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[Music]
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I have called this uh the lean dream in
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the post global world to take account of
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where we now seem to
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be.
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And I was happy uh to go see Dan this
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weekend down in Monmouth. Uh we had two
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fun days uh thinking about the troubles
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of the world as we have for many many
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years. He gave me a list of 12 more
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books to read as he always does. But we
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continued to talk. This is our 46th year
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of talking, talking, talking. Uh we've
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written a lot of books. Had a lot of
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fun. Uh we got together in 1979 at MIT
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and we noticed that we had two things in
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common. Uh number one, uh we had deep
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dissatisfaction, disaection with big
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organizations. That didn't mean we were
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libertarians or anarchist. It just meant
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that the big organizations we had dealt
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with to that point in life seemed uh
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inadequate. I had spent a lot of time
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dealing with General Motors as an MIT
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researcher. He had spent a lot of time
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dealing with British Leilen and other
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falling apart pieces of u Britain. And
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it just seemed that there must be
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something better. So we set to thinking
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about what could be better. And uh we
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also discovered that we loved Gimba. We
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didn't call it that. We love to go see
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things. very nosy. Uh, when in doubt,
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just go see. We were always in doubt.
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So, we went to see all the time. So,
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what we were looking for was a new form
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of enterprise that could optimize
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value by more accurately specifying
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value for one thing that we looked at
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these big companies and they didn't seem
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to be able to understand changing
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customer need and then uh they could
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create that value with less. So we set
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off to Japan. That was the place to go
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that time. 1979 Japanese were going to
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conquer the world. Japan is number one.
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You may remember those days. Uh but it
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seemed a place to go for a looking for a
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new form of enterprise. So we made lots
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of trips and we visited lots of
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companies. We had a lot of fun.
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Um, but we realized that if this
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enterprise was going to
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actually do the right thing, it was
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going to have to stabilize the flow of
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value. We discovered that people are
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pretty good looking at points and
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they're pretty good at looking at
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systems, but the real payoff is to
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analyze the flow of value back from the
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customer to look and see if it's really
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an accurate representation of what
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customers want and to see how much
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munch, how much waste, how much chaos
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there is in the process. And that's in
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product and process development. it's in
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fulfillment uh what you might call
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production but that's from order back to
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raw material to the customer supplier
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alignment improvement customer support
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in the use cycle after they get whatever
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the product is and then general
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management and these are all processes
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right and we were really interested in
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process and what we uh believed about
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processes is that they all want to get
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worse uh in this universe uh maybe not
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in other universes But in this universe,
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the one where we are right now, um,
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processes want to get worse as quickly
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as they can, and they're very good.
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They're very good at it. So things fall
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apart in this entropic
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universe. And that what we needed was
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stability, continuous improvement, and
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occasional leaps in performance to
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defend the enterprise. We were dealing
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with General Motors and British Leland,
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two failing enterprises who couldn't do
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these things. And we said, well, how
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could an enterprise survive and even
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flourish over the long term? Well, they
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have to pay continuous attention to
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their value creating processes. And if
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they did that, you could have an
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enduring enterprise. Let's just think
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about what an enduring enterprise might
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be. Number one, customers for life. Uh,
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and why would you lose customers if
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you're always giving them a better
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experience deal more faithfully
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fulfilling their value need employees
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for life? Why do you lose people? Well,
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look, a lot of managers want to lose
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people because they don't like people.
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But, uh, why can't you build an
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enterprise that people actually want to
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stick with? Suppliers. Why would you be
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changing suppliers all the time?
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Wouldn't it be easier and better to
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actually have
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partners?
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Investors, the world of short-term
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investing, by the way, has always seemed
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crazy to me that you take enterprises
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that people work in and put their lives
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into and some idiot with a trust fund
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can come in and buy the thing, right?
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Really, that's what we do. So however
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could we create a situation where
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investors wanted to stay the course and
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be supportive of these other
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needs and then you have to have
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stability to ride through market and
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technology waves and management and
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geopolitical er errors. I will call the
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current situation a geopolitical error.
