Broken things

A few weeks ago, at our traditional lunch place, they were installing a new point-of-sale (POS) terminal during the lunch rush. Weird, but ... whatever. The next few days, it seemed to be working okay, but it was hard to tell because they frequently have new people at the register and they train them on the job during peak hours. This week, they seemed to be having problems with the new touch screen - I'm going to guess it needs to be calibrated. Maybe POS stands for something else? The strange part was that the two women who work there were both playing with the thing, but not fixing it. They don't strike me as having any technical skills. Where in the hell was the manager? Why weren't they or he looking for a technician? The first day, okay, you're just trying to get through it, but by Day 3, something is wrong.

Although there isn't much for me in McDonald's, there are occasions when that is my only option. It's almost a joy, as a manager, to go into the McD's and see what new practice they are adopting. If you look inside the window, you can see recent time figures for drive-ups, and some andon-style displays that show warning conditions and goals. They recently added a second window so that now you pay at one and receive food at the other. This speeds things up so fast that fewer people go inside, and they cut from 4 registers to 2.

Furthermore, they switched to a practice I prefer at a fast food place: they give you a cup and you have the task to fill it at the soda machine. That's a neat way of making every customer a temporary and unpaid employee. It effectively doubles the productivity of the teenager tasked with gathering your order. I like it because I get the exact mix of ice and soda, and I can change my mind at any time between the time I order and the time I fill.

And I am going to guess that this Mickey D's doesn't break in new, untested equipment during lunch rush, they have procedures and protocols for getting broken things fixed in a certain
amount of time, or calling someone else who can, and that the manager is actually helping to deal with the problem. Obviously, the employees at the snack bar are used to getting no support, and the manager doesn't know or care about the problems. Time to find a new place to eat lunch, I think.

My complaints reminded Kathleen of this at Panta Rei, about a lean Korean cafeteria. Mmmm, a variety of vegetarian cuisine served without problems.

Globalization: who wins, who whines?

I regularly check in with Swedish economist Johan Norberg, who writes on globalization issues (I quoted him liberally in reference to sweatshops because he actually visits places like Viet Nam). Recently, he has been covering the WTO negotiations. He also found this interesting survey result from 2003:

Globalisation is "very good":

US/EU 28%
Asia 37%
Africa 56%

Globalisation is "bad":

US/EU 27%
Asia 9%
Africa 10%

He points out that while protestors claim to represent the voice of the poor, the actual poor stand in direct opposition to the protestors, and in overwhelming support of free trade. In fact, it looks like the wealthy westerners are the greatest opponents of globalization (or globalisation, depending on from which part of the English-speaking world you come).

To me, this is simply another case in which powerful interests are happy to let zealots go forth and provide moral cover for them. History is replete with these relationships, which Clemson economist Bruce Yandle called the "Baptist-bootlegger alliance". Bootleggers would be happy to be free of competition for their products, and when Baptists propose restricting legal sales, the bootleggers are only too happy to support it. When Progressives wanted to introduce anti-trust legislation in the late 19th and early 20th century, railroads were happy to have provisions which forbade rebates and which eventually gave the feds the power to set minimum rates on interstate traffic. When Progressives wanted to regulate a "natural monopoly" like telephone service, AT&T was thrilled to have the protection from the hundreds of competitors that were springing up as their original patents expired.

Today, Western manufacturers and corporate farmers want to be protected from cheaper imports, some of which are of equal or better quality. But they don't want to stand up and say that they are against laissez faire capitalism, even though they are. So they let the hard left-wing groups, whose thought processes have become derailed by Marxist dogma that says multinational corporations are a modern form of imperialism, make the case for them.

The result is nonsense like this post about the 14 most evil corporations in the world.

