’, ‘Cutting their nose off to spite their face’, by placing their perceived short term needs over their long term needs — i.e. do you ‘really’ need an adjustable spanner that the company has bought today, or a job tomorrow?

Theologically, this might be ‘Do unto others’ or ‘Love thy Neighbour’, whereby your employer is a neighbour equal to a workmate or family member. Fundamentally it is an individual ‘way of being’ inclusive of ‘care’ for our impact on others, immediately or in the future that is the real ‘understanding’ that comes from and is required by ‘Lean’.

Ghandi alluded to the same principles and issues as Taiichi Ohno, when he coined the phrase ‘Letting go’. Ghandi stated centralised government must devolve responsibility and control to independent and self-sustaining villages; the business analogy being, corporation ‘letting go’ of production plant, production plant ‘letting go’ of value streams or cells, each operating as independent business units — driving the re-connection of responsibility to control at a grass roots level — i.e. placing control with those at ‘the place’ (Gemba / which is value stream management and requires the support of Lean accounting methods).

With the assumption that forecasting for batch production is ‘Good’, removed from mindset at the highest level, other reporting methods to market and shareholders like ‘Recoveries’ from throughput accounting can also be recognised as dysfunctional (as any Taoist might expect) and seen to drive exactly the opposite behaviours required.

In Summary;

Assumption and a lack of control, through a lack of responsibility impacts directly on the psychological attitudes of individuals in teams and teams in organisations — the ‘responsibility’ is forced into the wrong place by the way we ‘measure’ to suit the PUSH mentality of time-delayed accounting practice (based on assumptions) — provoking an environment that repeatedly presents much of what generates feelings of depression. Therefore we unconsciously drive poor performance into our organisations through the measures we use to control them.

Sustainability

Today it is becoming increasingly apparent (to me at least) that those requesting ‘Lean six sigma’ for their organisations are at long last, asking for ‘sustainable change’.

Sustainable is fast becoming the new corporate buzzword, but the root cause issues in accounting practice go unchallenged because it is the accepted language of business, regardless of the fact it is wholly based on some major assumptions and in essence dates back hundreds of years to a time very different from the needs of today.

Going back to previous analogies; relative to accounting practice, we often question the ‘Office’ program, sometimes we challenge the Operating system, but we blatantly accept the MS-DOS language without question!

In other words, we challenge the process (1), we sometimes challenge the policy or rule (2) but we fail to challenge the Assumption behind the policy or rule (3) or the belief behind that. We don’t recognise the need to ‘Chew’.

In this way, Lean tools and techniques implementation programs, in support of a separate strategy are detached from the root cause systemic issues and the emotions they provoke in and of themselves, remaining pocketed improvement initiatives justifiably earning the name Kamikaze Kaizen where non-systemic improvements are not ‘sustained’. (Which is unfortunately still incredibly common practice in business today).

Returning to the opening statement, due to the inadequacies of ‘Language’, i.e. an inherent inability to relay meaning and understanding through popular modes of communication over and above effective multiple intelligence stimulating experience, we have witnessed approx. 35years of Western Lean implementations (Quality Circles, TQM, JIT, World Class, Lean, Agile, Six Sigma, Operational excellence etc.) that have predominantly been addressed in the reverse order of application.

Historically we have introduced Lean and its ancestors with a ‘Logical’ (left brain) approach;

1. Tools and techniques
2. Strategy

And we’ve missed a fundamental step.

3. ‘A way of thinking’

Of course, when we recognise how our measures impact our psychological wellbeing, we (hopefully) see that step 3 must come first.

To realise the unconscious requirement that is gathering conscious pace in the corporate world, i.e. this issue of Sustainable change, we have to recognise the steps to success are;

1. A way of thinking
2. Strategy
3. Tools and techniques

And this requires we challenge the Sponsoring thoughts and the assumptions behind the rule.

