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In this episode, Pascal Dennis answers "Is Lean enough?" Looking at where the Toyota Production System has taken us so far and why it falls short of tackling the complexity of the modern era.
Pascal explains that whilst TPS provides an excellent foundation for organizations, it takes more than that to set the future for innovation in the digital world.
Episode: S1:E1 - The Strategy Hero Podcast - Is Lean Enough - Pascal Dennis
[James] Hello, and welcome to another episode of the Strategy Hero Podcast. The podcast that's all about diving into the world of business strategy, transformation, and operational excellence, featuring insights and experience from some of the most successful leaders in the field.
Today, I have another fantastic guest that I cannot wait to talk to. Pascal Dennis. Pascal is something of a Lean legend, an entrepreneur, engineer, and author.
Pascal is a four-time winner of the Shingo Prize Winner for Operational Excellence. But he's also a co-founder of Digital Pathways, which helps forward-looking organizations design, build, and scale compelling digital products and new business ventures, which is something that I'm sure today we'll get into. And it doesn't end there. He's a composer, musician, and also a student of Aikido. But for us today, he is our strategy hero. Pascal, lovely to see you.
[Pascal Dennis] Thank you, James. I appreciate the invitation.
[James] Lovely to have you on board today. Although I know a lot of our listeners will already be familiar with your story. Having read the likes of Getting the Right Things Done. Could you just give, for those who aren't so familiar, just a really quick run-through of your background and how you got introduced to the world of Lean?
[Pascal Dennis] I'm a chemical engineer by training. I spent the 1990s at Toyota. I was lucky enough to experience wonderful mentors and great senseis. I started Lean Pathways in the year 2000, hoping that we could do for our partners what our Japanese senseis did for people like me. And about five years ago, I started Digital Pathways, which reflected my growing interest in disruptive innovation using digital methods.
And here we are. All these years later, I'm still having a lot of fun working with wonderful, marvelous partners and lucky enough to still be learning.
[James] I've personally enjoyed getting to know you over the last six or so months, Pascal, and I think having read quite a few of your books, myself and some of my colleagues, one of which is I'm fairly sure obsessed with Atlas Industries. I think it's an honor for us to be able to have you on the podcast.
[Pascal Dennis] Thank you.
[James] It'll be great to get your thoughts. I mean, as we're going through kind of what we could be talking about today. One thing kept coming up, and I think it's something that our audience is going to love listening to. So without further ado, is Lean enough?
[Pascal Dennis] I don't think it is anymore. I don't want to be misunderstood. The methods of the Toyota Production System are as powerful as ever. They're simply no longer sufficient. So Lean Toyota production system provides an excellent foundation for protecting your core business.
But nowadays, you also have to be able to ignite new growth using the digital methods pioneered in the innovation hotspots of the world. Places like Silicon Valley and Singapore, where I've spent a lot of time the last five or six years, and it's been really transformative for me.
So the good news is that Lean slash Toyota's Production System lays a wonderful foundation, helps you protect the core business. The challenge is we have to learn new mindsets, new skill sets to ignite new growth in a very different world than perhaps what we were used to.
[James] So one of the things that I feel that we find a lot with our audience, is that they have a very clear mindset and culture coming from sort of the Lean background. And what comes with that is a very clear set of skills. Is there a world that you can go beyond that sort of, this is how we've always done it, sort of mindset. Is there a world beyond common lockers and countermeasures and really a way that people who have grown up on this system can take what they learned perhaps and either put it to the side or build upon it effectively?
[Pascal Dennis] Yeah, I think the key is to understand something that Aristotle, the great philosopher, arguably the father of modern philosophy, something Aristotle said many years ago, he observed that there are two worlds, in fact. One world is that in which things cannot be otherwise.
In other words, the world of science, physics, I'm a chemical engineer of the Toyota production system of Lean. And in that world, things cannot be otherwise. If you define and implement a good value stream, a good process, and you understand your bottlenecks, you elevate the bottlenecks, you reduce waste, delay, etcetera, throughput will improve. Lead time will decrease. It'll happen every time.
