It would be great to know just how much creativity went into the new painting facility at the Polaris Industries manufacturing plant in Spirit Lake, Iowa.
This is the facility that failed so completely that it just cost Polaris an additional $9 million and its nearly decadelong streak of meeting or beating the quarterly earnings expectations, an earnings miss that took about 10 percent out of the stock price.
The company mostly blamed an “excessive focus on costs,” but there’s far more to this story. This maker of off-road vehicles and motorcycles is also an outspoken champion of the management philosophy called lean. Anybody schooled in that will know the lean concept of “creativity before capital.”
Lean thinking means Polaris must have first put heads together to see if there was a creative, and far cheaper, solution before spending a lot on a very costly capital project. And it’s known that the company passed on the most costly plan in favor of something cheaper.
That the result led to a fiasco at a company that has performed as well as Polaris over the past decade isn’t really that surprising. Companies every day make these kinds of decisions, leaving themselves little or no margin for error. It’s what they do just to remain competitive.
Polaris CEO Scott Wine didn’t sugarcoat it for investors on the quarterly conference call last week, but he also said “the reason we screwed up this paint system implementation largely stems from the same culture of frugality, ingenuity and can-do attitude that has made Polaris such a profitable growth engine for a decade.”
The issue here, of course, was not a scarcity of capital. Polaris had cash flow from operations last year that topped a half-billion dollars. It can afford gold-plated facilities.
Consultants reportedly told Polaris to spend $41 million. The company’s own staff creatively solved the problem for about $30 million, in part by leaving out an infrared paint dryer. Not having that dryer was one reason the paint capacity problem that seemed solved for $30 million became spectacularly unsolved.
The company had to bring its old system back online and outsourced some painting. In addition to the $9 million in costs for the second quarter, the problem will likely cost about $20 million for the full the year and will spill into next year, too.
It’s actually disappointing that the company blamed too much of a focus on costs, because while that explanation may have been accurate, it also reinforces the idea that lean management means just cutting costs. A better way to think of lean in business is to equate it with how we might use the word lean to describe an athlete in peak condition.
“I have seen management teams use lean to right-size, cost-reduce and to shed layers” of management, said Dwight Cody, a consulting practice leader for the accounting and consulting firm Wipfli. The reason for those actions, however, “is really about being more effective.”
While Amazon.com has hundreds of titles for help on lean management, the basic idea can be boiled down to this: The only things in a business worth spending time and money on are what the customer will pay for. Anything the customer won’t pay for is simply waste that needs to go.
That sounds simple, but deciding what’s waste may not be.
This isn’t a particularly realistic example, but imagine a manufacturer like Polaris trying to save money by buying less expensive screws, hoping to save money. Premium screws are a waste, as no customer pays for those or even notices them. But then customers start coming into the shop with complaints of mysterious rattles, a problem that didn’t come up at all with last year’s model.
Deciding to buy less costly screws isn’t thinking like a lean manager. It’s thinking like a cheap manager.
Tom Barrett, co-founder of the consulting firm Lean Partners, said pretty much all big companies have adopted some form of lean management. He’s worked with smaller companies including Polaris suppliers, and he described Polaris as both demanding and well-regarded for its support of suppliers, getting them to embrace lean thinking, too.
Polaris, based in Medina, uses the expression “lean enterprise is competitive advantage” to describe one of its five strategic objectives, meaning lean thinking runs throughout the whole company, not just in manufacturing. The company had dealer meetings this week and no one was available to discuss the Spirit Lake plant, but it’s fair to assume that a big effort to figure out what went wrong is underway.
One of the ways lean companies do that is called the five whys, a practice that goes back to the origins of lean management at Toyota Motor. To find out what really went wrong, try asking “why” at least five times, digging deeper each time.
But again, lean management is deceptively hard. Asking why at Toyota or Polaris won’t get an executive anywhere close to the root cause of a problem if no one involved fully answers the question.
That’s why, in lean thinking, a good boss isn’t asking why just to figure out who needs to get blamed, as that only makes it harder to get to the root cause. The point of this effort is to find out what went wrong, not who was wrong.
The only way “no blame” can work, though, is if a related idea also really takes root in a company, and that’s zero tolerance for any backside-covering excuse. So in addition to no blame, lean management thinking also means no excuses.
After the quarterly earnings came out last week, Polaris’ Wine told the Wall Street Journal that “I accept responsibility” for the costly painting problems at Spirit Lake. He also said a manager involved in the painting project no longer works there.
It’s a well-managed company. There shouldn’t be any excuses.