Eliminating Waste: A Principal Agent Model with respect to Human Capital
©2005
Diplomarbeit
93 Seiten
Zusammenfassung
Inhaltsangabe:Abstract:
Utopia, the ideally perfect state in social and moral aspects, the imaginary island represented by Thomas More in 1516 enjoying the greatest degree of perfection in politics and laws, the perfect society, have we already reached it?
Several artists and authors who dealt with the subject of geographical design and functional planning of new municipal constructions have elaborated drafts and ideas about future types of society and urbanity as a Utopia of a technological and highly regulated society. This genre of literature culminated in masterpieces such as Fritz Langs Metropolis (1927), Aldous Huxleys Brave New World (1931) and George Orwells Nineteen Eigthy-Four (1949). In their visions the modern city provides a lifestyle full of comfort and convenience: push button factories, flyways that put an end to traffic jams, electronically operated high-speed trains and many other inventions that are a vital part of a goal-oriented urban management to ensure maximal efficiency.
However, Fritz Lang as well as Huxley and Orwell show that all the convenience and comfort is a thigh costs. The urban habitat is depressing and in its design not aimed at recreation and personal development but at control of each individual. This culminates in the erosion of any kind of individualism. The life on the assembly line de-individualizes the inhabitants, equalizes and transforms them into machines that mechanically perform their work. Moreover, the people are no longer distinguishable, they wear the same clothes, and finally they are as the machines as which they work for...
In this light, as a consequence of industrialization and the quest for maximal efficiency, the trepidation emerges whether we are running into a state of deprivation, oppression, and terror. Are we developing towards a Dystopia, a state in which the condition of life is extremely depressing? This is the starting point for a theory of optimal employment of resources, of banishing waste, a quest in pursuit of excellence, without disregarding the focal point, the individual.
In fact, among successful managers there are no two identical strategies, management models or packages of techniques. To desperately cling to systems and self proclaimed panacea definitely is the wrong way as it is to call for an ideal rather than an effective manager. As Fredmund Malik (2000) argues that the key to the achievements of effective managers is not their personality but their way […]
Utopia, the ideally perfect state in social and moral aspects, the imaginary island represented by Thomas More in 1516 enjoying the greatest degree of perfection in politics and laws, the perfect society, have we already reached it?
Several artists and authors who dealt with the subject of geographical design and functional planning of new municipal constructions have elaborated drafts and ideas about future types of society and urbanity as a Utopia of a technological and highly regulated society. This genre of literature culminated in masterpieces such as Fritz Langs Metropolis (1927), Aldous Huxleys Brave New World (1931) and George Orwells Nineteen Eigthy-Four (1949). In their visions the modern city provides a lifestyle full of comfort and convenience: push button factories, flyways that put an end to traffic jams, electronically operated high-speed trains and many other inventions that are a vital part of a goal-oriented urban management to ensure maximal efficiency.
However, Fritz Lang as well as Huxley and Orwell show that all the convenience and comfort is a thigh costs. The urban habitat is depressing and in its design not aimed at recreation and personal development but at control of each individual. This culminates in the erosion of any kind of individualism. The life on the assembly line de-individualizes the inhabitants, equalizes and transforms them into machines that mechanically perform their work. Moreover, the people are no longer distinguishable, they wear the same clothes, and finally they are as the machines as which they work for...
In this light, as a consequence of industrialization and the quest for maximal efficiency, the trepidation emerges whether we are running into a state of deprivation, oppression, and terror. Are we developing towards a Dystopia, a state in which the condition of life is extremely depressing? This is the starting point for a theory of optimal employment of resources, of banishing waste, a quest in pursuit of excellence, without disregarding the focal point, the individual.
In fact, among successful managers there are no two identical strategies, management models or packages of techniques. To desperately cling to systems and self proclaimed panacea definitely is the wrong way as it is to call for an ideal rather than an effective manager. As Fredmund Malik (2000) argues that the key to the achievements of effective managers is not their personality but their way […]
Leseprobe
Inhaltsverzeichnis
ID 9039
Hunger, Stefan Georg:
Eliminating Waste: A Principal Agent Model with Respect to Human Capital
Hamburg: Diplomica GmbH, 2005
Zugl.: Universität Wien, Diplomarbeit, 2005
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http://www.diplom.de, Hamburg 2005
Printed in Germany
Statement under Oath
Hereby I declare on oath that I have drafted the following diploma the-
sis independently, and that I have used the stated sources and means only.