• Caterpillar is evil because it sells heavy equipment to Israel, which then uses it to kill protestors who lack the sense to get out of the way of a D-9. Maybe they can't see or hear them? Maybe the D-9s are too fast? Apparently, Israel should use their military grants (from the US) to buy bombs and missiles.
• Dow Chemical is evil because it once made dioxin and because it bought Union Carbide. Haven't they heard that Dow is one of the greenest chemical companies in the world? They formed a partnership with the Natural Resources Defense Council, and were cited in Amory Lovins' and Paul Hawken's Natural Capitalism as exemplary of a green corporation.
• Chevron and Coca Cola engage in murder in foreign countries as a matter of policy? If true, I agree. If incidental, the problem lies in those countries. Third world countries operated by gangsters? Who woulda thunk it!
  
• DynCorp engaged in coca plant eradication in Latin America. How is that profitable? Could they have been contracted to do so by the US government? If so, wouldn't that make the US government evil?
• "Among automakers, Ford is the worst". Hello? Have they seen the interviews with left-leaning, green activist Bill Ford? Besides, selling large automobiles makes the occupants safe. Shouldn't companies who sell small, unsafe automobiles be included in the list? What about GM, who makes the military Hummer?
  
• Other defense contractors are cited. Again, if they are evil, why isn't the government itself considered to be evil, since these companies only do what they do at government behest? Perhaps it would be okay if the government brought weapon manufacture in-house.
  
• "Pfizer is the largest pharmaceutical company in the world; it is also one of the worst abusers of the human right of universal access to HIV/AIDS medicine." Once again, hello!? (A) There can be no "right of access to medicine" without violating someone's right to keep what they make, and (B) there can be no such right unless someone makes it in the first place!! Apparently, creating life-saving drugs is a neutral accomplishment in this value system, but selling it at a profit is so negative that it gets you placed in the "most evil" category.
  
• Then there's this: "The privatization of water has had a disastrous impact on the human right to clean water". Again, no "right to clean water" unless someone provides it, and privatization is the surest way to make sure that it exists in the first place, especially in third-world countries where corrupt and cash-strapped national governments lack the resources, inclination, or know-how to provide clean water.
  
• Finally, they add Wal-Mart, as if we had to guess that.
  

Professor RJ Rummel (his blog here) tries to keep a running total of the number of people killed by direct government action, excluding war. For the 20th century, he estimates 262,000,000 people were killed by governments through "genocide, politicide, massacres, mass murder, extrajudicial executions, assassinations, atrocities, and intentional famines." I'll take the anti-corporate types seriously when they begin to seriously address the problem of death by government, and usually by the type of government they prefer. It would also help if they learn some Econ 101, especially about incentives and the production of useful things like AIDS drugs and useless things like coca eradication.

WTO trade Baptist-bootlegger Natural Capitalism

Faith in Technology [repaired]

Now, this may come as a shock to you, but many so-called environmentalists seem to have an anti-technology gene in them. That's strange, because so many of them seem to think that somehow we can change things around so that we can enjoy a reasonable standard of living slightly below the one we have now, but without so much impact on the environment, and not require any technology to do it. So, any time you see a disagreement between people on large-scale issues like global warming, energy, famine, food, etc., someone is bound to introduce Julian Simon into the debate, and the anti-technologist is going to shoot back something about faith in technology, repeatedly resorting to the use of "faith" as if people who explicitly rely on science are somehow hypocrites for having little fear of something about which we cannot have evidence (the future).*

So a few weeks ago, I was reading Clayton Christensen's The Innovator's Dilemma and came across the use of this interesting graph form. He uses it repeatedly to show how disruptive technologies come into a market as inferior technologies, then gradually take market share.

One of Simon's favorite techniques was to show that the projected demand for anything (food, fuel, housing, etc.) could be met - even if barely - with current typical practices, but easily met with current best practices, and met with ridiculously few resources using the best experimental practices.

Applying Christensen's graphical depiction to Simon's thesis, we get a picture like this the one nearby. There are those still practicing the outdated practices, and others practicing a typical method. Mathematically, the average method always yields less than the state-of-the-art method, unless every competitor is using the best practice (unlikely, unless there is only one competitor). Therefore, there is always room for improvement simply by adopting different but known practices. Furthermore, there is always a better idea just below market acceptance, and a few more even less well developed than that. That is now, not later.