“A fool with a tool is still a fool”

This cannot be seen as ‘another ‘Fad’ for industry or society to use. It will not suffice for people to ‘Jump on the bandwagon’ in some ‘Fast track’ way because they can sense there is some money to be made, or else we might see just another set of ‘Emperor’s Clothes’.

This is not another ‘latest fad’, this is a return to the concept of ‘Change’ (Capital ‘C’) that has been recognised as prerequisite and inherent to all of life for millennia — this is a recognition of what works (is good) vs what doesn’t work (is not good), and pursuing, consciously, what is Good, for the benefit of all, above our own selfinterest — driven by degrees of confidence, based on the levels of Love and Fear that provide us all with our own self-concepts.

What is required therefore, is a tacit, intuitive and fundamental understanding of these concepts around Change, or else those utilising any part of what has been suggested as ‘useful’, as ‘A tool’, will potentially only achieve what they do ‘by Luck rather than judgement’.

They may achieve the industrial equivalent of what Locke Achieved through Churchill, but equally could, by chance, realise the industrial equivalent of what Rousseau achieved through Hitler.

Another way to consider what I’m proposing here is to consider Change, as we consider an energy force, as it is described in physics.

Just as Energy cannot be created nor destroyed but merely converted from one form to another, so must we realise that Change is the only constant and all we can do is choose what is ‘good’ (is of benefit to others / all), to mould and form inevitable change, such that we realise the outcomes we desire, when those desires are aligned with ‘goodness’.

Change is not something we ‘Do’, it is something that occurs, because of how we are being — toward ourselves and each other.

The systems we use (accounting / Lean) that hold a mirror up to us, are inert, we (humans) are the only energy in the system, the ‘active’ ingredient, the oil between the cogs if you like.

We are all individuals, working together as part of teams, families and communities, ‘in relationship, with and to each other’.

It is therefore, only ourselves, our thoughts, our emotions and the way we are being that we can convert to a different form, to produce a different kind of energy and thus get the inert systems to reflect different attributes and achieve different (better / good) results.

To date, the energy our organisational measures encourage in others is often fearful, de-motivating and negative — our challenge in organisations and as the human race, is to understand how we have to be toward each other, such that we provoke, confidence, love (i.e. psychological stability through the experience of care and compassion rather than fear) high self-concepts and a greater ideal in all.

Combining Left and Right — Yin and Yang

Logically (Left-brain) we have had ‘Improvement’ summarised in many ‘models’ the most famous of which relative to ‘Lean’ is Deming’s

P-D-C-A cycle — Plan-do-check-act

However, this embodies only a few of the 14points Deming originally identified.

The others were more ‘emotional’ (Right-Brain) issues, (Like supplier relationships — where relationship is relative to how humans are being toward each other — resistant or collaborative).

Without these ‘right-brain / emotional’ issues included in the branded and logical ‘Left-brain summary, there has been a distinct imbalance in the issues considered regards ‘Lean Six Sigma’ implementation programs and western ‘managed’ Change at large.

To set that balance right, I have summarised the psychological issues to be considered regards the alternative translation of Kaizen, i.e. to consider ‘Goodness’ in a ‘right-brain’ model, my

B-T-F-A cycle

Believe, think, feel, act ©2005

When combined, as seen here.

It is possible to get more momentum inherent to making ‘Change’, to ‘Being more ‘Good’’ than recent history would have you believe possible.

In the true fashion of the whole being more than the sum of its parts; this approach provides much more than only double the action.

(The intricacies of the B-T-F-A cycle are based on many years of study and experience of psychology, philosophy and theology [east and west] and are to be discussed and understood separately and in detail — e.g. Act from an emotional perspective is not simply Act, it is also Actual events, Behaviours, Environment and Experience).

To help the inadequacies of language in transferring ‘meaning’ I will provide a few examples of how normally accepted accounting practice, through assumption, drives behaviours that are in direct opposition to the requirements of any organisation that aims to be sustainable.

I will also aim to describe how this common practice interacts with individuals at a psychological level (opposing common sense and providing a lack of consistency that undermines confidence, relationships and ultimately performance).