In addition, I declare that I have not submitted this work to any another
evaluation and did not publish it, neither in this form nor in another.
Eidesstattliche Erkl¨
arung
Ich erkl¨
are hiermit an Eides Statt, dass ich die vorliegende Arbeit selbst¨
andig
und ohne Benutzung anderer als der angegebenen Hilfsmittel angefertigt habe.
Die aus fremden Quellen direkt oder indirekt ¨
ubernommenen Gedanken sind
als solche kenntlich gemacht.
Die Arbeit wurde bisher in gleicher oder ¨
ahnlicher Form keiner anderen
Pr¨
ufungsbeh¨
orde vorgelegt und auch nicht ver¨
offentlicht.
Stefan Georg Hunger
Vienna, September 2005
I
dedicated to my father
whose entrepreneurial spirit
proved a guiding light in all my endeavours
with special thanks to
Ernesto Tapia-Moore
and
Jean-Marc Legentil
for their valuable contributions
II
TABLE OF CONTENTS
Table of Contents
List of Figures
VI
The Blind Men and the Elephant
VII
Praefatio
IX
The Quest for the Holy Grail
X
I
The Concept of Lean Management
1
1
The Lean History
2
2
From Lean Production to Lean Management
4
3
The Principles of Lean Management
7
3.1
Process-Related Principles . . . . . . . . . . . . . . . . . . . . .
8
3.1.1
Method Principles
. . . . . . . . . . . . . . . . . . . . .
8
3.1.2
Attitudes
. . . . . . . . . . . . . . . . . . . . . . . . . .
9
3.2
Content-Related Principles . . . . . . . . . . . . . . . . . . . . . 16
3.2.1
Change in perspective
. . . . . . . . . . . . . . . . . . . 16
3.2.2
Design of the whole value chain . . . . . . . . . . . . . . 17
3.2.3
Design of the supra-network as a learning system . . . . 18
3.2.4
Integrated view of product and production process
. . . 20
4
Tasks for a Lean Management
22
4.1
Planning & Organizing . . . . . . . . . . . . . . . . . . . . . . . 22
4.2
Decision-Making
. . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.3
Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.4
Controlling
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5
Critical Review of the Lean Concept
29
5.1
A Philosophy for Everyone? . . . . . . . . . . . . . . . . . . . . 29
III
TABLE OF CONTENTS
5.2
The Human Focus
. . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2.1
Quantitative Findings
. . . . . . . . . . . . . . . . . . . 30
5.2.2
Further Problems . . . . . . . . . . . . . . . . . . . . . . 32
II
Principal Agent Theory
34
6
Fundamentals
35
7
Information Asymmetry
36
7.1
Hidden Characteristics . . . . . . . . . . . . . . . . . . . . . . . 37
7.1.1
Signaling . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.1.2
Screening
. . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.1.3
Self-selection
. . . . . . . . . . . . . . . . . . . . . . . . 38
7.2
Hidden Information . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.3
Hidden Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4
Hidden Intention . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8
The Two Agency Literatures
40
8.1
Normative Models of Principal Agent Theory
. . . . . . . . . . 42
8.1.1
Contracting under Hidden Information . . . . . . . . . . 42
8.1.2
Contracting under Hidden Action . . . . . . . . . . . . . 48
8.2
Positive Theory of Agency . . . . . . . . . . . . . . . . . . . . . 51
9
Extensions of the Principal Agent Theory
52
10 Critical Remarks
53
III
The Model
55
11 New Ways for Lean
56
11.1 Value Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.2 Restructuring of the Value Chain . . . . . . . . . . . . . . . . . 58
IV
TABLE OF CONTENTS
11.3 Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12 The Model
61
12.1 First Best Solution . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.2 Second Best Solution . . . . . . . . . . . . . . . . . . . . . . . . 62
12.3 Outside Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13 Discussion
66
14 Conclusion
68
Bibliography
71
V
LIST OF FIGURES
List of Figures
1
Framework of the Lean Management Concept . . . . . . . . . .
7
2
The Principles of Lean Management . . . . . . . . . . . . . . . .