I also remembered reading an article in the Journal of Law and Economics a while back in which the authors found that "first to the market" status conferred a positive advantage, but that the length of that advantage had declined from 30 years in 1887-1906 to about 4.5 years in 1986. In other words, the rate of change is accelerating. The article was "First-Mover Advantage and the Speed of Competitive Entry, 1887-1986", JLE vol XIV, April 2001.

HP had a winner with the Laserjet, but other companies held the low end of the market with dot matrix. A few years later, HP destroyed the dot matrix market with the inkjet printer. Nobody saw it coming; inkjet was inferior to both dot matrix (speed and total cost of operation) and Laserjet (resolution) at its inception, but soon took over enough of each that it cannibalized Laserjet sales. Ex ante, a disruptive innovation always seems like it came from nowhere. Ex post, it seems strange that it took so long. Now, it may be faith to believe that all problems are going to be solvable by something other than the trivial solution (e.g. everyone dying is a trivial solution to peak oil), but that's not what I'm arguing. I am suggesting that many solvable problems seem unsolvable by people who disregard the fact that so many potential solutions are either existing best practices, best lab technologies, or even below marketability. These solutions are available now, even though the dominant solution, the market average, may even be the low cost alternative at present.

Think about that for a second: why would anyone even be looking for a solution when the existing solution is the low-cost or high-performance alternative? And yet, people are not only trying to introduce an "inferior technology" (soon to become the next dominant technology, per Christensen), but they are looking beyond that for the next disruptive technology. Look at this post at Green Car Congress, for example: we are in Biofuels Gen 2, which will be sulfur-free and reduced aromatics compared to existing fuels, while people are already looking at Gen 3, 4, and 5 (reduced emissions, reduced emissions and lower CO2, and emission- and CO2-free, respectively). None of them are economically or perhaps even technically feasible now, but the research is going on even though oil is hands-down the cheapest alternative.

Now, since the Green Car Congress is "green", i.e. they favor the right policy mix, they are activists. If Julian Simon says the same thing, he is not an activist, he is a crackpot. He is "not realistic", "putting his faith in the Almighty Free Market", "putting his faith in Almighty Science and Technology", etc. Extrapolation from historical and contemporary facts is not faith any more than the belief that things dropped will fall. Simon was ridiculed for that view: critics said that when falling from a ten story building, Simon would claim that everything was okay until just before he hit the ground.

That's a poor analogy on several counts; one suspects that men falling from buildings would be aware of it, even to the point of obsession, and would not only not answer glibly, but they may not be able to answer intelligibly at all. It is at least arguable whether our current situation is one as dire as falling to certain death. After all, if our civilization's demise is certain, then why try to change? Even people who ostensibly believe (as the Club of Rome appear to in The Limits to Growth) that we are doomed also try to induce change to cheat the inevitable. Once you accept the premise that our trajectory can be changed, then Simon is on the same level of credibility, but with a different normative prescription. Simon's counter-analogy was that when sky-diving, the (hard) Greens would prefer to cut themselves free of their free market parachute on the theory that it might not work this time. He put their thinking in a third category: neither faith, nor reality-based, but rather like faithlessness.

* Of course, if the future is absolutely unknowable, there is neither reason to fear nor embrace it.

peak oil julian simon innovators dilemma Limits to Growth

Wal-Mart, again

In an earlier post, I said that Wal-Mart was being criticized for practicing corporate social responsibility because they were looking at ways of improving employee health and benefits. However, since then a few things have happened in the media.

• In Aaron Bernstein's BusinessWeek article, "Some Uncomfortable Findings for Wal-Mart", he discusses the mixed bag of research results that were due to be presented at a conference organized by Wal-Mart, itself. What other firm or bureaucracy, has ever put itself under a microscope that it doesn't control?
• According to the preliminary Global Insight research commissioned by Wal-Mart, a new Wal-Mart displaces about 53-253 jobs in a town, but increases by about 350, for a net increase of 97. Cherry picking? Wal-Mart has been criticized for being too open with Global Insight, whose final results are yet to be published and are said not to be all favorable.
• Emek Basker's earlier study arrived at similar conclusions about payroll sizes, adding the nuance that because it is vertically integrated, Wal-Mart creates wholesale jobs (warehousing and what-not) while only shifting retailing jobs. This also answers critics who claim that if Wal-Mart is selling for less, it must be paying less. Actually, Wal-Mart's success comes from at least three other sources: vertical integration of its supply chain, constant improvement in efficiency of that chain, and relentless pressure on suppliers.
  