I will consider, in order;

1. Some common assumptions made in accounting practice
2. A couple of recent and quite incredible examples
3. An inaccurate ERP message and the behaviours associated to it
4. A ‘recoveries’ measure and the direct conflict in behaviours it drives when detached from the ‘actual’ needs of the business &….
5. How accounting practice promotes measures based on assumption and promotes more of the same to fix the problems it creates.

20 Common assumptions made in std accounting practice;

1. Overheads stay constant (When they don’t)
2. Sales / month are even (When they’re not)
3. Customers will pay on time (When they don’t)
4. Suppliers always provide good parts on time (When quality cost and delivery is rarely if ever constant)
5. Designs are fixed when new products are launched (But launched in a rush to meet accounting requirements and in reality finalised ‘on the hoof’)
6. Data within I.T. systems is accurate (When it is never accurate — time, qty etc.)
7. Outputs recorded are factual (When they are sometimes assumptions themselves with no correlation to ‘actual’ value adding events — detached managers reporting from a distance)
8. Borrowing (Debt incurring interest) is ‘Good’ (For tax purposes etc.)
9. Sales trends will repeat year on year (When there is no ability to predict a single client, let alone the market in general)
10. Customers will know what they want based on their own ‘assumption’ based forecasts (When clearly they can’t know)
11. Economic (Fiscal standards / regulation) and political changes will have no impact on the assumptions made (Recent 2008–2009 economic history due to ‘improvements’ in the money markets should have quelled that misconception)
12. Tax law won’t change (When it often does)
13. Reduced days payment terms will be realised in practice [Cash collection]. (When times are hard, you may want cash in quicker, but everyone else wants cash out slower)
14. Materials bought will be used before they go ‘out of date’ or get damaged (But accounting measures drive us to buy on ‘Cost’ over ‘value’, even from the other side of the world to get a good ‘piece part price’ where multiple handling of that stock and delays in transportation and storage inevitably sees damage and date issues arise)
15. %Cost of sales reduction (Materials used — VA/VE) requirements (Cheap suppliers and less stock) are congruent with other accounts driven measures (More throughput) i.e. Accounting wants less stock with more sales, often to the point conflict arises between internal customer-supplier relationships (before any communication with suppliers)
16. Book H.P or loans as ‘Cash’ in, (when in reality they are debt, detracting from profits and incurring interest)
17. Inaccuracies can be accounted for by Variance calculations (Is there an acceptable lack of control?)
18. People skills, knowledge and tacit capabilities are considered a ‘Cost’ (Rather than a revenue generating asset that has been invested in and ‘appreciates’ rather than depreciates).
19. Other debtor costs are consistent throughout forecast (When they are not)
20. Prepay of insurance will be unwound monthly in arrears

This list could go on and on and on, but these examples ought to suffice to make a point.

Sometimes the ‘behaviours’ and decisions these ‘Assumptions’ drive are next to incredible in their lack of common sense and control, as follows….

2. Incredible examples

E.g.1.

It’s Easter Sunday. I had to pop out earlier to get a few pints of milk so my two daughters could have their night time bottles — I popped down to a local national (UK) shopping chain (just on the Essex, Cambridgeshire, Suffolk border) and initially thought it was open as all of the electric ceiling heaters were lit up, burning away, bright red.

As I drew nearer, it became apparent they were burning away, heating an empty and ‘closed’ shop — WHY?

It just so happens I know one of the supervisors there personally, so I text her to ask why the heaters might be on, I certainly didn’t expect the answer I received!

She explained, it is because they are controlled by the temperature in Manchester! (For non UK residents, that’s about 200 miles further north and typically colder). This is apparently because each outlet is ‘grouped by turnover’ to suit group accounting practice and heating controls have been centralised by group.

E.g.2.

A world famous alcoholic beverage producer a friend of mine works with uses accounting measures in the form of scheduled invoices paid to monitor projects.