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Okay, which is a neutral term. Um that's
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just what I say. And so you could create
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an enduring
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enduring
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community, lean value, community of lean
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value. And that was our dream. Here was
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the dream. Could we find
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that? Now, of course, it wasn't
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impossible. We found it at Toyota. Took
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us a while. We went to a lot of
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companies. We went to Nissan and said,
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"Well, this is the General Motors of
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Japan." Uh went to Honda, said, "Love
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their racing spirit, but you can't scale
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this thing." uh the key ingredient is
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adrenaline and eventually these guys are
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going to get old and they are a bit
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older now. They've done okay but uh we
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looked at
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Toyota as the one organization we could
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find that actualized actualized our lean
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dream. Okay, so think about those four
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criteria. Toyota's actually been able to
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do all those things and they've been
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able to do them pretty consistently
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since 1950 when they had a great crisis
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which by the way was a wonderful thing
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for them. They had a crisis that really
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forced them to think and since that time
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they've had basically no turnover in
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their supply base. You heard this
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morning that the problem there is that
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people don't quit. Uh so that actually
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creates a new problem. By the way, every
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solution creates a new problem and
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they've got it. They've been pretty good
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stood and it's turned out to be very
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durable. I think uh a lot of you who are
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out in the lean world and you see all
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the chaos going on and you're saying
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that's bad for us because we believe
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that you can create stability, right?
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And the world doesn't want to right now
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be stable. So, disadvantage to us,
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advantage to people who live by their
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wits, make it up as they go along, do
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something different every day. I don't
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think so. See if I can convince
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you. Uh, by the way, news flash on our
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friends at Toyota, they're doing better
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than you think. Okay? I think, by the
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way, they're performing better now than
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they were when we started our work and
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when we finished the machine book in
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1990, the machine that changed the
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world. It's not what you hear, all
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right, that they missed the boat on EVs.
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Turned out the boat wasn't leaving, so
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they really didn't miss the boat. Um,
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and they've had crisis. Uh, 1950, they
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went bankrupt and were taken on by the
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bankers. Japanese bankruptcy is a little
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different, but uh, they ran out of cash.
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And who had the cash were the banks. And
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the banks came in and said, "You don't
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mind if we wreck your company." And they
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did mind. And they survived it. and they
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said this will never happen again. 73
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the first oil crisis, big jump in energy
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price, big shock in Japan. Uh 2010 they
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had grown so fast that they had produced
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cars and factories before they produced
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people. They didn't have enough managers
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who could really get the job done. And
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they learned from that. They stopped, by
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the way, expanding for some years,
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saying, "What we have to do now is grow
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more managers, create more people who
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can work our systems." Um, and they're
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really good at ocean planning with
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concurrent
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engineering. Instead of jumping to a
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solution, which is EVs, they said, "Are
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we sure we understand the problem? Do we
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understand the range of possibilities?"
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And so if you don't mind, we will keep
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exploring after others quit different
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ways to do cars, hydrogen. Um, and and
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best of luck to the folks here, whether
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you get the hydrogen car, the of the
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real electric car, whatever you get,
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hope you get something new. Um, and they
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stuck with plug-in hybrids, which were
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thought to be on the way out. Uh, I
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think they are for the long term. I
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think of them as the gateway drug to be.
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Okay. You get used to plugging in. I've
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been doing it for 10 years. Get used to
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plugging your gas car in and then you're
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trained, pre-trained for good EVs once
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they show
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up and consistently taking the long
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view. It is striking to me what long
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view the Toyota people take. And then
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finally, uh they've had a China plan too
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and the deal was don't overinvest. This
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thing is volatile.
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uh outsiders are not always welcome in
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China. Outsiders are frequently not
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welcome in China. So let's be moderate
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about our level of engagement. But most
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interesting uh since 2019 they have had
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a technology joint venture with BYD
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build your dream the most successful of
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the new generation Chinese car
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companies. And while everybody else has
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either been overinvesting or running
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away, they've been moderately investing
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while doing a JV with the company that's
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probably got more technology than
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anybody else. And just launched a new uh
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BZ3X uh two weeks ago in China. Uh the
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spec is kind of amazing for $16,000
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US. Okay. It's got as good a spec as the
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$40,000 BZ4X that I got rid of because
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it didn't have enough range and you
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couldn't charge it on a cold day. So, I
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think that's pretty impressive and I
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would predict that Toyota will be fine.