• Retailers on average have about 4% of their workforce on public assistance of one type or another; Wal-Mart has on average about 5% (unknown source, though Wal-Mart seems to stipulate to it). When combined with the statistic above, it seems that Wal-Mart hires the poor from retailers, then hires more poor from the unemployment roles. Is that good or bad? I suppose it depends on whether or not you are poor and unemployed.
  
• From this Jerry Hausman study, Wal-Mart Supercenters (the kind with supermarkets in them) sell for 27% less than their rivals (Albertsons, Krogers - you know, evil anti-union corporations), and force their rivals to decrease prices by 5% more than they would on their own. The poor spend a higher percentage of their income on food than others, so this is a significant effect in favor of the poorest element of society.
  
• Overall, Wal-Mart has a 3.1% downward effect on prices (both Global Insight and Basker). That's why Jerry Hausman criticizes the Bureau of Labor Statistics for overlooking their effect on the CPI (he also has a new NBER paper with Ephriam Leibtag out on the fact that Wal-Mart's downward pressure has significant positive benefits for low income households).
• Kevin Drum is aggregating the Democratic case for Wal-Mart (including the following:)
  
• Kerry advisor Jason Furman is making a left-wing case for Wal-Mart, based in part of the impact of Wal-Mart on the food bill cited above. He has been calling Wal-Mart a "progressive success story."
  
• Rosa Brooks is making the feminist case for Wal-Mart, chiefly that single moms enjoy the fact that they can get all or most of their shopping done under one roof.
• Via The Agitator, the NY Times' John Tierney knocks a big hole in the "documentary", "Wal-Mart: The High Cost of Low Prices." In one sequence, they show how a small hardware store is knocked out of business by a new Wal-Mart, but Tierney points out that a new hardware store has opened in the exact same location, and the customers think it is better. I suspect that a lot more instances of poor management are unfairly blamed on Wal-Mart.
• But what of the criticism that Wal-Mart is laying off its labor costs on us, the taxpayers? My first reaction upon hearing this is to think of Julian Simon's response to immigration critics who claim that they take advantage of those same programs: Julian asked whether the problem is immigrants or the availability of those services. They, after all, are only taking advantage of the outstretched hand. Via Don Boudreaux of CafeHayek (from whom several Wal-Mart articles may be found here), Sebastian Mallaby of The Washington Post lays waste to the "public dole" criticism. As Mallaby says,
  

  Wal-Mart's critics also paint the company as a parasite on taxpayers, because 5 percent of its workers are on Medicaid. Actually that's a typical level for large retail firms, and the national average for all firms is 4 percent. Moreover, it's ironic that Wal-Mart's enemies, who are mainly progressives, should even raise this issue. In the 1990s progressives argued loudly for the reform that allowed poor Americans to keep Medicaid benefits even if they had a job. Now that this policy is helping workers at Wal-Mart, progressives shouldn't blame the company. Besides, many progressives favor a national health system. In other words, they attack Wal-Mart for having 5 percent of its workers receive health care courtesy of taxpayers when the policy that they support would increase that share to 100 percent.

In fact, such progressive critics of Wal-Mart, who are frequently supporters of national health care, say that they believe that this will be a tremendous competitive advantage despite the fact that American businesses routinely compete favorably against countries with such programs.

As one of the Drum commenters says, I still remain agnostic on Wal-Mart. I enjoy buying groceries there because they are in fact cheaper. Do they violate labor laws? Perhaps, but then again some labor laws are stupid. Do they take advantage of public largess? In reality, no, it is the employees that take advantage of it. To the extent that Wal-Mart is able to pay wages that would otherwise not support them, Wal-Mart is an indirect beneficiary, and so are we the customers. But we, the taxpayers, wanted those programs. So this is one of those points of nexus between business and government. I would limit the government, the left would regulate the business. But they're also the ones who enlarged the government and continue to argue for more - much more - of the same. How can they in good conscience make this argument against Wal-Mart?