Head office in Europe assesses project stage-gates by reported ‘On-Time’ payment receipts for the project scheduled payments.

In current times, where ‘Cash-flow’ is even more of a prime issue than usual for any business, the local business units that have live projects (e.g. UK) are ‘forcing’ suppliers to invoice them on-time so they can log the payment and keep HQ off their backs, to avoid awkward questions over delays or technical issues.

Often they are forcing suppliers to take many millions of pounds earlier than they otherwise would, especially when projects are running into difficulties and will be ‘late to market’.

3. ERP, BOM’s and Psychology

Let’s now consider the ‘Customer-Supplier’ relationship that is required between a procurement function and production as an analogy of many interactive departments or divisions that succumb to using ‘Blame’ in defence of themselves.

Procurement will typically be measured on ‘Price’ (Not Value) and ‘on-Time Delivery’ to satisfy accounting measures.

Production will typically be measured on (among many other things) output / throughput and Scrap / Rework, to satisfy accounting measures.

Procurement ‘buy’ when signalled to do so by the I.T. system (ERP / MRP message), and parts arrive for production to use.

Production use the parts, and (eventually) the entry is made on the system (usually not in time to trigger the next purchase message, due to booking off finished goods or entering scrap values) or, if accurate and in-time, the bill of materials (BOM) is often inaccurate and purchasing are signalled to buy too little or too much or too late (because the original ‘Lead-time’ offered by the supplier to win the contract doesn’t in fact, reflect reality, i.e. their actual delivery performance capabilities).

Orders are not placed accurately and production run-out of parts.

Monthly outputs have to be met (Batch forecast to satisfy recoveries to group) and purchasing are put under pressure to expedite more parts [without incurring additional cost].

Cheap parts are bought in quick, and production soon uncover quality issues (identified at final inspection — when it is too late to rectify the product).

Production ‘Blame’ purchasing [for not ordering parts and then getting ‘bad’ parts].

Purchasing ‘Blame’ production [for not entering accurate data, in time or quantity, onto the system].

The BOM’s are not interrogated [a few parts among 1000’s of lines and no-one has the ‘time’ to look into why stock is always running out] and the issue persists for years.

Over time, with repetitive experience, both departments feel ‘Justified’ in their ‘Blame’ and in associating ‘Fault’ to the other party (it is a neural pathway easy to tread — a comfortable habit).

Once ‘Fault’ is established through ‘Blame’, responsibility is disowned and each department or individual generates a degree of detachment from the issue, creating a ‘comfort zone’ around the problem.

The perception, the ‘neural reality’ for procurement is that ‘They’ [management and production] have to sort it out — there’s nothing we can do to fix it.

The perception, the ‘neural reality’ for production is that ‘They’ [management and procurement] have to sort it out — there’s nothing we can do to fix it.

Both ‘feel’ that they are right and the others are wrong. They are good and the others are bad.

When stuck in this cycle of comfortable blame and self justification we psychologically need [in any environment] the other party to be wrong, so we can retain a sense of consistency in the realities we have created through experience.

This consistency provides the ‘comfort zone’ we sub-consciously aim to retain. In this way, in defence of our own comfort we resist others and especially others that threaten what we are comfortable with — we literally oppose improvement if it requires any form of change!

This is fundamentally how people are led to think, partly naturally through experiential imprinting and partly provoked by measures generated by standard accounting practice.

As stated above, the first stage of any ‘improvement initiative’ is ‘A new way of thinking’ which requires leadership that leads people to think and feel differently, which in turn takes conviction, passion, dedication; ultimately, a strong belief — B.T.F.A.

This may seem a big concept, but much bigger issues that follow the same patterns exist across corporate and management levels relative to concepts of transactional analysis (PAC) and polar traits (Fear-Love / Truth-Peace) within psychological structures.

In relation to Change, we find the same issues exist within ERP implementations, CSR, environmental policy or Lean Six Sigma introductions!

People and the way they are being is the catalyst for change — good or bad.

