You have probably heard the term “lean” thrown around quite a bit. You know that operating in a lean manner creates value by minimizing wasted time and money, and can help you become faster and more efficient. But it is even more than that.
Becoming lean is also about freeing up people and other resources that drag down your capacity or distract your team from your most important priorities. Through my two decades of experience at Fortune 50 companies, I have found that becoming lean also delivers these major advantages:
- Minimizes errors
- Reduces lead times
- Limits downtime
- Delivers higher margins
With these benefits banked, lean companies tend to report to their shareholders that they achieved a higher profit margin, with fewer staff, than the previous year. But lean processes can be employed in a way that is even more consistent with a growth mindset; with a focus on learning and increasing your capabilities, year-over-year, in order to better serve customers.
That’s why, if you want to transform your business through lean processes, I recommend doing it to grow your total profits through the excess capacity that lean processes empower. Here are some ways to view lean techniques through a growth mindset.
1. Lean is a growth strategy.
Throughout my career, I have directed various businesses in several different industries to save money by eliminating expenses. For many business leaders, lean brings to mind terms like, “tightening our belts” and “sharpening our pencils,” but lean is not primarily about cutting staff. No one ever “saved” their way to market dominance! Lean is about increasing capacity, and increased capacity opens the door for growth. Eliminating waste frees up people, space, and machine time. It is about gaining capacity to make more things or offer more services.
2. Capacity Utilization is the key to Lean.
Capacity is a constraint. Many of us wish for a bigger factory, greater automation, or more electrical power, but all of these require incremental investments. Yet, at the same time, many operations might already be there without knowing it, because they are wasting some of that precious capacity on errors, or processes that do not add to the value the customer sees.
Here is the question you should always ask: If you had excess capacity, how would you fill it with something that contributes to the bottom line? Jeff Bezos once summed it up this way: “Our biggest cost is not power, or servers, or people. It’s lack of utilization. It dominates all other costs.”
3. Leverage fixed costs of labor and overhead.
To understand the positive impact you can make with Lean, start by thinking about your costs differently. Margins calculated at the unit level are misleading because they include overhead allocations, accruals, and assignments. Rather than viewing margins at the unit level, instead calculate your total revenue capacity (the unit price you can get in the market X unit capacity) and the total cost you can afford in order to earn the profit you need to make. The equation looks like this: Revenue capacity – Profit you need to make = Cost you can afford
View these in total dollars and consider labor and marketing as fixed costs that are part of overhead. Eliminate expenses that do not add value for the customer. Eliminate delays and waste. Now you can see how focusing on lean to free up people and capacity is the key to making more things – and making more absolute profit.
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