Mario Pagliaro's Newsletter, October 15, 2007:

Lean and Green

Summary:
Companies are eventually learning that going lean means also going green as it avoids waste and enhances quality and producitivity.

Rising work productivity and the quality of the goods and services we provide is the way by which companies can face competition originating from China and other low-wage countries.

Having defined the objectives, we must identify a path to achieve them. In other works, we need to introduce new practices -- a new way of working -- by which to achieve concrete goals, measure the economic results of the new practices, and make sure the right people hear about the results of our initiatives.

All Going Chinese?

Improve, yes. But not in China's way.

In China, the cheapest electricity in the world (ca. 1 cent €/kWh) is made by burning coal with immense pollution. China, too, has the largest and least paid workforce in the world with the Government willing to transfer another 200m people from the countryside to cities, which is about the size of the whole EU workforce.

This may well be dreamland to multinational manufacturing companies which, indeed, moved to China most of their production plants. Yet, beyond the quality problems well evidenced by the recent cases of contaminated toys and drugs, no one in developed countries thinks that the Chinese route to economic development is something desirable for our children.

Selling Quality and Sustainability

What we really need is to learn how to make the case for quality and sutainability to management in no-nonsense business terms.

Quality is about eliminating waste. Waste of space; waste of time; waste of materials; waste of energy; waste of money; waste of people's energy. Overall, this is called PONC (Price of Non Conformance) and typically falls between 20 to 25 percent of sales or, in service/administrative organizations, between 30 to 40 percent of operating expenses.

So, we need to eliminate waste. Where does it form? And where does it hide?

Certainly, part of it hides in the way we consume energy and use material resources.

Exactly like people who spend 30% of their sallary on fuel for car transportation without realizing it, companies do not pursue energy efficiency. In 2006, only the cumulative energy cost for servers and data centers in the U.S. was approximately $3.3 billion.

One year later, oil sells at 85 $/barrel and your bill is going to increase, again.

So, simply, get rid of your electricity bill. Purchase a fuel cell where methane reacts smoothly with oxygen providing all the three forms of energy (electricity, heat and cold) you need at one third the money you are throwing away today.

Similarly, open the door of your organizazion to the world. But first, isolate its environments halving the money your company spends to cool and heat its rooms. Go lean and similar changes will occur throughout the whole organization.

So Why Don't They Do That?

I often wonder why, if it is so critical, industry and government do not identify the most convenient technology to meet their needs. And I increasingly find out talking with companies that the answer is simple.

They do not know how to do that. Put simply, companies are no better than citizens and consumers whose opinion is largely influenced by "opinion makers" and advertisers in the media.

We know by empirical evidence, that lean is green, namely that lean production is associated with pollution prevention. Yet, the very same research clearly shows the importance of existing capabilities in determining managers' propensity to adopt new management practices and re-organize the way people work in the organization.

It is experience that allows managers to better envision new relationships between innovation and profitability; between sustainability and marketing, and so on. If they do not change their practices, it is because they live in a social environment that lacks to ability to transfer new knowledge.

So it is the task of those of us who teach management to become more effective; and it is the responsibility of managers living in the Internet era to recognize that hey need to refresh their skills by continuous education.

Learn More

The management course L'Impresa Snella.

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