Why Larger Companies Have Problems with Lean Management?

Why do larger companies have problems with lean management? The concepts behind Lean and its variations like Lean Six Sigma are the key buzzwords of business schools, consultants and executive boardrooms alike. But larger companies seem to have a more difficult time adopting lean management than start-ups. What’s going wrong? This question was posted by Frieda Klotz, writing for MIT Sloan Management Review. She asked the question of none other than Steve Blank, whose book, The Four Steps to the Epiphany, written over 15 years ago, helped create the Lean Start-up movement.

His answer comes down to an apples and oranges analogy. Large companies cannot operate like start-ups. They cannot innovate like start-ups, and they certainly cannot deploy a lean methodology in the same way, because they are not start-ups. Their growth and size lack the agility and capacity for lean-ness that start-ups have. Although a large company or departments within it can embrace and practice Lean, they will not necessarily see the gains because of a preponderance of other forces also imposing themselves on its momentum.

Once companies grow to a certain size, they are no longer able to take on a new management philosophy. They are just too big. The philosophy just becomes one of many initiatives struggling to stay latched on to the corporate body amid myriad other priorities, departments and mindsets.

Size makes it extremely difficult for a large organization to change direction. There is simply too much established forward momentum to allow for it. One might think of large, now extinct companies like Kodak, whose demise was blamed on the world’s switch from film to digital cameras. But Kodak was no stranger to digital photography and actually was responsible for a great deal of the camera technology inside Apple iPhones. But the culture and size of the company made the required sudden shift impossible.

Mr. Blank also points out that the leaders of most large companies are not innovators or entrepreneurs. Their focus is on process. The rarities like Steve Jobs or Elon Musk are the exception that proves the rule. There comes a point in the expansion of a company from brash start-up to established organization that the priorities of innovation and agility are subsumed by those of administration. An HR department becomes necessary to manage the careers of its employees, and priorities shift from building a better mousetrap to satisfying or even appeasing shareholders and the Board of Directors.

It is extremely difficult for an innovative entrepreneur, for whom lean management is a natural building block of a barebones start-up, to transform into a larger scale senior executive, while successfully carrying lean methodology across.

Mr. Blank, in his interview, confirms this. He points out that start-ups are not smaller versions of large companies, and large companies are not larger versions of start-ups.

The root cause of the failure of Lean within a large organization is one of completeness:

“Most corporate accelerators and incubators are trying to duplicate a process they don’t quite understand. They create a series of innovation activities, but they don’t create an end-to-end process to deliver products and services. To make innovation an integral part of the organization, it needs to be owned by the appropriate units. There needs to be a vision of how the incubator either delivers through existing units or turns into an independent entity. My guess is that in 90% of the cases, companies haven’t developed a clear route from the incubator’s output to the delivery channel.”[1]

It’s fair to acknowledge that many large organizations, seeing the dynamic progress of a start-up, do indeed assign people and resources to innovation – their own version of a “skunkworks,” as made famous by Lockheed in the 1940s, but innovation does not come naturally to every employee, nor should it. As Mr. Blank explains:

“At companies like Apple, Amazon, and Netflix, most people in the company are not innovating. They are showing up and going to work. GE management wanted to train everybody rather than ensure that leaders understood where [innovation] fit in the company and how they could rapidly deploy new products and services. To expect everybody in a company to be an innovator was a mistake.”[2]

Business schools will always talk about those companies whose innovation changed the world to such a point that the change itself eventually becomes invisible. Apple did that with its iPhone and other i-branded products. Although there were other phones and music players on the market, Apple, even as an already established mega-corporation, redefined technology as an easy-to-use solution. Space-X is doing the same with rocketry, despite entering a field already populated with extremely large national space programs. These companies – Lockheed’s Skunkworks included – strove to maintain a lean start-up mindset, often dispensing with the rules and internal politics of its main self.

Although the examples used above are essentially rooted on American soil, the capacity for large organizations in any country to pay attention to lean management principles is both possible and vital in a global economy where a five-year plan is essentially four-years too long.

[1] Klotz, Freida. “Why Large Companies Struggle With Lean,” MIT Sloan Review, Reprint 61222 (2019), p 3.

[2] Ibid., p. 4

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