Lean tools, techniques and strategic models, like Lean accounting by Value Stream, Policy Deployment and 5S inherently recognise all of these psychological issues and provide us with the ability to identify and eradicate them — But they are only sustained as tools, when Humans are Being psychologically congruent with each other (not using blame, guilt, fear etc. to use negative emotion to leverage personal perceptions of control) and that requires ‘A new way of thinking’ that understands inter-relationships between networks and systems — i.e. between tools and people — Logic and emotion, left and right brain functions, love and fear.

4. Recoveries — throughput accounting

Let’s pick an output value (derived from a ‘Current way of thinking’), say, volume in m3 and imagine this is the driver used to report corporate performance to shareholders in a ‘Widget’ business. (It could easily be quantity or gallons or barrels or hours in up-time or….anything!)

Let’s say there is a function in the business that makes two types of widget — thin widget ‘A’ and thick widget ‘B’.

Now there is a little more time required to produce ‘A’ but all in all, it’s the same raw-material, essentially the same product, so in the reporting / accounting structure it is ‘Assumed’ to be of the same value to the company at the same COS (Cost of sales) A and B are both recovered at $700/m3 .

Now, we ask the sales team what the market is willing to pay for the two products — what is of ‘Value’ to the customer?

It turns out the thinner widget ‘A’ is much harder to produce and carries a much higher market value than widget ‘B’ due to limited supply.

By sales value we can assume a factor of 5 applies between the two products (Not recognised by the recoveries measure). By volume we see an inverse factor of 2.5.

E.g. 1m3 of ‘B’ is worth $1000 and each piece produced is 1m3 ; 1m3 of ‘A’ is worth $5000 and each piece produced is 0.4m3 .

Overhead consumption is marginally different, as the process is slightly longer and there are more individual pieces to move (Although this is also ignored in standard accounting practice, as the MRP system is too inflexible with current resources to be regularly maintained, so timings and costings have been the same as initially entered for years).

We can assume it costs $300 to make 1m3 ‘B’ and £450 to make 1m3 ‘A’ (if we are to establish ‘real value’ of the product).

Therefore 1m3 of ‘B’ is worth $1000 — $300 = $700 1m3 of ‘A’ is worth $5000 — $450 = $4550

Now, (You can probably see where this is going) realising another old adage

“Turnover is vanity, profit is sanity”

the company are not being measured at group level by the profit generated per employee, not even sales per employee (or any meaningful form of ROCE — return on capital employed), but by ‘Volume’ of product produced in m3 / month — against accounting driven measures (targets) of let’s say 50m3 / month, calculated against forecast [guess] (amortised over a year to give a monthly value that assumed to be ‘right’).

Another adage is then realised in practice

“There are only two types of forecast — a wrong one and lucky one”

and due to forecast inaccuracy, much of the stock produced goes into Storage (we might suggest the market is flooded with product ‘B’ from many suppliers [it is easy to make] and it can’t be sold at the volumes historical sales have witnessed, but product ‘A’ is rare due to the skill in producing it, sustaining a sense of need and therefore value in the market).

In this way, the people producing the product are driven to behave in a way that will keep HQ happy (and ultimately, satisfy Ego’s and accounting practice).

On paper 50m3 of A and B show as the same ‘Recoveries Value’ to the business (50 m3 x $700 = $35000, A&B) because of the assumptions made in accounting practice, but this is far from reality.

By volume, it is easier and faster to produce widget ‘B’. It is thicker, so more robust, making it easier to transport between functions without damage being incurred, it takes less time to cut and therefore more M3 / hour can be produced, satisfying group recoveries targets in m3 much more easily than widget ‘A’.

To produce ‘A’ the raw material also has to be of a higher quality, but two weeks before the end of every month, throughput targets are assessed and ‘A’ quality materials are cut up to produce product ‘B’ so targets are met.

Approx. 65% of the throughput target comes from product ‘B’ that can’t be sold, using all of the stock that product ‘A’ could be produced from. (when ‘B’ can be produced from lower quality material and still meet customer requirement).