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It's not to say they aren't going to
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have some hard days. I wish I could be
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there right now to listen to their
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Hoseen revision. Uh, you know, given
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Trump 2.0. Okay, we did Trump 1.0. We've
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now got uh Trump 2.0. By the way, if
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that isn't a black swan event, what is?
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Okay, that you don't know where it's
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going to happen. You can't imagine it
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could happen. Then it does happen, but
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you don't know the magnitude of the
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duration. And you're supposed to make
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30-year investments right now. Okay. So,
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this is not
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easy. U was launched in 1990. Uh by the
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way, how many people read Machine? Tell
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the truth now. I don't want to. you know
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this is the bad data is bad data it's
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the numbers smaller and smaller um that
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I gave a talk uh in another country and
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another company the other day and not a
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single person they said they were doing
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lean but not only they hadn't read it
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they'd never heard of it well okay
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they're translation issues and so forth
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okay you know I I get it I've got a sell
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by date um but when we brought that out
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in 1990 uh the Soviet Union just
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collapsed
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China had really jumped into the world
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with both feet. You know, one of the
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probably the most amazing thing in
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economic history is what the Chinese
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have done since 1978. You may love it,
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you may hate it, but it's pretty
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amazing. So, we thought, wow, a stable,
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truly global, largely tariff-free
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economy. How's this going to work? And
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we had our own theory of regions based
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on some lean thinking which was that why
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would you ship product from this side of
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the world to the customer who's on the
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completely opposite side of the world
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and investors would think that's a great
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idea. So in fact uh the mark of a
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properly run company was how far from
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your customers can you make things and
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some companies got a perfect score.
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They're not so happy right now. Okay.
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So, we said, look, the logic of this
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thing is that excess transportation is
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bad. We heard that from Taiichiano.
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Remember
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Taiichi? Excess trans. He didn't say
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transportation is bad. He said excess
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transportation. So, what you want to do
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is trade some labor cost, which are a
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real deal. There is a big difference
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between high wage countries and low
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related to the complications of moving
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to strange places, people you don't know
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to do things. And the logic is stay in
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your region. If you're in Europe, you
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suddenly you've got all of Eastern
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Europe. And this is a lot more stable
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than going to China. If you're American,
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uh you've got Mexico and Canada. Uh
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that's more stable than going to China.
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Maybe not under Trump 2.0. 0 and then if
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you're in East Asia, uh there's lots of
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opportunity within the region to get low
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wage if you need it and then keep your
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high wage people doing the higher value
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activities. And then that's what you do
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with your volume products and then you
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could trade niche products everywhere.
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So the lowrunner that you need enough
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volume to do it at all, well, you sell
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it to the whole world. But the higher
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runner, which is optimized for the
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market you're in, that's the way it's
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all going to
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work. And then of course, we thought
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there would be current and tariff
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neutrality if you did it that way,
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right? That you would have very little
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risk of currencies and tariffs. So go do
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it. We didn't go do it.
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Um, so it was the way to address the
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Japanese challenge. I think we did
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something useful. Uh we went to Japan.
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We looked at what they were doing at a
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time when America and Europe were saying
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they're winning because they like,
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cheat, and steal. Okay, the trick
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currency and the secret workers and the
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third tier sweat shops and the
00:14:45
government subsidies and so on. That was
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theory A. And theory B was well, they've
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just learned better ways to manage to
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manage all kinds of things. production,
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product development, supplier alignment,
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custom
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support. And we set out, our mission was
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in the machine book to say which it was.
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Was it theory one, the light, sheet, and
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steel, or theory two, they're doing
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something better? Concluded they're
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doing something better, so we should
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copy in the legacy world, if you will,
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and they're going to have to invest
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within each region. And by the way,
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Toyota was the best at successfully
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investing within different regions. You
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take it as nothing. Now you got
00:15:27
Berneston and Dside and they work great
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and I've been to see them and they do
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work great and say, "Well, that was
00:15:33
easy. They just did it." Well, no, that
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was hard. That was hard and they managed
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to do it and they've done it really, I
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think, better than anybody else, which
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becomes very relevant going forward.