8
3
The Sources of Waste . . . . . . . . . . . . . . . . . . . . . . . . 12
4
Turnover and Number of Employees . . . . . . . . . . . . . . . . 15
5
Potential and Costs of Interference
. . . . . . . . . . . . . . . . 21
6
Course of Action . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7
Optimal Incentives under Hidden Information . . . . . . . . . . 48
8
Optimal Incentives under Hidden Action . . . . . . . . . . . . . 50
9
A Three Step Iteration Process of Corporate Restructuring . . . 57
10
First Best Solution and Relaxed Program with Pooling . . . . . 63
11
Wages and Agent's Utility . . . . . . . . . . . . . . . . . . . . . 65
VI
The Blind Men and the Elephant
The Blind Men and the Elephant
by John Godfrey Saxe (1816-1887)
based on a fable which was told in India many years ago
It was six men of Indostan
To learning much inclined,
Who went to see the Elephant
(Though all of them were blind)
That each by observation
Might satisfy his mind.
The First approached the Elephant,
And happening to fall
Against his broad and sturdy side,
At once began to bawl:
"God bless me but the Elephant
Is very like a wall."
The Second, feeling of the tusk,
Cried, "Ho! What have we here
So very round and smooth and sharp?
To me 'tis mighty clear
This wonder of an Elephant
Is very like a spear!"
The Third approached the animal,
And happening to take
The squirming trunk within his hands,
Thus boldly up and spake:
"I see," quoth he, "the Elephant
Is very like a snake!"
The Fourth reached out an eager hand,
And felt about the knee.
"What most this wondrous beast is like
Is mighty plain," quoth he;
" `Tis clear enough the Elephant
Is very like a tree!"
The Fifth, who chanced to touch the ear,
Said: "E'en the blindest man
Can tell what this resembles most;
Deny the fact who can,
This marvel of an Elephant
Is very like a fan!"
VII
The Blind Men and the Elephant
The Sixth no sooner had begun
About the beast to grope,
Than, seizing on the swinging tail
That fell within his scope,
"I see," quoth he, "the Elephant
Is very like a rope!"
And so these men of Indostan
Disputed loud and long,
Each in his own opinion
Exceeding stiff and strong,
Though each was partly in the right,
And all were in the wrong!
Moral:
So oft in theologic wars,
The disputants, I ween,
Rail on in utter ignorance
Of what each other mean,
And prate about an Elephant
Not one of them has seen!
VIII
Praefatio
Praefatio
Utopia, the ideally perfect state in social and moral aspects, the imaginary
island represented by Thomas More in 1516 enjoying the greatest degree of
perfection in politics and laws, the perfect society, have we already reached it?
Several artists and authors who dealt with the subject of geographical de-
sign and functional planning of new municipal constructions have elaborated
drafts and ideas about future types of society and urbanity as a Utopia of
a technological and highly regulated society. This genre of literature culmi-
nated in masterpieces such as Fritz Lang's "Metropolis" (1927), Aldous Hux-
ley's "Brave New World" (1931) and George Orwell's "Nineteen Eigthy-Four"
(1949). In their visions the modern city provides a lifestyle full of comfort and
convenience: push button factories, flyways that put an end to traffic jams,
electronically operated high-speed trains and many other inventions that are a
vital part of a goal-oriented urban management to ensure maximal efficiency.
However, Fritz Lang as well as Huxley and Orwell show that all the con-
venience and comfort is at high costs. The urban habitat is depressing and in
its design not aimed at recreation and personal development but at control of
each individual. This culminates in the erosion of any kind of individualism.
The life on the assembly line de-individualizes the inhabitants, equalizes and
transforms them into machines that mechanically perform their work. More-
over, the people are no longer distinguishable, they wear the same clothes, and
finally they are as the machines as which they work for . . .
In this light, as a consequence of industrialization and the quest for max-
imal efficiency, the trepidation emerges whether we are running into a state
of deprivation, oppression, and terror. Are we developing towards a Dystopia,
a state in which the condition of life is extremely depressing? This is the
starting point for a theory of optimal employment of resources, of banishing
waste, a quest in pursuit of excellence, without disregarding the focal point,
the individual.
IX
The Quest for the Holy Grail
The Quest for the Holy Grail
More than ever enterprises all around the world face a highly fluctuating and
changing environment of chaos and uncertainty. No matter if it's concerning
competitors, the uncertainty of financial markets, technological trends, or the
shifting tastes of customers and the interaction of all these defying changes,
managers face that not only their planning cycles and company structures are
inadequate to deal with these rapid developments. Moreover, constant trans-
forming surroundings imposing new challenges and constraints that jeopardize
management's actions of using resources and stock generate a totally unknown
milieu where each accomplishment increases the complexity and the difficulty
in comprehension.