That's the nature of that world. It's predictable. But there is another world Aristotle tells us, and that is the world of things that can be otherwise. And that's the world of taste, of public opinion, of psychology, of politics, for example. And in that world, things can be otherwise. For example, a customer can say in a focus group, oh, yes, I really like that. I would definitely buy that. And then they don't buy it. That's very, very common. This other world, in fact, is volatile. It's uncertain, it's complex, and it's ambiguous. And the skills that we learned in the first world do not necessarily apply.
As I suggested earlier, they do lay a nice foundation, they'll protect our core business. But if you want to excel in the second world, you have to develop different skills and a different mindset. And I call this becoming ambidextrous. Much of my personal practice now is working with boards and senior teams, helping them understand ambidexterity, it's no longer enough to be good in the first world.
It's no longer enough to be good at Lean. If, for example, you are a supplier of combustion engines or parts for combustion engines, you could have the best changeover, the best production lines, the best supply chain in the world, and your future will still be bleak. So it is what it is. And, in a sense, we're victims of our own success. You know. But, on the other hand, it's a wonderful opportunity to grow and to learn something new.
[James] I think for people like myself that come from probably the former world that Aristotle spoke of, talking to someone like yourself and learning about the Toyota production system and learning about everything to do with Lean, it's challenging because you come from a very clear background, that is probably more creative. There are elements of science definitely involved.
And I guess for me, what is very interesting is that from our conversations, it sounds like you have found a way to almost merge those two sort of worlds. They are quite similar. I mean, sorry, they are quite dissimilar in many ways. But also, there is a way that you can bridge that gap, I think.
In terms of skills. What sort of challenges are you seeing, you know, in your engagements, when you go into these big, big organizations, what are people responding to in the C-suite? How are people responding? Sorry, in the C-suite, when you are asking them about changing, you know, well-formed habits and, and mindsets.
[Pascal Dennis] What I've experienced is a sense of anxiety because these are very accomplished people, good people, that wanted to do the right thing for their team members, for their company, for the community, but they don't know what they don't know. So, really there are four blockers that I help boards and c-suites with when it comes to creating, developing this ambidexterity, this dual capability if you will.
The first blocker is ignorance. So people do not know the required skill set. They do not know the basics, for example, of design thinking or agile ways of working, or Lean experimentation. Let alone the transformative technologies that are changing every day and every week. There's a new ChatGPT, and gosh, what does that mean for us? What does it mean for our marketing department? What does it mean for our customers? What does it mean for da, da da?
So, there's ignorance of the skill set. Ignorance around the mindset. So for example, maybe I am a chemical engineer or a superb auto plant factory manager or executive. But do those skills apply in this uncertain world, volatile, uncertain, complex, ambiguous world? So That's a source of ignorance. A third is what kind of a culture do I need to succeed in this second world? The second blocker is fear. As I said, there's a lot of anxiety because these are good people that want to do the right thing, and they don't know if they can do it. So a big part of my practice is helping them work through the ignorance and thereby start to assuage the fear and start to feel, okay, I think I get this, and everything I've learned up until now is not wasted. It's a good foundation, but now I need to learn new things.
Just an example of how what you've learned in the first world applies in the second world. So Lean experimentation is the means by which you dispel the uncertainty, the fog that you deal with when you're trying to create something new. A new customer journey. A new offering, our new business. And the way you dispel that fog, the way you illuminate the darkness, the unknowns, the known and unknowns, is through experiments. But the experiments have to be much, much quicker than we're used to, say in a factory or in a supply chain. Because you're in this volatile, uncertain, complex, ambiguous world. It's not as predictable as the supply chain or as the factory. At any event.
So the first block is ignorance. The second is fear. The third is guesswork. So to ignite new growth, you've gotta create new journeys, new offerings, and we have no data. So how do you move forward if you have no data? The answer is you create your own data through Lean experimentation and related methods. And that takes time and that takes capability building. But it can be done. And the fourth blocker is one that we're familiar with in both worlds. And that's scatter, that's a diffusion of effort because we don't understand where we are in this volatile world and we're pressing buttons hoping something works, and that creates this scatter and diffusion. So yeah, those are the four biggest blockers.
And as I say, I spend a lot of my time with boards and C-suites on those very things.
[James] What are some of the examples? What are some of the tools that you put to use when you are trying to, I guess, ease some of that worry, some of that anxiety over the change that comes with? This is unfamiliar, this is something that I cannot apply this toolset to. What are some of the examples and tools that you would normally put to use in that sort of situation?