Assuming the targets are being realised at a rate of 35% two weeks into a month, the obvious message is that the remaining 65% will only be achieved by producing ‘B’ product.

Due to the time requirements in process, if ‘A’ had been continued, only 50% of the remaining 65% outstanding to meet target would have been produced in the time available.

Financially this would show a difference of; Product ‘B’ — 50m3 x 65% = 32.5m3 @ £700 (Production cost removed) = £22750.00

This is non-saleable product ….. that meets accounting targets, compared to…..

Product ‘A’ — 50m3 x 50% (due to longer manufacturing process) = 25m3 @ £4550 (Production cost removed) = £113,750.00

Of saleable product that doesn’t meet accounting targets (By 15% of volume 65- 50).

To meet corporate recovery targets, this fictional business would lose £91K/month — due to the complexity of the business and the poor quality of systemic relationships, communications and behaviours provoked by the measures used.

Due to the time delays inherent to detached accounting practice, these issues will only be highlighted once a lack of cash and poor profit margins are driving ‘group’ to consider the viability of the business (perhaps 6 or 8 months down the line, when no-one can remember or, more accurately ‘prove’ [because they are not trusted] what actually occurred in production).

Basically ‘group’ will have to consider closing the business that its own measures have consistently undermined.

Now, to link to the psychological issues, other than accounts driven behaviours that are detrimental to financial performance, i.e. what people are thinking and how they are feeling! Imagine the people involved in the production of these products. These are people who sat a 5 year apprenticeship, before they’d done it for a further 20years (when you had to learn the job ‘on the job’ and not at a desk). These are people who ‘Understand’ the business and do not have to make ‘assumptions’ about the process.

Now try to comprehend just how depressing and demoralising it must be to have to cut up high quality saleable product into low quality non-saleable product Every month! Just to keep an invisible boss happy? Is it any wonder we often find people on the shop-floor talking about Directors with phrases that feature words like, Organise, Knees-up and brewery? (Exchange ‘Knees-up’ for what you will).

It is because scenario’s like this exist wherever standard accounting methods are a fundamental belief in management that ‘Lean’ as a philosophy originally stated ‘leaders’ (not managers) have to listen to the experts (those that perform the value adding function — those with ‘Experience’).

TPS originally also claimed ‘All’ employees MUST be included in the idea and practice of making change to the way things are done together, seeing phrases like ‘Total associate involvement’ coined.

I.e. Root and Branch, all cultural levels must improve their levels of ‘Relationship’ such that communications transfer ‘meaning’ regards Value Adding maximisation.

As you may well expect, branding watered down the ‘meaning’ as these over-riding issues of ultimate importance were seen as more ‘jargon’ in the ‘latest management fad’.

It takes ‘Cross-functional teamwork’ to address this (Top-to-bottom ‘Root and branch’ teamwork) and yet it is still rare today to see an accountant in a production facility for long enough to gain any degree of intuitive understanding, or a factory worker communicated to in such a way as to intuitively understand his or her responsibility for making the company a profit. (i.e. daily visual management — not a monthly management meeting!).

We might highlight again the difference between apprenticeships as were historically provided by the companies delivering them to the apprentice with support from no more than 20% further education and modern apprenticeships, delivered through colleges, measured by government and ofsted and predominantly based in academia with support from an employer who typically looks on the scheme as a tax break.

In a self-disciplined, control at Gemba based, cross-functional teamwork environment, this intuitive understanding would be such that beliefs and behaviours are altered in support of the efficiencies ‘in-process’ that add value to the business.

Lean works when ‘Value’ is not undermined by a lack of common sense and is clearly defined relative to day-to-day actions and activities — separate from Ego’s and historical assumption of what is ‘Good’ dictated by out-dated systems and mind-set.

Following recent worldwide events (terrorism and the credit crunch), we need no further evidence of how powerful ‘fundamental(ist) belief’ can be as a driver of behaviours, what we do need, is to recognise that all of our behaviours are due to our own ‘fundamental’ beliefs, based on our own experiences (imprints), especially in business.