It may be true, to paraphrase Tolstoy, that every unhappy organization is
unhappy in its own way, but the details set aside, the fundamental dynamics
of decline turn out to be remarkably similar: Who does not latch onto solution
models however dubious they are if company performance is shrinking? Most
often proactive and spunky managers head for new and trendy reorganization
measures, launching the next step before finalizing the last one. Stimulated
by the increasing pressure to improve productivity in the economic recession
of recent years, they are searching to detect the latest idea ahead of competi-
tors to be at least able to claim that their work was far-sighted (Huczynski
1993). Additionally, failures in communication within the corporation result in
uninformed employees lacking confidence in the management and challenging
each measure anew. It's no secret that many employees are fed up of the fact
that each year a new reorganization measure is introduced irrespective to what
extent the last one has already been implemented. Most of the changes require
the managers to establish faith and trust. But management lacks the time to
even lay the foundations of this prerequisite.
The recent management literature was literally inundated by neologism
and single techniques that somehow appeared to allegorize the quest for the
X
The Quest for the Holy Grail
Holy Grail. The basic intention of all these management styles and guru-like
checklist procedures is a Utopia which can never be reached: flexible and dy-
namic, highly productive and profitable enterprises that fabricate trend-setting
convenient products which are highly appealing to the customers, satisfying
all their needs, and involving content employees highly motivated and cre-
atively engaged in coping with the defying challenges of chaos. No matter how
these techniques were called, whether management consultancy offered solu-
tions named Corporate Social Responsibility, Executive Positioning, Business
Process Reengineering, Policy Deployment, Empowerment, Multi-Source As-
sessment, Balanced Scorecard, just to mention some of them, these are only,
if at all, single remedies that are rarely able to cure the entire organism. Pos-
tulating the existence of an ideal manager, a universal genius to say, these
techniques only succeeded in addressing particulate aspects (Pfeiffer and Weiss
1994), such as each of the six men of Indostan in the fable only highlighted his
particulate perception, and therefore these methods were predestinated to fail
in many cases.
In fact, among successful managers there are no two identical strategies,
management models or packages of techniques. To desperately cling to systems
and self proclaimed panacea definitely is the wrong way as it is to call for an
ideal rather than an effective manager. As Fredmund Malik (2000) argues
that the key to the achievements of effective managers is not their personality
but their way of action, the structural necessity to formalize the fundamental
characteristics of the mode of doing effective business becomes obvious. This
defiance can be tackled with an approach that emerged within the last two
decades, representing a holistic philosophy with the potential of integrating all
these particulate concepts and instruments: Lean Management.
XI
Part I
The Concept of Lean
Management
1
The Lean History
1
The Lean History
Literature (e.g. Krafcik 1988, Pfeiffer and Weiss 1994, Shingo 1992, Wom-
ack et al. 1990) considers Taiichi Ohno, production engineer and finally vice-
president of the Toyota Motor Corporation, the inventor and promoter of the
Lean Concept. His fundamental thrust was to question production systems
under the economical, technical, and social framework of the middle of the
20
th
century along the objective of optimal production. Whereas at this time
the entire Western management had already lost sight of the original aims and
dogmatically transferred the old optimal answer, the Tayloristic and Fordis-
tic fabrication system, Ohno primarily intended to comprehend the Western
production systems and not to copy them (Womack et al. 1990). Generally
speaking, he strived to include many techniques under the premise of problem
orientation and adaptation to the specific situation of the corporation and its
cultural environment in order to reach constant improvement and the avoid-
ance of any form of waste.
However, the crucial impulse for the discussion about the Lean Concept
in Western developed countries in the late eighties was the International Mo-
tor Vehicle Program, a study on the global automotive industry of the Mas-
sachusetts Institute of Technology (MIT) which initiated a big wave of reso-
nance. The study to understand the fundamental forces of industrial change
and to improve the policy-making process in dealing with change, investigated
comparative fabrication practices performed at the assembly plant level. Fur-
thermore assessing the range of manufacturing productivity around the world,
the performance differentials reported in this investigation led to a research
project published by Krafcik (1988). Starting from the impressive description
of the Lean Concept as a "corporate-led drive to continuously improve its ef-
ficiency, to reduce costs in every facet of the operation, and to relentlessly
improve quality"(Krafcik 1988, p.41), Krafcik questioned in his research paper
whether Fordism did fail to evolve and if so, what the reasons for this failure
2
The Lean History
were. He argued that many of Ford's principles in their purest forms were still
valid and showed that pure Fordism was in many ways closer to the Toyota
Production System than to many recent systems at that time.