[Pascal Dennis] We have one method or offering that we call The Digital Executive Forum wherein we connect a senior team with their counterparts in the world of innovation. So, for example, tech companies that can demonstrate the best in class practice.
So, for example, if I'm a banking or insurance executive, we can create a digital executive forum with their counterparts in the FinTech community. And the Fintechs will show here is the best practice in a given field, in a given endeavour, in a given business. And, you know, you talk with them, you have coffee, maybe we have dinner together, and then maybe we take a group of executives to an innovation hotspot. So we've done this in Singapore, for example, where I've spent a lot of time in the last five or six years, and let's visit some innovation labs and accelerators in that vibrant ecosystem. And then you start to see, okay, yeah, I think I get this, I think I get this, this can be done. And it's not that dissimilar. I see a lot of experimentation, a lot of visual management. We have a lot of playbacks, a lot of stand-up meetings, and yeah, that I understand. So you start to desensitize the senior leader and say, well, maybe I can do this. That's just one example.
The other key countermeasure is, just executive mentoring. We've developed an "I offer 101", which is to protect your core business. "201 Ignite New Growth." And that's biweekly executive mentoring. We have three-hour sessions wherein we learn by doing. So this week's session is on Lean experimentation. Here's a demonstration, here's an example of a video or a case study. So now let's go to the innovation lab, and if we don't have an innovation lab internally, let's go to one of our partners and see what that looks like. Oh! And then they see rapid ideation, rapid experimentation, the reflection, what have we learned, what does it mean? Okay, what are the next experiments? And then they start to see, whoa, this is different than what I'm used to, but it's also similar. I think we can do this, you know.
So two answers. Digital executive forum and executive mentoring is a good countermeasure I find.
[James] What do you find the typical length of time it takes for one of these executives to go from, this is the way that I do things to, okay, now I've seen that it can be done differently. And then how long would it take someone typically to go from that, Oh, I'm not quite sure, to now I have the tools, I have the know-how, and I'm putting into practice. Is there a standard or a time or does it really vary, depend on industry and experience, etcetera?
[Pascal Dennis] Probably on the order of two years, of course, you know, plus or minus is based on experience and the depth of commitment, the culture of the company, etcetera. One of my... I had a session with one of my favorite mentees if you will. He's the president of a wealth management company. And he's, you know, a showcase for us. We're very, very proud of Louie and his team. And it took him about two years to lay the foundation to protect the core business and then build, ignite new growth, you know, the second gear. And they're just doing great. And he's proselytizing and he's saying, this is really great, you can do this.
So, we have other wealth management executives that are, you know, sort of tugging on my sleeve saying, you know, can you help us do this? How long will it take? So, okay, well, sure.
[James] What sort of results do you see? Do you think that it's important for Lean to be at the foundation and then to build this on top? And if that's the case, what's the results? What the difference from, okay, we're running, you know, we're running our operational excellence programs and they're delivering X, Y, and Z by layering these new skills on top.
What sort of material change does come about in terms of whether it's revenue, whether it's savings, whether it's taking new products to market? What is the, you know, what are those sort of key numbers that you can point toward and say, this is clearly making a difference?
[Pascal Dennis] Yeah. We've got quite a bit of data on that. In terms of speed to market, the improvements are 50%. Terms of improvement and throughput. The number of innovations you bring to market it's typical to double the throughput a profitability, increases 30% roughly. Because, there's so... the method we use is, you map the existing customer journey and then map the value stream, the internal processes that created it. And by mapping pain points in the customer journey to blockers in the value stream, you unleash enormous amounts of value.
What we find interestingly enough is that the most painful points in the value stream coincide with the biggest waste in the value stream. What we're doing is buffering weaknesses and it doesn't work because we still have this awful pain. So, in any event, by mapping the two pain points in the customer journey with the internal blocker, you unleash, release an enormous amount of waste. So on top of the improved throughput, new offerings and improved customer experience, you also tend to reduce costs as well. In one particular, this was a major bank in East Asia, the pain point was the so-called know-your-customer process.
