The Art of continuously achieving benefits through Value Adding Communities Alexander Tsigkas1 and Robert Freund2 1 Democritean University of Thrace… [613090]

The Lea®n Extended Enterprise
The Art of continuously achieving benefits through
Value Adding Communities
Alexander Tsigkas1 and Robert Freund2
1 Democritean University of Thrace
Department of Production Engineering and Management
Vas. Sofias 12, 67 100 Xanthi, Greece
WWW home page: http://www.duth.gr
2 University of Information, Technology and Management,
Rzeszow, Poland
Abstract . The competition of tomorrow is moving away from the level of the
individual company and towards the level of supply chain. It is at this level that Lean organisations should evolve and become more flexible, self
organising and self adapting entities. Today Lean implementations are based
on principles with no clear scope as to how to achieve middle to long term benefits at the level of the extended enterprise. The objective is mostly based
on achieving short term benefits through the implementation of mere
techniques at the individual factory level. Therefore a new theory is needed to
incorporate a set of practical rules. The approach for the interrelationship
between theory and practice of Lean is based on systems thinking and the
objectives of the learning enterprise. Lean should be practiced in conjunction with Open Innovation based upon customer-driven value creation and not
merely customer-driven demand. The Lean extended enterprise should evolve
towards a continuously learning organisation through customer integration in the product development and deployment cycle.
1 Introduction
Since Engineer Taiichi Ohno designed the famous Toyota Production System [1],
has discovered that there is something to win, if similar techniques would be
implemented in the European Industry. Under the pressure of Antagonism,
companies were seeking ways to reduce operation costs in order to stay alive in a
continuously globalising and antagonistic economy. The Lean approach has been
adopted from an increasing number of companies in Europe slowly but steadily, now
days with an accelerating pace, although some time ago many companies, some of
Tsigkas, A. and Freund, R., 2008, in IFIP International Federation for Information Processing, Volume Please use the following format when citing this chapter:there is a great deal of time elapsed, until Europe much later than Japan and the US
257, Lean Business Systems and Beyond, Tomasz Koch, ed.; (Boston: Springer), pp. 423–431.

424 Alexander Tsigkas and Robert Freund

which today do not exist, have rejected the Lean approach as an approach that does
not fit the European culture. What has changed today and companies have despite
the cultural differences embrace the Lean way? Answer: in our view nothing – A
more careful glance at the way companies implement Lean has very little to do with
Lean. They look at practices and implement merely lean methodologies. They do not
view Lean as a different way of managing a company and where the old industrial
age attitude must vanish and be substituted by a completely new way of thinking,
learning, measuring and acting. What they have in mind are mostly some techniques
that act upon their resources in order to become more effective and efficient. Their
focus, despite Lean, stays within short term cost reduction everywhere in the
company with no middle or long term impact. The results have been significant in
production especially in the first couple of years of implementation. However,
looking at the middle to long term, benefits are really poor with little or non real
improvement on the company competitiveness. It is our belief that Lean in
conjunction with Open Innovation [2] can set the European industry off the ground if
practice is based upon pure customer-driven value creation [3] and not merely
customer-driven demand.
This paper looks at the presence and the future of Lean Thinking [4] and Lean
Practicing in Europe and proposes ways as to how companies should be acting as to
achieve the middle and long term benefits. Especially companies operating in the
eastern part of Europe have the advantage to do it right the first time by taking a
different way than their western counterparts have taken in the past and even today
with the objective of steadily achieving middle and long term viability and
competitiveness. The structure of the paper is the following:
xThe Lean way in Europe and the US – status review
xThe new Lean organisation – the theory behind the practice
xThe Lea®n Supply Chain and how to sustain it
2 The Lean way in Europe and the US – status review
A report published recently from the Aberdeen Group in the US, shows that Lean
Philosophy has become the mainstream [5] (Fig.1). It is stated however, that
although nearly 90% of the respondents in the survey consider themselves Lean less
than one-third can be considered to have mature Lean deployments. Many think of
Lean as supporting only key manufacturing functions, not broader, related functions.
A closer look at the data shows, that there is a wide gap between those companies
that deploy some Lean techniques and those that fully embrace the Lean culture it is
stated in the same report.