"Ford's early mass-production plants were founded on the concept
that the most efficient way to produce a vehicle is to minimize the
time that elapses between beginning and completing production.
Ford accomplished this through huge-volume, standardized prod-
ucts and through very high levels of vertical integration." (Krafcik
1988, p.43)
Indeed, the comparison of Taiichi Ohno's production system with Western
facilities at that time exposed significant differences in efficiency and perfor-
mance in respect of cycle time, tool design, prototype construction, operating
expenses and many other parameters (Womack et al. 1990). In this context
Krafcik introduced the distinction of "buffered" and "lean" production sys-
tems, indicating the development of most Western producers who buffered
against virtually everything (e.g. high inventory levels, huge repair areas etc.).
On the other hand lean operations at Toyota implied inventory at absolute
minimum level, bufferless assembly lines assuring continuous flow production,
and exiguous repair areas resulting of high quality.
The success of the MIT research scientists James P. Womack and Daniel T.
Jones and their publications such as "The Machine that Changed the World"
(1990) and "Lean Thinking" (1996a) exploring the Toyota system experience
in Japan finally led to the founding of the Lean Enterprise Institute (LEI) in
1997, an organization specialized in research and training as well as publishing
tools for implementing the Lean approach. Nowadays the Institute, among a
considerable quantity of other organizations diffusing the Lean Concept (e.g.
Lean Learning Center, Michigan; Kaizen Institute), is conducting a series of
research activities to create a toolkit of methods for implementing lean thinking
in a wide range of industries.
3
From Lean Production to Lean Management
2
From Lean Production to Lean Management
The initial expression `Lean' born within the MIT study as a production con-
cept can be extended and further developed to a model of management as it is
not only necessary to structure the factory according to Lean principles, but
also to reorganize the company as a whole (Womack and Jones 1996b, Hentze
and Kammel 1992, Reiß 1993, Scholz 1994). Moreover, as Pfeiffer and Weiss
(1994) point out, it is even appropriate to address Lean Management as a
philosophy (Greek: o philos, "friend"; o sophia, "wisdom"), and
is therefore a practice, that aims at some kind of understanding, knowledge
or wisdom about fundamental matters. Consequently, Lean Management as
an applied philosophy represents the permanent, consequent and integrated
application of a bundle of principles, methods and techniques for effective and
efficient planning, control, and modification of the value chain of (industrial)
goods and services. Rather than a crash-program for short-term revitaliza-
tion of ailing enterprises, the Lean Concept is concern for strategic-long-term
as well as tactical-mid-term and operational-short-term aspects. Furthermore
it is subject for all creating factors of the enterprise and not, as many other
models which concentrate on one single factor. Lean plants, so Krafcik (1988),
are capable of simultaneously achieving high levels of productivity, quality,
and flexibility and most effectively balancing this factors to suit their partic-
ular market niches. The whole value chain including systems of suppliers and
customers, the focal point right from the beginning of the process, should be
embraced within "Lean efforts" and the primary goal be to banish waste and
therefore optimize system-profitability in all terms.
However, the early attempts of implementing the Lean Concept often failed
as the corpus of literature on this topic, frequently of nonscientific and pop-
ular nature, restrained their considerations on superficial and facile cookbook
approaches without integral systematics and enthusiastic managers drowned
in a deluge of single techniques (Womack and Jones 1996b). Consequently,
4
From Lean Production to Lean Management
just as in traditional philosophy there is no consensus about which approach
should be taken, and indeed, different scholars historically have understood
philosophy in different ways, the Lean Concept has undergone an ordeal of,
unfortunately mostly inappropriate, approaches that culminated in the rejec-
tion and classification of the Lean Philosophy as a management fad. Some
have interpreted Lean inadequately as merely a collection of tools (e.g. Just-
in-Time, Kanban, Kaizen, etc.) and therefore entailed a limited understanding
of Lean. Of course models are simplifications of reality by definition and there-
fore are unable to be all encompassing and failsafe to use, nonetheless without
models or concepts guiding us in action and decision-making, life would just
be a long series of random experiments. Thus, in order to design a framework
of effective management to implement the concept of Lean as a flexible and
multifunctional construct of ideas, I will not revert to popular 5-step toolkits
yet demonstrate the Lean Concept on the basis of a structured model.