Wal-Mart derives some benefit from public policies like roads and public assistance. Isn't it strange to say that they shouldn't? I'm sorry, maybe I wasn't paying attention in Civics class - what is the purpose of public policy, again? Isn't it to benefit members of the public? Maybe Wal-Mart's shareholders are not members of "the public"? So why is it called a "publicly traded company"?

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Quality: The Anti-Sweatshop

Normally, I buy coffee from a display of local product at Wal-Mart. A one-pound bag of beans costs something like $7. Come again? Yes, a local roaster sells his (her?) wares at Wal-Mart. However, for the past few months, the French roast I like has not been re-stocked.

So the last time I was in Sam's Club, I picked up a 3 pound bag of French roast beans for $10. Quite a savings, and looking at it, I discovered a few things about Marques de Paiva:

• Marques de Paiva is a 4th generation coffee-growing family (the company name is Cafe Bom Dia) in Brazil
  
• The coffee is kosher by OU. I don't know exactly how difficult it is to produce kosher coffee. The wife suggests that they only kill the beans by slitting their throats, and we can assume that until I drop the cream into it, it doesn't come into contact with any dairy.
• It is certified organic in several countries (Germany, US, etc.).
  
• Marques de Paiva is certified ISO 9001 and 14001. The former is a statement of quality, the latter is a self-certification of environmental friendliness.

So what do you suppose that says about the way the treat the workers and small farmers with whom they work? I have claimed that the best solution to sweatshops is not sweatshop free certification, but rather quality certification. I have been through the ISO 9001 process, so I have my doubts, and recent events at Delphi make me equally dubious about Shingo prizes, but I think that truly quality organizations (insert truism here: quality is its own reward, prizes don't confer quality, etc.) are more likely to treat their workers fairly than not.

Is Marques de Paiva a quality company? The fact that they are ISO 9001 and 14001 certified only says to me that they have gone to some trouble to standardize and document their work practices, but that may be a marketing ploy (read what ISO consultants have to say about it). The OU kosher certification impresses me more, but I'm not sure how difficult that is to obtain for coffee. But maybe this will impress sweatshop doubters:

• Marques de Paiva is certified Fair Trade by TransFair USA.

Shocked that Sam's Club is selling a FairTrade product? You shouldn't be. For one thing, quality processes are less expensive processes. And, as Fair Trade also points out, Fair Trade certification can be used as a marketing tool to differentiate your product (read: charge premium prices). As this press release shows, Sam's, Café Bom Dia, and TransFair USA all gained some exposure from the decision to market the new premium coffee through Sam's.

BTW, the incredibly low-priced coffee is also very good.

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Kaizen, learning, and coordination

Yesterday, I was starting a 5S campaign in my office; it began with cleaning up my collection of diskettes. Yes, I have an awesome collection of 5-1/4", 3-1/2", CD, and DVDs; some of them are labeled, and some of the labels even make sense. Some of them contain private information, and some of them I can't read, so to make sure, I decided to destroy them.

With a stack of about 60 diskettes in front of me, I began to dismantle them and realized that I had a process in need of improvement. One piece at a time was disappointingly slow. Wait, not only slow, but highly variable. There are 5 steps in the process:

1. Remove the sliding door.
2. Pry the cartridge open
3. Remove the disk
4. Pop the hub out
5. Stack the plastic disks for shredding
   

Of these, #2 was the cause of most of the variation because some diskettes are different than others. So I processed a batch through #1 so I could work on the technique #2. (Ack! Batch processing? Only to increase the cycle time on #2 so I could study it.) Once I had that down, I realized that there was no more workroom on my desk, so I cleaned it up and prepared to start anew. At that point, I realized I should add another step:

6. Throw the scrap away

I pulled a wastebasket around the corner and started over, one piece at a time. I can now dismantle diskettes without thinking about it in a smooth process that takes less than 10 seconds, and I can do this at my computer workstation immediately after I check the contents. Because the waste goes immediately into the garbage, I can essentially process indefinitely (or at least until the trash needs emptying).