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Fig. 1. Lean philosophy has become mainstream
According to the report the Lean operational maturity characteristics are primarily
focused on the use of Lean tools and techniques used in production rather than the
cultural aspects of Lean. One of the reasons for this is that culturally, many of the
leadership principles espoused in The Toyota Way are at odds with the managerial
and facilitator skills taught at traditional U.S. MBA programs is stated in the report.
One of the major drawbacks in deploying Lean is the supplier integration in the Lean
program of their customers. Almost a third of respondents are challenged with
integrating both other parts of the company and all its suppliers into the Lean
program. Meeting customer requirements for just-in-time deliveries requires the
support and cooperation of not only finance and logistics, but also the suppliers who
provide the raw materials, components, and assemblies that are used early in the
manufacturing process. Expansion of Lean in the supply chain is therefore an
imminent factor of success. But it is a challenging issue for most of the companies in
the US and Europe.
Since most of the major manufacturing companies operate today globally with
globally distributed supply networks, Lean means that also the ICT infrastructure
(Information and Communication Technology) should be aligned with the business
strategy of the companies. ICD has prepared a white paper for reporting on a survey
conducted in Europe and published in September 2005 [6]. In their report ICD are
reporting that while lean manufacturing is a strategy that has been around since the
1970s, it has traditionally been a cost-cutting strategy. According to the same report
commitment to lean principles, in combination with a focus on continuous product
improvement and a strong commitment to innovation, are emerging as the preferred
strategy for industry thought leaders.
There is a fundamental issue about adding or creating value in the whole
discussion about Lean. From the Lean perspective, at least the way this has been in
implemented in the US and Europe, customer value definition is literally provider-
driven and scarcely user-driven. The voice of the customer is effectively echoed
rather than heard. Involvement of the user or customer in the definition of what is
value for him/her is mostly not an issue. Innovations in product and services are The Lea®n Extended Enterprise

426 Alexander Tsigkas and Robert Freund

made for the customer but without him/her. The objective in the new Lean
organisation should be to let the customer or user define what value is.
3 The new Lean organisatio n – the theory behind the practice
Going global is a survival necessity, especially for manufacturing companies, but it
means also a horrendous increase in complexity. Complexity at this point implies
that new competencies need to be emerged that where not there before, or not
necessary. For instance, an organisation to think locally and operate locally meant
that they had to cope with a few factors more or less their under control. With stable
supply and operational processes and also relatively stable or foreseeable demand,
companies could implement their Lean programs and have shown that remarkable
results may be achieved in terms of productivity and drastic reduction of delivery
times as well as WIP and finished product inventories by the mere use of lean
techniques. Local suppliers could align themselves with their Just-in-Time strategies
of their customers sooner or later.
However, in the global environment uncertainty in both the supply and the
demand processes is increasing, the external market pressures on the organisation are
changing scale and the IT infrastructure is not any more suitable to cope with so
many simultaneously changing factors that were known and stable before. To
continue to be Lean in this environment goes beyond the normal boundaries of the
classical principles of the Lean or Toyota Production System (TPS) in our opinion,
because the Lean principles, once set and institutionalised through the TPS, are not
sustainable any more. To achieve sustainability of Lean in the global environment,
organisations should qualify as adaptive and evolutionary systems. Moreover, the
question here is not how to sustain a Lean organisation but how the organisation can
sustain itself in this new environment [7], in other words to become self-sustainable.
Self-sustainability is an emergent characteristic of the adaptive and evolutionary
organisation. Lean self-sustained organisations must be able to produce themselves
and their requisite knowledge in a changing environment. Therefore Lean adaptive
and evolutionary organisations should divert from the classical perception of the
Lean philosophy and modify some of its principles to fit the requirements of
adaptivity and evolution that may be in certain aspect adversarial to the classical
Lean ones. Furthermore Lean adaptive and evolutionary organisations should be able
to continuously learn not only from within the organisation [8] but also through the
direct interaction with their customers by integrating the customer or user in the
value creation loop [3] and expand this knowledge in the supply chain. Especially
supply chains structure also divert from the classical model of stable partnerships
dominated in recent years, as a principle of Lean philosophy and will move towards
more volatile and unbounded constructs. For example it is thinkable that supply
chains could be formed in an ad-hoc fashion to satisfy unique requirements of a
customer or a group of customers. This type of supply chain may be organised in the
form of Value Adding Communities (VAC) as argued and discussed in the work of
Tsigkas et. al [9, 10]. Below a summary the five principles is stated upon which Lean
adaptive and evolutionary enterprises should be based:

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xEnable open innovation and customer-driven value creation
xEmbrace evolutionary change
xEncourage variability and tolerate errors
xStrive for dynamic equilibrium
xNurture emergent properties
1. Enable open innovation and customer-driven value creation
The driving factor in the adaptive and evolutionary Lean organisation is the origin of
value creation. The classical Lean philosophy concentrates on value-adding activities
instead of value creating activities. In the Lean environment value is rather seen in a
defensive way, as a production disadvantage (an operational cost position) instead of
in an offensive way and a marketing advantage (a price and market share position).
In the classical Lean organisation the customer (or consumer, or user) is not viewed
as part of the value creation loop, reflected at the classical Value Stream Map, which
is an open loop construct. In the era of mass customisation and open innovation, the
customer is part of a closed loop Value Stream Map, either during the development
phase, or during the production phase, until the customer completes it or issues
instructions for completing it (mass customisation). Customer-driven value creation
and open innovation is the prerequisite for achieving 100% customer satisfaction. In
a society that scarcity of goods has been surpassed [11], differentiation can be
efficiently delivered through the customer commitment and integration in the value
creation loop [7]. The new Lean extended enterprise is engaged in two types of
production: heteropoiesis , producing the other than itself (i.e. goods and services)
and autopoiesis , producing itself (i.e. its own ability to produce). Self-sustainability
is crucially dependent on the reliability of the second type of production, autopoiesis .
Only an enterprise (as a system) that could continually produce itself, that is adapting
itself to changing environmental conditions can be deemed as self-sustainable.
Therefore, a new set of competences are now needed for the new Lean organisation,
in order to become self-sustainable. This is an area for further research.
2. Embrace evolutionary change
It is important to view the organisation as a living system, not an engineered machine according to Taylor [12]. Taylor claims that living systems evolve through
incremental changes that confer increased competitiveness in their environment.
Unlike machines, they are not centrally controlled and regimented into perfect
execution. Self-sustainable, self-organised enterprises are by definition adaptive
organisations. According to Bergson [13], who himself was a proponent of creative
evolution, “
to exist is to change, to change means to mature, and to mature is to
creating oneself endlessly ”. Rephrasing Bergson and according to Zeleny [7], an
organization can only exist if recreates itself. Self-sustainability is the objective. The
classical lean philosophy treats the organization as a machine, like do Fordism and
Taylorism through the approach of the division of labour. To embrace this new
perspective, a Lean organisation should be willing to let aside the desire for
increased control and begin to encourage the variability and experimentation that are
essential to adaptive and evolutionary change. The classical Lean philosophy does
not favour variability and experimentation is limited as fundamental issues against
standardisation of products and processes. Lean and Six Sigma initiatives strive to The Lea®n Extended Enterprise

