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Human Capital In Lean Manufacturing

By Anand Sharma, CEO of TBM ConsultingHuman Capital is the cornerstone of the Lean Manufacturing Environment. There will constantly be new challenges on the Human Capital horizon, but by rigorously and regularly practicing the tools provided by Lean, the ability to adapt will always be within your grasp.

The perception of Human Capital as a company’s greatest asset is one of the most under-reported facets in manufacturing — particularly within the Lean Movement. Human Capital is the cornerstone of the Lean Manufacturing Environment. It is through the empowerment of the workforce that competitive advantage and growth are achieved. In fact, Human Capital is the only truly appreciating asset in a company.
This subject is timely because of an increasing shift in workers’ collective values and the impending retirement wave of the Boomer generation. In the past, manufacturing staff were satisfied to labor with just their hands. However, today’s worker, at every level, expects to be engaged with their head, heart and psyche to gain a sense of achievement and empowerment — to learn, participate and grow as a means to job satisfaction.
The Lean Process has come of age in recent years with noted success stories like Toyota and Pella. By leveraging the tools of Lean Leadership, many practitioners have seen profitability increase two and three fold without any significant increase in investment. This coming of age serves to confirm the importance of valuing the human element, so central to the Lean Process. 
Key Lean tools for treating workers well include:
  • full engagement of workers in mind, body and spirit
  • workers get a holistic view of the operation
  • regular reward and recognition
  • commitment to collaborative innovation and integration throughout the entire organization. 
One of the earliest adaptors of these principles was Tata Steel in India, which in 1895 implemented a culture of valuing the worker. Today it continues to flourish more than 100 years later and to be recognized as a thought leader on this topic.
In the last century, Henry Ford took what could be argued to be the first steps in the process to actualize human capital by adopting the “Principals of Scientific Management,” published in 1911 by Frederick Taylor, by creating compartmentalized jobs on the assembly line to increase efficiency. This is the process which came to be known as Mass Production. Profits multiplied, wages increased to a then remarkable $5 per day with less hours worked per day, while the cost of product decreased along with the number of hours product spent on the assembly line. A breakthrough at the time, the “Command and Control System” rewarded success, ignored inaction and punished failure.
During this era, Ford’s workers were not fully engaged in the manufacturing process and felt no ownership or allegiance to the company. Their highly specialized jobs allowed them only a very narrow view of the landscape and obscured the big picture. Today’s worker is more educated and has more exposure to the world at large through the great advances in technology, media and the internet, and will no longer accept being such a small piece of the puzzle.
In the 1950s Peter Drucker significantly furthered this belief of valuing the worker. His innovative thinking added the concept of Human Communities to the manufacturing landscape along with promoting the need for trust and respect. He championed the notion that employees were assets and not liabilities, resulting in another dramatic leap forward for manufacturers valuing the workforce. 
Although he conducted most of his breakthrough work at GM, it was Toyota that adopted his revolutionary thinking that eventually came to be known as the Toyota Production System (TPS), which evolved in the mid-1980s into what we know today as “Lean”. Ironically, GM largely ignored Drucker’s insights, resulting In Toyota’s current success in overtaking GM’s market allure.
Today, there is a tool box full of techniques in the lean factory to activate and compel workers. They are encouraged to think, eliminate waste and find ways to add value. They must be persuaded to believe that, as the company succeeds, so do they. Through the empowerment that is a natural result of being encouraged to lend their voice, those closest to the process find and fix problems creating a climate of “Continuous Improvement” throughout all processes. The prescription is to start by building trust through team problem solving, and then awareness for improvement as part of one’s daily life on a manufacturing floor. The result is a transition of a compliant workforce into a fully engaged workforce.
Leadership is the main delivery vehicle for this engagement. Again and again, mentoring, coaching and team building are the most effective agents of positive change. The Lean Leader will expose those who report to him to the whole system — from one end of the value chain to the other — and constantly engage workers to contribute. The ultimate benefit of this activity will be the discovery and development of new talent and future leaders.
Reward and recognition are central to this process. Certainly, group acknowledgement trumps heralding the individual and promotes team spirit. Recognition is best served when not directly connected to the “bottom line.” However, the popular system of “Gain Share” — where profit growth of the company is divided between the company and the workforce — has also proven to be a highly motivational system. 
In a recently published book, “Good to Great” by Jim Collins, the author outlines what he calls “Level 5 Leadership” and an activity pyramid that assesses the characteristics of workers, team members, managers, effective leaders and what he calls the “Level 5 Executive” — the pinnacle of leadership where, even though each may have his or her own style, the common denominator is “a paradoxical blend of personal humility and professional will.”
Thirteen years into their Lean Journey, Pella has reaped the rewards through the extensive development of Human Capital. Profits are up, market share has increased three-fold, and the company is now more fit to weather the ups and downs of the business cycle.
Pella engages their workforce by giving everyone the opportunity to contribute to the company’s success — “TLC” meetings are held regularly where any changes being instituted are fully explained to all employees and they are asked collectively to make contributions to the process. 
While awareness of ways to use the asset of Human Capital is growing, storm clouds are brewing from the impending wave of Baby Boomers who will retire soon. Much of their valuable knowledge and experience with the Lean Process stands to be lost. Companies must put systems in place for Boomers to “Pass on the Passion,” transferring both explicit and tacit knowledge now in order to create generational connectivity throughout the workforce. Lean provides a platform for that necessity.
The value of Human Capital to an organization can neither be underestimated nor overlooked. Just as Lean itself is a prescription for Continuous Improvement, there should be a continuous awareness of the “state of the workforce,” and its level of engagement, empowerment and integration. Attitudes and needs must be monitored and adjustments made to stay current with your workforce’s psyche. There will constantly be new challenges on the Human Capital horizon, but by rigorously and regularly practicing the tools provided by Lean, the ability to adapt will always be within your grasp. There is no better agent for change than Lean and no single facet of the Lean Process more key than Human Capital.
Anand Sharma is the president and CEO of the TBM Consulting Group which has grown over the past 15 years to be the worldwide leader in “lean innovation” and business improvement in the manufacturing sector. He is also the author of “The Perfect Engine: How to Win in the New Demand Economy by Building to Order With Fewer Resources.” For more information visit