The problem here was the variability of the second step, and I was not doing it frequently enough to really understand it. Therefore, I altered the standard process in order to isolate the problem, developed my technique, and returned to the process. This is what happens when people in a workgroup tackle similar problems: each person applies his own knowledge and experience to a process and finds small tweaks to it. There's nothing new or unique about that; that's what Hayek was describing about the use of knowledge in society.

Organizational learning = standard work + experimentation + communication

Kaizen is the formalization of the last part of that:

Organizational learning = standard work + (experimentation + communication)
= standard work + kaizen

As Ohno says, standard work instructions cannot be written from behind a desk: you must go to the factory floor. From there, you can see what is really happening. But the supervisor can't also do the work, or he would not have the time to work on other supervisory tasks (hiring, timesheets, etc.). Someone must conduct the experimentation, and the workers themselves are closest to the activity. If each worker does his own experimentation and develops his own solutions, you would no longer have standard work, so there must be communication vertically and laterally.

As I have said before, kaizen is a formal process for disseminating knowledge in a business setting, and is therefore addressed to reducing transaction costs within a firm. Kaizen is a process, not an event, so it is said that Lean is management of processes, not outcomes. The outcome is the goal of the process.

These things are true whether you are talking about people working together within a group, or across organizational boundaries. In fact, it is when people are working across boundaries that kaizen has the most potential. Within a group, it is easy for the supervisor to set priorities and to maintain focus on the process. Across groups, even if everyone agrees to the intended outcome, it is difficult to coordinate priorities. That is especially true on temporary projects. Production and sales may have divergent views about delays and costs, with one considering them to be necessary and unavoidable while the other one sees them as deadly and unreasonable. Kaizen serves as a formal coordinating focal point, to which the team members can appeal to their supervisors for higher priority. The kaizen activity trumps local concerns or at least calls for alignment of local priorities with the priorities of the kaizened process.

One final note: the learning is not effective if there is no standard work. Everyone "doing his own thing" is chaos, and chaos is not a good way to run a business if you want happy customers. Hayek's point was that chaos does not exist in society even in the absence of central planning because a coordinating mechanism exists: price. Mine is that chaos will not exist in a business if management emphasizes standard work, but this is not enough if you also want to improve. To improve, you must have a formalized method for experimentation and communication, and kaizen is the best one yet devised.

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Project kaizen

I have been goaded into participating in this activity, even though I am neither a consultant, nor an accomplished expert in Lean or JIT or other related topics. My interest has been as a student and in the relatively untapped theoretical basis. If anything, i have the unique perspective of coming at this from a (non-finance) service industry point of view.

A while back, one of our groups that doesn't normally do engineering projects got tapped with installing a closed network between themselves and their customer. It was a simple, one-off project. Because of something one of our other engineers said to me about his experiences, I thought that I would get us in the habit of always doing an all-hands engineering review of these projects. I invited everyone, including the mechanical engineer, even though I didn't expect a lot of input. The people doing the project were conscientious, so what could we offer?

After some brief comments from the engineer with the most experience in networking, the single most significant contribution to the project review was from the mechanical engineer. He pointed out that they had probably underestimated a particular series of parts for hanging conduit or unistrut (I don't recall), and that they had underestimated the cost. It was obvious: they had used $1 even for each part, but a quick look on the internet showed that the part was more like $7/each.

It just goes to show what a fresh pair of eyeballs does. Whenever you spend lots of time working on something, you make assumptions, and you assume your assumptions are true. Other people unfamiliar with your procedure either don't assume they are true, or assume they are not true. That may not be out of malice; they simply may not understand, and in trying to understand, they uncover more than anyone expects.