Especially the success of Japanese management styles unfolded the question
of what determines effective management and therefore induced a series of
studies comparing the Japanese management system with the American and
European System (e.g. Buckley and Mirza 1985, England 1983, Hatvany and
Pucik 1981, Koya and McMillan 1981, Lincoln et al. 1986, Ouchi 1981, Pascale
and Athos 1981, Sullivan and Nonaka 1986). Pascale and Athos (1981) argued
that Japanese companies are more effective because of their integration of the
components of the "Seven S" model developed by the McKinsey Co. (i.e.
superordinate goals, strategy, structure, systems, staff, skills, and style) and
especially their concern for the so called "Soft S's" (i.e. staff, skills, and style)
as it is most important to manage people as the key resources. However their
approach, as many other studies on this topic alike, was criticized due to the
fact that they draw conclusions from a limited number of case studies (e.g.
Schein 1981). Other authors such as Hatvany and Pucik (1981) and Sullivan
and Nonaka (1986) have taken specific perspectives in their studies but failed
to embrace the total functioning of a managerial system.
5
From Lean Production to Lean Management
Contrary to these approaches, the conceptual framework of Culpan and
Kucukemiroglu (1993) exhibits the effectiveness of Japanese corporations by
the help of six principal dimensions in a survey on top and middle mangers
from 200 American and Japanese manufacturing enterprises. The result of a
multivariate analysis of variance showed, consistently with earlier theories and
findings (e.g. Ouchi 1981, Pascale 1978), that managerial styles in the U.S.
and Japan differ significantly in each domain. American managers emphasize
the managerial dimensions consisting of supervisory style, decision-making and
control mechanism, whereas Japanese managers stress such managerial dimen-
sions as communication pattern, interdepartmental relations and paternalistic
orientation.
Based on these precedent findings regarding the effectiveness of manage-
ment, the Lean Concept can be implemented into a structured framework,
which will be following Fredmund Malik (2000) who is regarded as one of the
most influential management educators and consultants. According to Malik,
management, as a profession, is characterized by four specific elements (i.e.
principles, tasks, tools, and responsibility). In order to structure the Lean
Philosophy, three of these elements (i.e. principles, tasks, tools) will constitute
the following model illustrated in figure 1
1
.
1
by reason that tools concern both, principles and tasks, they will be respectively dis-
cussed
6
The Principles of Lean Management
Decision-Making
Principles of Lean Management
Planning
Controlling
Leadership
Tasks for a Lean Management
Figure 1: Framework of the Lean Management Concept
3
The Principles of Lean Management
Guidelines and principles are usually rules or norms to, provided that con-
sequently applied, reduce the complexity of a realm and to streamline the
completion of tasks. Although the application of principles requires discipline
and persistence, in view of the fact that flexibility is often mixed up with
opportunism it is crucial to mention that the compliance to principles does
not reduce adaptiveness in action. The main challenge in applying principles
is concealed in the fact that although those norms are equally valid to any
organization, they always have to be applied to an isolated case (Malik 2000).
The principles of Lean Management, presented in figure 2, can be basically
structured on the basis of a concept of Pfeiffer and Weiss (1994) who distinguish
process-related and content-related principles that both demand an integrated
implementation.
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The Principles of Lean Management
Principles of Lean Management
Process-related Principles
Method Principles
Holism
Process Orientation
Attitudes
Focus on Content
Permanence
Bias Toward Action
Perfection Even in Aces
Avoidance of Waste
Customer Orientation
Content-related Principles
Change in Perspective from
Tangible to Human Capital
Design of the whole value chain
as an integrated supra network
Design of the supra network as a
learning system
Integrated view of product and
production process
adapted from: Pfeiffer and Weiss 1994, p.57
Figure 2: The Principles of Lean Management
3.1
Process-Related Principles
The application of process-related principles is to optimize the process of man-
agement in terms of efficiency and effectiveness in order to achieve high levels of
organizational performance. They can be differentiated into method principles
and attitudes.
3.1.1
Method Principles
According to Pfeiffer and Weiss methods can be further differentiated into a
holistic and a process oriented principle.
3.1.1.1
Holism:
The principle of holism (Greek:
´
oo olos, "to be
whole") reflects the notion that the characteristics of a system cannot be de-
termined or explained by the sum of its components alone such as the elephant
cannot be explained by simply adding up the particular perception of all the
six men of Indostan. Moreover, even if every single part would be perfect, the
entirety may not be perfect at all (e.g. Yoshida 1989). Therefore this princi-
ple calls for a systematic, integrated and interdisciplinary perspective. As a
8