428 Alexander Tsigkas and Robert Freund

achieve nearly zero variability in the execution of processes by design. Encouraging
variability and experimentation necessarily means giving more autonomy to line
organisations and individuals. If a person or group behaves in a way that increases
the fitness of the organisation as a whole, that person or group should be rewarded
with increasing funding or opportunities for growth within the organisation.
3. Encourage variability and tolerate errors
An organisation that improves through variation must have a high tolerance for errors [12]. This can be achieved through redundant groups throughout value-adding
operations. The goal is to allow new ideas to prove themselves while sheltering
customers from the effect of ideas that do not work out. This approach is quite
different from a zero-defects approach to managing operations in the Lean or Sigma
Sigma philosophy. A company with no tolerance for errors at the operational level
runs the risk of discovering that it has no capacity for adaptivity and evolution. If a
system can be devised that tolerates variation from fixed policies in search of
improvements, yet provides quick containment of variation that could cause harm,
then we have the right mix for rapid evolution.
4. Strive for dynamic equilibrium
The ability to maintain dynamic equilibrium is essential for an organisation that is thriving on change. This means that we must achieve balance through motion rather
than using the status quo as the source of stability. In a business environment that
demands constant change, organisations must learn to maintain their balance while
moving forward at ever-increasing speeds.
5. Nurture emergent properties
If a group of collaboration tools leads to a new level of problem solving that could not have been achieved through conventional meetings, that is an emergent property
that should be recognised and harnessed for the good of the organisation [12].
Expecting, exploring and expanding on new and surprising behaviours within the
organisation, is an important step toward adaptivity. It is also the step that is most
likely to propel the organisation into the third level of adaptivity – namely creativity.
4 The Lea®n Supply Chain and how to sustain it
From the above it is clear that the classical Lean philosophy does not hold in any
situation and especially for globally operating manufacturing companies Lean
thinking should be redefined. Below there an attempt has been made to categorize
manufacturing strategies according to the way of operations. The independent
variable is here the way the company thinks, i.e. understands and position itself. The
type of operations should be therefore aligned with the way of thinking and not vice
versa.

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Fig. 2. Manufacturing operations strategies as a function of the thinking process
According to the above categorization there are 4 possible types of organisations:
i.Companies that think locally and operate locally . This type of companies can
implement the classical lean approach, because they can achieve impressive
results. Most success stories have been reported from this type of organisations.
Nevertheless these benefits reach fairly quickly their limits, so that it is only a
matter of time, when these companies should be reconsidering moving into a
different quadrant. The next logical and natural way is the way of beginning to
think globally although still operating locally. It is exactly at this point where
the organization should be transformed from a pure Lean to a Learning
organization [8]. The adaptive lean approach is then the route to take as it has
been described in the previous section for achieving sustainability of the benefits
already reached. Typical representatives of this category are successful SME
that wish to expand their market opportunities.
ii.Companies that think globally and operate locally. For companies that have
already embarked on lean initiatives, by implementing classical methods of lean
manufacturing, this journey is definitely a learning experience. Nevertheless, it
is also an opportunity to move quickly towards an adaptive lean environment,
without waiting the results of their initiatives. Learning to become more
adaptive will shorten the ROI interval and accelerate the transformation of the
company towards an environment that quickly adjusts to new business
requirements. Typical representatives of this category are consumer goods
manufacturers. Open Innovation and Mass customization is what drives these
companies to sustain and expand themselves.
iii.Companies that think globally and operate globally. The classical Lean at that
level loses its meaning. The supply chain at this level is materialized on ad-hoc
basis in order to fulfill frequently individualized needs. Value Adding
Communities (VAC) set up in a very flexible way is a possible solution to the
problem as described by Tsigkas et. al. [9,10]. Adaptivity is seen as the way a
number of companies can be fairy quickly set up a customized network to
respond to specific requirements that can be one-of-a-kind. Information systems
based on objects technology as agents plays a major role in this context. We see
big opportunities for SME in Europe to operate in the world market by setting
up specialized or even ad-hoc networks in the form of VAC for one-of a-kind
activities. locally globallylocallyglobally
THINKOPERATE
classical
Leanadaptive
VAC
adaptive
Leanchange
quadrant! The Lea®n Extended Enterprise

430 Alexander Tsigkas and Robert Freund

iv.Companies that think locally and operate globally. This type of companies
should redirect their strategies, since it is certainly not a wining strategy. From
this perspective, the related quadrant should be abandoned as quickly as
possible. New strategies and their related paths are to be defined and designed
for planning and execution in line with the above.
4 Further res earch topics
The use of the SCOR model for the design of supply chains for the various types of
organizations integrating the customer in the value creation loop is suggested.
Moreover, the elaboration on the learning competences for the autopoietic type of
production for self-sustainability of the new Lean Enterprise is a further topic.
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