I reject the basic premise of this topic: nobody does a "unique" project. You may never build a house at this address again, or work with these particular people again, but you always follow some similar procedure: design building, hire contractor, hire subcontractors, rough-in plumbing, pour foundation, etc. It's worthwhile trying to plan, to measure your success against the plan, and to try to identify shortfalls to improve upon the next time. Whatever improves any part of the process (planning, measuring, improving) improves your next attempt at a similar process.

The only way you would be doing something completely unique is if you were going to change careers every day. Say I wanted to be a surgeon tomorrow and a pilot the next, etc. In that case, yeah, those would be unique, one-off projects. And guess what? I'd damn sure want to plan ahead and check as I went for those activities!

Here are the other blogs posting on this:

Norman Bodek's Kaikaku blog
Bill Waddell's Evolving Excellence blog on Superfactory
Chuck Frey's Innovation Weblog
Hal Macomber's Reforming Project Management blog
Joe Ely's Learning About Lean blog
John Miller's Panta Rei blog
Mark Graban's Lean Manufacturing blog

and of course Kathleen Fasanella's Fashion Incubator blog

Approval authority: Tragedy of the anti-commons

Reading something about lean in a service organization the other day, I recognized something that probably everyone who has ever dealt with a large bureaucracy has probably encountered. In the story (sorry, I can't find the link), they had a design approval process that required something like seven sign-offs. Each person had approval authority, but added little or no value to the process. The form went from out-basket to in-basket, where it might sit for as much as 2 weeks because someone was on vacation. This is the muda of overprocessing. The corrective action after a kaizen blitz (kaikaku) was to remove a few of the signers from the chain altogether, and to change some of the signers from approval authority to advice. For me, this only reinforces my theory that the real secret to lean is to identify and remove transaction costs.

Many of you familiar with environmental economics are probably familiar with the Tragedy of the Commons, for which the best known essay is Garrett Hardin's. The basic example is an ancient village in which all land is held in common (that is to say, not owned), but each farmer owns his own livestock. Even after the combined herd is grazing past sustainment, it is worth while to each farmer to introduce another cow to his own herd. Farmer A benefits by one cow, though the whole village may suffer by the combined loss of 1/10th of a cow from farmer B, another 1/10th from farmer C, ... and so on for the other farmers. The village is one cow better off (farmer A's), but 11/10ths of a cow worse off (the reduced weight of cows belonging to farmers B-L), and so there is a net loss for the village even thought there is a net benefit to A. Seeing this, B will repeat it, as will C, and so on until they ruin the land and destroy their prosperity. In fact, one of the problems in this scenario is that any farmer practicing conservation will end up being a net loser because he can't capture the gain from his action. The solution is to divide the land up among the farmers; each can ruin his own or manage it effectively as he sees fit. Conservationist farmers are able to capture the gains from their practices, and farmers who don't practice conservation either end up either copying the successful practices or going out of business and selling to the others.

The Tragedy of the Anticommons is the mirror image. The phrase was coined by Frank Michelman and popularized by Michael Heller in an article in the Harvard Law Review in 1998. In that article, he pointed out that there was no developed theory of the anticommons. James Buchanan and Jong Joon picked up the gauntlet in their JLE (2000) article Symmetric Tragedies: Commons and Anticommons. Whereas the Commons problem results in overuse of a resource, the Anticommons results in the underuse of a resource. In Heller's article, he focused on the lively business of street kiosks in Moscow, right in front of empty storefronts. The stores were empty because so many people have to sign off on the use of them.

But why do I believe that lean is uniquely capable of dealing with this? Underused resources are a red flag for lean practitioners. People waiting for work, or work waiting for people, reduces the speed of the operation. Furthermore, if you are trying to get approval to change an existing product, it must be because you recognize a problem with it. The longer you wait on approval to change the product, the more defective products you are producing. Another muda! Everyone recognizes the problem of approval authority delays, but they were considered necessary under the command and control management practices before lean. As I've said before, lean's primary means of reducing transaction costs is to push the decision-making down to the level where people have the necessary information. That necessarily means removing approval authorities, or better yet, placing emphasis on reducing the approval time and placing it where it belongs.

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