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Oh, by the way, Dan and I, dreamers that
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we are, we actually went down to the
00:15:50
Federal Reserve in in uh Washington to
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talk to the economist about what would
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happen to the economy if you could take
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half or more of the inventories out of
00:16:01
the economy. And they had models of how
00:16:04
the business the normal business cycle
00:16:06
works. And our conclusion was that you
00:16:09
could cut the amplitude of the business
00:16:11
cycle in half just by doing uh a level
00:16:14
of inventory required by good lean
00:16:17
practice. They said, "Whoa, we're going
00:16:19
to stabilize the whole economy. It's
00:16:21
going to be win-win win-win win." Didn't
00:16:23
happen, but you know, just
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saying. So for 25 years, it seemed to
00:16:29
work. I was feeling pretty good. Uh but
00:16:33
uh progressively uh managers, dog on it,
00:16:36
managers pushed by short-term investors
00:16:40
uh said, "hm, we've got to optimize
00:16:42
things here." And what we want to do is
00:16:46
everybody moved to China. I talked to
00:16:48
CEOs who had just said, "I have to have
00:16:51
20% of my buy in China by next year and
00:16:54
35% by the following year." And I kept
00:16:56
saying, "Well, could you do lean math?"
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Lean math says a what would happen if
00:17:02
you ran your operations as leanly as
00:17:05
Toyota does right here. And then if you
00:17:08
thought about your exposure to tariffs,
00:17:12
to country collapse, to currency
00:17:14
collapse, to these new suppliers
00:17:17
becoming your best competitors and so
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forth. And the answer was no. Uh we're
00:17:22
measuring uh the peace part price plus
00:17:25
slow freight, container freight. That's
00:17:27
what we know how to measure. So that's
00:17:29
what we're going to measure. We're going
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to China. Okay. See you later. Now's
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later.
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Um, so in doing that, you abandon an all
00:17:40
obligation to your workers. I have done
00:17:43
a lot of NGO work in Guatemala. Uh, and
00:17:46
one for odd reasons with a company that
00:17:49
uh, moved from Greenfield, Indiana to
00:17:51
Antigua, Guatemala overnight on a
00:17:54
weekend. And the employees all worked
00:17:56
the shift on Friday and they came back
00:17:59
on Monday. The signs were gone,
00:18:02
everything was gone and their jobs were
00:18:06
gone. And those are people who I do
00:18:08
believe uh have gotten us to Trump 2.0.
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And by the way, wouldn't you be mad? And
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so much of that was going on of people
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just abandoning their
00:18:19
people. Um and you can see the rest of
00:18:22
that.
00:18:24
um and you get to the chaotic world uh
00:18:27
today. It's not your imagination, it's
00:18:28
it's chaos. Okay. So, what do lean
00:18:32
enterprises do now? Lean enterprises
00:18:34
like stability, right? And we're very
00:18:37
vulnerable, right? Because we're very
00:18:39
good people and we're very vulnerable
00:18:40
and so on. I'm just making that up, but
00:18:42
okay.
00:18:44
Um uh I see the world right now as not a
00:18:47
black swan, but a flock of black swans.
00:18:50
If you read the Tali book, The Black
00:18:52
Swan, anybody read that? It's a wonder.
00:18:54
Seriously, it's a great airplane book.
00:18:56
It was inspired by what happened on 911.
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But what he's talking about is that
00:19:02
there are events in human life that are
00:19:05
not just unpredictable, they're
00:19:08
unimaginable. Okay? Before September 11,
00:19:11
how much time did you spend thinking
00:19:13
about flying airplanes into buildings?