Psychology is not separate from manufacturing — it is integral to it, because people are the common denominator.

Once ‘open’ to considering ‘Lean’ as a broader issue, once an alternative belief is established, we can see that accounting practice is also a belief we can challenge. As my B-T-F-A model (Believe-Think-Feel-Act), once belief is altered, actions will alter and the end result, over time will alter.

When we utilise this model alongside PDCA and other logical methods, we soon realise that,

Doing is a by-product of being

And

We are all customers of our own thoughts.

5. Accounting — used to fix the problems it originates

The irony in all of this is that the ‘Assumptions’ that are run-of-the-mill, overtly accepted day-to-day habits in politics and business, detached from the issues they generate (in the first instance), are promoted in times of crisis to fix those self-same problems and this practice is not shy when it comes to contradiction or hypocrisy.

Procurement drivers promoting ‘Worldwide cheap piece part price through bulk-buy in cheap labour economies’ suddenly becomes, ‘Locally sourced, value adding, high quality, just-in-time, vendor managed, vendor owned consignment stock or Kanban!

Plus, keep transport costs low and relationships proactive to ensure adequate communication and keep cash-flow high’. (All of the things Lean Six Sigma [TPS] promotes, usually in opposition of, or at least detached from, standard accounting practice).

In addition, the same accounting assumers that drive business through measures also want you to, in times of crisis, negotiate payment terms up and down to suit cash-flow maximisation, so the wage bill you save through the redundancies you have to make can keep your creditors away from the lawyers and insolvency experts.

We have to ask ourselves 2 questions;

1. Why does it take a major crisis, for Standard accounting practice to completely contradict itself? And
2. Will we use the 2008–2009 global economic crisis as a platform to challenge preconceived ideas and beliefs about what is ‘Good’?

The answer to Q1, as I see it, is in two parts;

The 1st part is that the belief changes — what is perceived to be ‘Good’ is forcibly altered by circumstance — Survival through Cash-Flow becomes the new ‘cultural’ belief, behind the thought, behind the emotion, behind the action and experience (i.e. behind our new behaviour lies how we are ‘being’ in relation to others and our environment — the beauty of this model is that it flows in both directions — experience / behaviour in our environment, provokes emotion, provokes thought and alters belief — as the BTFA model shows with double arrows).

The 2nd part of the answer to Q1 is that we ‘stop’ being comfortable in what we know. The ‘Comfort Zones’ that we unconsciously protect at all costs, are under threat from higher levels of ‘Fear’ ….. and it is only Fear & Love (in the broadest sense of ‘being good’ toward others) that tap into our earliest imprints with sufficient force to change our ‘Way of thinking’, our ‘basic’ program.

In this way we might consider a crisis provides us experience that we build upon.

Experience we couldn’t otherwise receive and therefore, experience that leads to a new belief about our realities we couldn’t otherwise form, it is how we react to the crisis that makes it either a positive or negative emotional experience for us individually.

Understanding what is of paramount importance to us for systemic ‘Good’ (true Kaizen) relative to what we are afraid of, what we fear, (And how we are protecting ourselves through our psychologically formed self-defence mechanisms) can therefore be altered by a real or perceived ‘Crisis’.

The salvation is of course that our opinions, perceptions, beliefs can also be altered by choice. We have free will and that includes free will over our Beliefs-ThoughtsFeelings-& Actions, and there are a number of ways we can re-program ourselves, if we want to — the key is believing you need to change in the first place and it’s not ‘Everyone else’!

In this knowledge we find that we can choose to change;

• When passion for the end result is sufficiently strong and clear — when we can answer the question ‘Why’ do we want …X…? [with multiple resons] i.e.
• When we have intuitive ‘understanding’ of what is possible and to what degree we have to work together for results &
• When there is meaning (WIIFM), and as I stated at the beginning,
• When we gain tacit knowledge / intuitive understanding, from interconnected events, that have meaning for us when we ‘experience’ them for ourselves (Leading to a positive Self concept and true confidence).

