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Leading Lean: Engaging the Board of Directors

July 28, 2010
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The CEO must be the champion and leader of a lean transformation, but the board of directors can have a major impact, too.

A lean organization should think lean from top to bottom, from customer to supplier. When the organization is aligned, both strategically and culturally, it can make real progress forward.

Much focus is on CEOs becoming champions and leaders of lean transformation. They have a major impact on both culture and strategy. But whether a public or private company, the board of directors can have a major impact. They don’t set tone, establish culture or lead the company; that is the job of management. They do select, reward, remove and engage the CEO. They do make decisions. In other words, they have an impact. An aligned and sustained lean journey cannot ignore the board.

How should this be done? I must start with a caveat that board members have limited bandwidth. They don’t work for the company full-time, and that fact is key to their value.

There are three questions that management must answer for the board so it can understand and support the lean journey. And, there is one question that the board must get answered openly and honestly. The first three questions focus on how lean affects strategy, financials and people.

If lean is more than a few kaizen workshops and 5S events, which I hope it is to you, then it has the ability to significantly impact the strategy of the company. The specific impact depends on your strategy and your lean focus, but it must be understood both by the management team and the board. Perhaps it will enable a win-on-low-cost strategy, or a win-on-speed strategy. Perhaps it frees up capacity to expand into new markets, or enables new value-added services that the competition cannot match.

The board must understand the connection between lean and strategy, because it will be asking the tough questions about whether the strategy can succeed. For example, low-cost is a failing strategy most of the time, unless you have a capability (or size) that enables that strategy. If the board of directors does not understand the current and future capabilities of the organization, they will be unable to effectively engage in informed strategy dialogue.

Lean also can impact financials. Obviously, this is usually a positive impact. Boards don’t mind those surprises. However, some impacts aren’t nice surprises. Suppose you drastically cut lead-time and inventory along with it. That’s good: It eliminates waste, reduces operating costs, and improves flexibility and service levels. However, all those assets on the balance sheet must go somewhere, and that has a negative impact on the financials. If this isn’t done with a fully informed board, the surprises can quickly crush your momentum.

Third, lean affects people. It affects what kind of people you want to hire, promote and grow. It affects how you develop, engage and incentivize them. Decisions made in the board room can either support or slow this direction. If your board understands lean, it can choose the best CEO to support your lean journey.

As those three questions are answered for the board-strategy, financials and people-there is one other that doesn’t come on a planned and purposeful conversation. That last question is the honest and candid feedback to the board when policy decisions become a barrier to progress. Too many companies and executives assume that the board is aware of every unintended consequence of every decision. The board isn’t in the trenches of the company, nor should it be. Candid feedback is too rare and too vital. Those lines of communication must be made more open than they are today.

Boards of directors can be an asset or a hindrance to the lean journey. What you do to support the board will determine what role it will play.
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