00:19:15
None. Okay? They're events that you
00:19:18
can't even imagine. And because you
00:19:20
imagine, you can't predict when they
00:19:22
might happen. But even if you can
00:19:23
imagine, you can't predict when they
00:19:25
might happen. And you can't predict the
00:19:26
duration and you can't predict the
00:19:29
amplitude. Those are black swans. And
00:19:31
the book sort of implies that they come
00:19:33
one at a time. Uhoh, there's a black
00:19:35
swan. But it turns out now we've got a
00:19:38
whole flock. And the ecological thing, I
00:19:42
do think the climate is uh voting
00:19:44
against us right now. And I think it
00:19:46
will vote more against us. the
00:19:48
geopolitical thing into the American
00:19:51
imperium. Uh, as an American, I don't
00:19:54
myself regret that. But there is a good
00:19:57
question of what comes next. But I
00:20:00
always thought it was a bit of unnatural
00:20:02
thing for Americans to run an imperial
00:20:04
empire. And now that of course is just
00:20:06
falling apart. And we get
00:20:09
neonism, okay, as the default. uh then
00:20:13
the
00:20:15
technologies it's not just AI but AGI
00:20:18
that's that's uh generalized
00:20:21
intelligence okay artificial generalized
00:20:24
intelligence they can actually think
00:20:26
devices and the robotic stuff now the
00:20:29
new thing with the uh VC crowd is
00:20:32
quantum computing you should get in
00:20:33
early uh I I don't know whether you can
00:20:36
do quantum computing or not but the
00:20:38
theory is that by the way it makes all
00:20:40
encryption pointless because It can, you
00:20:43
know, it can run the numbers fast enough
00:20:45
that nothing could be encrypted.
00:20:47
Everything is open. Is that good or bad?
00:20:48
Don't know. But hey, look, what's really
00:20:50
disrupting about that is the threat to
00:20:53
managerial white collar work. All this
00:20:56
earlier stuff has been about, you know,
00:20:59
robots knock out car workers, right?
00:21:02
Those good manufacturing jobs. No, this
00:21:05
is about your job. Okay? And that's
00:21:08
pretty that's a big black
00:21:11
swan. Okay, so we're in this world with
00:21:14
a flock of black swans. What can Lean
00:21:16
do? And my answer uh hey I'm sorry I
00:21:19
can't do better, but I think in logic
00:21:22
this is the only answer is that we
00:21:24
double down on our
00:21:26
strengths. And that means using hosene
00:21:30
effectively to identify challenges and
00:21:33
opportunities. Uh by the way, read
00:21:34
Mark's book. Mark's going to talk
00:21:37
tomorrow. Uh, but anyway, he's got the
00:21:39
book. This is the Toyota book on Hosene.
00:21:41
Okay, this is what you do. All you got
00:21:43
to do is read that book and say, "Maybe
00:21:46
we've got the wrong hosing because Trump
00:21:49
2.0 just happened and we this year we're
00:21:52
trying to work on quality. Uh, we should
00:21:54
be working on the fact that our
00:21:55
footprint is totally wrong for the world
00:21:58
where we are now." And by the way,
00:21:59
there's this notion of it's a single
00:22:01
it's a year at a time. It's a cycle and
00:22:04
you just start the year and then you do
00:22:06
a halfway through checkup. But actually
00:22:09
anytime something big, disruptive,
00:22:12
unexpected, unpredictable happens, well
00:22:16
that becomes a hosing. Right now I would
00:22:18
love to be at Toyota. Wish they would
00:22:20
let me in to talk about the discussion
00:22:24
they're having about a hoseen, which is
00:22:27
to say how to deal with Trump
00:22:29
2.0. Okay. And we'll talk a little bit
00:22:32
more about that in a minute. And that
00:22:35
requires of course a lot of kaizen as
00:22:37
well. And then daily management. Just
00:22:39
because things are unstable doesn't mean
00:22:42
we give up on daily management. You're
00:22:44
always better off with stable daily
00:22:46
management even when you're in a time of
00:22:49
significant change.
00:22:53
Something else here uh that I was really
00:22:55
mentioned last year that I'm really
00:22:57
struck by that one of the uses of your
00:22:59
OPEX team or your OMD team in Toyota
00:23:03
terms is that uh these unpredictable
00:23:06
events because they're
00:23:09
unpredictable the best you may be able
00:23:11
to do is simply try to recover. So who's
00:23:15
going to be the chief engineer for
00:23:17
recovery? Think of company like Toyota.
00:23:19
Maybe their footprints wrong. As it
00:23:21
turns out, they're going to have to move
00:23:22
a lot of production to different places.