This is why ‘Lean six Sigma’ promotes ‘DOING’ and ‘learning from action’ — it is why TPS evolved sayings like 60% is good enough;

We can use this to draw parallels between layers of business or society relative to degrees of control, depression, -ve emotion, responsibility etc.

P — Parent — Director — State (Accounting measures / Politics / Legislation)

A — Adult — Management — Police force / teachers / NHS/ HMRC pub. sec. institutions

C — Child — Workforce — Officers /Students / Nurses / General populous

I must stress, at a social or individual level this is not a conscious choice! ‘People’ are metaphorically stuck in these response modes in their line of work or in relation to their role in their family / society / department.

The ‘Measures’ (assumed by accounting belief or imposed during imprinting phases i.e. how ‘good’ was measured, by parents / peers or managers), force them to react (based on their unconscious perception of comfort through consistency) relative to the degrees of control they are allowed to exercise (or choose to exercise) over their own responsibilities (an imposed external locus of control, often forcing detachment from caring for the end result — i.e. ‘Work to rule’ / ‘If that’s the way they want it [management], that’s what they’ll get from me and all they’ll get!).

(You even hear people talking about their ‘annual sick leave’ and how they still have a few more days to take, as if it’s a holiday entitlement!).

I was once told (A long time ago) that people take their hearts out of their chests and their brains out of their heads when they go through the factory gates, replacing them when they leave work at the end of the day, to go home and run households, financially….. practically! and look after the psychological and educational well-being of their offspring.

This is to some degree a utopian perspective of life behind closed doors, but adequately describes the difference between individual capability and that same capability when stifled by a ‘Corporate and technological’ ‘Way of thinking’. Just as children can be liberated or restricted due to a parental ‘Way of thinking’.

The biggest barriers to overcome in any change environment are therefore the egos of leaders (Parents included) who ‘Fundamentally believe they are right’ yet don’t know what they don’t know — especially regards psychological impacts over time they inflict on their reports (children)!

In today’s market, this witnesses many directors and exec’s being told what they want to hear, because service providers ‘fear’ telling them ‘honestly’ what they need to hear, as it will not get a sale or repeat sale!

The providers ‘WIIFM’ reasoning is, to make money as a business. Doing what’s ‘Good’ for the people interacting with them (massaging ego’s) isn’t necessarily good long-term, internally or within the client organisation, but satisfies the ‘Sales target measures’ and protects them from facing ‘Blame’ or ‘Fear’ in the short term, so it perpetuates, becoming a ‘Cultural habit’, prime example is of course the consulting industry.

You’d be surprised (or maybe you wouldn’t?) how much ‘Fear’ drives self-defence mechanisms the higher up the ladder you look. Largely because senior execs / civil servants / politicians etc. have further to metaphorically / emotionally fall, with selfconcepts based on much more experience of ‘Success’, that has led to perceived ‘Good’ reward — further substantiating their belief in their experience and of themselves.

These are all natural issues of course, all personalities aim to retain consistency based on experience — I’m not saying it’s right or wrong, I’m saying it is harder for Successful people ‘Who are psychologically confident in their own knowledge’ to do what TPS originally suggested they ought — Let go.

Until we look at more than tools and techniques, more than ‘project management’, more than Strategy, we can’t ‘Let go’.

We psychologically can’t give control to get control (supported by visual management) all the time accounting by assumption forces measures that undermine HRT (Honesty respect and trust) no matter how many old sayings tell us…..

‘What goes around comes around’,

‘you reap what you sow’, or

‘The fruit doesn’t fall far from the tree’.

What is needed today, more than it has ever been needed throughout history is

‘A new way of thinking’

and it has to be relative to the way we are thinking about ‘good’ for us, emotionally, logically, how we think about the same issues regards other humans being and our environment.

Let’s stop talking ‘Lean’ and start to understand ‘Change’.