In other words, how long does it take for me when I apply for, you know, an account, let's say I'm a business, I want to get a commercial account going in whatever Hong Kong or, you know, Bangkok or something like that. And the cycle time was something like two weeks. And to provide that awful service, it was something like 800 full-time equivalents, 20 software systems internally, and a bunch of other buffers. So that terrible customer experience coincided with this huge cost. And that's a pattern that we see.
[James] That's incredible.
[Pascal Dennis] Yeah.
[James] That's a lot of wastage.
[Pascal Dennis] Yeah, often the report out to the C-suite is, did you know? Did you know that to provide this awful experience to prospective new customers, we are spending this amount of money and hassle and software. And usually, it's: What? What?
[James] Something that I've noted as we've been talking is it sounds like the, you know, you're talking about value streams and customer journey mapping, ideation, and Lean experimentation. It sounds like there are, there must be, correct me if I'm wrong, there must be a lot of crossover here of existing tools that you might be using.
So that, am I right here thinking that light bulb moment is not just because people are being shown how to do this? It's like, okay, now I noticed that tool. Well, that tool is a little bit similar to the other tool that I might use. Is it fair to say that one of the, perhaps, the accelerators in this sort of journey that execs take is familiarity with a toolset and being able to transfer it?
[Pascal Dennis] Yeah, so as I said, if you have, a good Lean / operational excellence system that gives you a nice foundation to do the customer experience reform I just described, to create new customer journeys or new offerings because many of the tools are transferable. So, as I said, the most basic level of innovation is customer experience reform, as I described. We have an existing customer journey. It really sucks. We map it back to the internal value streams and processes that are creating that. And the most immediate benefit is you can see where you should focus your value stream improvement. So initially, you'll have rapid improvement events.
So typically, in our partners, the first year or two might be some rapid improvement events at pain points highlighted by the process I just described. But then we have to take to the next level, which is let's improve the customer journey. And that entails working externally, Lean experimentation, often, digital methods to understand the customer's journey. I know, I like, I trust, I'll try this product, I'll buy it, I'm going to buy it again, I'm going to tell everybody.
That's the customer funnel as we call it. And that requires understanding the conversion rate set every step, and thereby understanding the bottleneck and elevating the bottleneck through Lean experiments. I hope that's not too technical, but just give some idea of how this works.
[James] Okay. Definitely not for this for this audience. One thing I'd be interested to know about is, in my experience when I have learned, you know, dipped my toe a bit more and more into Lean and into Hoshin, and PPM, I've been able to borrow from the learnings and the experiences of my colleagues.
I've learned a lot of stuff from talking to yourself, Pascal, and there's a lot more people like yourself that I've had the chance, the fantastic chance, I should say, to talk to and learn from. Internally, then I just wanted to kind of, to kind of look towards maybe some blockers to this, because in my mind, this is, you know, this is no different from deploying a strategy. And what are the, you know, when we talk about blockers to strategy, execution, and successfully deploying that and delivering results, there are some very, very usual suspects that pop up.
Am I right in thinking that those do pop up? And, if so, what are they and how do you normally overcome those things like Silos and communication issues when trying to spread this new approach throughout the organization?
[Pascal Dennis] The most common blockers to operational excellence, Lean, if you will, remain as you said, Silos, misalignment, breakdown in communication, lack of visibility, the absence of prioritization, those all, those all exist and we have to address them in the ways that successful companies have for some years. The additional blockers to igniting new growth are, as I, or similar to what I talked about earlier. There's ignorance of the skill sets and the mindsets. Some of them are similar.
So Lean experimentation is not dissimilar to the kind of controlled experiments we might run in a problem-solving exercise in the supply chain. But they're different in fundamental ways. One is the speed. So for example, we have to learn how to run experiments much, much more quickly than we do in the factory. We have to master social media tools. One of the nice things about digital is that you can accelerate a customer through the customer funnel through short videos that are engaging, that are funny, that are based on the customer's jobs to be done.
So you can, as a smaller company challenge, you know, a gigantic company, very effectively, there are many, many stories about that. A cultural element is a very common blocker. We're facing to a certain degree, the innovator's dilemma, and we have to get over that. The innovator's dilemma, famously described by one of my heroes, Dr. Clayton Christensen, is that the return on investment of POVs, proof of values, innovations, if you will, is very low initially. So the quote-unquote rational thing to do is to continue doing what you've always done. So a rational accountant, accountant would look at your existing offerings, and you get an ROI of 10%. And then you look at an innovation portfolio whose ROI is zero, and all the conventional accounting methods, what's the revenue? Zero. What's the market share? Zero. What's the profit? Zero.