00:23:25
Who's in charge of that? Who's going to
00:23:27
do the A3? Needs an A3, right? So, it's
00:23:31
a job for OPEX, uh, OMD as it is at
00:23:35
Toyota these days, which I suspect many
00:23:38
of you have never thought about, but who
00:23:40
is going to be the fireman, but no,
00:23:42
who's going to actually have the plan
00:23:44
for the
00:23:47
recovery? And then lean math. Uh hey now
00:23:50
everybody's out of position with regard
00:23:52
to location. So will they will
00:23:55
immediately decide to onmos do the exact
00:23:58
opposite of what they did before. Uh I
00:24:01
started writing about this in 2003 uh
00:24:03
promoting the idea of lean math which is
00:24:06
simply how would you be if you could
00:24:08
actually do the whole lean thing where
00:24:10
you are before you move anywhere and
00:24:13
then what's the right formula for risk
00:24:15
with all these risk factors rather than
00:24:17
just measuring peace park price and slow
00:24:20
freight. So now though uh I did not say
00:24:25
hey let's all go home let's move
00:24:27
everything back to whatever the market
00:24:29
of sale
00:24:31
um what is the right thing to do I mean
00:24:33
that takes some thought uh there's no
00:24:35
perfect answer but a thoughtful answer
00:24:38
is better than a thoughtless
00:24:41
answer and constancy of purpose you know
00:24:44
in chaotic times I'm this way I go back
00:24:47
and forth with my wife every day on this
00:24:50
she is up and down up and down, up and
00:24:52
down, the things happening. And I say,
00:24:55
"No, when it's looking good, it's not as
00:24:57
good as you think. And when it's looking
00:24:58
bad, it's not as bad as you think. And
00:25:01
you just need to do some hyunka, some
00:25:03
emotional hy junka leveling." Okay?
00:25:07
Seriously, to keep from going crazy, I
00:25:10
can see no lean benefit in a psychic me,
00:25:13
you know, in a mental meltdown. So, it's
00:25:16
in your interest to uh just sail a
00:25:19
steady course.
00:25:21
And then uh too late for some of you but
00:25:24
um the reason part of the reason I have
00:25:27
such confidence in Toyota is that since
00:25:30
1950 they have carried a mountain of
00:25:33
cash mountain of cash that all financial
00:25:36
analysts have looked at it and said this
00:25:38
is outrageous they ought to be
00:25:39
leveraging every yen. Okay. and they
00:25:43
said, "No, that's our ballast that as we
00:25:45
sail through category 5 C's, we're going
00:25:48
to be putting cargo over the side. We're
00:25:50
going to be putting crew, i.e. our
00:25:52
employees over the side unless we've got
00:25:56
cash." So, I just checked at the end of
00:25:59
um December uh at the end of the quarter
00:26:02
uh Toyota had 90 billion in cash and
00:26:05
short-term stuff. Uh nobody else in the
00:26:08
car industry had more than 30. Okay, 90
00:26:11
billion puts you up with Amazon, with uh
00:26:14
Meta, with Google, uh with Apple. Not
00:26:17
quite Apple. Apple's about 150. But
00:26:20
anyway, they've got this mountain of
00:26:21
cash. That means they can actually make
00:26:24
a few mistakes, but more important, they
00:26:26
can wait a little bit before they have
00:26:28
to take action before saying, "Oh my
00:26:31
gosh, the ship's sinking. We must do the
00:26:33
following." Which can make the ship sink
00:26:35
faster. They say, "No, wait a minute.
00:26:38
We're just going to burn some cash for a
00:26:40
bit until things kind of clarify
00:26:42
themselves and we can see where to
00:26:45
go. So, and finally, lean transformation
00:26:49
framework is a gate thing, but where we
00:26:52
stand right now is that it says right up
00:26:56
there. Um, what problem are you trying
00:27:00
to solve? I think maybe a lot of you
00:27:03
have got a new problem. What is your
00:27:05
situation? I think you're in a new
00:27:08
situation. Before you do
00:27:11
anything, whoa, what problem are we
00:27:13
trying to solve now? What's our actual
00:27:15
situation? Let's be honest, but let's
00:27:17
not panic. Okay, honesty. Hi, Junka. No
00:27:21
panic, but let's take a hard look. And
00:27:24
then you do the magic of the lean
00:27:26
transformation framework. And maybe
00:27:29
you'll even survive. Wouldn't that be
00:27:30
great? And if you survive long enough,
00:27:33
you can be, of course, a Toyota. So,
00:27:35
that's my story. Um, hey, that's my
00:27:38
story.
00:27:41
And don't forget to subscribe to our
00:27:43
YouTube channel for the latest lean
00:27:44
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