GE Gets a Lean CEO — From the Outside
OK, so I guess I lied about staying away from the blog this week while I'm in Japan.
Jet lag, even well managed and planned for, meant I was awake early on a Sunday morning. Over breakfast, I read more about news from last week, that GE had fired their CEO John Flannery after 14 months and replaced him with a relatively new board member, Larry Culp.
Culp is GE's first outsider CEO hire in their 100+ year history. So who is this guy and why did they hire him?
Culp was CEO of Danaher, a company that's quite often held up as the best non-Toyota Lean company out there. And they're an American company. Danaher, through its Danaher Business System (DBS) approach, uses Lean as a business strategy in a way that's very different than Toyota. Danaher has acquired companies and brought DBS and Lean in as a way to turn around and improve those businesses.
I haven't blogged about Danaher much, but you also don't read much about them in the news generally. I did blog about them back in 2007 after BusinessWeek wrote a big story about them:
I've done podcasts with two former Danaher leaders, Art Byrne and Mark DeLuzio:
My Perspectives on GE and Danaher
Back in 2004, I was hired by Honeywell as an internal Lean consultant, which turned out to be my last job in manufacturing before I moved into healthcare about a year later. Honeywell had been a merger of Honeyell and Allied Signal and the company practiced an approach they called “Lean Six Sigma+” (yeah, that's a “plus”) which didn't mean blurring the methodologies into “Lean Sigma.” Honeywell trained and certified specialists (like me) as “Lean Black Belts” (although they called us “Lean Experts,” which I hated) and they also trained “Six Sigma Black Belts.”
The two methodologies co-existed. It was very early days in the development of what's now called the “Honeywell Operating System,” which is meant to be the management system and culture, based mostly on Lean, with Six Sigma being used as a problem solving methodology when needed (or that was my impression of the approach in 2005 when I left).
The director of Lean Six Sigma who I reported to in my business unit had been hired in from Fluke, a Danaher company. Mike was probably the best Lean leader I ever directly reported to and I learned a lot from him. Unfortunately, he was a bit of a fish out of water and clashed a lot with the VP he reported to (the VP was a traditional finance guy in a job rotation through operational excellence… so he was far from a Lean leader, which created a lot of conflict and tension).
Anyway, there were many Lean people on the side of Lean Six Sigma+ who were relatively new to Honeywell. Why?
Back in 2001, there was an aborted attempt at GE aquiring or merging with Honeywell. Supposedly, during the merger planning, GE people came in (anticipating the merger going through) and made it clear that GE was a Six Sigma company… that Lean wasn't part of the equation and that Lean people wouldn't be needed. So, some of them saw the writing on the wall and left.
Eventually, GE came around to embracing Lean and even Lean Startup, as I talked with Eric Ries about a few years back.
The WSJ on Culp and Danaher
What prompted me to write this post was my breakfast reading in the Wall St. Journal (might be behind their paywall).
The company's first outsider CEO ever brings with him a management philosophy from the little-known, highly successful conglomerate Danaher. He's got big problems to solve.
From the article:
“The arrival of Mr. Culp didn't just install the first outsider in GE's 126-year history–it also ushered in a new management philosophy that has guided his every move since he became CEO of Danaher Corp. at age 37. The strategy has developed a cult-like following, largely because Danaher used it to buy a string of companies, boost profits and richly reward shareholders.”
That strategy is DBS / Lean. Here is the Danaher page on DBS, by the way.
I don't like reading the word “cult” although they don't mean it in a literal sense (they mean it like “that wine has a cult following”). I was a bit uncomfortable reading this description though:
“The Danaher playbook, modeled after similar systems used at Toyota Motor Corp. , is defined by a maniacal commitment to efficiency and constant assessment of business units against eight performance metrics. Those include financial targets like core revenue growth as well as measures of customer satisfaction (on-time delivery) and employee morale (retention rates).”
Why is good business and good leadership considered “maniacal?” Is this part of a stereotype about Japanese?
A lot of what's traditional blame-based “command and control” leadership could be more accurately described as “maniacal” in my mind, but an executive yelling at employees is often portrayed in positive terms like “commanding” or “commited.”
To their credit, the WSJ lists metrics beyond efficiency there. Lean too often gets portrayed as being “all about waste” or only focused on efficiency. That's not really correct. Look at the Toyota page about the Toyota Production System and you'll see their explanation of how flow and built-in quality are the two pillars of TPS.
As Danaher says:
“Guiding all efforts is a simple philosophy rooted in four customer-facing priorities: Quality, Delivery, Cost, and Innovation.”
I'd hope that Safety is a high priority too.
The WSJ article talks about Kaizen, something I'll hear a lot about here in Japan this week (see posts about Kaizen and previous tours):
“New executives are pulled away from their jobs and schooled in the Danaher way, which centers around a philosophy known as kaizen. Derived from the Japanese words kai, meaning change, and zen, meaning good, kaizen focuses on continuous improvement through in-depth sessions to assess employees' progress.”
It's a “continuous improvement” approach, although I don't know what the reporter meant by “in-depth sessions to assess employees' progress.”
Danaher says “Kaizen is our way of life.” Kaizen can mean small incremental improvements and it can also be larger “Kaizen Events.” The focus is on improving processes and systems, not evaluating employees. But, the WSJ often gets it wrong about Lean and TPS.
Unlike a lot of companies that think of Lean or TPS as tools or projects, Danaher realizes it's a culture:
“Instituted in the 1980s, the Danaher Business System, or DBS, is the underlying process that everything else in the company runs on. “DBS is our culture and the foundation of everything we do,” reads a slide from a 2013 presentation by Mr. Culp to investors.”
There's a story about Culp, as CEO, participating in a Kaizen Event and going out to visit business units (going to “the gemba”) instead of having people come to him.
“Harvey Bond, a Danaher executive in Europe until early 2011, recalls spending a late night eating pizza with Mr. Culp on a visit to a factory in Europe for a kaizen event. “He has safety shoes on with steel toe caps and he is completely immersed. He has his phone switched off,” Mr. Bond said”
In my work with hospitals, executives and hospital CEOs are encouraged to get out of their executive suite to go observe work, engage with staff, and participate in improvement… to learn by doing. Culp seems to set a good example with that.
“When Mr. Culp took over as CEO in 2001, he reinforced the DBS approach. He posted notes for the staff on the company's intranet every day, often praising incremental improvements made by workers or teams…“
That's something that senior executives have done at Franciscan St. Francis Health, as Joe Swartz and I documented in our book Healthcare Kaizen. It's something GM's CEO Mary Barra has done as well:
I'm going to be really curious to see what happens at GE. I hope that Kaizen, Lean, and “respect for people” are part of a playbook that leads to a lot of success for the company and its people. Hopefully, this opens the eyes of more executives to the power of Lean as a business system and culture… and how it's something that the CEO has to LEAD, not just “sponsor.”
For me, in Japan, it's time to go out for a walk in Nagoya, to get some fresh air and sunlight. It's an exciting week ahead with Honsha and their tour.