So the rational things to do would be shut down the innovation. So we've gotta get past the innovator's dilemma, and that entails learning new tools like innovation accounting with an innovation portfolio for the first part of it at least, and often well into the early stages of the launch, we're using traction metrics and not generally accepted accounting principles. At some point, you switch to revenue, return on investment, etcetera. And that takes skill to know when to change the scorecard. So that's a common blocker. A third one, and this might be the biggest one, is that innovations often threaten the existing business.
So, for example, this is a case in banking. It was a commercial division in a major bank. And we were working on an innovation which would allow a commercial customer, let's say a small business to make an application and receive the loan in 48 hours from their smartphone. And the results were extremely promising, the customers loved it, etcetera. But it met with resistance from the existing commercial leadership, commercial banking leadership because, and he was quite honest with me. He said, look, you know, we've got 2000 people in this group here. If this proof of value goes to market, what happens to those people? Or are they all out of business?
So that's an understandable tension, and you've gotta address that. So you've gotta create strategic space, physical space, financial space, emotional space, cultural space for innovation. That might be one of the biggest blockers. Because what will happen otherwise is the innovation will be handed off, quote-unquote, to the business and quietly decommissioned and you never hear about of it again.
Which is why innovation is so hard in, especially in larger organizations with the best of intentions.
[James] Yeah, I know that experience. I worked for a Teleco. I was leading the product marketing side of developing a new product. And it did require a significant change to the business model.
One, which after a couple of rounds of travelling did suggest that that shift would result in, you know, those things that you mentioned there in terms of there's an emotional impact, there's potentially a human impact, with personnel. It did get shelved. And I think, it's great that there's something like this that you are offering that could help executives to navigate those tough challenges that come along with innovation.
Out of interest, in that sort of situation, therefore, how would you coach, in my example, that executive who was presented with a new product that would alter the business model, but would not only generate mass savings, but change the revenue trajectory of the organization? How would you deal with that positivity there, but also that negativity of it would lead to some sort of structural changes?
[Pascal Dennis] Well, it's an impossible discussion to have at that moment. You know, it's really too late. What needs to happen is we have to have that discussion two years earlier with the board and with the C-suite. And we have to educate them on the nature of dual capability, protect your core business, ignite new growth, and in the likely scenarios and blockers that we're going to face, and we have to commit as a board and as a C-suite that we're going to see this through.
We're going to create the space, financial, physical, emotional, cultural, strategic space for our innovation activities, whether it's an innovation lab or an accelerator or call it which you will. And we're going to provide executive air cover when the blockers inevitably arise, whatever they might be. And we're going to commit to a scale-up process that's fair. That's just that offers people that are affected by an innovation retraining, for example. Or if they don't want to be retrained, coaching and how to start a new career or how to retire, whatever it is, you've got to plan all that out in advance.
That relates to one of the key elements in our model, you know, it's the pragmatic innovators network. We have to create internal capability to sustain innovation. We have to be able to generate ideas, screen ideas, monitor ideas, and then launch the successful ones. And that requires building business in the so-called middle management. So, that means, you know, a program to build the capability, to build the skill set, to give them practice and the means for them to get involved in innovation. And that could be as simple as a Shark Tank-like process. We've used that successfully.
So people pitch to, we call it an innovation council, but it's an internal Shark Tank, if you will. So these are the kind of discussions you have to have in advance. In fact, our transformation model has three parts to it. I can describe it if you'd like. If that'd be helpful, but there's three parts to it. And the intent of the model is to answer these questions in advance so that we're not faced with the scenario you talked about where an exec says, okay, this puts, you know, 2000 people out of work. Well, that's too late. We should have had this discussion two years earlier, you know, so that we'd have a countermeasure.
So no, they're not going to be out of work. They're going to be dot, dot, dot, dot do, right. They'll be taken care of because we've made that commitment.
