Lean Corporation – An Oxymoron?

by Paul Chong

Can Lean Startup principles be applied in a Fortune 500 company? The benefits from applying Lean Startup principles (‘Lean’), such as efficient use of resources and rapid learning and innovation, are desired by most large corporations. Perhaps, it then seems odd that so few large corporations have adopted Lean in their product development process. In this blog post, I argue that several key organizational capabilities and characteristics are necessary for Lean to be effective. As large corporations tend to lack many of these capabilities, it comes as no surprise that Lean is rarely effective in such organizations.

Eric Ries recently published a blog post (http://www.startuplessonslearned.com/2011/10/case-study-nordstrom-innovation-lab.html) illustrating how Nordstrom, a Fortune 500 company, has successfully adopted Lean in its internal innovation incubator, the Nordstrom Innovation Lab. He highlights three key features of the Innovation Lab that shows successful application of Lean, namely, rapid iterations (tests conducted weekly), Genchi Gembutsu (direct customer interactions), and simple, rapid, experiments.

Notwithstanding the apparent application of Lean at Nordstrom, I question how effective and sustainable these activities are. My argument is based on four organizational capabilities that appear necessary for Lean to be effective:

1. People:
The obsessive attention and commitment required by the people executing Lean is rarely found within large corporations. It appears that Lean works best when there is direct ownership of the product (and process) by the team. For large corporations, in which accountability is diffused, it is difficult to develop incentive programs that can motivate such levels of ownership. Additionally, large corporations may find it difficult to recruit people with the drive and product obsession required to make Lean really work.

2. Resources:
The efficient use of resources, as espoused by Lean, works in startups often because there is no other alternative. Lean startups efficiently allocate their limited resources as a matter of survival. Corporations, by comparison, have ample resources, which fosters a sense of complacency and waste. Without the threat of failure due to resource limitations, Lean cannot be properly executed in corporations.

3. Willingness for Disruption
Lean works so well for startups because they are able to adapt and pivot in response to new information and learning. Corporations, on the other hand, are constrained by existing businesses and product lines. This is a classical case of The Innovator’s Dilemma.

4. Process
The effective execution of Lean means short cycle times and quick iterations. Large corporations may struggle with this, due to the inherent bureaucracy and red-tape encountered at every decision point. For example, conducting a simple smoke test on customers poses potential risks to a corporation’s brand, necessitating approvals from marketing etc. Startups have significantly less to worry about.

Based on my arguments above, I believe that the effectiveness of Lean is significantly reduced in a corporate environment. This means that startups effectively adopting Lean principles will continue to out-innovate their corporate counterparts. However, as the Nordstrom example shows, corporations have adapted to create internal innovation labs which autonomously operate outside of the corporate bureaucracy. Will Lean remain an innovative edge used exclusively by startups? The Nordstrom Innovation Lab suggests maybe not.

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