Now Reading: Toyota Management System meets Innovation: Lean Startup, by Eric Ries

Vanity metrics wreak havoc because they prey on a weakness of the human mind.

The only way to win is to learn faster than anyone else.

Sometime around 2005, with so many different management systems to learn and apply to my life, I chose LEAN (The Toyota Management System) as the one to invest in. This book confirms for me that I made the right choice.

I may actually be a little late to reading this, the 57th most highlighted book in the Kindle store (!). Even the US Department of Health and Human Services is promoting the techniques author Eric Ries writes about (See: HHS.gov – Innovation Fellows).

What this book is to me is a refresher of LEAN + application to innovation in organizations big and small. Ries’ definition of startup is good in that it applies across size:

A human institution designed to create new products and services under conditions of extreme uncertainty.

“Lean Startup” supplements “The Other Side of Innovation” and goes a little farther by discussing how to measure learning, set up experiments, with the foundations of one-piece-flow, small batches, and root cause analysis. I like how Ries tells the story of how he learned LEAN and gradually applied more and more of its concepts to his startup approach. I have lived the tragedy of waterfall software development in health information technology and I co-started a whole other blog about this after all….

Back to the book – I think the concept of Vanity Metrics (versus actionable ones) in “innovation accounting” is very important, because their use is massively rampant:

Innovation accounting will not work if a startup is being misled by these kinds of vanity metrics: gross number of customers and so on. The alternative is the kind of metrics we use to judge our business and our learning milestones, what I call actionable metrics.

To fully understand the difference, you need to see the difference between the funnel plot of customer cohorts and the cumulative statistics plot (it’s explained well in the book).

I also liked the use of A/B experiments to understand what customers want. These, paired with non-vanity (or actionable metrics) come together nicely to give an innovation team an idea of what their daily, weekly, monthly work might be like, in the midst of a large organization focused (appropriately) on performance and not taking risks.

There is a lot more to the Toyota Management System than is contained in this book. From my read, it appears Eric is still on the journey, still applying some of the most basic features. For example, I don’t see a discussion of Hoshin Kanri or A3 Thinking (or maybe it was too much to include here). I also can’t tell if Ries has arrived at the central premise of LEAN which I understand to be very simple: Respect, for the customer and those who serve them. This is key because the business landscape is covered with what is called “Fake LEAN,” which is the application of tools in an environment of non or dis-respect (e.g. “Lean and Mean”, not what this is), which is more wasteful than the waste intended to be eliminated.

One of the greatest challenges I have seen with Toyota Management System is that it requires imagination and creativity – the ability to take lessons learned from building cars in 1948 in Japan and apply them to innovation in 2012 is not a straightforward mental exercise for many. However I believe, as a Department Head A once said to me in the face of the eternal “we’re not building cars” comment – “it’s all the same stuff.” And by “stuff” she didn’t mean processes, she meant respect. I think Ries’ has done a compelling job with the crosswalk. I hope his next book is one about Lean Startup stories. For a topic that challenges assumptions about how people should work and where they should draw experience from, one can never get enough stories.

Special Bonus Video

This video has gotten so much attention on my blog and elsewhere that I’m posting here – it very simply shows one of the great fallacies of mass production, that big batches are better than small batches. It should help make you LEANcurious…:)

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