[James] So I think, I mean, that would've been very useful in that situation. It would've been very, very useful. But I think, for anyone listening that has gone through something like that in terms of, new product introductions, it's challenging and I think there's a lot that we've heard from you today, Pascal, that I think we could probably, we have... we have spent hours talking about. If I were to challenge you for one second to offer one piece of advice to leaders who want to adopt a new mindset, a digital growth mindset, what would that one piece of advice be?
[Pascal Dennis] I think it would be create the space for innovation in the ways I described. Strategic, cultural, financial, physical. Understand the blockers are powerful, work through the kind of scenarios that I've described earlier. It would be secondly, to provide executive air cover for innovators, understand the blockers. Understand the blocker's point of view and address it as well as you can, build the needed capability throughout the organization.
So, our model fundamentally is executive development through mentoring. The second element is creating what we call, a pragmatic innovator network internally. It's a critical mass of people that have the fundamental skills. And then the third element of the model is innovation projects. A balanced portfolio and these three support one another. So, in summary, give people the skills, create space for innovation, and provide a culture that will support and sustain innovation.
There's another metaphor that we use for that. It's a tree metaphor. The metaphor begins with the soil. So you've gotta create a rich culture skill sets. The mindsets are there. So the necessary nutrients. And then you create this trunk. The trunk is a pragmatic innovator network. People understand the fundamentals of of innovation, not just the technology, the eight essential technologies, but also the methodologies, the Lean experimentation, design thinking, and the rest. And then you strategically decide what kind of fruit do we need? So you want an innovation portfolio that's balanced, so you've got both, you know, customer experience reform, fixing existing journeys, and you've got more advanced innovation, creating new journeys, and then the most advanced, creating completely new offerings and new businesses.
So those are the fruits of the trunk and the soil. So, you have to make this tree come to life and sustain it. So I wish I had more time to describe it. There's a lot to that. So I've given some images, hopefully that's useful. I wrote a book about it.
[James] I was about to say. Just before we wrap up, for those people listening today that perhaps are not in the C-suite, that are maybe man on the shop floor, maybe they're middle management and they want to help affect change, towards the senior leadership team, towards the C-suite, is there a way in your mind that they can do that by raising awareness in what we've been talking about today?
[Pascal Dennis] Yeah, there is a, I've been scratching my head about that the last five or six years. As I said, I've been focused on innovation and the hotspots around the world like Silicon Valley and Singapore, and I've realized in the last year that I really need to share all the stuff that I've learned and my team and I have learned. So we've come up with a series of workshops that hopefully will share in a useful way what I've been able to learn in these places and with these experiences.
This one workshop that we're just launching now called Getting the Right Things Done in a Digital World, and it's the first of a series. The next one will be what we call Smart Growth. Then there's one on what we call a Transformation Lighthouse. Building your Transformation Lighthouse, Digital Strategy Compass, the nuts and bolts of igniting new growth. These are meant to be accessible and a translation of everything that we've learned.
So I recommend that, to build your own muscles, understand the nature of igniting new growth and of dual capability. And then I think you can influence a senior leadership in a good way.
[James] Yeah, absolutely. I think that leads to a very natural segue to wrap up this episode. I think... I wanted to say, first and foremost, on behalf of myself and everyone in terms of production team and our listeners, it's been a pleasure talking to you and hearing more about how people can ignite digital growth. In terms of next steps, you've obviously mentioned the workshop.
I assume that in terms of people getting in touch with you, they can reach you on an email address. Am I right thinking that's pascal.dennis@leansystems.org
[Pascal Dennis] Great.
[James] And in terms of your social handles, that's Pascal, this is one word, Pascaldennismusic, the handle for your...
[Pascal Dennis] Our band.
[James] In terms of the URL for that workshop, it is leansystems.org. And then the last thing to obviously mention to everyone, is the websites that you can head over and learn much more about what Pascal's been talking about today, and that's digitalpathways.io.
[Pascal Dennis] And I should also say. Sorry to interrupt you. PascalDennishdd is my handle. So if you put that in, you'll get to our websites and blog posts, and Amazon page and LinkedIn. So PascalDennishdd. Sorry to interrupt.
[James] No, that's fine. I want to make sure everyone gets that. So yeah, so thank you again, Pascal. It's been an honour to talk to you and I think that I share everyone's opinion in terms of, thank you so much for joining us.
[Pascal Dennis] My pleasure. Thank you.
[James] Thank you very much, Pascal.
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